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As filed with the Securities and Exchange Commission on January 6, 1999.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SALTON/MAXIM HOUSEWARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 5064 36-3777824
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
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WILLIAM B. RUE
PRESIDENT AND CHIEF OPERATING OFFICER
SALTON/MAXIM HOUSEWARES, INC.
550 BUSINESS CENTER DRIVE
MOUNT PROSPECT, ILLINOIS 60056
(847) 803-4600
(Address, including zip code, and telephone number,
including area code, or registrant's principal executive offices)
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WITH COPIES TO:
NEAL AIZENSTEIN, ESQ.
SONNENSCHEIN NATH & ROSENTHAL
8000 SEARS TOWER
CHICAGO, ILLINOIS 60606
(312) 876-8938
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities registered on this form are to be offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
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(d)
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. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
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10 3/4% Senior Subordinated Notes due
2005............................... $125,000,000 100% $125,000,000 $34,750
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 9(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 9(A).
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The information in the prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED JANUARY 6, 1999
[LOGO]
OFFER TO EXCHANGE
ALL OUTSTANDING 10 3/4% SENIOR
SUBORDINATED NOTES DUE 2005
($125,000,000 AGGREGATE PRINCIPAL
AMOUNT OUTSTANDING)
FOR
10 3/4% SENIOR SUBORDINATED
NOTES DUE 2005 OF
SALTON/MAXIM HOUSEWARES, INC.
TERMS OF EXCHANGE OFFER
- - Expires 5:00 p.m., New York City time, , 1999, unless
extended
- - Not subject to any condition other than that the Exchange Offer not violate
applicable law or any applicable interpretation of the Staff of the Securities
and Exchange Commission
- - All outstanding notes that are validly tendered and not validly withdrawn will
be exchanged
- - Tenders of outstanding notes may be withdrawn any time prior to 5:00 p.m. on
the business day prior to expiration of the Exchange Offer
- - The exchange of notes will not be a taxable exchange for the U.S. federal
income tax purposes
- - We will not receive any proceeds from the Exchange Offer
- - The terms of the notes to be issued are substantially identical to the
outstanding notes, except for certain transfer restrictions and registration
rights relating to the outstanding notes
------------------------
See "Risk Factors" beginning on page 24 for a discussion of certain matters
that should be considered by prospective investors.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes to be distributed in the
exchange offer, nor have any of these organizations determined that this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this Prospectus is , 1999
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]
TABLE OF CONTENTS
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PAGE
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Forward Looking Statements............ 2
Available Information................. 3
Incorporation of Certain Documents by
Reference........................... 3
Summary............................... 5
Risk Factors.......................... 24
Use of Proceeds....................... 35
The Exchange Offer.................... 36
Capitalization........................ 43
Pro Forma Condensed Consolidated
Financial Information............... 44
Selected Historical Financial and
Other Data.......................... 52
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 56
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Business.............................. 66
Management............................ 79
Share Ownership....................... 83
Certain Transactions.................. 84
Description of Preferred Stock and
Certain Indebtedness................ 85
Description of the New Notes.......... 87
Plan of Distribution.................. 114
Legal Matters......................... 115
Experts............................... 115
Index to Financial Statements......... F-1
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FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including without limitation the statements under
"Summary," "Risk Factors," "Pro Forma Condensed Consolidated Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business." The words "believes," "anticipates,"
"plans," "expects," "intends," "estimates" and similar expressions are intended
to identify forward-looking statements. These forward looking statements involve
known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following:
- Our degree of leverage;
- Economic conditions and the retail environment;
- The timely development, introduction and customer acceptance of our
products;
- Competitive products and pricing;
- Dependence on foreign suppliers and supply and manufacturing constraints;
- Our relationship and contractual arrangements with key customers,
suppliers and licensors;
- Cancellation or reduction of orders;
- The integration of Toastmaster Inc. if the pending acquisition of
Toastmaster is consummated, including the failure to realize anticipated
revenue enhancements and cost savings;
- The risks relating to pending legal proceedings; and
- Other factors both referenced and not referenced in this Prospectus.
We undertake no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
All subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained throughout this Prospectus.
-------------------------
Salton(R), Maxim(R), Breadman(R), Juiceman(R), Salton Creations(R) and
Salton Time(R) and various product names used herein are registered trademarks
of Salton/Maxim Housewares, Inc. Other trademarks used herein are the property
of their respective owners.
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AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith we
file periodic reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048
and Suite 1400, Northwestern Atrium Center, 14th Floor, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material can also be obtained at
prescribed rates by writing to the Commission, Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549. You may also access this information
electronically through the Commission's web page on the Internet at
http://www.sec.gov. This web cite contains reports, proxy statements and other
information regarding registrants such as ourselves that have filed
electronically with the Commission.
This Prospectus constitutes a part of a registration statement (the
"Registration Statement") filed by us with the Commission under the Securities
Act of 1933, as amended (the "Securities Act"). As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information contained in the Registration Statement and the exhibits and
schedules thereto. As such we make in this Prospectus reference to the
Registration Statement and to the exhibits and schedules thereto. For further
information about us and about the securities we hereby offer, you should
consult the Registration Statement and the exhibits and schedules thereto. You
should be aware that statements contained in this Prospectus concerning the
provisions of any documents filed as an exhibit to the Registration Statement or
otherwise filed with the Commission are not necessarily complete, and in each
instance reference is made to the copy of such document so filed. Each such
statement is qualified in its entirety by such reference.
The indenture governing the outstanding notes provides that we will furnish
to the holders of the notes copies of the periodic reports required to be filed
with the Commission under the Exchange Act. Even if we are not subject to the
periodic reporting and informational requirements of the Exchange Act, we will
make such filings to the extent that such filings are accepted by the
Commission. We will make these filings regardless of whether we have a class of
securities registered under the Exchange Act. Furthermore, we will provide the
Trustee for the notes and the holders of the notes within 15 days after such
filings with annual reports containing the information required to be contained
in Form 10-K, and quarterly reports containing the information required to be
contained in Form 10-Q promulgated by the Exchange Act. From time to time, we
will also provide such other information as is required to be contained in Form
8-K promulgated by the Exchange Act. If the filing of such information is not
accepted by the Commission or is prohibited by the Exchange Act, we will then
provide promptly upon written request, and at our cost, copies of such reports
to prospective purchasers of the notes.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We hereby incorporate by reference into this Prospectus the following
documents or information filed with the Commission (File No. 000-19557):
(a) the Company's Annual Report on Form 10-K for the fiscal year ended June
27, 1998 (the "1998 10-K"), filed with the Commission on September 25, 1998, as
amended by the amendment to the 1998 10-K filed with the Commission on October
21, 1998.
(b) the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 26, 1998, filed with the Commission on November 10, 1998.
(c) all documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of the Registration
Statement of which this Prospectus is part and prior to the effectiveness
thereof or subsequent to the date of this Prospectus and prior to the
termination of the offering made hereby.
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Any statement contained herein, or in any documents incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for the purpose of this Prospectus to the extent that a subsequent
statement contained herein or in any subsequently filed document 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.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents are available without charge upon
written or oral request from William B. Rue, Chief Operating Officer of the
Company at the Company's principal executive offices located at 550 Business
Center Drive, Mount Prospect, Illinois 60056, telephone number (847) 803-4600.
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This Exchange Offer is not being made to, nor will we accept surrenders for
exchange from, holders of outstanding notes in any jurisdiction in which this
Exchange Offer or the acceptance thereof would not be in compliance with the
Securities or Blue Sky laws of such jurisdiction.
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SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire Prospectus, including the financial data and
related notes and the information set forth under the heading "Risk Factors,"
before making an investment decision. Except as the context may otherwise
require, the terms "Salton", the "Company" and "we" as used in this Prospectus
refer to Salton/Maxim Housewares, Inc. and its subsidiaries, and do not include
Toastmaster Inc. See "-- Recent Developments -- Pending Toastmaster
Acquisition." Information contained herein regarding Toastmaster is derived from
publicly available reports, other documents provided to us and other sources
which we believe to be reliable.
THE EXCHANGE OFFER
We completed on December 16, 1998 the private offering of $125 million of
10 3/4% Senior Subordinated Notes due 2005. We entered into a registration
rights agreement with the initial purchaser in the private offering in which we
agreed, among other things, to deliver to you this Prospectus and to use our
best efforts to commence the Exchange Offer within 120 days of the issuance of
the 10 3/4% Senior Subordinated Notes due 2005. You are entitled to exchange in
the Exchange Offer your outstanding notes for registered notes with
substantially identical terms. You should read the discussion under the heading
"Summary Description of the New Notes" and "Description of the New Notes" for
further information regarding the registered notes.
We believe that the notes issued in the Exchange Offer may be resold by you
without compliance with the registration and prospectus delivery provisions of
the Securities Act, subject to certain conditions. You should read the
discussion under the headings "Summary of the Terms of Exchange Offer" and "The
Exchange Offer" for further information regarding the Exchange Offer and resale
of the notes.
THE COMPANY
GENERAL
We are a leading domestic designer and marketer of a broad range of kitchen
and small household electrical appliances under such brand names as Salton(R),
Maxim(R), Breadman(R), Juiceman(R), White-Westinghouse(R) and Farberware(R). We
believe that we have the leading U.S. market share in juice extractors and
indoor grills and a significant U.S. market share in bread bakers and espresso
makers. We also design and market personal and beauty care appliances under the
Salton Creations(R) brandname, tabletop glass and crystal products under the
Block(R) China, Atlantis(R) Crystal and Gear(R) brand names, and clocks under
the Salton Time(R) brand name. We believe that our strong market position and
success are attributable to our product innovation, strong relationships with
retailers, breadth of product offerings, reputation for quality products and
established brand names. Our net sales and EBITDA (as defined) have increased
from $48.8 million and $1.1 million in fiscal 1994 to $305.6 million and $34.0
million in fiscal 1998, which represents a compound annual growth rate of 58.2%
and 135.8%, respectively. For the twelve month period ended September 26, 1998,
our net sales and EBITDA increased to $344.2 million and $44.5 million.
We develop and introduce a wide selection of new products and enhance
existing products to satisfy the various tastes, preferences and budgets of
consumers and to service the needs of a broad range of retailers. Our kitchen
and small household electrical appliances are comprised of five major product
subcategories:
- health conscious products, including thermal household grill products
such as George Foreman's Lean Mean Fat Reducing Grilling Machine(R),
fresh fruit and vegetable juicers such as the Juiceman(R) line, and rice
cookers;
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- thermal products, including bread bakers, such as the Breadman Plus(R)
automatic bread baker, waffle makers, toasters, toaster ovens and irons;
- coffee and tea related products, including espresso/cappuccino makers and
coffee makers;
- food preparation products, including electric woks, crepe makers, mixers,
can openers and blenders; and
- home comfort products, including fans, fan heaters and humidifiers.
We market and sell our products throughout the United States through our
own sales force and a network of approximately 170 independent commissioned
sales representatives. We sell our products primarily to mass merchandisers,
department stores, specialty stores, direct mail catalogs and showrooms and
other direct distribution channels. Representative customers include Kmart,
Sears, Target, Federated Department Stores, Wal-Mart, May Co. Department Stores
and QVC. In 1997, we entered into a seven-year supply agreement with Kmart to
supply a broad range of kitchen and small household electrical appliances under
the White-Westinghouse(R) brand name. Further, we sell certain of our products,
primarily Juiceman(R) fresh juice machines and George Foreman Grills(R),
directly to consumers via the internet and through the use of paid half-hour
television programs commonly referred to as "infomercials." We contract for the
manufacture of most of our products with independent manufacturers located
overseas, primarily in the Far East and Europe. We also manufacture and assemble
certain appliances in our plant located in Kenilworth, New Jersey.
Our common stock is traded on the Nasdaq National Market under the symbol
"SALT." On December 31, 1998, the last reported sale price of our common stock
as reported by Nasdaq was $25 5/8 per share, giving us an equity market value of
approximately $168.0 million based on 6,569,017 shares of our common stock
outstanding (excluding our outstanding convertible preferred stock, which is
currently convertible into 2,352,941 shares of our common stock).
THE INDUSTRY
According to the National Housewares Manufacturers Association, the small
household appliance industry was approximately a $11.5 billion retail business
in the United States in 1997. Historically, this industry has been characterized
as mature, fragmented and highly competitive. However, it has been consolidating
recently in response to the consolidation and changes within the retail
industry. We expect that retailers will continue to consolidate their vendor
base by dealing primarily with a smaller number of suppliers that can offer a
broad array of innovative, differentiated and quality products and comprehensive
levels of customer service. We believe that Salton, with our broad array of
innovative and quality product offerings, high level of customer service and
strong brand name recognition, is well positioned to benefit in this
environment.
COMPETITIVE STRENGTHS
We believe that the following competitive strengths contribute to our
position as a leading domestic designer and marketer in the small household
appliance industry and serve as a foundation for our business strategy.
MARKET LEADERSHIP. We believe that we have the leading U.S. market share
in juice extractors and indoor grills and a significant U.S. market share in
bread bakers and espresso makers. We believe that our leading market share in
these product lines provides us with a competitive advantage in terms of demand
from major retailers and enhanced brand awareness. Through internal and joint
product development and acquisitions of businesses and product lines, we have
enhanced our position as a leading supplier in the small household appliance
industry.
STRONG BRAND NAMES. We have built a portfolio of strong brand names which
we use to gain retail shelf space and to introduce new products. The Salton(R)
brand name has been in continuous use since 1947 and the Maxim(R) brand name
since 1970. These names are widely recognized in the small household
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appliance industry. In addition, we have licensed the right to use the
White-Westinghouse(R) brand name for certain small household electrical
appliances, such as toasters, coffee makers, espresso/cappuccino makers and
bread makers, and distribute small household electrical appliances under the
Farberware(R) brand name. We believe that White-Westinghouse(R) and
Farberware(R) are time-honored traditions throughout the world for certain home
appliances and benefit from strong consumer recognition. We also market products
under other owned and licensed brand names and under private-label brand names
such as Magic Chef(R), Chefmate(R) and Kenmore(R).
BROAD RANGE OF PRODUCTS. We provide our customers with an extensive array
of product lines across product categories within the small household appliance
industry. We design our products to meet the needs of a broad range of customers
across a breadth of price points. With our breadth of product offerings, we
service the needs of a wide range of retailers and satisfy the different tastes,
preferences and budgets of consumers. We believe that as the retail industry
continues to consolidate, our ability to serve retailers with an extensive array
of product lines under a portfolio of strong brand names will continue to become
increasingly important for maintaining shelf space and for introducing new
products into the retail market.
INNOVATION IN PRODUCT DESIGN AND PACKAGING. We believe that we have a
reputation among our retail customers and consumers for innovation in product
design and packaging, incorporating functional enhancements as well as aesthetic
improvements. We design our products in many contemporary styles and with a wide
variety of features. We work closely with both retailers and suppliers to
identify consumer needs and preferences and to develop new products to satisfy
such consumer demand. Salton product introductions have included the first
triple function coffee maker in the United States (the Three For All(R), an
espresso/cappuccino/drip coffee maker), George Foreman Grills(R) and the Wet
Tunes(R) shower radios. Various consumer organizations and magazines have
selected a number of our products, including the Breadman(R) Plus and the
Breadman Ultimate(R), as top rated or best buy. We also package our products to
increase their appeal to consumers and to stand out among other brands on
retailers' shelves. We believe that distinctive packaging, designed to answer
customers' questions concerning our products, has resulted in increased shelf
space and greater sales.
During fiscal 1998, we introduced 175 new stock keeping units ("SKUs") in
the kitchen and small household electrical appliance products category, 65 new
SKUs in the personal and beauty care, gifts and time products category and 635
new SKUs in the tabletop products category.
ESTABLISHED CUSTOMER RELATIONSHIPS. We believe that we have been able to
establish strong relationships with our retailer customers based on our product
innovation, high level of customer service, breadth of product offerings,
reputation for quality products and established brand names. We believe that
these competitive strengths have enabled us to expand our market penetration and
to increase sales to our top twenty retail customers in fiscal 1998 by
approximately 70% from fiscal 1997 as well as obtain a seven-year supply
agreement with Kmart to supply a broad range of kitchen and small household
electrical appliances under the White-Westinghouse(R) brand name. In addition,
we have expanded our distribution of private-label products with certain major
retailers such as Target under the Chefmate(R) brand name and, more recently,
Wal-Mart under the Magic Chef(R) brand name and Sears under the Kenmore(R) brand
name. The broad distribution of our products through the mass merchant,
department store and specialty retailer channels, together with sales made
through our infomercials, provides us with access to a diversified group of
customers and multiple channels of distribution.
STRONG SUPPLIER RELATIONSHIPS. We believe that we are the largest
purchaser of kitchen and small household electrical appliances from unaffiliated
parties in the Far East. We source products from over 45 different suppliers and
believe we are the largest customer of many of our suppliers. Our dedicated
outsourcing strategy has contributed to our strong relationship with our
suppliers. We work closely with many of our suppliers to develop new products
and improvements to existing products to satisfy changing consumer preferences.
Our outsourcing strategy provides us with low-cost manufacturing capabilities
and allows us to bring new products to the market quickly and to respond to
changes in consumer tastes and preferences.
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EXPERIENCED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY OWNERSHIP. Our
management team has a wide range of experience in the development and marketing
of kitchen and small household electrical appliances. This management team,
consisting of David C. Sabin, Chairman, Leonhard Dreimann, Chief Executive
Officer, and William B. Rue, President, Chief Operating Officer and Chief
Financial Officer, has an average of more than 15 years of industry experience
and has been with Salton since our inception. Our management team has
successfully increased net sales and EBITDA from 1994 to 1998 at a compound
annual growth rate of 58.2% and 135.8%, respectively, through the introduction
of new products, the expansion of distribution channels and the integration of
new businesses. As of November 23, 1998, our executive officers and entities
affiliated with these officers owned in the aggregate approximately 11.2% of our
outstanding common stock (assuming conversion of our outstanding convertible
preferred stock, but excluding outstanding options).
BUSINESS STRATEGY
We believe that we are well positioned to achieve further growth in net
sales, profitability and cash flow by further penetrating our existing
distribution channels and by continuing to expand our product offerings and
channels of distribution. Our strategy for achieving that objective includes the
following key elements:
INCREASE MARKET SHARE THROUGH NEW PRODUCT INTRODUCTIONS. We intend to
continue to increase our market share in each of our major product categories
through new product introductions. Our new product strategy capitalizes on our
strong brand names, established customer relationships and product innovation to
develop new products which offer enhanced value to consumers through new
designs, enhanced functionality and improved aesthetics. For example, in fiscal
1998, we introduced:
- the Taco Bell(R) product line,
- the Looney Tunes(R) product line,
- the Marilyn Monroe(TM) personal care product line,
- the George Foreman Fusion Grill(R),
- the Farberware(R) range of products,
- the Andy Warhol collection of tabletop and glassware products,
- the private-label Kenmore(R) products,
- the JuiceLady(R) juice extractor, and
- the Breadman Ultimate.(R)
We believe that innovative product introductions will further enhance
revenue growth, profitability and market share.
FURTHER PENETRATE EXISTING DISTRIBUTION CHANNELS. We believe that we can
further penetrate our existing distribution channels as a result of retail
industry dynamics and our strong relationships with our customers. We believe
that retail merchants will continue to consolidate their vendor base and focus
on a smaller number of suppliers that can (1) provide a broad array of
differentiated, quality products, (2) efficiently and consistently fulfill
logistical requirements and volume demands and (3) provide comprehensive product
support from design to point of sale and after-market service with the consumer.
We believe that we are well positioned to capitalize on these trends.
DEVELOP NEW DISTRIBUTION CHANNELS. We continue to develop new channels of
distribution by providing customized product offerings that appeal to the
specific needs of each distribution channel. For example, we have expanded our
private-label programs with certain major retailers and have recently entered
into such programs with Sears under the Kenmore(R) brand name, Target under the
Chefmate(R) brand name and Wal-Mart under the Magic Chef(R) brand name. We also
sell certain of our products, primarily Juiceman(R) and the George Foreman
Grills(R), directly to consumers via the internet and through
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the use of paid half-hour television programs commonly referred to as
"infomercials." We believe that this form of advertising and marketing increases
consumer product awareness and brand recognition and generates additional demand
for our products at the retailer level. We believe that our retailer focused
strategy has increased, and will continue to increase, sales and shelf space at
key retailers while enhancing the value and recognition of our portfolio of
brand names.
PURSUE TARGETED MARKETING OPPORTUNITIES. As part of our growth strategy,
we have established several strategic alliances in order to develop and promote
awareness of our products. We have demonstrated an ability to identify and
execute marketing opportunities with strategic partners, such as our joint
venture with George Foreman to market grills under the name "George Foreman's
Lean Mean Fat Reducing Grilling Machine(R)." We have also entered into a variety
of licensing relationships to market products under the names Gino's East Pizza,
Gear, Taco Bell(R), Hershey Kiss(R), Looney Tunes(R), Andy Warhol, Marilyn
Monroe(TM), James Dean and Campbell Soup(R).
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. We anticipate that the
fragmented nature of the small household appliance industry will continue to
provide significant opportunities for growth through strategic acquisitions of
complementary businesses. We intend to pursue acquisitions of complementary
businesses and product lines at attractive multiples of cash flow. Our
acquisition strategy will focus on businesses or brands with product offerings
which (1) offer expansion into related categories or increased market share in
existing product categories, and (2) can be marketed through our existing
distribution channels, thereby increasing our marketing and distribution
efficiencies. We will also consider strategic joint ventures which would provide
access to new products, technologies or markets.
THE RECAPITALIZATION
On July 28, 1998, we repurchased (the "Stock Repurchase") 6,535,072 shares
of our common stock owned by Windmere-Durable Holdings, Inc. pursuant to a Stock
Agreement dated as of May 6, 1998 (the "Windmere Stock Agreement") by and among
us, Windmere and our executive officers. Prior to the Stock Repurchase, Windmere
owned approximately 50% of our outstanding common stock. The price for the Stock
Repurchase was $12 per share in cash plus a $15.0 million subordinated
promissory note (the "Junior Subordinated Note"). The Junior Subordinated Note
matures on January 31, 2005 and bears interest at 4.0% per annum payable
annually. This Note is subject to offsets of interest and principal equal to 5%
of the total purchase price paid by us for product purchases from Windmere and
its affiliates during the term of the note. During fiscal 1998, we purchased
approximately $27.1 million of products from Windmere. The principal amount of
the Junior Subordinated Note is also subject to reduction in the event our
supply agreement with Kmart is terminated for any reason.
In connection with the Stock Repurchase:
- Windmere effectively repaid (the "Note Repayment") in full its promissory
note (the "Windmere Note") in the principal amount of approximately $10.8
million, which note Windmere issued to us in July, 1996;
- We purchased (the "Option Repurchase") for approximately $3.3 million
Windmere's option to purchase up to 458,500 shares of our common stock,
which option we granted to Windmere in July, 1996; and
- Windmere and Salton agreed to continue various commercial and other
arrangements, including a fee agreement relating to our supply agreement
with Kmart, subject to certain modifications. See "Business -- Marketing
and Distribution."
The Stock Repurchase, the Option Repurchase and the Note Repayment are
collectively referred to herein as the "Repurchase."
On July 28, 1998, we entered into a Credit Agreement dated as of July 27,
1998 (the "New Credit Agreement") among us, Lehman Brothers Inc., as arranger,
and Lehman Commercial Paper Inc., as syndication agent. The New Credit Agreement
provides for $215.0 million in senior secured credit facilities
9
<PAGE> 11
(the "Senior Credit Facilities") consisting of a $90.0 million Tranche A Term
Loan (the "Tranche A Term Loan"), a $75.0 million Delayed Draw Term Loan (the
"Delayed Draw Term Loan") and a $50.0 million revolving credit facility (the
"Revolving Credit Facility"). See "Description of Preferred Stock and Certain
Indebtedness -- New Credit Agreement."
On July 28, 1998, we also issued (the "Convertible Preferred Stock
Issuance") $40.0 million of our Series A Voting Convertible Preferred Stock (the
"Convertible Preferred Stock") to affiliates of Centre Partners Management LLC
("Centre Partners") in connection with a Stock Purchase Agreement dated July 15,
1998 (the "Preferred Stock Agreement"). The Convertible Preferred Stock is
generally non-dividend bearing and is currently convertible into 2,352,941
shares of our common stock (reflecting a $17 per share conversion price). Centre
Partners is a private investment firm that manages the commitments and assets of
Centre Capital Investors II, L.P. and related entities. Centre Capital Investors
II, L.P. is a $450 million private equity fund raised in 1995. Since its
inception in 1986, Centre Partners and its predecessors have invested more than
$1.8 billion in nearly 50 separate investments. See "Description of Preferred
Stock and Certain Indebtedness -- Convertible Preferred Stock." The Repurchase,
borrowings under the New Credit Agreement and the Convertible Preferred Stock
Issuance are collectively referred to herein as the "Recapitalization."
We used borrowings of $90.0 million under the Tranche A Term Loan and the
net proceeds from the Convertible Preferred Stock Issuance to:
- pay the cash portion of the purchase price for the Stock Repurchase in an
amount equal to approximately $70.8 million (which amount is net of $10.8
million due and owing by Windmere to us under the Windmere Note, which
note was cancelled at the closing of the Stock Repurchase),
- refinance all outstanding indebtedness under our Amended and Restated
Loan and Security Agreement dated July 30, 1997 (the "Old Credit
Agreement") between us and our previous lender in an amount equal to
approximately $51.7 million, and
- pay fees and expenses relating to the Recapitalization.
The following table illustrates the sources and uses of funds in connection
with the Recapitalization:
<TABLE>
<CAPTION>
AMOUNT
----------------------
(Dollars in thousands)
<S> <C>
SOURCES OF FUNDS
Tranche A Term Loan......................................... $ 90,000
Convertible Preferred Stock................................. 40,000
--------
Total Sources of Funds............................ $130,000
========
USES OF FUNDS
Cash payment for the Stock Repurchase(1).................... $ 70,800
Refinancing of Old Credit Agreement......................... 51,700
Transaction fees and expenses............................... 6,966
Excess cash................................................. 534
--------
Total Uses of Funds............................... $130,000
========
</TABLE>
- -------------------------
(1) This payment is net of approximately $10.8 million that was due and owing by
Windmere to us under the Windmere Note at the closing of the Stock
Repurchase. The Windmere Note was cancelled upon the closing of the Stock
Repurchase.
10
<PAGE> 12
THE FINANCING
We used the aggregate gross proceeds of the private offering of $125.0
million of our 10 3/4% Senior Subordinated Notes due 2005 (the "Financing"):
- to repay a total of approximately $110.0 million of outstanding
indebtedness under the New Credit Agreement, consisting of $90.0 million
under the Tranche A Term Loan and approximately $20.0 million under the
Revolving Credit Facility, together with accrued interest of
approximately $0.8 million with respect to the indebtedness being repaid;
- to pay fees and expenses incurred in connection with the Financing; and
- for working capital and general corporate purposes.
Upon the repayment of the Tranche A Term Loan, such facility was permanently
terminated. See "Use of Proceeds."
The following table illustrates the estimated sources and uses of funds in
connection with the Financing as of September 26, 1998:
<TABLE>
<CAPTION>
AMOUNT
----------------------
(Dollars in thousands)
<S> <C>
SOURCES OF FUNDS
New Credit Agreement(1)..................................... $ --
Senior Subordinated Notes due 2005.......................... 125,000
--------
Total Sources of Funds............................ $125,000
========
USES OF FUNDS
Repayment of Tranche A Term Loan............................ $ 90,000
Repayment of Revolving Credit Facility...................... 20,000
Payment of accrued interest................................. 809
Transaction fees and expenses............................... 4,088
Excess cash at closing...................................... 10,103
--------
Total Uses of Funds............................... $125,000
========
</TABLE>
- -------------------------
(1) Represents commitments of up to $125.0 million under the New Credit
Agreement, consisting of a $75.0 million Delayed Draw Term Loan and a $50.0
million Revolving Credit Facility.
RECENT DEVELOPMENTS
PENDING TOASTMASTER ACQUISITION
TOASTMASTER ACQUISITION. On August 26, 1998, we entered into a definitive
merger agreement (the "Merger Agreement") to acquire Toastmaster Inc.
("Toastmaster"), a Columbia, Missouri based manufacturer and marketer of kitchen
and small household electrical appliances and time products (the "Toastmaster
Acquisition"). If the pending Toastmaster Acquisition is consummated, we will
pay Toastmaster shareholders $7.00 per share in cash, or a total purchase price
of approximately $53.2 million. We will also refinance Toastmaster's debt, which
was approximately $52.2 million on September 30, 1998, in connection with the
Toastmaster Acquisition.
In connection with the Merger Agreement, Toastmaster's executive officers
and certain of their spouses and related trusts granted us an option to purchase
all, but not less than all, of approximately 40.6% of Toastmaster's outstanding
shares owned by such persons and trusts at a price of $7.00 per share. This
option may only be exercised if all of the conditions precedent to the
consummation of the Toastmaster Acquisition have been satisfied or waived.
Toastmaster designs, manufactures, markets and services a wide array of
kitchen and small household electrical consumer appliances and time products
under the brand names of Toastmaster(R) and Ingraham(R).
11
<PAGE> 13
Kitchen and small household electrical appliances, which account for most of
Toastmaster's revenues, include two and four slice toasters, toaster ovens,
dessert and wafflebakers and griddles marketed under the Toastmaster(R) brand
name. Additional kitchen and small household electrical appliances include a
wide variety of other popular products, such as:
<TABLE>
<S> <C>
- buffet ranges, - Handi-Pan(R) mini-fry pans,
- the Corner Bakery(TM) breadmaker with - the Bread Box(R) automatic breadmaker,
dessert function, - Snackster(R) snack and sandwich makers,
- the Cool Edge Grill(TM) indoor contact - hand mixers,
grill, - blenders,
- carving knives, - coffee makers and grinders and
- can openers, - tea kettles.
- food slicers,
</TABLE>
Toastmaster's time products consist of an extensive line of clocks and
timers, including battery wall clocks, electric analog alarm clocks, decorator
wall clocks and mechanical and electronic household timers. The Toastmaster(R)
brand name has been in continuous use since the invention of the automatic
pop-up toaster by a predecessor of Toastmaster in 1926, and Toastmaster or its
predecessors have used the Ingraham(R) brand name on time products manufactured
by them since 1831.
During the last quarter of 1996, Toastmaster adopted a restructuring plan
designed to strengthen future financial performance by improving its cost
structure and its competitive posture. The plan included the outsourcing of
production of certain kitchen and small household electrical appliances to
overseas suppliers. As part of this plan, Toastmaster ceased production at its
Boonville, Missouri plant in July 1998 and outsourced production with lower-cost
vendors overseas.
The consummation of the pending Toastmaster Acquisition is subject to the
satisfaction or waiver of certain conditions, including the approval of the
holders of 66 2/3% of the outstanding shares of Toastmaster common stock. On
December 31, 1998, Toastmaster shareholders approved the Toastmaster
Acquisition. We currently expect the pending Toastmaster Acquisition to be
completed during our third fiscal quarter of 1999. Accordingly, certain of the
unaudited pro forma condensed consolidated financial information contained in
this Prospectus reflects the consummation of this Toastmaster Acquisition.
However, we cannot assure you as to if or when the pending Toastmaster
Acquisition will be completed, or that it will be completed on the terms
described herein. See "-- Summary Pro Forma Condensed Consolidated Financial
Data," "Risk Factors -- Risks Relating to the Company -- Risks Relating to the
Toastmaster Acquisition," "Capitalization" and "Pro Forma Condensed Consolidated
Financial Information."
TOASTMASTER INTEGRATION STRATEGY. We have identified numerous
opportunities for revenue enhancements and cost savings that we believe we will
be able to realize as a result of the Toastmaster Acquisition. We believe that
we can use our competitive strengths and experience in product development and
marketing to improve upon Toastmaster's product offerings, brand reputation and
customer relations. For example, we intend to use our strong customer
relationships to gain shelf space for Toastmaster's products with retailers
where Toastmaster does not currently have substantial shelf space presence and
to expand the shelf space and sales of Toastmaster's products with existing
Toastmaster retailers by introducing certain of our products into Toastmaster's
product lines.
Although we currently plan to continue the production of certain kitchen
and small household electrical appliances at Toastmaster's Macon, Missouri
plant, we expect to implement our strategy of outsourcing certain appliances to
overseas vendors. We believe that through our proven ability to source products
overseas, we can achieve significant cost savings through more favorable product
pricing and other terms. Other anticipated cost savings we have identified
include advertising, ocean freight, warehousing and corporate overhead expenses.
Our ability to achieve revenue enhancements and recognize cost savings from
the Toastmaster Acquisition will depend to a significant extent on our ability
to successfully integrate the operations of Salton and Toastmaster and other
factors, including economic conditions and the retail environment. See "Risk
Factors -- Risks Relating to the Company -- Risks Relating to the Toastmaster
Acquisition" for a
12
<PAGE> 14
discussion of certain factors that could impact our ability to realize expected
revenue enhancements and cost savings.
FINANCING OF TOASTMASTER ACQUISITION. On December 4, 1998, we received a
commitment letter (the "Commitment Letter") from Lehman Commercial Paper Inc.
and Lehman Brothers Inc. with respect to an amendment and restatement to the New
Credit Agreement. The amended and restated New Credit Agreement would, among
other things, replace the Delayed Draw Term Loan with a $45.0 million Tranche B
Term Loan (the "Tranche B Term Loan") and increase the Revolving Credit Facility
to $80.0 million. We expect to amend and restate the New Credit Agreement before
the consummation of the pending Toastmaster Acquisition. The pro forma
information contained in this Prospectus giving effect to the Toastmaster
Acquisition assumes that the New Credit Agreement is amended and restated in
accordance with the Commitment Letter to replace the Delayed Draw Term Loan with
the Tranche B Term Loan as part of the Senior Credit Facilities and increase the
Revolving Credit Facility to $80.0 million. We intend to use the Tranche B Term
Loan, together with cash on hand and available funds under the Revolving Credit
Facility, to finance the Toastmaster Acquisition. See "Description of Preferred
Stock and Certain Indebtedness -- New Credit Agreement."
------------------------
Our principal executive offices are located at 550 Business Center Drive,
Mount Prospect, Illinois 60056 and our telephone number is (847) 803-4600.
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $125.0 million
aggregate principal amount of outstanding notes for an equal aggregate principal
amount of new notes. The new notes will be obligations of the Company entitled
to the benefits of the indenture governing the outstanding notes. The form and
terms of the new notes are identical in all material respects to the form and
terms of the outstanding notes except that the new notes have been registered
under the Securities Act, and therefore are not entitled to the benefits of the
registration rights granted under the registration rights agreement, executed as
part of the offering of the outstanding notes, dated December 16, 1998 between
the Company and Lehman Brothers Inc., the initial purchaser in the private
offering, relating to certain contingent increases in the interest rates
provided for pursuant thereto.
REGISTRATION RIGHTS
AGREEMENT..................... You are entitled to exchange your notes for
registered notes with substantially identical
terms. The Exchange Offer is intended to
satisfy these rights. After the Exchange Offer
is complete, you will no longer be entitled to
any exchange or registration rights with
respect to your notes.
THE EXCHANGE OFFER............ We are offering to exchange $1,000 principal
amount of 10 3/4% Senior Subordinated Notes due
2005 which have been registered under the
Securities Act for each $1,000 principal amount
of our outstanding 10 3/4% Senior Subordinated
Notes due 2005 which were issued in December
1998 in the Financing. In order to be
exchanged, an outstanding note must be properly
tendered and accepted. All outstanding notes
that are validly tendered and not validly
withdrawn will be exchanged.
As of this date there are $125.0 million
principal amount of notes outstanding.
We will issue registered notes on or promptly
after the expiration of the Exchange Offer.
RESALE OF THE NEW NOTES....... Based on an interpretation by the staff of the
Commission set forth in no-action letters
issued to third parties, including "Exxon
13
<PAGE> 15
Capital Holdings Corporation" (available May
13, 1988), "Morgan Stanley & Co. Incorporated"
(available June 5, 1991), "Mary Kay Cosmetics,
Inc." (available June 5, 1991) and "Warnaco,
Inc." (available October 11, 1991), we believe
that the notes issued in the Exchange Offer may
be offered for resale, resold and otherwise
transferred by you without compliance with the
registration and prospectus delivery provisions
of the Securities Act provided that:
- the notes issued in the Exchange Offer are
being acquired in the ordinary course of
business; you are not participating, do not
intend to participate, and have no
arrangement or understanding with any person
to participate, in the distribution of the
notes issued to you in the Exchange Offer;
- you are not a broker-dealer who purchased
such outstanding notes directly from us for
resale pursuant to Rule 144A or any other
available exemption under the Securities Act;
and
- you are not an "affiliate" of ours.
If our belief is inaccurate and you transfer
any note issued to you in the Exchange Offer
without delivering a prospectus meeting the
requirement of the Securities Act or without an
exemption from registration of your notes from
such requirements, you may incur liability
under the Securities Act. We do not assume or
indemnify you against such liability.
Each broker-dealer that is issued notes in the
Exchange Offer for its own account in exchange
for notes which were acquired by such
broker-dealer as a result of market-making or
other trading activities, must acknowledge that
it will deliver a prospectus meeting the
requirements of the Securities Act, in
connection with any resale of the notes issued
in the Exchange Offer. The Letter of
Transmittal states that by so acknowledging and
by delivering a prospectus, such broker-dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. A broker-dealer may use this
Prospectus for an offer to resell, resale or
other retransfer of the notes issued to it in
the Exchange Offer. We have agreed that, for a
period of 180 days after the date of this
Prospectus, we will make this Prospectus and
any amendment or supplement to this Prospectus
available to any such broker-dealer for use in
connection with any such resales. We believe
that no registered holder of the outstanding
notes is an affiliate (as such term is defined
in Rule 405 of the Securities Act) of the
Company.
The Exchange Offer is not being made to, nor
will we accept surrenders for exchange from,
holders of outstanding notes in any
jurisdiction in which this Exchange Offer or
the acceptance thereof would not be in
compliance with the securities or blue sky laws
of such jurisdiction.
EXPIRATION DATE............... The Exchange Offer will expire at 5:00 p.m.,
New York City time, , 1999, unless
we decide to extend the expiration date.
14
<PAGE> 16
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
OUTSTANDING NOTES............. The new notes will bear interest from December
16, 1998. Holders of outstanding notes whose
notes are accepted for exchange will be deemed
to have waived the right to receive any payment
of interest on such outstanding notes accrued
from December 16, 1998 to the date of the
issuance of the new notes. Consequently,
holders who exchange their outstanding notes
for new notes will receive the same interest
payment on June 15, 1999 (the first interest
payment date with respect to the outstanding
notes and the new notes to be issued in the
Exchange Offer) that they would have received
had they not accepted the Exchange Offer.
TERMINATION OF THE EXCHANGE
OFFER......................... We may terminate the Exchange Offer if we
determine that our ability to proceed with the
Exchange Offer could be materially impaired due
to any legal or governmental action, new law,
statute, rule or regulation or any
interpretation of the staff of the Commission
of any existing law, statute, rule or
regulation. We do not expect any of the
foregoing conditions to occur, although there
can be no assurance that such conditions will
not occur. Holders of outstanding notes will
have certain rights against our Company under
the registration rights agreement executed as
part of the offering of the outstanding notes
should we fail to consummate the Exchange
Offer.
PROCEDURES FOR TENDERING
OUTSTANDING NOTES............. If you are a holder of a note and you wish to
tender your note for exchange pursuant to the
Exchange Offer, you must transmit to Norwest
Bank Minnesota, National Association, as
exchange agent, on or prior to the Expiration
Date:
either
- a properly completed and duly executed Letter
of Transmittal, which accompanies this
Prospectus, or a facsimile of the Letter of
Transmittal, including all other documents
required by the Letter of Transmittal, to the
Exchange Agent at the address set forth on
the cover page of the Letter of Transmittal;
or
- a computer-generated message transmitted by
means of DTC's Automated Tender Offer Program
system and received by the Exchange Agent and
forming a part of a confirmation of book
entry transfer in which you acknowledge and
agree to be bound by the terms of the Letter
of Transmittal;
and, either
- a timely confirmation of book-entry transfer
of your outstanding notes into the Exchange
Agent's account at The Depository Trust
Company ("DTC") pursuant to the procedure for
book-entry transfers described in this
Prospectus under the heading "The Exchange
Offer -- Procedure for Tendering," must be
received by the Exchange Agent on or prior to
the Expiration Date; or
15
<PAGE> 17
- the documents necessary for compliance with
the guaranteed delivery procedures described
below.
By executing the Letter of Transmittal, each
holder will represent to us that, among other
things:
- the notes to be issued in the Exchange Offer
are being obtained in the ordinary course of
business of the person receiving such new
notes whether or not such person is the
holder,
- neither the holder nor any such other person
has an arrangement or understanding with any
person to participate in the distribution or
such new notes and
- neither the holder nor any such other person
is an "affiliate," as defined in Rule 405
under the Securities Act of the Company.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. If you are the beneficial owner of notes and
your name does not appear on a security
position listing of DTC as the holder of such
notes or if you are a beneficial owner of
registered notes that are registered in the
name of a broker, dealer, commercial bank,
trust company or other nominee and you wish to
tender such notes or registered notes in the
Exchange Offer, you should contact such person
whose name your notes or registered notes are
registered promptly and instruct such person to
tender on your behalf. If such beneficial
holder wishes to tender on his own behalf such
beneficial holder must, prior to completing and
executing the Letter of Transmittal and
delivering its outstanding notes, either make
appropriate arrangements to register ownership
of the outstanding notes in such holder's name
or obtain a properly completed bond power from
the registered holder. The transfer of record
ownership may take considerable time.
GUARANTEED DELIVERY
PROCEDURES.................... If you wish to tender your notes and time will
not permit your required documents to reach the
Exchange Agent by the Expiration Date, or the
procedure for book-entry transfer cannot be
completed on time or certificates for
registered notes cannot be delivered on time,
you may tender your notes pursuant to the
procedures described in this Prospectus under
the heading "The Exchange Offer -- Guaranteed
Delivery Procedure."
WITHDRAWAL RIGHTS............. You may withdraw the tender of your notes at
any time prior to 5:00 p.m., New York City
time, on , 1999, the business day
prior to the Expiration Date, unless your notes
were previously accepted for exchange.
ACCEPTANCE OF OUTSTANDING
NOTES AND DELIVERY OF EXCHANGE
NOTES......................... Subject to certain conditions (as summarized
above in "Termination of the Exchange Offer"
and described more fully under the "The
Exchange Offer -- Termination"), we will accept
for exchange any and all outstanding notes
which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time,
on the Expiration Date. The notes issued
pursuant to
16
<PAGE> 18
the Exchange Offer will be delivered promptly
following the Expiration Date.
CERTAIN U.S. FEDERAL INCOME
TAX CONSEQUENCES.............. The exchange of the notes will generally not be
a taxable exchange for United States federal
income tax purposes. We believe you will not
recognize any taxable gain or loss or any
interest income as a result of such exchange.
USE OF PROCEEDS............... We will not receive any proceeds from the
issuance of notes pursuant to the Exchange
Offer. We will pay all expenses incident to the
Exchange Offer.
EXCHANGE AGENT................ Norwest Bank Minnesota, National Association is
serving as exchange agent in connection with
the Exchange Offer. The Exchange Agent can be
reached at Corporate Trust Trustee
Administration. For more information with
respect to the Exchange Offer, the telephone
number for the Exchange Agent is (612) 667-1234
and the facsimile number for the Exchange Agent
is (612) 667-9825.
17
<PAGE> 19
SUMMARY DESCRIPTION OF THE NEW NOTES
SECURITIES OFFERED:........... $125,000,000 in aggregate principal amount of
10 3/4% Senior Subordinated Notes.
MATURITY DATE:................ December 15, 2005.
INTEREST PAYMENT DATES:....... December 15 and June 15, commencing June 15,
1999.
MANDATORY REDEMPTION:......... We will not be required to make mandatory
redemption or sinking fund payments with
respect to the notes.
OPTIONAL REDEMPTION:.......... On or after December 15, 2002, we may redeem
the notes, in whole or in part, at the
redemption prices set forth in this Prospectus.
In addition, at any time before December 15,
2001, we may redeem on any one or more
occasions up to 35% of the aggregate principal
amount of the notes at 110.750% of the
principal amount thereof, plus accrued
interest, with the net cash proceeds of one or
more public equity offerings if at least 65% of
the aggregate principal amount of the notes
originally issued remain outstanding after each
such redemption. See "Description of the New
Notes -- Optional Redemption."
CHANGE OF CONTROL:............ Upon certain change of control events, each
holder of the notes may require us to
repurchase all or any part of such holder's
notes at a price in cash equal to 101% of the
aggregate principal amount thereof, plus
accrued interest. See "Description of the New
Notes -- Repurchase at the Option of
Holders -- Change of Control."
RANKING:...................... The notes will be general unsecured obligations
and will be subordinated to all our current and
future Senior Debt, including all borrowings
under the New Credit Agreement. The notes will
rank equally with all our other existing and
future senior subordinated indebtedness. As of
September 26, 1998, after giving pro forma
effect to the Financing, we would have had no
Senior Debt outstanding (exclusive of unused
commitments of up to $125.0 million under the
New Credit Agreement). Additionally, as of
September 26, 1998, after giving pro forma
effect to the Financing and the Toastmaster
Acquisition, we would have had Senior Debt of
approximately $99.5 million outstanding
(exclusive of unused commitments of up to $25.5
million under the New Credit Agreement). See
"Risk Factors -- Risks Relating to the
Notes -- Substantial Leverage,"
"Capitalization" and "Description of the New
Notes."
GUARANTEES:................... Our current and future domestic restricted
subsidiaries will jointly and severally
guarantee our payment obligations under the
notes on a senior subordinated basis. The
guarantees will rank junior to all Senior Debt
of the guarantors (including guarantees under
the New Credit Agreement) and equally with all
other senior subordinated indebtedness of the
guarantors. See "Description of the New
Notes -- Subsidiary Guarantee."
18
<PAGE> 20
CERTAIN COVENANTS:............ The indenture governing the notes will contain
certain covenants that, among other things,
limit our ability and the ability of our
restricted subsidiaries to:
- incur additional indebtedness and issue
preferred stock,
- pay dividends or make certain other
restricted payments,
- create certain liens,
- enter into certain transactions with
affiliates,
- enter into sale and lease-back transactions,
- sell assets or
- enter into certain mergers and
consolidations.
In addition, under certain circumstances, we
will be required to offer to purchase the notes
with the net cash proceeds of certain sales and
other dispositions of assets at a price equal
to 100% of the principal amount of the notes,
plus accrued interest. See "Description of the
New Notes -- Certain Covenants" and
"-- Repurchase at the Option of
Holders -- Asset Sales."
EXCHANGE OFFER;
REGISTRATION RIGHTS........... Under a registration rights agreement executed
as part of the Financing, we have agreed to:
- use our best efforts to file a registration
statement within 60 days after the issue date
of the notes enabling holders to exchange the
privately placed notes for publicly
registered notes with terms identical in all
material respects to those of the notes;
- use our best efforts to cause such
registration statement to become effective
within 120 days after the issue date of the
notes; and
- use our best efforts to file a shelf
registration statement for the resale of the
notes if we cannot effect an exchange offer
within the time periods listed above and in
certain other circumstances.
See "Description of the New
Notes -- Registration Rights; Liquidated
Damages."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE NOTES, SEE "RISK FACTORS."
19
<PAGE> 21
SUMMARY PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The unaudited summary pro forma condensed consolidated financial data set
forth below is based on the historical consolidated financial statements of the
Company and of Toastmaster. The unaudited pro forma summary statement of
operations data for the fiscal year ended June 27, 1998 give effect to (1) the
Recapitalization and the Financing and (2) the Recapitalization, the Financing
and the Toastmaster Acquisition, in each case as if such transactions had
occurred on June 29, 1997. The unaudited pro forma summary statement of
operations data for the thirteen weeks ended September 26, 1998 give effect to
(1) the Financing and (2) the Financing and the Toastmaster Acquisition, in each
case as if such transactions had occurred on June 29, 1997. The unaudited pro
forma summary condensed consolidated balance sheet data give effect to (1) the
Financing and (2) the Financing and the Toastmaster Acquisition, in each case as
if they had occurred on September 26, 1998. See "-- The Financing" and
"-- Recent Developments -- Pending Toastmaster Acquisition." The unaudited
summary pro forma condensed consolidated financial data is intended for
informational purposes only and is not necessarily indicative of our future
financial position or results of operations had the transactions described above
occurred on the indicated dates or been in effect for the period presented.
Since the unaudited summary pro forma condensed consolidated financial data is
only a summary, you should read the pro forma condensed consolidated financial
information, the historical consolidated financial statements of the Company and
of Toastmaster, including in each case the related notes included elsewhere
herein, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" found elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
JUNE 27, 1998 SEPTEMBER 26, 1998
------------------------------------ -------------------------
RECAPITALIZATION,
FINANCING AND FINANCING AND
RECAPITALIZATION TOASTMASTER TOASTMASTER
AND FINANCING ACQUISITION FINANCING ACQUISITION
---------------- ----------------- --------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales........................................ $305,599 $465,201 $104,388 $143,263
Cost of goods sold............................... 178,023 298,268 55,004 86,993
Distribution expenses............................ 12,327 22,010 3,609 6,244
-------- -------- -------- --------
Gross profit 115,249 144,923 45,775 50,026
Selling, general, and administrative expenses.... 84,216 106,401 27,780 33,260
-------- -------- -------- --------
Operating income................................. $ 31,033 $ 38,522 $ 17,995 $ 16,766
======== ======== ======== ========
OTHER DATA:
EBITDA(1)........................................ $ 35,334 $ 47,175 19,239 19,137
EBITDA margin(2)................................. 11.6% 10.2% 18.4% 13.4%
LTM EBITDA(6).................................... -- -- 45,850 53,251
LTM EBITDA margin(6)............................. -- -- 13.3% 10.7%
Depreciation and amortization.................... $ 4,301 $ 8,653 1,244 2,371
Capital expenditures............................. 4,565 8,094 589 835
LTM depreciation and amortization(6)............. -- -- 4,657 9,027
LTM capital expenditures(6)...................... -- -- 4,270 6,568
Net debt(3)...................................... -- -- 122,787 233,446
Ratio of earnings to fixed charges(4)............ 2.5x 1.9x 4.5x 2.8x
Ratio of LTM EBITDA to cash interest
expense(5)(6).................................. 2.3x 2.0x 3.0x 2.2x
Ratio of net debt to LTM EBITDA(6)............... 3.5x 4.9x 2.7x 4.4x
BALANCE SHEET DATA (AT PERIOD END):
Working capital........................................................................ $139,192 $140,666
Total assets........................................................................... 197,719 322,576
Total debt............................................................................. 133,907 233,446
Stockholders' equity................................................................... 25,577 25,577
</TABLE>
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<PAGE> 22
- -------------------------
(1) EBITDA represents operating income plus depreciation and amortization.
EBITDA is presented because it is a widely accepted measure to provide
information regarding a company's ability to pay interest, repay debt
or make capital expenditures. EBITDA should not be considered in
isolation or as a substitute for net income, cash flows from operations
or other income or cash flow data prepared in accordance with generally
accepted accounting principles, or as a measure of a company's
profitability or liquidity. Additionally, our calculation of EBITDA may
differ from that performed by other companies, and thus the amounts
disclosed for EBITDA may not be directly comparable to similarly titled
measures disclosed by other companies.
(2) EBITDA margin represents EBITDA as a percentage of net sales.
(3) Net debt represents total debt less cash and marketable securities.
(4) For purposes of this computation, earnings consist of income before
taxes plus fixed charges. Fixed charges consist of interest on
indebtedness plus that portion of lease rental expense representative
of the interest factor.
(5) Cash interest expense is defined as interest expense less amortization
of debt issuance costs.
(6) Reflects data for the latest twelve months ended ("LTM") June 27, 1998
and September 26, 1998 as indicated.
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<PAGE> 23
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
The following table presents our summary historical financial and other
data as of and for the fiscal years ended June 29, 1996, June 28, 1997 and June
27, 1998. This data is from our audited consolidated financial statements,
including the notes thereto, included elsewhere in this Prospectus. This table
also presents our summary historical financial and other data as of and for the
thirteen weeks ended September 27, 1997 and September 26, 1998. This data is
from our unaudited condensed consolidated financial statements, including the
notes thereto, but, in the opinion of our management, includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for such
periods. Operating results for the thirteen weeks ended September 27, 1997 and
September 26, 1998 do not necessarily show what the results for a full year will
be. Since the information is only a summary, you should read "Selected
Historical Financial and Other Data," "Pro Forma Condensed Consolidated
Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements,
including the notes, appearing elsewhere in this Prospectus.
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<PAGE> 24
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THIRTEEN WEEKS ENDED
------------------------------ -----------------------------
JUNE 29, JUNE 28, JUNE 27, SEPTEMBER 27, SEPTEMBER 26,
1996 1997 1998 1997 1998
-------- -------- -------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS:
Net sales................................ $99,202 $182,806 $305,599 $ 65,773 $104,388
Cost of goods sold....................... 66,923 121,590 179,376 38,697 55,004
Distribution expenses.................... 5,856 7,809 12,327 2,279 3,609
------- -------- -------- -------- --------
Gross profit........................... 26,423 53,407 113,896 24,797 45,775
Selling, general, and administrative
expenses............................... 21,343 42,944 84,216 16,977 27,780
------- -------- -------- -------- --------
Operating income....................... 5,080 10,463 29,680 7,820 17,995
Interest expense, net.................... (3,934) (4,063) (5,333) (1,263) (2,399)
Cost associated with refinancing......... -- -- (1,133) -- --
Realized gain on sale of marketable
securities............................. -- -- 8,972 -- --
------- -------- -------- -------- --------
Income before income taxes............. 1,146 6,400 32,186 6,557 15,596
Income tax expense (benefit)............. (3,450) 2,001 12,205 2,433 4,777
------- -------- -------- -------- --------
Net income............................. $ 4,596 $ 4,399 $ 19,981 $ 4,124 $ 10,819
======= ======== ======== ======== ========
OTHER DATA:
Cash flows provided by (used in):
Operating Activities................... $(3,571) $ (8,966) $(25,102) $(30,061) $(20,819)
Investing Activities................... (4,280) (6,348) 14,507 (884) (589)
Financing Activities................... 7,849 17,922 8,643 28,671 21,764
EBITDA(1)................................ $ 7,276 $ 13,599 $ 33,981 $ 8,708 $ 19,239
EBITDA margin(2)......................... 7.3% 7.4% 11.1% 13.2% 18.4%
Depreciation and amortization............ $ 2,196 $ 3,136 $ 4,301 888 1,244
Capital expenditures..................... 4,280 4,608 4,565 884 589
Ratio of earnings to fixed charges(3).... 1.3x 2.2x 5.8x 5.6x 6.8x
BALANCE SHEET DATA (AT PERIOD END):
Working capital.......................... $12,244 $ 17,996 $ 44,768 $ 18,828 $103,280
Total assets............................. 59,481 102,343 141,397 145,411 183,528
Total debt............................... 28,266 43,410 50,475 172,082 118,907
</TABLE>
- -------------------------
(1) EBITDA represents operating income plus depreciation and amortization.
EBITDA is presented because it is a widely accepted measure to provide
information regarding a company's ability to pay interest, repay debt or
make capital expenditures. EBITDA should not be considered in isolation or
as a substitute for net income, cash flows from operations or other income
or cash flow data prepared in accordance with generally accepted accounting
principles, or as a measure of a company's profitability or liquidity.
Additionally, our calculation of EBITDA may differ from that performed by
other companies, and thus the amounts disclosed for EBITDA may not be
directly comparable to similarly titled measures disclosed by other
companies.
(2) EBITDA margin represents EBITDA as a percentage of net sales.
(3) For purposes of this computation, earnings consist of income before taxes
plus fixed charges. Fixed charges consist of interest on indebtedness plus
that portion of lease rental expense representative of the interest factor.
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<PAGE> 25
RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information contained in this Prospectus, before deciding to invest in
the notes. In connection with the forward-looking statements which appear in
this Prospectus, you should carefully review the factors discussed below and the
cautionary statements referred to in "Forward-Looking Statements."
RISKS RELATING TO THE NOTES
SUBSTANTIAL LEVERAGE
We are highly leveraged. As of September 26, 1998, after giving pro forma
effect to the Financing, we would have had total consolidated indebtedness of
approximately $133.9 million, including $125.0 million of the outstanding notes,
and total stockholders' equity of $25.6 million. Also, after giving pro forma
effect to the Financing, our ratio of earnings to fixed charges would have been
4.5x for the thirteen weeks ended September 26, 1998. Additionally, we will have
to incur substantial additional indebtedness to consummate the Toastmaster
Acquisition. As of September 26, 1998, after giving pro forma effect to the
Financing and the Toastmaster Acquisition, we would have had total consolidated
indebtedness of approximately $233.4 million and total stockholders' equity of
$25.6 million. Also, after giving pro forma effect to the Financing and the
Toastmaster Acquisition, our ratio of earnings to fixed charges would have been
2.8x for the thirteen weeks ended September 26, 1998. See "Capitalization",
"Selected Historical Financial and Other Data," and "Pro Forma Condensed
Consolidated Financial Information." We may incur additional indebtedness in the
future, including through additional borrowings under the New Credit Agreement,
subject to the satisfaction of certain financial tests. See "Description of
Preferred Stock and Certain Indebtedness -- New Credit Agreement" and
"Description of the New Notes -- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock."
Our ability to pay principal and interest on the notes, to satisfy our
other debt service obligations and to fund planned capital expenditures will
depend upon our future operating performance, which will be affected by
prevailing economic conditions in the markets we serve and financial, business
and other factors, certain of which are beyond our control. Based upon our
current level of operations, we believe that cash flow from operations and
available cash, together with available borrowings under the New Credit
Agreement, will be adequate to meet our anticipated future requirements for
working capital, capital expenditures and scheduled payments of principal and
interest on our indebtedness, including the notes. We cannot assure you that our
business will generate sufficient cash flow from operations or that future
borrowings will be available under the New Credit Agreement in an amount
sufficient to enable us to service our indebtedness, including the notes, or to
fund our other liquidity needs. We may need to refinance all or a portion of the
principal of the notes on or prior to maturity. We cannot assure you that we
will be able to effect any such refinancing on commercially reasonable terms or
at all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
The degree to which we are leveraged, and will be leveraged if the
Toastmaster Acquisition is consummated, could have important consequences to
holders of the notes, such as:
- making it more difficult for us to satisfy our obligations with respect
to the notes;
- increasing our vulnerability to general adverse economic and industry
conditions;
- limiting our ability to obtain additional financing to fund future
working capital, capital expenditures or other general corporate
requirements;
- requiring the dedication of a substantial portion of our cash flow from
operations to the payment of principal of, and interest on, our
indebtedness, thereby reducing the availability of such cash flow to fund
working capital, capital expenditures or other general corporate
purposes;
- limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete; and
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<PAGE> 26
- placing us at a competitive disadvantage vis-a-vis less leveraged
competitors.
In addition, the indenture governing the notes and the New Credit Agreement
contain financial and other restrictive covenants that will limit our ability
to, among other things, borrow additional funds. Our failure to comply with such
covenants could result in an event of default which, if not cured or waived,
could have a material adverse effect on our business, financial condition and
results of operations. If we cannot generate sufficient cash to meet our
obligations as they become due or refinance such obligations, we may have to
sell assets or reduce capital expenditures. In addition, our degree of leverage
could prevent us from repurchasing all of the notes tendered to us upon the
occurrence of certain change of control events. See "Description of the New
Notes -- Repurchase at the Option of Holders -- Change of Control."
SUBORDINATION OF THE NOTES; GUARANTEES
The notes will be subordinated to all Senior Debt including all obligations
under the New Credit Agreement. Upon any distribution to creditors in a
liquidation or dissolution or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding, the holders of Senior Debt will be entitled
to be paid in full in cash before any payment may be made with respect to the
notes. In addition, the subordination provisions of the indenture governing the
notes will provide that payments with respect to the notes can be blocked in the
event of defaults on Designated Senior Debt (as defined). In the event of a
bankruptcy, liquidation or reorganization, holders of the notes will participate
equally with all holders of subordinated indebtedness that is deemed to be of
the same class as the notes, and potentially with all other general creditors,
based upon the amounts owed to each holder or creditor, in the remaining assets.
In any of the foregoing events, we cannot assure you that there would be
sufficient assets to pay amounts due on the notes. As a result, holders of the
notes may receive less, ratably, than holders of Senior Debt. As of September
26, 1998, after giving pro forma effect to the Financing, we would have had no
Senior Debt outstanding (exclusive of unused commitments of up to $125.0 million
under the New Credit Agreement, all of which would constitute Senior Debt).
Additionally, as of September 26, 1998, after giving pro forma effect to the
Financing and the Toastmaster Acquisition, the aggregate amount of consolidated
indebtedness and other liabilities to which the notes would be subordinated
would have been approximately $99.5 million, consisting of borrowings under the
New Credit Agreement (exclusive of unused commitments of up to $25.5 under the
New Credit Agreement, all of which would constitute Senior Debt). We may also
incur additional indebtedness. Substantially all of our assets will or may in
the future be pledged to secure our other indebtedness subject to certain
limitations contained in our debt agreements. See "Capitalization," "Description
of Preferred Stock and Certain Indebtedness -- New Credit Agreement" and
"Description of the New Notes -- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock."
Our payment obligations under the notes will be jointly and severally
guaranteed on a senior subordinated basis by each of our existing and future
domestic subsidiaries. The notes will not be guaranteed by any of our current or
future foreign subsidiaries. Our non-guarantor subsidiary accounted for 2.4% of
our net sales and generated $1.7 million of EBITDA during the thirteen weeks
ended September 26, 1998 and 0.5% of our net sales and generated $(0.8) million
of EBITDA during the fiscal year ended June 27, 1998. The guarantees will be
subordinated to the guarantees of Senior Debt issued by the guarantors under the
New Credit Agreement. See "Description of the New Notes -- Subordination;
Subsidiary Guarantee."
RESTRICTIONS UNDER THE NEW CREDIT AGREEMENT AND THE INDENTURE
The New Credit Agreement imposes, and the indenture governing the notes
will impose, restrictions that affect, among other things, our ability to incur
debt, pay dividends, sell assets, create liens, make capital expenditures and
investments, merge or consolidate, enter into transactions with affiliates, and
otherwise enter into certain transactions outside the ordinary course of
business. We are also required under the New Credit Agreement to maintain
specified financial ratios, including a minimum fixed charge coverage ratio and
a maximum leverage ratio, and meet certain financial tests. Our ability to
continue to
25
<PAGE> 27
comply with the covenants and restrictions may be affected by events beyond our
control. A breach of any of these covenants or restrictions would result in an
event of default under the New Credit Agreement and the indenture, in which case
the lenders under the New Credit Agreement could elect to declare all amounts
borrowed thereunder, together with accrued interest, to be due and payable,
foreclose on the assets securing the New Credit Agreement or cease to provide
additional revolving loans or letters of credit, which could have a material
adverse effect on us. If any event of default exists on Designated Senior Debt,
subordination provisions in the indenture may restrict payments to holders of
the notes until holders of Senior Debt are paid in full or such default is cured
or waived or has ceased to exist. A failure to comply with the restrictions in
the indenture could result in an event of default under the indenture. See
"Description of Preferred Stock and Certain Indebtedness -- New Credit
Agreement" and "Description of the New Notes -- Certain Covenants."
LIMITATIONS ON CHANGE OF CONTROL
Upon certain change of control events, we will be required to make an offer
in cash to repurchase all or any part of each holder's notes at a repurchase
price equal to 101% of the principal amount thereof, plus accrued interest.
Further, the provisions of the indenture governing the notes may not afford
holders protection in the event we engage in a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction, if such
transaction does not result in a change of control. The source of funds for any
such repurchase would be our available cash or cash generated from operations or
other sources, including borrowings, sales of equity or funds provided by a new
controlling person. We cannot assure you that sufficient funds will be available
at the time of any change of control event to make any required repurchases of
the notes tendered. In addition, we are prohibited under the New Credit
Agreement from making any such required repurchases. Our failure to offer to
repurchase notes, or to repurchase notes tendered, following a change of control
will result in a default under the indenture governing the notes, which could
lead to a cross-default under the New Credit Agreement and under the terms of
other indebtedness. In addition, prior to repurchasing the notes upon a change
of control event, we must either repay outstanding indebtedness under our New
Credit Agreement or obtain the consent of the lenders. If we do not obtain such
consent or repay outstanding indebtedness under our New Credit Agreement, we
would remain effectively prohibited from offering to purchase the Notes. See
"Description of Preferred Stock and Certain Indebtedness -- New Credit
Agreement,", "Description of the New Notes -- Subordination" and "-- Repurchase
at the Option of Holders -- Change of Control."
LIQUID TRADING MARKET FOR THE NOTES MAY NOT DEVELOP
There has not been established trading market for the notes. Although the
initial purchaser has informed us that it currently intends to make a market in
the outstanding notes and, if issued, the exchange notes, which will replace the
outstanding notes, it has no obligation to do so and may discontinue making a
market at any time without notice.
The notes are eligible for trading in the Private Offerings, Resale and
Trading through the Automatic Linkage ("PORTAL") market. However, we do not
intend to apply for listing of the outstanding notes or, if issued, the exchange
notes, on any securities exchange or for quotation through the National
Association of Securities Dealers Automated Quotation System.
The liquidity of any market for the notes will depend upon the number of
holders of the notes, our performance, the market for similar securities, the
interest of securities dealers in making a market in the notes and other
factors. A liquid trading market may not develop for the notes.
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<PAGE> 28
CONSEQUENCES OF FAILURE TO EXCHANGE
Untendered outstanding notes that are not exchanged for new notes pursuant
to the Exchange Offer will remain restricted securities. Outstanding notes will
continue to be subject to the following restrictions on transfer:
- outstanding notes may be resold only if registered pursuant to the
Securities Act, if an exemption from registration is available
thereunder, or if neither such registration nor such exemption is
required by law,
- outstanding notes shall bear a legend restricting transfer in the absence
of registration or an exemption therefrom, and
- a holder of outstanding notes who desires to sell or otherwise dispose of
all or any part of its outstanding notes under an exemption from
registration under the Securities Act, if requested by us, must deliver
to us an opinion of independent counsel experienced in Securities Act
matters, reasonably satisfactory in form and substance to us, that such
exemption is available.
FRAUDULENT CONVEYANCE MATTERS
Our obligations under the notes, and the consummation of the
Recapitalization, the Financing and the Toastmaster Acquisition, may be subject
to review under various laws for the protection of creditors, including federal
and state fraudulent conveyance and fraudulent transfer laws, if a bankruptcy
case or other lawsuit (including in circumstances where bankruptcy is not
involved) is commenced by or on behalf of any of our creditors. If a court in
such a case or lawsuit were to find that, at the time we issued the notes or at
the time of such transactions, we (1) intended to hinder, delay or defraud any
existing or future creditor or (2) did not receive fair consideration or
reasonably equivalent value for issuing the notes or in connection with such
transactions, and we either (a) were insolvent or rendered insolvent by reason
thereof, (b) were engaged or were about to engage in a business or transaction
for which our remaining unencumbered assets constituted unreasonably small
capital or (c) intended to or believed that we would incur debts beyond our
ability to pay such debts as they matured or became due, such court could void
our obligations under the notes, subordinate the notes to our other
indebtedness, direct that holders of the notes return to us any amounts paid
thereunder or to a fund for the benefit of our creditors or take other action
detrimental to the holders of the notes.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the jurisdiction being applied. Generally, however, a company
will be considered insolvent at a particular time if the sum of its debts,
including contingent liabilities, at that time is greater than the then-fair
value of its assets or if the fair saleable value of its assets at that time is
less than the amount that would be required to pay its probable liability on its
existing debts as they become absolute and mature. We cannot assure you as to
what standard a court would apply to evaluate the parties' intent or to
determine whether we were insolvent at the time of, or rendered insolvent upon
consummation of, the Recapitalization, the Financing or the Toastmaster
Acquisition or that, regardless of the standard, a court would determine that we
were insolvent at the time of, or rendered insolvent upon consummation of, such
transactions.
Our obligations under the notes will be guaranteed by our current and
future domestic restricted subsidiaries, and the guarantees of the notes also
may be subject to review under various laws for the protection of creditors,
including federal and state fraudulent conveyance and fraudulent transfer laws,
if a bankruptcy case or a lawsuit (including in circumstances where bankruptcy
is not involved) is commenced by or on behalf of any creditor of a guarantor or
a representative of any such creditors. In such a case, the analysis set forth
above would generally apply, except that the guarantees could also be subject to
the claim that, since the guarantees were incurred for our benefit (and only
indirectly for the benefit of the guarantors), the obligations of the guarantors
thereunder were incurred for less than reasonably equivalent value or fair
consideration. A court could void a guarantor's obligation under its guarantee
of the notes, subordinate the guarantee to other indebtedness of a guarantor,
direct that holders of the notes return any
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<PAGE> 29
amounts paid under a guarantee to the relevant guarantor or to a fund for the
benefit of its creditors, or take other action detrimental to the holders of the
notes.
On the basis of historical financial information, recent operating history
and other factors, we believe that on a consolidated basis after giving effect
to the Recapitalization, the Financing and the Toastmaster Acquisition, we will
not be insolvent, will not have unreasonably small capital for the business in
which we are engaged and will not incur debts beyond our ability to pay such
debts as they mature. We cannot assure you as to what standard a court would
apply in making such determinations or that a court would agree with our
conclusions in this regard.
RISKS RELATING TO THE COMPANY
RISKS RELATING TO THE TOASTMASTER ACQUISITION
Uncertainties Regarding Consummation. Consummation of the pending
Toastmaster Acquisition is subject to the satisfaction or waiver of certain
conditions, including the approval of the holders of 66 2/3% of the outstanding
shares of Toastmaster common stock. On December 31, 1998, Toastmaster
shareholders approved the Toastmaster Acquisition. We anticipate that the
Toastmaster Acquisition will be completed in our third fiscal quarter of 1999.
Accordingly, certain of the unaudited Pro Forma Condensed Consolidated Financial
Information contained in this Prospectus reflects the consummation of the
Toastmaster Acquisition. However, we cannot assure you as to if, or when, the
pending Toastmaster Acquisition will be completed, or that it will be completed
on the terms described herein.
Integration of Toastmaster. We cannot assure you that we will successfully
integrate Toastmaster with our business operations. The full benefits of the
Toastmaster Acquisition will require the integration of administrative, finance,
purchasing, product development and sales and marketing organizations. The
integration will also require the implementation of appropriate operational,
financial, and management systems and controls. We cannot assure you that we
will not encounter difficulties in expanding our financial controls and
reporting systems to meet our future needs. If we fail to successfully integrate
the operations of Salton and Toastmaster, or if anticipated revenue enhancements
and cost savings are not realized, our business, results of operations and
financial condition would be materially adversely affected. The unaudited Pro
Forma Condensed Consolidated Financial Information included herein contains
certain adjustments relating to the acquisition of Toastmaster. Although these
adjustments are based upon available information and certain assumptions we
consider reasonable as of the date of this Prospectus, actual amounts could
differ from those set forth therein, possibly to a material extent. Moreover, we
cannot assure you that the anticipated impact of the integration of Toastmaster
upon our financial condition and results of operations as presented in such pro
forma financial statements will be as presented. See "Summary -- Summary Pro
Forma Condensed Consolidated Financial Data," "-- Recent Developments -- Pending
Toastmaster Acquisition," "-- The Financing," "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Pro Forma Condensed Consolidated Financial Information."
Limited Manufacturing Experience. Except for the assembly of certain
products in our Kenilworth, New Jersey plant, we arrange for the manufacture of
most of our products with manufacturers located overseas, primarily in the Far
East and Europe. Toastmaster manufactures toasters, toaster-oven-bakers and
electric heating elements at its owned plant in Macon, Missouri. Toastmaster
also manufactures time products at its owned plant in Laurinburg, North
Carolina. We currently expect to continue manufacturing certain products at
these plants after the Toastmaster Acquisition is consummated. Our manufacture
of these products will subject us to certain additional risks, including those
relating to the price and availability of raw materials and environmental
concerns. We cannot assure you that we will be able to manufacture products
successfully and in a cost effective manner.
Reliance on Certain Customers. Toastmaster's revenues in the aggregate
with respect to its five largest customers during 1995, 1996 and 1997 were
approximately 45.7%, 42.8% and 44.0%, respectively, of its net sales. During
1995, 1996 and 1997, Wal-Mart (including Sam's Clubs) accounted for
approximately 29.0%, 27.0% and 27.0%, respectively, of Toastmaster's net sales.
Although Toastmaster has
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<PAGE> 30
long-established relationships with many of its customers, Toastmaster does not
have long-term supply contracts with them. A decrease in business from any of
Toastmaster's major customers or a general economic downtown in retail sales
could have a material adverse effect on our business, results of operations and
financial condition if the Toastmaster Acquisition is consummated.
DEPENDENCE ON MAJOR CUSTOMERS
Our total net sales to our five largest customers during fiscal 1998 were
approximately 47% of net sales in fiscal 1998, with our largest customer, Kmart,
representing approximately 19% of our net sales in fiscal 1998. Except for our
supply agreement with Kmart, we do not have long-term agreements with our major
customers, and purchases are generally made through the use of individual
purchase orders. A significant reduction in purchases by any of these major
customers or a general economic downturn in retail sales could have a material
adverse effect on our business, financial condition and results of operations.
See "Business -- Marketing and Distribution."
RISKS ASSOCIATED WITH DEVELOPMENT OF NEW PRODUCTS
We believe that our future success will depend in part upon our ability to
continue to introduce innovative designs in our existing products and to
develop, manufacture and market new products. We cannot assure you that we will
be successful in the introduction, marketing and manufacture of any new products
or product innovations or that we will be able to develop and introduce in a
timely manner innovations to our existing products which satisfy customer needs
or achieve market acceptance. The failure to develop products and introduce them
successfully and in a timely manner could have a material adverse effect on our
business, financial condition and results of operations. See "Business -- New
Product Development."
DEPENDENCE ON FOREIGN SUPPLIERS
We are dependent upon unaffiliated foreign companies for the manufacture of
most of our products. Our arrangements with our manufacturers are subject to the
risks of doing business abroad, such as import duties, trade restrictions,
production delays due to unavailability of parts or components, transportation
delays, work stoppages, foreign currency fluctuations, political instability and
other factors which could have an adverse effect on our business, financial
condition and results of operations. We believe that the loss of any one or more
of our suppliers would not have a long term material adverse effect on our
business, financial condition and results of operations, because other
manufacturers with whom we do business would be able to increase production to
fulfill our requirements. However, the loss of certain of our suppliers could,
in the short term, adversely affect our business until alternative supply
arrangements were secured.
During fiscal 1998, three manufacturers located in China accounted for
approximately 12.7%, 12.4% and 10.1%, respectively, of our product purchases.
China currently enjoys most-favored-nation ("MFN") trading status granted by the
United States, pursuant to which the United States imposes the lowest applicable
tariffs on Chinese exports to the United States. The United States annually
reconsiders the renewal of MFN trading status for China. We cannot assure you
that China's MFN trading status will be renewed in future years. If MFN status
for goods produced in China were removed, there would be a substantial increase
in tariffs imposed on goods of Chinese origin entering the United States,
including those manufactured for us, which could have a material adverse impact
on our business, financial condition and results of operations. See
"Business -- Sources of Supply."
RETAIL INDUSTRY
Our products are sold to consumers through major retail channels, primarily
mass merchandisers, department stores, specialty stores, direct mail catalogs
and showrooms and other direct distribution channels. As a result, our business
and financial results can fluctuate with the financial condition of our retail
customers and the retail industry generally. Certain of our retail customers,
such as HomePlace
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<PAGE> 31
Stores, Inc. and Venture Stores, have filed for bankruptcy protection in recent
years. We continually monitor and evaluate the credit status of our customers
and attempt to adjust sales terms as appropriate. Despite these efforts, a
bankruptcy filing by a significant customer could have a material adverse effect
on our business, financial condition and results of operations.
SUPPLY AGREEMENT WITH KMART
In January 1997, we entered into a seven-year major supply agreement with
Kmart for Kmart to purchase, distribute, market and sell a broad range of
kitchen and small household electrical appliances under the
White-Westinghouse(R) brand name licensed to us by White Consolidated
Industries, Inc. ("WCI"). Kmart is the exclusive discount department store to
market these White-Westinghouse(R) products.
The initial term of the supply agreement between us and Kmart is through
June 30, 2004; however, the agreement allows for termination prior to such time
for specified reasons, including (1) the termination of a supply agreement
between Kmart and Newtech Electronics Industries, Inc. ("Newtech"), a 50%
subsidiary of Windmere, and (2) without cause after June 30, 2002, by giving
advance written notice. The supply agreement between Kmart and Newtech covers
certain consumer electronic products sold under the White-Westinghouse(R) name
and has an initial term and termination provisions which are substantially
identical to those in Salton's supply agreement with Kmart. We have no interest
in Newtech or Newtech's supply agreement with Kmart. The termination of the
supply agreement between Kmart and Newtech would nonetheless give Kmart the
right to terminate the supply agreement between us and Kmart. Furthermore, the
supply agreement between us and Kmart allows Kmart to terminate the agreement on
the basis of any claim which Kmart reasonably believes impairs or would impair
Kmart's ability to receive the benefits of its supply agreement with us or
Newtech, whether relating to any or all products. Although the Trademark
Litigation (as defined in the next paragraph) was pending prior to the execution
of the supply agreement between us and Kmart, if Kmart were to view the
Trademark Litigation as a claim which it reasonably believes would impair its
ability to receive the benefits of its agreement with us or Newtech, it could
terminate the supply agreement between us and Kmart. During fiscal 1998, Kmart
purchased approximately $58.9 million of products from us, which accounted for
approximately 19% of our net sales. The termination of the supply agreement
between us and Kmart, or any significant modification thereof, could have a
material adverse effect on our business, financial condition and results of
operations.
TRADEMARK LITIGATION
In November 1996, WCI filed suit for injunctive relief and damages against
Westinghouse Electric Corporation (now known as CBS Corporation ("CBS")) in the
United States District Court for the Northern District of Ohio alleging that
CBS's grant of licenses to the Westinghouse(TM) name for use on lighting
products, fans and electrical accessories for use in the home violates WCI's
rights to the Westinghouse(TM) name and constitutes a breach of the agreements
under which CBS's predecessor sold WCI its appliance business and licensed
certain trademark rights in 1975. In response to that suit, CBS filed a related
action in December 1996 in the United States District Court for the Western
District of Pennsylvania, naming WCI, Windmere, Salton, Newtech and certain
other parties as defendants. The two actions have now been consolidated in the
Pennsylvania court (the "Trademark Litigation"). A trial date of June 21, 1999
has been set by the court. CBS seeks an injunction prohibiting us, Newtech and
WCI from using the White-Westinghouse(R)name on products not specifically
enumerated in the sale documents between CBS's predecessor and WCI, and
unspecified damages and attorneys' fees. An adverse decision in the Trademark
Litigation could result in us and Newtech being limited in further use of the
White-Westinghouse(R) name and therefore the possible termination or significant
modification of the supply agreement between us and Kmart.
The legal costs that may be incurred in defending against this action could
be substantial. In addition, the litigation could be protracted and result in
diversion of management and other resources. WCI is currently defending us in
this action. We cannot assure you that WCI will prevail in its lawsuit, or that
WCI, Salton and their other co-defendants will prevail in their defense of CBS's
lawsuit. In the event that
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a favorable outcome for us is not obtained, we intend to vigorously pursue our
right to indemnification under indemnification provisions in the license
agreements between WCI and us relating to the White-Westinghouse(R) brand name.
We cannot assure you that WCI will agree on the scope of the indemnity, or that
any such indemnity payment which may become due to us will be paid fully or in a
timely fashion or at all.
Related proceedings have also been commenced before the Trademark Trial and
Appeal Board (the "Trademark Board") of the United States Patent and Trademark
Office in opposition to WCI's and CBS's efforts to register certain uses of the
Westinghouse(TM) and White-Westinghouse(R) names. Such proceedings have been
stayed pending resolution of the Trademark Litigation in the Pennsylvania court.
Even if the Trademark Litigation is resolved in our favor, it is possible that
the proceedings before the Trademark Board will continue and could have a
material adverse effect upon our business, financial condition and results of
operations. See "Business -- Legal Proceedings."
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
We continue to look for opportunities to acquire businesses and product
lines that fit within our acquisition strategy. To that end, we have had, and
continue to have, discussions with acquisition candidates. The level of this
activity will vary from time to time depending on the type of acquisition
candidates we identify. Our ability to accomplish our strategy will depend upon
a number of factors including, among other things, our ability to identify
acceptable acquisition candidates, to acquire the necessary funds for such
acquisitions, to consummate such acquisitions on terms favorable to us and to
promptly and profitably integrate the acquired operations into our operations.
See "Business -- Business Strategy."
Acquiring additional businesses and product lines may require additional
capital and the consent of our lenders and may have a significant impact on our
financial position and results of operations. Any such acquisitions may involve
the issuance of additional debt, subject to certain restrictions in the
indenture governing the notes and the New Credit Agreement. Acquisitions could
result in substantial amortization charges from the accumulation of goodwill and
other intangible assets which could reduce reported earnings. We cannot assure
you that we will be successful in identifying acceptable acquisition candidates
or that any acquired operations will be profitable or will be successfully
integrated or that any such future acquisitions will not materially and
adversely affect our business, financial condition and results of operations.
Opportunities for growth through acquisitions, future operating results and the
success of acquisitions may be subject to the effects of, and changes in, United
States and foreign trade and monetary policies, laws and regulations, political
and economic developments, inflation rates, and the effect of taxes and
operating conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
COMPETITION
The markets for our products are highly competitive. We believe that
competition is based upon several factors, including price, access to retail
shelf space, product features and enhancements, brand names, new product
introductions, marketing support and distribution approaches. We compete with
established companies, a number of which have substantially greater facilities,
personnel, financial and other resources than we have. We cannot assure you that
significant new competitors or increased competition from existing competitors
will not adversely affect our business, financial condition and results of
operations. See "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
Our continued success will depend significantly on the efforts and
abilities of our executive officers: David C. Sabin, Chairman; Leonhard
Dreimann, Chief Executive Officer; and William B. Rue, President, Chief
Operating Officer and Chief Financial Officer. In connection with the
Recapitalization, Messrs. Sabin, Dreimann and Rue entered into new employment
agreements with Salton which provide for
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their continued employment in their present capacities. The loss of the services
of one or more of these individuals could have a material adverse effect on our
business. In addition, as our business develops and expands, we believe that our
future success will depend greatly on our ability to attract and retain highly
qualified and skilled personnel. We do not have, and do not intend to obtain,
key-man life insurance on our executive officers. See "Management -- Employment
Agreements."
CONCENTRATION OF OWNERSHIP
As of December 28, 1998, Centre Partners and its affiliates owned 213,700
shares of our common stock and 40,000 shares of Convertible Preferred Stock,
which are currently convertible into 2,352,941 shares of our common stock. Each
holder of the Convertible Preferred Stock is entitled to one vote for each share
of our common stock which such holder could receive upon conversion of the
Convertible Preferred Stock. Accordingly, Centre Partners and its affiliates
currently hold approximately 28.8% of the total voting power of the Company. As
of December 28, 1998, our executive officers and entities affiliated with these
officers owned in the aggregate approximately 11.2% of the outstanding shares of
our common stock (assuming conversion of the outstanding Convertible Preferred
Stock, but excluding outstanding options). Consequently, in the event that these
stockholders vote together, they will be able to exercise significant influence
with respect to the election of directors or major corporate transactions such
as a merger or sale of all or substantially all of our assets, which
transactions may result in a change of control event under the indenture
governing the notes. Pursuant to the Preferred Stock Agreement, Centre Partners
generally has the right to designate two directors as long as it and its
affiliates own at least 12.5% of the total voting power of the Company and one
director as long as it and its affiliates own at least 7.5% of the total voting
power of the Company. The interests of our stockholders may conflict with the
interests of holders of the notes in certain circumstances. See "Share
Ownership."
SEASONALITY OF BUSINESS
Our business is highly seasonal, with operating results varying from
quarter to quarter. We have historically experienced higher sales during the
months of August through November primarily due to increased demand by customers
for our products attributable to holiday sales. This seasonality has also
resulted in additional interest expense for us during this period due to an
increased need to borrow funds to maintain sufficient working capital to finance
product purchases and customer receivables for the seasonal period. Lower sales
than expected by us during this period, a lack of availability of product, a
general economic downturn in retail sales or the inability to service additional
interest expense due to increased borrowings could have a material adverse
effect on our business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON TRADEMARKS
We believe that our rights in owned and licensed names are a significant
part of our business and that our ability to create demand for our products is
dependent to a large extent on our ability to exploit these trademarks. There
can be no assurance as to the breadth or degree of protection that these
trademarks may afford us, or that we will be able to successfully exploit our
trademarks in the future. Any inability to do so, particularly with respect to
names in which we have made significant capital investments, could have a
material adverse effect on our business, financial condition and results of
operations. In addition, because our business strategy is heavily dependent upon
the use of brand names, adverse publicity with respect to products that are not
sold by us, but bear the brand names used by us could have a material adverse
effect on our business, financial condition and results of operations. See
"Business -- Trademarks, Patents and Licensing Arrangements" and " -- Legal
Proceedings."
RISKS OF PROTECTION OF PROPRIETARY TECHNOLOGY
We have filed applications or obtained licenses for patents and design
registrations in the United States and in several foreign countries. With
respect to our applications for patents, we cannot assure you
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that any patents will be obtained. If obtained, we cannot assure you that such
patents will afford us commercially significant protection of our technologies
or that we will have adequate resources to enforce our patents. Patent
applications in the United States are maintained in secrecy until patents are
issued, and since publication of discoveries in the scientific or patent
literature tends to lag behind actual discoveries by several months, we cannot
be certain that we will be the first creator of inventions covered by any patent
application we file or the first to file patent applications on such inventions.
Competitors in both the United States and foreign countries, many of which
have substantially greater resources and have made substantial investments in
competing technologies, may have applied for or obtained, or may in the future
apply for and obtain, patents that will prevent, limit or otherwise interfere
with our ability to make and sell our products. We have not conducted an
independent review of patents issued to third parties. Although we believe that
our products do not infringe the patents or other proprietary rights of third
parties, we cannot assure you that other parties will not assert infringement
claims against us or that such claims will not be successful. There can also be
no assurance that competitors will not infringe on any patents obtained by us.
Defense and prosecution of patent suits, even if successful, are both costly and
time consuming. An adverse outcome in the defense of a patent suit could subject
us to significant liabilities to third parties, require disputed rights to be
licensed from third parties on potentially unfavorable terms or require us to
cease selling our products.
We also rely on unpatented proprietary technology and there can be no
assurance that others may not independently develop the same or similar
technology or otherwise obtain access to our unpatented technology. If we are
unable to maintain the proprietary nature of our technologies, our business,
financial condition and results of operations could be materially adversely
affected. See "Business -- Trademarks, Patents and Licensing Arrangements."
PRODUCT LIABILITY
We face exposure to product recalls and product liability claims in the
event that our products are alleged to have manufacturing or safety defects or
to have resulted in injury or other adverse effects. Although we maintain
product liability insurance in amounts that we believe are reasonable, we cannot
assure you that we will be able to maintain our product liability insurance on
acceptable terms, if at all, in the future or that product liability claims will
not exceed the amount of our insurance coverage. We do not maintain product
recall insurance. As a result, we cannot assure you that product recalls and
product liability claims will not have a material adverse effect on our
business, financial condition and results of operations. See "Business -- Legal
Proceedings."
GOVERNMENT REGULATION
Most federal, state and local authorities require Underwriters Laboratory,
Inc., an independent, not-for-profit corporation engaged in the testing of
products for compliance with certain public safety standards, or other safety
regulation certification prior to marketing electrical appliances. We cannot
assure you that our products, or additional electrical appliances which may be
developed by us, will meet the specifications required by these authorities. A
determination that we are not in compliance with such rules and regulations
could result in the imposition of fines or an award of damages to private
litigants. These and other initiatives could have a material adverse effect on
our business, financial condition and results of operations. See
"Business -- Regulation."
RISKS RELATING TO YEAR 2000
Many computer and other software and hardware systems currently are not, or
will or may not be, able to read, calculate or output correctly using dates
after 1999, and such systems will require significant modifications in order to
be "year 2000 compliant." This issue may have a material adverse affect on our
business, financial condition and results of operations because our computer and
other systems are integral parts of our distribution activities as well as our
accounting and other information systems and because we will have to divert
financial resources and personnel to address this issue.
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We have reviewed our computer and other hardware and software systems and
have recently begun upgrading those systems that we have identified as not being
year 2000 compliant. The existing systems will be upgraded either through
modification or, as a contingency, replacement. We currently anticipate that we
will upgrade and complete testing of the upgrades by the end of fiscal 1999.
Although we are not aware of any material operational impediments
associated with upgrading our computer and other hardware and software systems
to be year 2000 compliant, we cannot make any assurances that the upgrade of our
computer systems will be completed on schedule or that the upgraded systems will
be free of defects. If any such risks materialize, we could experience material
adverse consequences to our business, financial condition and results of
operations.
Year 2000 compliance may also adversely affect our business, financial
condition and results of operations indirectly by causing complications of, or
otherwise affecting, the operations of any one or more of our suppliers and
customers. We have contacted our significant suppliers and certain of our
customers in an attempt to identify any potential year 2000 compliance issues
with them. We currently believe that our major suppliers have made significant
progress with respect to year 2000 compliance issues. We are currently unable to
anticipate the magnitude of the operational or financial impact on us of year
2000 compliance issues with our customers even though we know that these
customers have implemented significant programs with respect to year 2000
compliance issues.
We incurred approximately $765,000 through fiscal 1998 and expect to incur
approximately $135,000 through fiscal 1999 to resolve and test our year 2000
compliance issues. All expenses incurred in connection with year 2000 compliance
will be expensed as incurred, other than acquisitions of new software or
hardware, which will be capitalized.
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USE OF PROCEEDS
There will be no cash proceeds payable to the Company from the issuance of
the new notes pursuant to the Exchange Offer. The Company used the aggregate
gross proceeds of the Financing:
- to repay approximately $90.0 million of outstanding indebtedness under
the Tranche A Term Loan;
- to repay outstanding indebtedness under the Revolving Credit Facility,
which totalled $20.0 million as of September 26, 1998;
- to repay $0.8 million of accrued interest on the outstanding indebtedness
being repaid;
- to pay fees and expenses of approximately $4.1 million incurred in
connection with this offering; and
- the balance of approximately $10.1 million will be used for working
capital and general corporate purposes.
See "Summary -- The Financing," "Description of Preferred Stock and Certain
Indebtedness -- New Credit Agreement," "Capitalization," and "Pro Forma
Condensed Consolidated Financial Information." Following the repayment of the
Tranche A Term Loan, such facility was permanently terminated. See "Description
of Preferred Stock and Certain Indebtedness -- New Credit Agreement."
The Tranche A Term Loan repaid out of the proceeds of the Financing was
incurred to finance the Stock Repurchase and the Option Repurchase. The Tranche
A Term Loan bears interest at an established base rate (equivalent to the prime
rate of interest) plus an applicable margin or, at the Company's election, a
eurodollar rate (equivalent to the LIBOR rate) plus an applicable margin based
on a range of ratios of total debt to earnings before interest, taxes,
depreciation and amortization. At September 26, 1998, the base rate plus
applicable margin was 9.6% and the eurodollar rate plus applicable margin was
7.8%. The Tranche A Term Loan matures in twenty consecutive quarterly
installments commencing on September 30, 1998. See "Description of Preferred
Stock and Certain Indebtedness -- New Credit Agreement". An affiliate of Lehman
Brothers Inc., the Initial Purchaser, is the arranger and syndication agent of
the New Credit Agreement and received a majority of the net proceeds as a result
of the repayment. See "Plan of Distribution."
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THE EXCHANGE OFFER
GENERAL
In connection with the sale of the outstanding notes (the "Old Notes"), the
purchasers thereof became entitled to the benefits of certain registration
rights. Pursuant to the registration rights agreement executed as part of the
Financing (the "Registration Rights Agreement"), the Company agreed to (i) file
the Registration Statement of which this Prospectus is a part with respect to
the exchange of the Old Notes for the new notes to be issued in the Exchange
Offer (the "New Notes," and together with the Old Notes, the "Notes") with the
Commission on or prior to 60 days after the date of original issue of the Old
Notes, (ii) use its best efforts to have the Registration Statement declared
effective by the Commission on or prior to 120 days after the original issue of
the Old Notes, (iii) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, commence the Exchange Offer and use its
best efforts to issue on or prior to 30 business days after the date on which
the Registration Statement was declared effective by the Commission, the New
Notes. The New Notes have terms identical in all material respects to the terms
of the Old Notes. However, if (i) the Company is not required to file the
Registration Statement or permitted to consummate the Exchange Offer because the
Exchange Offer is not permitted by applicable law or Commission policy or (ii)
any Holder of the Old Notes other than the initial purchaser notifies the
Company prior to the 20th day following consummation of the Exchange Offer that
(A) it is prohibited by law or Commission policy from participating in the
Exchange Offer or (B) that it may not resell the New Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the prospectus
contained in the Registration Statement is not appropriate or available for such
resales or (C) that it is a broker-dealer and owns Notes acquired directly from
the Company or an affiliate of the Company, the Company has agreed to file with
the Commission a Shelf Registration Statement to cover resales of the Notes by
the Holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. The Company has
also agreed that if (i) the Company fails to file any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (ii) any of such Registration Statements is not
declared effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), or (iii) the Company fails to
consummate the Exchange Offer within 30 business days of the Effective Target
Date with respect to the Registration Statement, or (iv) the Shelf Registration
Statement or the Registration Statement is declared effective but thereafter
ceases to be effective or usable during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (i)
through (iv) above a "Registration Default"), then the Company will pay
Liquidated Damages to each Holder of Old Notes, with respect to the first 90-day
period immediately following the occurrence of the first Registration Default in
an amount equal to $.05 per week per $1,000 principal amount of Old Notes held
by such Holder. The amount of the Liquidated Damages will increase by an
additional $.05 per week per $1,000 principal amount of Old Notes with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of $.50 per week per $1,000
principal amount of Old Notes.
In the event the Exchange Offer is consummated, the Company will not be
required to file a Shelf Registration Statement relating to any outstanding Old
Notes other than those held by persons not eligible to participate in the
Exchange Offer, and the interest rate on such Old Notes will remain at its
initial level of 10 3/4%. The Exchange Offer shall be deemed to have been
consummated upon the earlier to occur of (i) the Company having exchanged New
Notes for all outstanding Old Notes (other than Old Notes held by persons not
eligible to participate in the Exchange Offer) pursuant to the Exchange Offer
and (ii) the Company having exchanged, pursuant to the Exchange Offer, New Notes
for all Old Notes that have been tendered and not withdrawn on the Expiration
Date. Upon consummation, holders of Old Notes seeking liquidity in their
investment would have to rely on exemptions to registration requirements under
the securities laws, including the Securities Act. See "Risk
Factors -- Consequences of Failure to Exchange."
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all Old
Notes validly tendered prior to 5:00 p.m., New
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York City time, on the Expiration Date. The Company will issue $ 1,000 principal
amount of New Notes in exchange for each $1,000 principal amount of outstanding
Old Notes accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer in denominations of $1,000 and
integral multiples thereof.
Based on no-action letters issued by the staff of the Commission to third
parties, the Company believes that the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than (i) a broker-dealer who purchased
such Old Notes directly from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act or (ii) a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that the holder is acquiring the
New Notes in its ordinary course of business and is not participating, and has
no arrangements or understanding with any person to participate, in the
distribution of the New Notes. Holders of Old Notes wishing to accept the
Exchange Offer must represent to the Company that such conditions have been met.
Each broker-dealer that receives New Notes in exchange for Old Notes held
for its own account, as a result of market-making or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any resale
of such New Notes. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, such broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. The Prospectus,
as it may be amended or supplemented from time to time, may be used by such
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus and any amendment or supplement to
this Prospectus available to any such broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
As of the date of this Prospectus, $125 million aggregate principal amount
of the Old Notes is outstanding. In connection with the issuance of the Old
Notes, the Company arranged for the Old Notes initially purchased by Qualified
Institutional Buyers to be issued and transferable in book-entry form through
the facilities of DTC, acting as depositary. The New Notes will also be issuable
and transferable in book-entry form through DTC.
This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of , 1999 (the "Record Date").
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. See "-- Exchange Agent." The Exchange Agent will act as agent
for the tendering holders of Old Notes for the purpose of receiving New Notes
from the Company and delivering New Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expenses, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."
EXPIRATION DATES; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean , 1999 unless the Company,
in its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
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In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and to refuse to
accept Old Notes not previously accepted, if any of the conditions set forth
herein under "-- Termination" shall have occurred and shall not have been waived
by the Company (if permitted to be waived by the Company), by giving oral or
written notice of such delay, extension or termination to the Exchange Agent,
and (ii) to amend the terms of the Exchange Offer in any manner deemed by it to
be advantageous to the holders of the Old Notes. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment in a manner reasonably calculated to inform the
holders of the Old Notes of such amendment.
Without limiting the manner by which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones New Service.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from December 16, 1998, payable
semiannually on December 15 and June 15 of each year commencing on June 15,
1999, at the rate of 10 3/4% per annum. Holders of Old Notes whose Old Notes are
accepted for exchange will be deemed to have waived the right to receive any
payment in respect of interest on the Old Notes accrued from December 16, 1998
until the date of the issuance of the New Notes. Consequently, holders who
exchange their Old Notes for New Notes will receive the same interest payment on
June 15, 1999 (the first interest payment date with respect to the Old Notes and
the New Notes) that they would have received had they not accepted the Exchange
Offer. Procedure for Tendering
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes (unless such tender is being effected pursuant to the procedure for
book-entry transfer described below) and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedure for such transfer. Although delivery of Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account DTC, the Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received or confirmed by the Exchange Agent at its addresses
set forth herein under "-- Exchange Agent" prior to 5:00 p.m., New York City
time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH
ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder of Old Notes will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
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Delivery of all documents must be made to the Exchange Agent at its address
set forth herein. Holders may also requests that their respective brokers,
dealers, commercial banks, trust companies or nominees effect such tender for
such holders.
The method of delivery of Old Notes and the Letters of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Old Notes should
be sent to the Company.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder, or
any person whose Old Notes are held of record by DTC who desires to deliver such
Old Notes by book-entry transfer at DTC.
Any beneficial holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial holder wishes to
tender on his own behalf, such beneficial holder must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such holder's
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be Guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office of correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution") unless the Old Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by appropriate bond powers which authorize such person
to tender the Old Notes on behalf of the registered holder, in either case
signed as the name of the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All the questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by the Company in its sole discretion, which determinations will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not validly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive any irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived any defects
or irregularities in connection with tenders of Old Notes must be cured within
such time as the Company shall determine. Neither the Company, the Exchange
Agent nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Old Notes nor shall any of
them incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
39
<PAGE> 41
property tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost by the Exchange Agent to the
tendering holder of such Old Notes unless otherwise provided in the Letter of
Transmittal, as soon as practicable flowing the Expiration Date.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date, or, as set forth under "Termination," to terminate the
Exchange Offer and (b) to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers may differ from the terms of the Exchange
Offer.
By tendering, each holder of Old Notes will represent to the Company that
among other things, the New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the person receiving such
New Notes, whether or not such person is the holder, that neither the Holder nor
any other person has an arrangement or understanding with any person to
participate in the distribution of the New Notes and that neither the holder nor
any such other person is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act.
GUARANTEED DELIVERY PROCEDURE
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal, or any other required documents to the Exchange Agent prior to the
Expiration Date, or if such Holder cannot complete the procedure for book-entry
transfer on a timely basis, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duty executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of
Old Notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within five business days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof), together with the
certificate(s) representing the Old Notes to be tendered in proper form for
transfer and any other documents required by the Letter of Transmittal,
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer into the Exchange Agent's account at DTC of Old Notes
delivered electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five business days
after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day prior to
the Expiration Date, unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the business day, prior to the Expiration Date and prior to acceptance for
exchange thereof by the Company. Any such notice of withdrawal must (i) specify
the name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old Notes), (iii) be
signed by the Depositor in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfers
sufficient to permit the Trustee with respect to the Old Notes to register the
transfer of such Old Notes into the name of the Depositor withdrawing the tender
and (iv) specify the
40
<PAGE> 42
name in which any such Old Notes are to be registered, if different from that of
the Depositor. All questions as to the validity, form and eligibility (including
time of receipt) for such withdrawal notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no New Notes will be issued with respect thereto unless the
Old Notes so withdrawn are validly tendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Notes may be tendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange New Notes for, any Old Notes not
therefore accepted for exchange, and may terminate or amend the Exchange Offer
as provided herein before the acceptance of such Old Notes if: (i) any action or
proceeding is instituted or threatened in any court or by or before any
governmental agency with respect to the Exchange Offer, which, in the Company's
judgment, might materially impair the Company's ability to proceed with the
Exchange Offer or (ii) any law, statute, rule or regulation is proposed, adopted
or enacted, or any existing law, statute rule or regulation is interpreted by
the staff of the Commission or court of competent jurisdiction in a manner,
which, in the Company's judgment, might materially impair the Company's ability
to proceed with the Exchange Offer.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Old Notes and return any
Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration of the
Exchange Offer, subject to the rights of such holders of tendered Old Notes to
withdraw their tendered Old Notes, or (iii) waive such termination event with
respect to the Exchange Offer and accept all property tendered Old Notes that
have not been withdrawn. If such waiver constitutes a material change in the
Exchange Offer, the Company will disclose such change by means of a supplement
to this Prospectus that will be distributed to each registered holder of Old
Notes and the Company will extend the Exchange Offer for a period of five to ten
business days, depending upon the significance of the waiver and the manner of
disclosure to the registered holders of the Old Notes, if the Exchange Offer
would otherwise expire during such period.
EXCHANGE AGENT
Norwest Bank Minnesota, National Association, the Trustee under the
indenture governing the Notes (the "Indenture"), has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance and requests
for additional copies of this Prospectus or of the Letter of Transmittal should
be directed to the Exchange Agent addressed as follows:
By Mail or Hand Delivery:
----------------------------------------------
----------------------------------------------
----------------------------------------------
Attention: Corporation Trust Trustee Administration
Facsimile Transmission:
--------------------------------------------------
Confirm by Telephone:
--------------------------------------------------
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional
41
<PAGE> 43
solicitations may be made by officers and regular employees of the Company and
its affiliates in person, by telegraph or telephone.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus, Letters of Transmittal and related
documents to the beneficial owners of the Old Notes and in handling or
forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other person) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizing the federal income tax consequences of
the Exchange Offer reflects the opinion of Sonnenschein Nath & Rosenthal,
counsel to the Company, as to material federal income tax consequences expected
to result from the Exchange Offer. An opinion of counsel is not binding on the
Internal Revenue Service ("IRS") or the courts, and there can be no assurances
that the IRS will not take, and that a court would not sustain, a position to
the contrary to that described below. Moreover, the following discussion does
not constitute comprehensive tax advice to any particular Holder of Old Notes.
The summary is based on the current provisions of the Internal Revenue Code of
1986, as amended, and applicable Treasure regulations, judicial authority and
administrative pronouncements. The tax consequences described below could be
modified by future changes in the relevant law, which could have retroactive
effect. Each Holder of Old Notes should consult its own tax advisor as to these
and any other federal income tax consequences of the Exchange Offer as well as
any tax consequences to it under foreign, state, local or other law.
In the opinion of Sonnenschein Nath & Rosenthal, exchanges of Old Notes for
New Notes pursuant to the Exchange Offer will be treated as a modification of
the Old Notes that does not constitute a material change in their terms, and the
Company intends to treat the exchanges in that manner. Therefore an exchanging
Holder, will not recognize any gain or loss, in respect of an exchange of an Old
Note for a New Note, and such Holder's basis and holding period in the New Note
will be the same as such Holder's basis and holding period in the Old Note. The
Exchange Offer will result in no federal income tax consequences to a
non-exchanging Holder.
42
<PAGE> 44
CAPITALIZATION
The following table sets forth as of September 26, 1998: (1) the historical
capitalization of the Company; (2) the unaudited pro forma capitalization of the
Company after giving effect to the Financing; and (3) the unaudited pro forma
capitalization of the Company after giving effect to the Financing and the
Toastmaster Acquisition. The actual debt amount incurred by the Company to
finance the Toastmaster Acquisition may differ from the amount set forth below.
This table should be read in conjunction with the financial statements, and the
related notes thereto, included elsewhere herein. See "Summary," "Use of
Proceeds," "Pro Forma Condensed Consolidated Financial Information" and
"Selected Historical Financial and Other Data."
<TABLE>
<CAPTION>
AT SEPTEMBER 26, 1998
--------------------------------------
ADJUSTED FOR
--------------------------
FINANCING AND
TOASTMASTER
ACTUAL FINANCING ACQUISITION
-------- --------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Cash and cash equivalents............................... $ 1,017 $ 11,120 $ --
======== ======== ========
Total debt (including current maturities):
New Credit Agreement:(1)
Tranche A Term Loan.............................. 90,000 -- --
Delayed Draw Term Loan/Tranche B Term Loan(2).... -- -- 45,000
Revolving Credit Facility........................ 20,000 -- 54,539
10 3/4% Senior Subordinated Notes due 2005............ -- 125,000 125,000
4% Junior Subordinated Note........................... 8,907 8,907 8,907
-------- -------- --------
Total debt.................................... 118,907 133,907 233,446
-------- -------- --------
Stockholders' equity:
Convertible Preferred Stock...........................
Common stock.......................................... 131 131 131
Treasury stock........................................ (90,804) (90,804) (90,804)
Paid-in capital....................................... 90,484 90,484 90,484
Retained earnings..................................... 25,766 25,766 25,766
-------- -------- --------
Total stockholders' equity.................... 25,577 25,577 25,577
-------- -------- --------
Total capitalization.................................... $144,484 $159,484 $259,023
======== ======== ========
</TABLE>
- -------------------------
(1) Represents commitments of up to $125.0 million under the New Credit
Agreement, consisting of a $75.0 million Delayed Draw Term Loan and a $50.0
million Revolving Credit Facility.
(2) Pursuant to the Commitment Letter, the Company expects that the New Credit
Agreement will be amended and restated prior to the consummation of the
Toastmaster Acquisition to: (i) replace the $75.0 million Delayed Draw Term
Loan with a $45.0 million Tranche B Term Loan; and (ii) increase the
Revolving Credit Facility to $80.0 million.
43
<PAGE> 45
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following presents certain unaudited pro forma condensed consolidated
financial information of the Company for the periods ended and as of the dates
indicated. The unaudited pro forma condensed consolidated statement of
operations data for the fiscal year ended June 27, 1998 give effect to (1) the
Recapitalization and the Financing and (2) the Recapitalization, the Financing
and the Toastmaster Acquisition, in each case as if such transactions had
occurred on June 29, 1997. The unaudited pro forma condensed consolidated
statement of operations data for the thirteen weeks ended September 26, 1998
give effect to (1) the Financing and (2) the Financing and the Toastmaster
Acquisition, in each case as if such transactions had occurred on June 29, 1997.
The unaudited pro forma condensed consolidated balance sheet data gives effect
to (1) the Financing and (2) the Financing and the Toastmaster Acquisition, in
each case as if they had occurred on September 26, 1998.
The unaudited pro forma condensed consolidated financial information set
forth below reflects pro forma adjustments that are based upon available
information and certain assumptions that the Company believes are reasonable.
The pro forma financial information is for informational purposes only and does
not purport to represent what the Company's results of operations or financial
position would have actually been had the transactions to which pro forma effect
is given been consummated as of the dates or for the periods indicated. In
preparing the pro forma financial information, the Company believes it has
utilized reasonable methods to conform the basis of presentation of each of
Salton's and Toastmaster's historical financial statements. The Toastmaster
Acquisition has been accounted for herein by the purchase method of accounting.
The pro forma information reflects preliminary estimates of the allocation of
the purchase price and is subject to final determination. The pro forma
information does not reflect cost savings expected by the Company's management
to be achieved over time following the Toastmaster Acquisition. These cost
savings include: (1) more favorable product pricing and other terms through the
outsourcing of products overseas; and (2) advertising, ocean freight,
warehousing and corporate overhead expenses. Salton's ability to recognize
certain of these cost savings will depend to a significant extent on its ability
to successfully integrate the operations of Salton and Toastmaster and other
factors, including economic conditions and the retail environment. See "Risk
Factors -- Risks Relating to the Company -- Risks Relating to the Toastmaster
Acquisition."
The pro forma financial statements and accompanying notes should be read in
conjunction with the historical financial statements, including the notes
thereto, of the Company and of Toastmaster and with other financial information
pertaining to the Company including "Use of Proceeds," "Capitalization,"
"Selected Historical Financial and Other Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
44
<PAGE> 46
SALTON/MAXIM HOUSEWARES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 26, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA FOR
PRO FORMA ADJUSTMENTS FOR FINANCING AND
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL TOASTMASTER TOASTMASTER
SALTON(1) FOR FINANCING FOR FINANCING TOASTMASTER(2) ACQUISITION ACQUISITION
---------- ------------- ------------- -------------- --------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash....................... $ 1,017 $125,000(3) $ 11,120 $ 356 $ 45,000(5) $ --
(20,000)(3) 54,539(5)
(4,088)(3) (53,200)(5)
(90,000)(3) (50,135)(5)
(809)(3) (2,054)(5)
(5,297)(5)
(329)(5)
Accounts receivable, net
allowances............... 65,708 -- 65,708 34,903 -- 100,611
Inventories................ 93,151 -- 93,151 46,110 792(4) 140,053
Prepaid expenses and other
current assets........... 2,668 -- 2,668 2,077 -- 4,745
Income taxes receivable.... -- -- -- 5,645 -- 5,645
Deferred tax assets........ 4,213 -- 4,213 -- (1,773)(10) 2,440
-------- -------- -------- -------- -------- --------
Total current
assets............. 166,757 10,103 176,860 89,091 (12,547) 253,494
Property, plant and
equipment.................. 23,154 -- 23,154 51,289 -- 74,443
Less accumulated
depreciation............... (15,180) -- (15,180) (34,214) -- (49,394)
-------- -------- -------- -------- -------- --------
Net property, plant and
equipment................ 7,974 -- 7,974 17,075 -- 25,049
Intangibles, net and other
assets..................... 8,797 4,088(3) 12,885 6,310 27,343(6) 44,033
(2,505)(7)
-------- -------- -------- -------- -------- --------
Total assets......... $183,528 $ 14,191 $197,719 $112,476 $ 12,381 $322,576
======== ======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current Liabilities:
Accounts payable........... $ 21,787 $ -- $ 21,787 $ 7,812 $ -- $ 29,599
Accrued expenses........... 16,690 (809)(3) 15,881 12,138 671(9) 28,690
Revolving line of credit... 20,000 (20,000)(3) -- -- 54,539(5) 54,539
Current portion of long
term debt................ 5,000 (5,000)(3) -- 2,054 (2,054)(5) --
Deferred income taxes...... -- -- -- 1,456 (1,456)(10) --
-------- -------- -------- -------- -------- --------
Total current
liabilities........ 63,477 (25,809) 37,668 23,460 51,700 112,828
Non-current deferred tax
liability.................. 567 -- 567 801 (909)(8) 459
Other non-current
liabilities................ -- -- -- 805 4,000(9) 4,805
Long term debt............... 85,000 125,000(3) 125,000 50,135 (50,135)(5) 170,000
(85,000)(3) 45,000(5)
Note payable to Windmere..... 8,907 -- 8,907 -- -- 8,907
-------- -------- -------- -------- -------- --------
Total liabilities.... 157,951 14,191 172,142 75,201 49,656 296,999
Stockholders' Equity:
Convertible preferred
stock....................
Common stock............... 131 -- 131 760 (760)(11) 131
Treasury stock............. (90,804) -- (90,804) (238) 238(11) (90,804)
Accumulated other
comprehensive income..... -- -- -- (492) 492(11) --
Additional paid-in
capital.................. 90,484 -- 90,484 25,340 (25,340)(11) 90,484
Retained earnings.......... 25,766 -- 25,766 11,905 (11,905)(11) 25,766
-------- -------- -------- -------- -------- --------
Total stockholders'
equity............. 25,577 -- 25,577 37,275 (37,275) 25,577
-------- -------- -------- -------- -------- --------
Total liabilities and
stockholders'
equity............. $183,528 $ 14,191 $197,719 $112,476 $ 12,381 $322,576
======== ======== ======== ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
45
<PAGE> 47
SALTON/MAXIM HOUSEWARES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND OTHER DATA
FISCAL YEAR ENDED JUNE 27, 1998
<TABLE>
<CAPTION>
PRO FORMA FOR
PRO FORMA PRO FORMA RECAPITALIZATION,
ADJUSTMENTS FOR PRO FORMA FOR ADJUSTMENTS FOR FINANCING AND
HISTORICAL RECAPITALIZATION RECAPITALIZATION HISTORICAL TOASTMASTER TOASTMASTER
SALTON(1) AND FINANCING AND FINANCING TOASTMASTER(2) ACQUISITION ACQUISITION
---------- ---------------- ---------------- -------------- --------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales:................ $305,599 -- $305,599 $159,602 -- $465,201
Cost of goods sold........ 179,376 (1,353)(12) 178,023 120,245 -- 298,268
Distribution expenses..... 12,327 -- 12,327 9,683 -- 22,010
-------- -------- -------- -------- ------- --------
Gross profit............ 113,896 1,353 115,249 29,674 -- 144,923
Selling, general and
administrative
expenses................ 84,216 -- 84,216 22,434 651(15) 106,401
(900)(16)
-------- -------- -------- -------- ------- --------
Operating income........ 29,680 1,353 31,033 7,240 249 38,522
Interest expense net...... (5,333) (10,250)(13) (15,583) (3,800) (4,088)(17) (23,471)
Other expense............. -- -- -- (785) -- (785)
Costs associated with
refinancing............. (1,133) -- (1,133) -- -- (1,133)
Realized gain on sale of
marketable securities... 8,972 -- 8,972 -- -- 8,972
-------- -------- -------- -------- ------- --------
Income before income
taxes................. 32,186 (8,897) 23,289 2,655 (3,839) 22,105
Income taxes (benefit).... 12,205 (3,381)(14) 8,824 806 (1,895)(14) 7,735
-------- -------- -------- -------- ------- --------
Net income.............. $ 19,981 $ (5,516) $ 14,465 $ 1,849 $(1,944) $ 14,370
======== ======== ======== ======== ======= ========
OTHER DATA:
EBITDA(18)................ $ 33,981 $ 35,334 $ 10,941 $ 47,175
EBITDA margin(19)......... 11.1% 11.6% 6.9% 10.1%
Depreciation and
amortization............ $ 4,301 $ 4,301 $ 3,701 $ 8,653
Cash interest
expense(20)............. 6,056 15,155 3,920 23,367
Capital expenditures...... 4,565 4,565 3,529 8,094
Ratio of EBITDA to cash
interest expense........ 2.3x 2.0x
Ratio of net debt to
EBITDA(21).............. 3.5x 4.9x
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
46
<PAGE> 48
SALTON/MAXIM HOUSEWARES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND OTHER DATA
THIRTEEN WEEKS ENDED SEPTEMBER 26, 1998
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR
PRO FORMA ADJUSTMENTS FOR FINANCING AND
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL TOASTMASTER TOASTMASTER
SALTON(1) FOR FINANCING FOR FINANCING TOASTMASTER(2) ACQUISITION ACQUISITION
---------- ------------- ------------- -------------- --------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales:.................... $104,388 -- $104,388 $38,875 -- $143,263
Cost of goods sold............ 55,004 -- 55,004 31,989 -- 86,993
Distribution expenses......... 3,609 -- 3,609 2,635 -- 6,244
-------- ------- -------- ------- ----- --------
Gross profit................ 45,775 -- 45,775 4,251 -- 50,026
Selling, general and
administrative expenses..... 27,780 -- 27,780 5,567 163(15) 33,260
(250)(16)
-------- ------- -------- ------- ----- --------
Operating income............ 17,995 -- 17,995 (1,316) 87 16,766
Interest expense net.......... (2,399) (1,386)(13) (3,785) (1,059) (992)(17) (5,836)
Other expense................. -- -- -- -- -- --
-------- ------- -------- ------- ----- --------
Income before income
taxes..................... 15,596 (1,386) 14,210 (2,375) (905) 10,930
Income taxes (benefit)........ 4,777 (527)(14) 4,250 (752) (472)(14) 3,026
-------- ------- -------- ------- ----- --------
Net income (loss)........... $ 10,819 $ (859) $ 9,960 $(1,623) $(433) $ 7,904
======== ======= ======== ======= ===== ========
OTHER DATA:
EBITDA(18).................... $ 19,239 $ 19,239 $ (352) $ 19,137
EBITDA margin(19)............. 18.4% 18.4% (.9)% 13.4%
Depreciation and
amortization................ $ 1,244 $ 1,244 $ 964 $ 2,371
Cash interest expense(20)..... 2,412 3,652 930 5,705
Capital expenditures.......... 589 589 246 835
Ratio of LTM EBITDA to cash
interest expense(22)........ 3.0x 2.2x
Ratio of net debt to LTM
EBITDA(21).................. 2.7x 4.4x
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
47
<PAGE> 49
SALTON/MAXIM HOUSEWARES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The unaudited pro forma condensed consolidated financial statements have
been adjusted for the items set forth below. Such adjustments with respect to
the Toastmaster Acquisition reflect management's preliminary assessments and
assumptions of the fair value of the assets acquired and the liabilities assumed
relating to the Toastmaster Acquisition and are therefore subject to adjustment
upon completion of the Company's planned due diligence procedures. Such
adjustments, however, are not expected to have a material impact on the
accompanying pro forma condensed consolidated financial statements. The
Toastmaster financial statements used to prepare the pro forma adjustments are
unaudited and have been conformed to the Company's fiscal period and basis of
presentation. Such conformed financial statements do not exclude from or include
more than once sales or income from any period.
1. Represents the historical financial position of the Company as of
September 26, 1998 and the consolidated results of operations for the
fiscal year ended June 27, 1998 and the thirteen weeks ended September
26, 1998. The Recapitalization occurred on July 28, 1998. Accordingly,
the historical financial position of the Company as of September 26,
1998 and the historical results of operations for the thirteen weeks
ended September 26, 1998, include the effects of the Recapitalization.
2. Represents the historical financial position of Toastmaster as of
September 30, 1998 and the consolidated results of operations for the
twelve months ended June 30, 1998 and the three months ended September
30, 1998.
BALANCE SHEET
3. Reflects the following in connection with the Financing: (a) the
receipt of aggregate gross proceeds of $125,000 from the issuance of
the Old Notes; (b) the payment and recording of $4,088 of deferred
financing fees and expenses relating to this offering and the New
Credit Agreement; (c) the repayment of the $90,000 Tranche A Term Loans
of which $5,000 is classified as the current portion of long-term debt;
(d) the repayment of $20,000 under the Revolving Credit Facility; and
(e) the payment of $809 of accrued interest.
4. Adjustment reflects the Company's estimate of the fair market value of
Toastmaster's inventories in accordance with Salton's accounting
policies. Salton accounts for inventories on a FIFO basis compared to
Toastmaster's historical practice of accounting for inventories on a
LIFO basis.
5. Reflects the following in connection with the Toastmaster Acquisition:
(a) the borrowing of $45,000 under the Tranche B Term Loan; (b) the
borrowing of $54,539 under the Revolving Credit Facility; (c) the cash
payment of $53,200 of the purchase price for Toastmaster; (d) the cash
payments of $50,135 and $2,054 to retire all of Toastmaster's
outstanding indebtedness under its revolving line and credit agreement
and mortgage, respectively; (e) the cash payment of $329 for accrued
interest on Toastmaster's outstanding indebtedness being repaid; and
(f) the cash payment of $5,297 for professional fees and certain
employee termination costs associated with the Toastmaster Acquisition.
48
<PAGE> 50
6. To eliminate Toastmaster's pre-existing goodwill balance of $3,181 and
to adjust to the excess of the purchase price of the Toastmaster
Acquisition over the fair value of the net assets acquired, which will
likely be recorded as goodwill. Goodwill is determined as follows:
<TABLE>
<S> <C>
Cash paid to Toastmaster shareholders....................... $53,200
Professional and finder's fees.............................. 7,225
Certain employee termination costs.......................... 3,072
-------
Total purchase price.............................. 63,497
Less estimated fair value of net assets acquired............ (32,973)
-------
Goodwill.................................................. $30,524
=======
</TABLE>
Goodwill is expected to be amortized on a straight-line basis over 40
years and other intangibles, primarily trademarks, from 20 to 40 years.
However management has yet to determine all identifiable intangible assets
and upon further investigation such assets may have differing determinable
lives. The Company will evaluate the net realizable value of intangible
assets on an ongoing basis relying on a number of factors, including
operating results and future undiscounted cash flows.
7. Reflects a reduction of Toastmaster deferred issuance costs associated
with the repayment of debt and the reduction of other assets to fair
market value.
8. Records noncurrent deferred tax asset related to the write-off of other
intangibles and records the net noncurrent deferred tax liability.
9. Reflects finder's fees to unaffiliated parties associated with the
Toastmaster Acquisition and cash payment for accrued interest on
Toastmaster outstanding indebtedness.
10. Records deferred tax liability related to the mark-up of Toastmaster's
inventory of $317 and reclassification of current deferred tax
liabilities to a reduction of current deferred tax assets of $1,456.
11. Reflects the elimination of Toastmaster's historical stockholders'
equity.
STATEMENT OF OPERATIONS
12. Reflects 5.0% of fiscal year 1998 purchases made by Salton from
Windmere which are recorded as a reduction in interest and principal
related to the Junior Subordinated Note and as an associated reduction
in cost of goods sold. During fiscal 1998, Salton purchased
approximately $27,100 of products from Windmere.
13. Interest expense is adjusted to reflect:
A. For fiscal year ended June 27, 1998 -
(1) $14,018 of cash interest expense resulting from the following
borrowings:
<TABLE>
<CAPTION>
ASSUMED
INTEREST INTEREST
DEBT INSTRUMENT AVERAGE PRINCIPAL RATE EXPENSE
--------------- ----------------- -------- --------
<S> <C> <C> <C>
The Notes.................................. $125,000 10.750% $13,438
Revolving Credit Facility.................. 8,436 6.875% 580
</TABLE>
(2) the elimination of $5,647 of historical interest incurred on
indebtedness outstanding under the Old Credit Agreement, which
indebtedness was paid in full in connection with the
Recapitalization.
(3) the amortization of financing costs of $1,151 over the life of
the indebtedness; and
(4) $728 of interest expense related to the Junior Subordinated Note.
49
<PAGE> 51
B. For thirteen weeks ended September 26, 1998 -
(1) $3,401 of cash interest expense resulting from the following
borrowings:
<TABLE>
<CAPTION>
ASSUMED
INTEREST INTEREST
DEBT INSTRUMENT AVERAGE PRINCIPAL RATE EXPENSE
--------------- ----------------- -------- --------
<S> <C> <C> <C>
The Notes........................................ $125,000 10.750% $3,359
Revolving Credit Facility........................ 2,453 6.875% 42
</TABLE>
(2) the elimination of (i) $360 of historical interest incurred on
indebtedness outstanding under the Old Credit Agreement, which
indebtedness was paid in full in connection with the
Recapitalization, and (ii) $1,801 of historical interest
incurred on indebtedness outstanding under the New Credit
Agreement.
(3) the amortization of financing of $146 over the life of the
indebtedness; and
14. Income tax expense is adjusted to reflect the income tax effects of pro
forma adjustments based upon an assumed tax rate of 38% and anticipated
permanent differences.
15. A. For fiscal year ended June 27, 1998
Reflects amortization of goodwill, less $112 of historical
Toastmaster goodwill amortization.
B. For thirteen weeks ended September 26, 1998
Reflects amortization of goodwill, less $28 of historical
Toastmaster goodwill amortization.
16. Eliminates salaries and benefits for certain executive officers of
Toastmaster whose employment will terminate upon consummation of the
Toastmaster Acquisition.
17. Interest expense is adjusted to reflect:
A. For fiscal year ended June 27, 1998 -
(1) $8,212 of cash interest resulting from the following borrowings:
<TABLE>
<CAPTION>
ASSUMED
INTEREST INTEREST
DEBT INSTRUMENT AVERAGE PRINCIPAL RATE EXPENSE
--------------- ----------------- -------- --------
<S> <C> <C> <C>
Tranche B Term Loan................................ $45,000 8.25% $3,713
Revolving Credit Facility.......................... $54,539 8.25% $4,499
</TABLE>
(2) the elimination of $4,124 of historical interest on the existing
Toastmaster debt.
B. For thirteen weeks ended September 26, 1998 -
(1) $2,053 of cash interest resulting from the following borrowings:
<TABLE>
<CAPTION>
ASSUMED
INTEREST INTEREST
DEBT INSTRUMENT AVERAGE PRINCIPAL RATE EXPENSE
--------------- ----------------- -------- --------
<S> <C> <C> <C>
Tranche B Term Loan................................ $45,000 8.25% $ 928
Revolving Credit Facility.......................... $54,539 8.25% $1,125
</TABLE>
(2) the elimination of $1,061 of historical interest on the existing
Toastmaster debt.
OTHER DATA
18. EBITDA represents operating income plus depreciation and amortization.
EBITDA is presented because it is a widely accepted measure to provide
information regarding a company's ability to pay interest, repay debt
or make capital expenditures. EBITDA should not be considered in
isolation or as a substitute for net income, cash flows from operations
or other income or cash flow data prepared in accordance with generally
accepted accounting principles, or as a measure of a company's
profitability or liquidity. Additionally, the Company's calculation of
EBITDA may differ from that performed by other companies, and thus the
amounts disclosed for EBITDA may not be directly comparable to
similarly titled measures disclosed by other companies.
19. EBITDA margin represents EBITDA as a percentage of net sales.
50
<PAGE> 52
20. Cash interest expense is defined as interest expense less amortization
of debt issuance costs.
21. Net debt represents total debt less cash and marketable securities.
22. Reflects data for the latest twelve months ended ("LTM") September 26,
1998.
51
<PAGE> 53
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
SALTON
The following selected historical financial and other data of Salton as of
and for the fiscal years ended June 29, 1996, June 28, 1997 and June 27, 1998
have been derived from, and should be read in conjunction with, the audited
consolidated financial statements of the Company, including the notes thereto,
included elsewhere in this Prospectus. The selected historical financial and
other data of the Company set forth below as of and for the years ended July 2,
1994 and July 1, 1995 have been derived from the audited consolidated financial
statements of the Company, which are not included elsewhere in this Prospectus.
The financial data for the thirteen weeks ended September 27, 1997 and September
26, 1998 have been derived from financial statements which are unaudited, but,
in the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of financial position
and results of operations of such periods. Operating results for the thirteen
weeks ended September 27, 1997 and September 26, 1998 are not necessarily
indicative of results that may be expected for a full year. All of the following
information is qualified in its entirety by, and should be read in conjunction
with, "Pro Forma Condensed Consolidated Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited consolidated financial statements of the Company, including the
notes thereto, appearing elsewhere in this Prospectus.
52
<PAGE> 54
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THIRTEEN WEEKS ENDED
-------------------------------------------------- -----------------------------
JULY 2, JULY 1, JUNE 29, JUNE 28, JUNE 27, SEPTEMBER 27, SEPTEMBER 26,
1994 1995 1996 1997 1998 1997 1998
------- ------- -------- -------- -------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS:
Net sales..................... $48,807 $76,991 $99,202 $182,806 $305,599 $ 65,773 $ 104,388
Cost of goods sold............ 37,333 55,552 66,923 121,590 179,376 38,697 55,004
Distribution expenses......... 3,412 4,569 5,856 7,809 12,327 2,279 3,609
------- ------- ------- -------- -------- -------- ---------
Gross profit................ 8,062 16,870 26,423 53,407 113,896 24,797 45,775
Selling, general, and
administrative expenses..... 8,470 13,142 21,343 42,944 84,216 16,977 27,780
------- ------- ------- -------- -------- -------- ---------
Operating income (loss)..... (408) 3,728 5,080 10,463 29,680 7,820 17,995
Interest expense, net......... (2,047) (3,057) (3,934) (4,063) (5,333) (1,263) (2,399)
Cost associated with
refinancing................. -- -- -- -- (1,133) -- --
Realized gain on sale of
marketable securities....... -- -- -- -- 8,972 -- --
Class action lawsuit
expense..................... (489) -- -- -- -- -- --
------- ------- ------- -------- -------- -------- ---------
Income (loss) before income
taxes.................... (2,944) 671 1,146 6,400 32,186 6,557 15,596
Income tax expense
(benefit)................... 20 (3,450) 2,001 12,205 2,433 4,777
------- ------- ------- -------- -------- -------- ---------
Net income (loss)........... $(2,944) $ 651 $ 4,596 $ 4,399 $ 19,981 $ 4,124 $ 10,819
OTHER DATA:
Cash flows provided by (used
in):
Operating activities........ $(1,369) $ 3,533 $(3,571) $ (8,966) (25,102) $(30,061) $ (20,819)
Investing activities........ (405) (2,327) (4,280) (6,348) 14,507 (884) (589)
Financing activities........ 1,774 (1,202) 7,849 17,922 8,643 28,671 21,764
EBITDA(1)..................... $ 1,142 $ 5,714 $ 7,276 $ 13,599 $ 33,981 $ 8,708 $ 19,239
EBITDA margin(2).............. 2.3% 7.4% 7.3% 7.4% 11.1% 13.2% 18.4%
Depreciation and
amortization................ $ 1,550 $ 1,986 $ 2,196 $ 3,136 $ 4,301 $ 888 $ 1,244
Capital expenditures.......... 405 2,327 4,280 4,608 4,565 884 589
Ratio of earnings to fixed
charges(3).................. --(4) 1.2x 1.3x 2.2x 5.8x 5.6x 6.8x
BALANCE SHEET DATA (AT PERIOD END):
Working capital............... $ 9,290 $ 9,072 $12,244 $ 17,996 $ 44,768 $ 18,828 $ 103,280
Total assets.................. 38,635 41,121 59,481 102,343 141,397 145,411 183,528
Total debt.................... 22,436 18,160 28,266 43,410 50,475 172,082 118,907
</TABLE>
- -------------------------
(1) EBITDA represents operating income plus depreciation and amortization.
EBITDA is presented because it is a widely accepted measure to provide
information regarding a company's ability to pay interest, repay debt or
make capital expenditures. EBITDA should not be considered in isolation or
as a substitute for net income, cash flows from operations or other income
or cash flow data prepared in accordance with generally accepted accounting
principles, or as a measure of a company's profitability or liquidity.
Additionally, the Company's calculation of EBITDA may differ from that
performed by other companies, and thus the amounts disclosed for EBITDA may
not be directly comparable to similarly titled measures disclosed by other
companies.
(2) EBITDA margin represents EBITDA as a percentage of net sales.
(3) For purposes of this computation, earnings consist of income before taxes
plus fixed charges. Fixed charges consist of interest on indebtedness plus
that portion of lease rental expense representative of the interest factor.
(4) As a result of the loss for the fiscal year ended July 2, 1994, earnings did
not cover fixed charges by $5.2 million.
53
<PAGE> 55
TOASTMASTER
The selected historical financial and other data of Toastmaster as of and
for each of the three years ended December 31, 1997 have been derived from, and
should be read in conjunction with, the audited consolidated financial
statements of Toastmaster, including the notes thereto, included elsewhere in
this Offering Memorandum. The selected historical financial and other data of
Toastmaster as of and for the years ended December 31, 1993 and 1994 have been
derived from the audited consolidated financial statements of Toastmaster, which
are not included elsewhere in this Prospectus. The selected historical financial
and other data of Toastmaster as of and for the nine months ended September 30,
1997 and September 30, 1998, respectively, have been derived from the unaudited
consolidated financial statements of Toastmaster included elsewhere in this
Prospectus and which, in the opinion of Toastmaster management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of financial position and results of operations. The results
of operations for the nine months ended September 30, 1998 are not necessarily
indicative of results to be expected for the full year. All of the following
information is qualified in its entirety by, and should be read in conjunction
with, "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and the audited and unaudited consolidated financial statements
of Toastmaster, including the notes thereto, appearing elsewhere in this
Prospectus.
54
<PAGE> 56
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................... $163,895 $192,387 $188,509 $163,049 $154,347 $ 98,281 $ 92,923
Cost of sales(1)............ 133,591 157,564 156,310 142,458 125,465 80,539 80,094
-------- -------- -------- -------- -------- -------- --------
Gross profit.............. 30,304 34,823 32,199 20,591 28,882 17,742 12,829
Selling, general and
administrative expenses... 21,362 24,955 25,011 23,641 22,669 16,101 15,430
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)... 8,942 9,868 7,188 (3,050) 6,213 1,641 (2,601)
Interest expense............ (3,558) (4,129) (4,923) (4,393) (4,063) (2,775) (2,821)
Interest income............. -- -- 25 32 639 343 --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income tax.............. 5,384 5,739 2,290 (7,411) 2,789 (791) (5,422)
Income tax expense
(benefit)................. 1,978 2,203 956 (2,720) 899 (348) (1,905)
Net income (loss)......... $ 3,406 $ 3,536 $ 1,334 $ (4,691) $ 1,890 $ (443) $ (3,517)
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
Cash flows provided by (used in):
Operating activities...... $ (1,908) $ (5,472) $ 1,953 $ 23,418 $ 7,085 $ (563) $ (6,122)
Investing activities...... (3,977) (6,080) (2,305) (4,455) (4,344) (3,423) (661)
Financing activities...... 5,913 11,556 323 (14,214) (2,653) 3,998 7,078
EBITDA(2)................... $ 12,843 $ 13,946 $ 11,560 $ 8,698(3) $ 9,958 $ 4,578 $ 310
EBITDA margin(4)............ 7.8% 7.2% 6.1% 5.3% 6.5% 4.7% 0.3%
Depreciation and
amortization.............. $ 3,901 $ 4,078 $ 4,372 $ 4,148 $ 3,622 $ 2,814 $ 2,911
Capital expenditures........ 4,131 6,080 3,249 4,485 4,372 3,423 1,349
BALANCE SHEET DATA (AT PERIOD END):
Working capital............. $ 62,639 $ 75,946 $ 79,764 $ 61,870 $ 59,735 $ 64,881 $ 65,631
Total assets................ 112,669 129,552 129,995 104,854 106,291 113,499 112,476
Total long-term debt
(including current
maturities)............... 47,002 59,165 60,366 46,756 44,701 51,207 52,189
</TABLE>
- -------------------------
(1) Restructuring charges totalling $7,600 are reflected in cost of sales for
the year ended December 31, 1996.
(2) EBITDA represents operating income (loss) plus depreciation and amortization
and non-recurring restructuring charges. EBITDA is presented because it is a
widely accepted measure to provide information regarding a company's ability
to pay interest, repay debt or make capital expenditures. EBITDA should not
be considered in isolation or as a substitute for net income, cash flows
from operations or other income or cash flow data prepared in accordance
with generally accepted accounting principles, or as a measure of a
company's profitability or liquidity. Additionally, the calculation set
forth above of EBITDA may differ from that performed by other companies, and
thus the amounts disclosed for EBITDA may not be directly comparable to
similarly titled measures disclosed by other companies.
(3) EBITDA excludes restructuring charges totalling $7,600 for the year ended
December 31, 1996.
(4) EBITDA margin represents EBITDA as a percentage of net sales.
55
<PAGE> 57
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations should be read in conjunction with the financial statements,
including the notes thereto, included elsewhere in this Prospectus.
OVERVIEW
Salton is a leading domestic designer and marketer of a broad range of
kitchen and small household electrical appliances under such brand names as
Salton(R), Maxim(R), Breadman(R), Juiceman(R), White-Westinghouse(R) and
Farberware(R). Salton believes that it has the leading U.S. market share in
juice extractors and indoor grills and a significant U.S. market share in bread
bakers and espresso makers. The Company also designs and markets personal and
beauty care appliances under the Salton Creations(R) brand name, tabletop glass
and crystal products under the Block(R) China, Atlantis(R) Crystal and Gear(R)
brand names, and clocks under the Salton Time(R) brand name.
The Company markets and sells its products throughout the United States
through its own sales force and a network of approximately 170 independent
commissioned sales representatives. The Company sells its products primarily to
mass merchandisers, department stores, specialty stores, direct mail catalogs
and showrooms and other direct distribution channels. Further, the Company sells
certain of its products, primarily Juiceman(R) fresh juice machines and the
George Foreman Grills(R), directly to consumers via the internet and through the
use of paid half-hour television programs commonly referred to as
"infomercials." The Company contracts for the manufacture of most of its
products with independent manufacturers located overseas, primarily in the Far
East and Europe. The Company also manufactures and assembles certain appliances
in its plant located in Kenilworth, New Jersey.
On August 26, 1998, the Company entered into the Merger Agreement to
acquire Toastmaster, a Columbia, Missouri based manufacturer and marketer of
kitchen and small household electrical appliances and time products. Toastmaster
designs, manufactures, markets and services a wide array of kitchen and small
household electrical appliances and time products under the brand names of
Toastmaster(R) and Ingraham(R).
During the last quarter of 1996, Toastmaster adopted a restructuring plan
designed to strengthen future financial performance by improving its cost
structure and its competitive posture. The plan included the outsourcing of
production of certain kitchen and household electrical appliances to overseas
suppliers. As part of this plan, Toastmaster ceased production of cool touch
wafflebakers at its Boonville, Missouri plant in July 1998 and outsourced
production with lower-cost vendors overseas.
Salton has identified numerous opportunities for revenue enhancements and
cost savings that it believes it will be able to realize as a result of the
Toastmaster Acquisition. The Company believes that it can use its competitive
strengths and experience in product development and marketing to improve upon
Toastmaster's product offerings, brand reputation and customer relations. For
example, the Company intends to use its strong customer relationships to gain
shelf space for Toastmaster's products with retailers where Toastmaster does not
currently have substantial shelf space presence and to expand the shelf space
and sales of Toastmaster's products with existing Toastmaster retailers by
introducing certain Salton products into Toastmaster's product lines.
Although Salton currently plans to continue the production of certain
kitchen and small household electrical appliances at Toastmaster's Macon,
Missouri plant, the Company expects to implement its strategy of outsourcing
certain appliances to overseas vendors. The Company believes that through its
proven ability to source products overseas, it can achieve significant cost
savings through more favorable product pricing and other terms. Other
anticipated cost savings identified by the Company include advertising, ocean
freight, warehousing and corporate overhead expenses.
Salton's ability to achieve revenue enhancements and recognize cost savings
from the Toastmaster Acquisition will depend to a significant extent on its
ability to successfully integrate the operations of Salton and Toastmaster and
other factors, including economic conditions and the retail environment. See
56
<PAGE> 58
"Risk Factors -- Risks Relating to the Company -- Risks Relating to the
Toastmaster Acquisition" for a discussion of certain factors that could impact
Salton's ability to realize expected revenue enhancements and cost savings.
The consummation of the pending Toastmaster Acquisition is subject to the
satisfaction or waiver of certain customary conditions, including the approval
of the holders of 66 2/3% of the outstanding shares of Toastmaster common stock.
A meeting of Toastmaster shareholders to approve the Toastmaster Acquisition has
been scheduled on December 31, 1998. The Company currently expects the pending
Toastmaster Acquisition to be completed during the third fiscal quarter of 1999.
Accordingly, certain of the unaudited pro forma condensed financial information
contained in this Prospectus reflect the consummation of the Toastmaster
Acquisition. However, there can be no assurance as to if or when the pending
Toastmaster Acquisition will be completed, or that it will be completed on the
terms described herein. See "Risk Factors -- Risks Relating to the
Company -- Risks Relating to the Toastmaster Acquisition," "Capitalization" and
"Pro Forma Condensed Consolidated Financial Information."
SALTON
The following table sets forth the Company's results of operations as a
percentage of net sales for the period indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------
JUNE 29, JUNE 28, JUNE 27,
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 67.5 66.5 58.7
Distribution expenses....................................... 5.9 4.3 4.0
----- ----- -----
Gross profit.............................................. 26.6 29.2 37.3
Selling, general and administrative expenses................ 21.5 23.5 27.6
----- ----- -----
Operating income.......................................... 5.1% 5.7% 9.7%
===== ===== =====
</TABLE>
13-WEEKS ENDED SEPTEMBER 26, 1998 COMPARED TO 13-WEEKS
ENDED SEPTEMBER 27, 1997
Net Sales. Net sales in the thirteen weeks ended September 26, 1998 (the
"1999 Period") were $104.4 million, an increase of approximately $38.6 million
or 58.7%, compared to net sales of $65.8 million in the thirteen weeks ended
September 27, 1997 (the "1998 Period"). This increase is primarily attributable
to increased sales of the George Foreman Grills(R), White-Westinghouse(R) sales
under the Kmart program, sales of the Juiceman(R) juice extractors, and
Farberware(R) products. Net sales of White-Westinghouse(R) products to Kmart
approximated 14% of net sales in the 1999 Period compared to 16% of net sales in
the 1998 Period.
Gross Profit. Gross profit in the 1999 Period was $45.8 million or 43.9%
of net sales as compared to $24.8 million or 37.7% in the 1998 Period. Cost of
goods sold during the 1999 Period decreased to 52.7% of net sales compared to
58.8% in the 1998 Period. Distribution expenses were $3.6 million or 3.5% of net
sales in the 1999 Period compared to $2.3 million or 3.5% of net sales in the
1998 Period. Gross profit and costs of goods sold in the 1999 Period as a
percentage of net sales improved primarily due to lower costs on certain
products of the Company and due to a more favorable mix of sales in their
respective channels of distribution when compared to the 1998 Period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $27.8 million or 26.6% of net sales in the
1999 Period compared to $17.0 million or 25.8% of net sales for the 1998 Period.
Expenditures for television, royalty expenses, certain other media and
cooperative advertising coverages and trade show expenses were $19.0 million or
18.2% of net sales in the 1999 Period compared to $11.1 million or 16.9% of net
sales in the 1998 Period. The remaining selling, general and administrative
costs were $8.8 million or 8.4% of net sales in the 1999 Period compared to $5.9
million or
57
<PAGE> 59
8.9% of net sales in the 1998 Period. These increases were primarily
attributable to higher costs for additional personnel, sales commissions and
various other costs related to the higher level of sales.
Operating Income. As a result of the foregoing, operating income increased
by $10.2 million or 130.8%, to $18.0 million in the 1999 Period from $7.8
million in the 1998 Period. Operating income as a percentage of net sales
increased to 17.2% in the 1999 Period from 11.9% in the 1998 Period.
Net Interest Expense. Net interest expense was approximately $2.4 million
for the 1999 Period compared to $1.3 million for the 1998 Period. The Company's
rate of interest on amounts outstanding was a weighted average annual rate of
7.8% in the 1999 Period compared to 8.5% in the 1998 Period. The average amount
outstanding under the New Credit Agreement was $70.5 million for the 1999 Period
compared to $56.1 million for the 1998 Period. This increase was used to
complete the Stock Repurchase, refinance the Old Credit Agreement and to finance
higher net sales and a seasonal build in accounts receivable and inventory.
Income Tax Expense (Benefit). The Company had income tax expense of $4.8
million in the 1999 Period as compared to income tax expense of $2.4 million in
the 1998 Period.
YEAR ENDED JUNE 27, 1998 COMPARED TO YEAR ENDED JUNE 28, 1997
Net Sales. Net sales for the fiscal year ended June 27, 1988 ("Fiscal
1998") were $305.6 million, an increase of approximately $122.8 million or 67.2%
compared to net sales of $182.8 million for the fiscal year ended June 28, 1997
("Fiscal 1997"). This increase is primarily attributable to increased sales of
the Juiceman(R) juice extractors and George Foreman Grills(R), Farberware(R)
products, and White-Westinghouse(R) sales under the Kmart supply agreement. Net
sales of White-Westinghouse(R) products to Kmart approximated 19% and 16% of net
sales in Fiscal 1998 and Fiscal 1997, respectively.
Gross Profit. Gross profit in Fiscal 1998 was $113.9 million or 37.3% of
net sales as compared to $53.4 million or 29.2% in Fiscal 1997. Cost of goods
sold during the period decreased to 58.7% of net sales compared to 66.5% in
Fiscal 1997. Distribution expenses were $12.3 million or 4.0% of net sales in
Fiscal 1998 compared to $7.8 million or 4.3% of net sales in Fiscal 1997. Gross
profit and costs of goods sold in Fiscal 1998 as a percentage of net sales
improved primarily due to a more favorable mix of sales in their respective
channels of distribution when compared to Fiscal 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $84.2 million or 27.6% of net sales in
Fiscal 1998 compared to $42.9 million or 23.5% of net sales in Fiscal 1997.
Expenditures for television, certain media and cooperative advertising coverages
and royalty expenses were $58.2 million or 19.1% of net sales in Fiscal 1998
when compared to $25.7 million or 14.1% of net sales in Fiscal 1997. The
remaining selling, general and administrative costs were $25.9 million or 8.5%
of net sales in Fiscal 1998 compared to $17.2 million or 9.4% of net sales in
Fiscal 1997. The dollar increase was primarily attributable to higher costs for
additional personnel, trade show expenses, sales commissions and various other
costs related to the higher level of sales.
During Fiscal 1998, certain of the Company's customers, namely HomePlace
Stores, Inc. and Venture Stores, filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. These customers owed the Company amounts aggregating
approximately $2.4 million. A provision of approximately $1.0 million was made
for the estimated potential losses from these Chapter 11 bankruptcy filings.
Operating Income. As a result of the foregoing, operating income increased
by $19.2 million or 182.9%, to $29.7 million in Fiscal 1998 from $10.5 million
in Fiscal 1997. Operating income as a percentage of net sales increased to 9.7%
in Fiscal 1998 from 5.7% in Fiscal 1997.
Net Interest Expense. Net interest expense was approximately $5.3 million
for Fiscal 1998 compared to $4.1 million in Fiscal 1997. The Company's rate of
interest on amounts outstanding was a weighted average annual rate of 9.5% in
Fiscal 1998 compared to 10.5% in Fiscal 1997. The average amount outstanding
under the Company's revolving line of credit increased about $22.2 million when
compared to the average amount outstanding a year ago. This increase was used
primarily to finance higher net sales
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<PAGE> 60
and a seasonal build in inventory. Interest expense during the period was offset
by interest income earned on the promissory note from Windmere issued to the
Company in July 1996.
Subsequent to the year ended June 27, 1998, the Company consummated the
Recapitalization. In connection therewith, the Company used a portion of the
proceeds it received from the New Credit Agreement to refinance all outstanding
indebtedness under the Old Credit Agreement. Accordingly, at June 27, 1998, the
Company had incurred expense with the early termination of the Old Credit
Agreement of approximately $1.1 million.
The Company sold shares of Windmere common stock it held as marketable
securities during the period. The sale of these shares provided a realized gain
of approximately $9.0 million.
Income Tax Expense (Benefit). The Company had tax expense of $12.2 million
in Fiscal 1998 as compared to tax expense of $2.0 million in Fiscal 1997. Net
operating loss carryforwards and resultant deferred tax assets were used in both
periods to significantly offset current income taxes payable.
YEAR ENDED JUNE 28, 1997 COMPARED TO YEAR ENDED JUNE 29, 1996
Net Sales. Net sales for Fiscal 1997 were $182.8 million, an increase of
approximately $83.6 million or 84.3% compared to net sales of $99.2 million for
the fiscal year ended June 29, 1996 ("Fiscal 1996"). This increase is primarily
attributable to increased sales of the Juiceman(R) juice extractors and George
Foreman Grills(R), private label programs and the addition of Block China and
White-Westinghouse(R) sales under the Kmart supply agreement. Net sales of
White-Westinghouse(R) products to Kmart approximated 16% of net sales in Fiscal
1997.
Gross Profit. Gross profit in Fiscal 1997 was $53.4 million or 29.2% of
net sales as compared to $26.4 million or 26.6% in Fiscal 1996. Cost of goods
sold during Fiscal 1997 decreased to 66.5% of net sales compared to 67.5% in
Fiscal 1996. Distribution expenses were $7.8 million or 4.3% of net sales in
Fiscal 1997 compared to $5.9 million or 5.9% of net sales in Fiscal 1996. Gross
profit and costs of goods sold in Fiscal 1997 as a percentage of net sales
improved primarily due to a more favorable mix of sales of higher gross margin
items when compared to Fiscal 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $42.9 million or 23.5% of net sales in
Fiscal 1997 compared to $21.3 million or 21.5% of net sales in Fiscal 1996.
Expenditures for television, certain media and cooperative advertising coverages
and royalty expenses were $25.7 million or 14.1% of net sales in Fiscal 1997
when compared to $10.9 million or 11.0% of net sales in Fiscal 1996. The
remaining selling, general and administrative costs were $17.2 million or 9.4%
of net sales in Fiscal 1997 compared to $10.4 million or 10.5% of net sales in
Fiscal 1996. The dollar increase was primarily attributable to higher costs for
additional personnel, trade show expenses, sales commissions and various other
costs related to the higher level of sales.
Net Interest Expense. Net interest expense was approximately $4.1 million
for Fiscal 1997 compared to $3.9 million for Fiscal 1996. The Company's rate of
interest on amounts outstanding was a weighted average annual rate of 10.5% in
Fiscal 1997 compared to 11.1% in Fiscal 1996. The average amount outstanding
under the Company's revolving line of credit increased about $9.3 million when
compared to the average amount outstanding in the same period a year ago. This
increase was used primarily to finance higher net sales and a seasonal build in
inventory. Interest expense during the period was offset by interest income
earned on the promissory note from Windmere issued to the Company in July 1996.
Operating Income. As a result of the foregoing, operating income increased
by $5.4 million or 105.9%, to $10.5 million in Fiscal 1997 from $5.1 million in
Fiscal 1996. Operating income as a percentage of net sales increased to 5.7% in
Fiscal 1997 from 5.1% in Fiscal 1996.
Income Tax Expense (Benefit). The Company had tax expense of $2.0 million
in Fiscal 1997 as compared to a tax benefit of $3.5 million in Fiscal 1996. Net
operating loss carryforwards and resultant deferred tax assets were used in both
periods to significantly offset current income taxes payable.
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<PAGE> 61
TOASTMASTER
The following table sets forth Toastmaster's results of operations as a
percentage of net sales. Net sales reflect a reduction from revenues of amounts
related to sales discount programs, including absorption of out-bound freight
and certain allowances for advertising, the latter of which are accounted for by
certain competitors as "advertising" expense. Toastmaster views these amounts as
price reductions, thereby reducing net sales and lowering gross profit as well
as selling, general and administrative expense. Revenues are recorded net of
product returns and are before deduction of the items referred to above that are
used in computing net sales. During the periods indicated, net sales averaged
approximately 95% of revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0%
Cost of sales....................................... 82.9 87.4 81.3
----- ----- -----
Gross profit...................................... 17.1 12.6 18.7
Selling, general and administrative expense......... 13.3 14.5 14.7
----- ----- -----
Operating income (loss)........................... 3.8 (1.9) 4.0
Interest expense.................................... 2.6 2.7 2.6
Interest income..................................... -- -- .4
----- ----- -----
Income (loss) before taxes........................ 1.2 (4.6) 1.8
Income tax expense (benefit)........................ 0.5 (1.7) .6
----- ----- -----
Net income (loss)................................. 0.7% (2.9)% 1.2%
===== ===== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1997
Net Sales. Net sales for the nine months ended September 30, 1998
decreased 5.5% to $92.9 million from $98.3 million for the comparable period in
1997.
The decline in sales in the nine months reflects several different factors,
including: delays in shipping to meet orders and the resulting difficulty of
scheduling carriers; delays in orders from some of Toastmaster's largest
customers; temporary postponement of the introduction of Toastmaster's Global
Design(TM), Porsche and Opera(TM) product lines being imported from Europe to
ensure UL compliance; delays in production on certain products from Asian
suppliers; and difficulty in obtaining an adequate number of shipping containers
at Asian ports to get product to the U.S. in a timely manner.
Revenues from kitchen appliances for the nine months ended September 30,
1998 decreased 4% to $74.8 million from $77.9 million for the nine months ended
September 30, 1997. A decline in breadmaker, toaster and countertop oven
revenues in the nine months was primarily responsible for this decrease.
Time products revenues for the nine months ended September 30, 1998 were
$23 million, a decrease of 3% from $23.7 million for the same period in 1997.
The decrease was due to a decline in timer shipments.
Revenues from the discontinued environmental products for the nine months
ended September 30, 1998 were $51 thousand compared to $1.3 million for the same
period in 1997.
Revenues from the five largest customers for the nine months ended
September 30, 1998 were 43.9%. The five largest customers accounted for 46.5% of
revenues for the nine months ended September 30, 1997.
Gross Profit. Gross profit decreased for the nine months ended September
30, 1998 to $12.8 million, or 13.8% of net sales, from $17.7 million, or 18.1%
of net sales, for the same period in 1997. The decrease as a percentage of net
sales was primarily due to lower product margins, increased health care and
workers' compensation costs and less absorption of overhead costs due to lower
production.
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<PAGE> 62
Selling, General and Administrative Expense. Selling, general and
administrative expenses for the nine months ended September 30, 1998 were $15.4
million, a decrease from $16.1 million for the same period in 1997. Cost
controls initiated earlier in the year contributed to the reduction in expense.
The decline in the value of the peso and the Canadian dollar negatively affected
the nine months ended September 30, 1998 by $822 thousand compared to $73
thousand for the same period of 1997.
Interest Expense. Interest expense for the nine months ended September 30,
1998 increased slightly to $2.821 million as compared to $2.775 million for the
same period in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Sales. Net sales for the year ended December 31, 1997 ("1997")
decreased 5.3% to $154.3 million from $163 million for the year ended December
31, 1996 ("1996"). Kitchen appliance revenues decreased 3.6% from $130.7 million
for the year ended December 31, 1996 to $126 million for the year ended December
31, 1997. A decrease in toaster and countertop oven revenues was substantially
offset by shipments of Breadmaker's Hearth(TM), a combination
breadmaker/countertop oven, and other breadmakers and the successful
introduction of clothes irons. The decline in toaster revenue was primarily from
the loss of models with a major customer. Time products revenues decreased 3.4%
from $34.9 million to $33.7 million in 1997. The loss of wall clock business
with a major customer was significantly offset with timer shipments to new and
existing customers and the introduction of a line of table alarm clocks under a
license agreement utilizing the Timex(R) and Indiglo(R) brand names.
Environmental products revenues decreased 70% to $1.5 million in 1997 from $5
million in 1996 as a result of the discontinuance of the environmental products
category.
Toastmaster's top five customers sell a variety of Toastmaster products.
Shipments to these customers increased to 44% of revenues in 1997 from 42.8% of
revenues for the top five customers in 1996. It is expected that Toastmaster's
dependence on these major retailers will continue.
Gross Profit. Gross profit as a percentage of net sales increased from
17.3% in 1996 (12.6% before a one-time pre-tax special charge of approximately
$7.6 million against cost of sales, related to the restructuring of its product
lines) to 18.7% in 1997. The increase as a percentage of net sales was primarily
due to product mix and lower fixed manufacturing costs, resulting from the
restructuring implemented during the fourth quarter of 1996.
Selling, General and Administrative Expense. Selling, general and
administrative expenses as a percentage of net sales increased slightly from
14.5% in 1996 to 14.7% in 1997.
Interest Expense. Interest income of $639 thousand in 1997 was from an
expected income tax refund from prior years. Interest expense decreased from
$4.4 million in 1996 to $4.1 million. This decrease was primarily due to a lower
average balance on borrowings under the revolving line of credit. The decreased
borrowings were due to carrying lower accounts receivable from lower sales and
shorter terms of sale during the year, as well as lower inventories from the
restructuring. Should market rates rise, Toastmaster could expect future
increases in interest expense.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales for 1996 decreased 13.5% to $163 million from $188.5
million for the year ended December 31, 1995 ("1995"). Kitchen appliance
revenues decreased 17.3% from $158.1 million in 1995 to $130.7 million in 1996.
A decrease in breadmaker shipments due to the anticipated maturation of that
product, a decrease in wafflebaker shipments due to price competition and a
decrease in blender shipments due to the discontinuance of a private label
manufacturing contract were the primary reasons for the reduction in appliance
revenues. These decreases were partially offset by a modest increase in revenues
from toaster and other appliance revenues. Time products revenues increased 5.1%
from $33.2 million in 1995 to $34.9 million in 1996 due to increased placement
of wall clocks with two major retailers. Environmental products sales decreased
35% to $5 million in 1996 from $7.7 million in 1995 as a result of Toastmaster's
decision to de-emphasize that product line.
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Shipments to Toastmaster's top five customers decreased to 42.8% of
revenues in 1996 from 45.7% of revenues for the top five customers in 1995.
Gross Profit. Toastmaster recorded a one-time pre-tax special charge of
approximately $7.6 million to cost of sales related to the restructuring of its
product lines. Gross profit as a percentage of net sales before the one-time
charge increased slightly from 17.1% in 1995 to 17.3% in 1996 due primarily to
lower raw material prices and cost reductions implemented during the year. These
reduced costs were partially offset by higher merchandise returns in the first
half of 1996 on reduced shipments when compared to the first half of 1995 and
increased manufacturing inefficiencies related to longer production shutdowns
during the first half of 1996 when compared to production shutdowns incurred
during the first half of 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of net sales increased from 13.3% in
1995 to 14.5% in 1996. Increases in engineering and research and development
spending and additional advertising promotions related to time products revenues
were partially offset by reduced advertising promotions on lower kitchen
appliance revenues. Administrative costs as a percentage of sales were
relatively unchanged.
Interest Expense. Interest expense decreased from $4.9 million in 1995 to
$4.4 million in 1996. This decrease was primarily due to a lower average balance
on borrowings under the revolving line of credit. The decreased borrowings were
due to carrying lower accounts receivable from lower sales during the year.
LIQUIDITY AND CAPITAL RESOURCES
Historical Salton
During Fiscal 1998, the Company used net cash of $25.1 million in operating
activities. This resulted primarily from the growth in sales in the period and
higher levels of inventory and receivables. Investing activities provided cash
of approximately $14.5 million from the sale of Windmere common stock offset by
an increased investment in capital assets, primarily tooling of about $4.6
million. Financing activities provided cash of $7.5 million for these purposes
primarily from increased line of credit proceeds of $12.5 million, reduced by
repayments of notes due to Windmere of approximately $5.4 million. At September
26, 1998, the Company had approximately $110.0 million outstanding as drawings
under the New Credit Agreement. Typically, given the seasonal nature of the
Company's business, the Company's borrowings tend to be the highest in
mid-Summer to Fall.
Pro Forma Salton
Following the Financing and, if consummated, the Toastmaster Acquisition,
the Company's principal uses of liquidity will be to meet debt service
requirements, finance the Company's capital expenditures and provide working
capital. The Company expects that ongoing requirements for debt service, capital
expenditures and working capital will be funded by internally generated cash
flow and borrowings under the New Credit Agreement. As of September 26, 1998,
after giving pro forma effect to the Financing, the Company would have had total
consolidated indebtedness of approximately $133.9 million. Additionally, as of
September 26, 1998, after giving pro forma effect to the Financing and the
Toastmaster Acquisition, the Company would have had total consolidated
indebtedness of approximately $233.4 million. The Company's debt service
obligations could have important consequences to holders of the Notes. See "Risk
Factors -- Risks Relating to the Notes -- Substantial Leverage."
As of September 26, 1998, after giving pro forma effect to the Financing,
the Company would have no amounts outstanding under the New Credit Agreement
(exclusive of unused commitments of up to $75.0 million under the Delayed Draw
Term Loan and up to $50.0 million under the Revolving Credit Facility). In
addition, as of September 26, 1998, after giving pro forma effect to the
Financing and the Toastmaster Acquisition, the Company would have had an
aggregate amount of approximately $99.5 million outstanding under the New Credit
Agreement, consisting of borrowings of $45.0 million under the Tranche B Term
Loan (which, in accordance with the Commitment Letter, is expected to replace
the Delayed Draw Term Loan) and approximately $54.5 million under the Revolving
Credit Facility
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<PAGE> 64
(exclusive of unused commitments of up to an additional $25.5 million under the
Revolving Credit Facility).
The $45.0 million Tranche B Term Loan is expected to amortize in quarterly
installments and be repayable in the following aggregate annual amounts:
<TABLE>
<CAPTION>
YEAR FOLLOWING
TOASTMASTER ACQUISITION AMOUNT DUE
----------------------- ----------
(Dollars in millions)
<S> <C>
1........................................................... $ 0.5
2........................................................... $ 0.5
3........................................................... $ 0.5
4........................................................... $ 0.5
5........................................................... $ 0.5
6........................................................... $42.5
</TABLE>
The Tranche B Term Loan is also expected to be subject to mandatory
prepayment with the proceeds of certain debt incurrences, assets sales and a
portion of Excess Cash Flow (as defined in the New Credit Agreement). The
Revolving Credit Facility will terminate in 2003. See "Description of Preferred
Stock and Certain Indebtedness -- New Credit Agreement."
The Senior Credit Facilities contain a number of significant covenants
that, among other things, restrict the ability of the Company to dispose of
assets, incur additional indebtedness, prepay other indebtedness, pay dividends,
repurchase or redeem capital stock, enter into certain investments, enter into
sale and lease-back transactions, make certain acquisitions, engage in mergers
and consolidations, create liens, or engage in certain transactions with
affiliates, and that will otherwise restrict corporate and business activities.
In addition, under the Senior Credit Facilities, the Company is required to
comply with specified financial ratios and tests, including a minimum net worth
test, a minimum fixed charge coverage ratio, a minimum interest coverage ratio
and a maximum leverage ratio. See "Description of Preferred Stock and Certain
Indebtedness -- New Credit Agreement."
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Notes), or to fund planned capital expenditures,
will depend upon its future performance, which, in turn, is subject to general
economic, financial, competitive and other factors that are beyond its control.
Based upon the current level of operations and anticipated growth, management
believes that future cash flow from operations, together with available
borrowings under the New Credit Agreement, will be adequate to meet the
Company's anticipated requirements for capital expenditures, working capital,
interest payments and scheduled principal payments. There can be no assurance,
however, that the Company's business will continue to generate sufficient cash
flow from operations in the future to service its debt and make necessary
capital expenditures after satisfying certain liabilities arising in the
ordinary course of business. If unable to do so, the Company may be required to
refinance all or a portion of its existing debt, including the Notes, to sell
assets or to obtain additional financing. There can be no assurance that any
such refinancing would be available or that any such sales of assets or
additional financing could be obtained. See "Risk Factors -- Risks Relating to
the Notes -- Substantial Leverage."
ACCOUNTING PRONOUNCEMENTS
During the first quarter of fiscal 1999 the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." This statement requires that the Company report the change in its net
assets during the period from non-owner sources. For the thirteen
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<PAGE> 65
weeks ended September 27, 1997 components of other comprehensive income include
holding gains arising from available for sale securities, net of tax.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-----------------------------
SEPTEMBER 27, SEPTEMBER 26,
1997 1998
------------- -------------
(Dollars in thousands)
<S> <C> <C>
Net income........................................... $4,124 $10,819
Other comprehensive income........................... 2,517
------ -------
$6,641 $10,819
====== =======
</TABLE>
In February 1998 the Financial Accounting Standards Board issued SFAS No.
132 ("SFAS 132"), "Employer's Disclosure about Pensions and other
Post-Retirement Benefits." This statement is effective for fiscal years
beginning after December 15, 1997 and will change disclosure requirements for
Pensions and other Post-Retirement Benefits. The Company will be required to
comply with the provisions of this statement in fiscal 1999. The effect of this
new statement will be limited to the form and content of disclosures. In June
1997, the Financial Accounting Standards Board issued SFAS No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information." SFAS 131
is effective for fiscal years beginning after December 15, 1997. The Company
will be required to comply with the provisions of this statement in fiscal 1999.
The effect of this new statement will be limited to the form and content of
disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities."
This statement is effective for fiscal years beginning after June 15, 1999 and
will change accounting and disclosure requirements for Derivative Instruments
and Hedging Activities. The Company will be required to comply with the
provisions of this statement in fiscal 1999. The Company has not assessed the
effect that this new standard will have on its consolidated financial statements
and/or disclosures.
EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE
The results of operations of the Company for the periods discussed have not
been significantly affected by inflation or foreign currency fluctuation. The
Company generally negotiates its purchase orders with its foreign manufacturers
in United States dollars. Thus, the Company's cost under any purchase order is
not subject to change after the time the order is placed due to exchange rate
fluctuations. However, the weakening of the United States dollar against local
currencies could result in certain manufacturers increasing the United States
dollar prices for future product purchases.
YEAR 2000 ISSUES
Many computer and other software and hardware systems currently are not, or
will or may not be, able to read, calculate or output correctly using dates
after 1999, and such systems will require significant modifications in order to
be "year 2000 compliant." This issue may have a material adverse affect on the
Company's business, financial condition and results of operations because its
computer and other systems are integral parts of the Company's distribution
activities as well as its accounting and other information systems and because
the Company will have to divert financial resources and personnel to address
this issue.
The Company has reviewed its computer and other hardware and software
systems and has recently begun upgrading those systems that it has identified as
not being year 2000 compliant. The existing systems will be upgraded either
through modification or, as a contingency, replacement. The Company currently
anticipates that it will upgrade and complete testing of the upgrades by the end
of fiscal 1999.
Although the Company is not aware of any material operational impediments
associated with upgrading its computer and other hardware and software systems
to be year 2000 compliant, the Company
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<PAGE> 66
cannot make any assurances that the upgrade of the Company's computer systems
will be completed on schedule or that the upgraded systems will be free of
defects. If any such risks materialize, the Company could experience material
adverse consequences to its business, financial condition and results of
operations.
Year 2000 compliance may also adversely affect the Company's business,
financial condition and results of operations indirectly by causing
complications of, or otherwise affecting, the operations of any one or more of
its suppliers and customers. The Company has contacted its significant suppliers
and certain of its customers in an attempt to identify any potential year 2000
compliance issues with them. The Company currently believes that its major
suppliers have made significant progress with respect to year 2000 compliance
issues. The Company is currently unable to anticipate the magnitude of the
operational or financial impact on it of year 2000 compliance issues with its
customers even though the Company knows that these customers have implemented
significant programs with respect to year 2000 compliance issues.
The Company incurred approximately $765,000 through fiscal 1998 and expects
to incur approximately $135,000 through fiscal 1999 to resolve and test the
Company's year 2000 compliance issues. All expenses incurred in connection with
year 2000 compliance will be expensed as incurred, other than acquisitions of
new software or hardware, which will be capitalized.
SEASONALITY
The Company's business is highly seasonal, with operating results varying
from quarter to quarter. The Company has historically experienced higher sales
during the months of August through November primarily due to increased demand
by customers for the Company's products attributable to holiday sales. This
seasonality has also resulted in additional interest expense to Salton during
this period due to an increased need to borrow funds to maintain sufficient
working capital to finance product purchases and customer receivables for the
seasonal period.
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<PAGE> 67
BUSINESS
GENERAL
Salton is a leading domestic designer and marketer of a broad range of
kitchen and small household electrical appliances under such brand names as
Salton(R), Maxim(R), Breadman(R), Juiceman(R), White-Westinghouse(R) and
Farberware(R). The Company believes that it has the leading U.S. market share in
juice extractors and indoor grills and a significant U.S. market share in bread
bakers and espresso makers. Salton also designs and markets personal and beauty
care appliances under the Salton Creations(R) brandname, tabletop glass and
crystal products under the Block(R) China, Atlantis(R) Crystal and Gear(R) brand
names, and clocks under the Salton Time(R) brand name. The Company believes that
its strong market position and success are attributable to its product
innovation, strong relationships with retailers, breadth of product offerings,
reputation for quality products and established brand names. Salton's net sales
and EBITDA have increased from $48.8 million and $1.1 million in fiscal 1994 to
$305.6 million and $34.0 million in fiscal 1998, which represents a compound
annual growth rate of 58.2% and 135.8%, respectively. For the twelve month
period ended September 26, 1998, Salton's net sales and EBITDA increased to
$344.2 million and $44.5 million.
The Company develops and introduces a wide selection of new products and
enhances existing products to satisfy the various tastes, preferences and
budgets of consumers and to service the needs of a broad range of retailers.
Salton's kitchen and small household electrical appliances are comprised of five
major product subcategories:
- health conscious products, including thermal household grill products
such as George Foreman's Lean Mean Fat Reducing Grilling Machine(R),
fresh fruit and vegetable juicers such as the Juiceman(R) line, and rice
cookers;
- thermal products, including bread bakers, such as the Breadman Plus(R)
automatic bread baker, waffle makers, toasters, toaster ovens and irons;
- coffee and tea related products, including espresso/cappuccino makers and
coffee makers;
- food preparation products, including electric woks, crepe makers, mixers,
can openers and blenders; and
- home comfort products, including fans, fan heaters and humidifiers.
The Company markets and sells its products throughout the United States
through its own sales force and a network of approximately 170 independent
commissioned sales representatives. The Company sells its products primarily to
mass merchandisers, department stores, specialty stores, direct mail catalogs
and showrooms and other direct distribution channels. Representative customers
include Kmart, Sears, Target, Federated Department Stores, Wal-Mart, May Co.
Department Stores and QVC. In 1997, Salton entered into a seven-year supply
agreement with Kmart to supply a broad range of kitchen and small household
electrical appliances under the White-Westinghouse(R) brand name. Further, the
Company sells certain of its products, primarily Juiceman(R) fresh juice
machines and George Foreman Grills(R), directly to consumers via the internet
and through the use of paid half-hour television programs commonly referred to
as "infomercials." The Company contracts for the manufacture of most of its
products with independent manufacturers located overseas, primarily in the Far
East and Europe. The Company also manufactures and assembles certain appliances
in its plant located in Kenilworth, New Jersey.
THE INDUSTRY
According to the National Housewares Manufacturers Association, the small
household appliance industry was approximately a $11.5 billion retail business
in the United States in 1997. Historically, this industry has been characterized
as mature, fragmented and highly competitive. However, it has been consolidating
recently in response to the consolidation and changes within the retail
industry. The Company expects that retailers will continue to consolidate their
vendor base by dealing primarily with a smaller number of suppliers that can
offer a broad array of innovative, differentiated and quality products
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<PAGE> 68
and comprehensive levels of customer service. The Company believes that Salton,
with its broad array of innovative and quality product offerings, high level of
customer service and strong brand name recognition, is well positioned to
benefit in this environment.
COMPETITIVE STRENGTHS
The Company believes that the following competitive strengths contribute to
Salton's position as a leading domestic designer and marketer in the small
household appliance industry and serve as a foundation for the Company's
business strategy.
Market Leadership. Salton believes that it has the leading U.S. market
share in juice extractors and indoor grills and a significant U.S. market share
in bread bakers and espresso makers. The Company believes that its leading
market share in these product lines provides Salton with a competitive advantage
in terms of demand from major retailers and enhanced brand awareness. Through
internal and joint product development and acquisitions of businesses and
product lines, the Company has enhanced its position as a leading supplier in
the small household appliance industry.
Strong Brand Names. The Company has built a portfolio of strong brand
names which it uses to gain retail shelf space and to introduce new products.
The Salton(R) brand name has been in continuous use since 1947 and the Maxim(R)
brand name since 1970. These names are widely recognized in the small household
appliance industry. In addition, the Company has licensed the right to use the
White-Westinghouse(R) brand name for certain small household electrical
appliances, such as toasters, coffee makers, espresso/cappuccino makers and
bread makers, and distributes small household electrical appliances under the
Farberware(R) brand name. The Company believes that White-Westinghouse(R) and
Farberware(R) are time-honored traditions throughout the world for certain home
appliances and benefit from strong consumer recognition. Salton also markets
products under other owned and licensed brand names and under private-label
brand names such as Magic Chef(R), Chefmate(R) and Kenmore(R).
Broad Range of Products. The Company provides its customers with an
extensive array of product lines across product categories within the small
household appliance industry. Salton designs its products to meet the needs of a
broad range of customers across a breadth of price points. With its breadth of
product offerings, the Company services the needs of a wide range of retailers
and satisfies the different tastes, preferences and budgets of consumers. The
Company believes that as the retail industry continues to consolidate, its
ability to serve retailers with an extensive array of product lines under a
portfolio of strong brand names will continue to become increasingly important
for maintaining shelf space and for introducing new products into the retail
market.
Innovation in Product Design and Packaging. The Company believes that it
has a reputation among its retail customers and consumers for innovation in
product design and packaging, incorporating functional enhancements as well as
aesthetic improvements. The Company designs its products in many contemporary
styles and with a wide variety of features. Salton works closely with both
retailers and suppliers to identify consumer needs and preferences and to
develop new products to satisfy such consumer demand. Salton product
introductions have included the first triple function coffee maker in the United
States (the Three For All(R), an espresso/cappuccino/drip coffee maker), George
Foreman Grills(R) and the Wet Tunes(R) shower radios. Various consumer
organizations and magazines have selected a number of the Company's products,
including the Breadman(R) Plus and the Breadman Ultimate(R), as top rated or
best buy. The Company also packages its products to increase their appeal to
consumers and to stand out among other brands on retailers' shelves. Salton
believes that distinctive packaging, designed to answer customers' questions
concerning the Company's products, has resulted in increased shelf space and
greater sales.
During fiscal 1998, the Company introduced 175 new SKUs in the kitchen and
small household electrical appliance products category, 65 new SKUs in the
personal and beauty care, gifts and time products category and 635 new SKUs in
the tabletop products category.
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Established Customer Relationships. The Company believes it has been able
to establish strong relationships with its retailer customers based on its
product innovation, high level of customer service, breadth of product
offerings, reputation for quality products and established brand names. Salton
believes that these competitive strengths have enabled it to expand its market
penetration and to increase sales to its top twenty retail customers in fiscal
1998 by over 70% from fiscal 1997 as well as obtain a seven-year supply
agreement with Kmart to supply a broad range of kitchen and small household
electrical appliances under the White-Westinghouse(R) brand name. In addition,
Salton has expanded its distribution of private-label products with certain
major retailers such as Target under the Chefmate(R) brand name and, more
recently, Wal-Mart under the Magic Chef(R) brand name and Sears under the
Kenmore(R) brand name. The broad distribution of the Company's products through
the mass merchant, department store and specialty retailer channels, together
with sales made through the Company's infomercials, provides Salton with access
to a diversified group of customers and multiple channels of distribution.
Strong Supplier Relationships. Salton believes that it is the largest
purchaser of kitchen and small household electrical appliances from unaffiliated
parties in the Far East. The Company sources products from over 45 different
suppliers and believes it is the largest customer of many of its suppliers.
Salton's dedicated outsourcing strategy has contributed to its strong
relationship with its suppliers. The Company works closely with many of its
suppliers to develop new products and improvements to existing products to
satisfy changing consumer preferences. Salton's outsourcing strategy provides it
with low-cost manufacturing capabilities and allows it to bring new products to
the market quickly and to respond to changes in consumer tastes and preferences.
Experienced Management Team with Significant Equity Ownership. Salton's
management team has a wide range of experience in the development and marketing
of kitchen and small household electrical appliances. This management team,
consisting of David C. Sabin, Chairman, Leonhard Dreimann, Chief Executive
Officer, and William B. Rue, President, Chief Operating Officer and Chief
Financial Officer, has an average of more than 15 years of industry experience
and has been with the Company since its inception. Salton's management team has
successfully increased net sales and EBITDA from 1994 to 1998 at a compound
annual growth rate of 58.2% and 135.8%, respectively, through the introduction
of new products, the expansion of distribution channels and the integration of
new businesses. As of November 23, 1998, the Company's executive officers and
entities affiliated with these officers owned in the aggregate approximately
11.2% of the Company's outstanding common stock (assuming conversion of the
outstanding Convertible Preferred Stock, but excluding outstanding options).
BUSINESS STRATEGY
The Company believes that it is well positioned to achieve further growth
in net sales, profitability and cash flow by further penetrating its existing
distribution channels and by continuing to expand its product offerings and
channels of distribution. Salton's strategy for achieving that objective
includes the following key elements:
Increase Market Share Through New Product Introductions. The Company
intends to continue to increase its market share in each of its major product
categories through new product introductions. Salton's new product strategy
capitalizes on its strong brand names, established customer relationships and
product innovation to develop new products which offer enhanced value to
consumers through new designs, enhanced functionality and improved aesthetics.
For example, in fiscal 1998, the Company introduced:
- the Taco Bell(R) product line,
- the Looney Tunes(R) product line,
- the Marilyn Monroe(TM) personal care product line,
- the George Foreman Fusion Grill(R),
- the Farberware(R) range of products,
- the Andy Warhol collection of tabletop and glassware products,
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- the private-label Kenmore(R) products,
- the JuiceLady(R) juice extractor and
- the Breadman Ultimate.(R)
The Company believes that innovative product introductions will further
enhance revenue growth, profitability and market share.
Further Penetrate Existing Distribution Channels. The Company believes
that it can further penetrate its existing distribution channels as a result of
retail industry dynamics and the Company's strong relationships with its
customers. The Company believes that retail merchants will continue to
consolidate their vendor base and focus on a smaller number of suppliers that
can (1) provide a broad array of differentiated, quality products, (2)
efficiently and consistently fulfill logistical requirements and volume demands
and (3) provide comprehensive product support from design to point of sale and
after-market service with the consumer. The Company believes that it is well
positioned to capitalize on these trends.
Develop New Distribution Channels. Salton continues to develop new
channels of distribution by providing customized product offerings that appeal
to the specific needs of each distribution channel. For example, the Company has
expanded its private-label programs with certain major retailers and has
recently entered into such programs with Sears under the Kenmore(R) brand name,
Target under the Chefmate(R) brand name and Wal-Mart under the Magic Chef(R)
brand name. The Company also sells certain of its products, primarily
Juiceman(R) and the George Foreman Grills(R), directly to consumers via the
internet and through the use of paid half-hour television programs commonly
referred to as "infomercials." The Company believes that this form of
advertising and marketing increases consumer product awareness and brand
recognition and generates additional demand for the Company's products at the
retailer level. Salton believes that its retailer focused strategy has
increased, and will continue to increase, sales and shelf space at key retailers
while enhancing the value and recognition of its portfolio of brand names.
Pursue Targeted Marketing Opportunities. As part of the it's growth
strategy, Salton has established several strategic alliances in order to develop
and promote awareness of the Company's products. The Company has demonstrated an
ability to identify and execute marketing opportunities with strategic partners,
such as it's joint venture with George Foreman to market grills under the name
"George Foreman's Lean Mean Fat Reducing Grilling Machine(R)." The Company has
also entered into a variety of licensing relationships to market products under
the names Gino's East Pizza, Gear, Taco Bell(R), Hershey Kiss(R), Looney
Tunes(R), Andy Warhol, Marilyn Monroe(TM), James Dean and Campbell Soup(R).
Pursue Strategic Acquisitions and Alliances. Salton anticipates that the
fragmented nature of the small household appliance industry will continue to
provide significant opportunities for growth through strategic acquisitions of
complementary businesses. The Company intends to pursue acquisitions of
complementary businesses and product lines at attractive multiples of cash flow.
Salton's acquisition strategy will focus on businesses or brands with product
offerings which (1) offer expansion into related categories or increased market
share in existing product categories, and (2) can be marketed through Salton's
existing distribution channels, thereby increasing its marketing and
distribution efficiencies. The Company will also consider strategic joint
ventures which would provide access to new products, technologies or markets.
PRODUCTS
Salton is a leading domestic designer and marketer of a broad range of
kitchen and small household electrical appliances, tabletop products (including
china, crystal and glassware), time products, gift products, and personal and
beauty care appliances. The Company's portfolio of strong brand names enables
the Company to service the needs of a broad range of retailers and satisfy the
different tastes, preferences and budgets of consumers. Salton designs its
products to meet the needs of a broad range of consumers at a wide range of
price points. These products include full-featured or upscale models or designs
as well as those which are marketed to budget conscious consumers.
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The following table sets forth the approximate amounts and percentages of
the Company's net sales by product category during the periods shown.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------
JUNE 29, 1996 JUNE 28, 1997 JUNE 27, 1998
-------------------- -------------------- --------------------
(Dollars in thousands)
PERCENT PERCENT PERCENT
NET SALES OF TOTAL NET SALES OF TOTAL NET SALES OF TOTAL
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Kitchen and small household electrical
appliances........................... $91,479 92.2% $155,972 85.3% $280,607 91.8%
Tabletop products(1)................... 16,756 9.2 18,597 6.1
Personal and beauty care appliances,
gifts and time products.............. 7,723 7.8 10,078 5.5 6,395 2.1
------- ----- -------- ----- -------- -----
$99,202 100.0% $182,806 100.0% $305,599 100.0%
======= ===== ======== ===== ======== =====
</TABLE>
- -------------------------
(1) The Company entered this category of business in fiscal year 1997 upon the
acquisition of substantially all of the assets and certain liabilities of
Block(R) China Corporation, a tabletop product company, on July 1, 1996. The
Block product line was further augmented on June 19, 1997 with the
acquisition of the assets of Jonal Crystal Ltd.
KITCHEN AND SMALL HOUSEHOLD ELECTRICAL APPLIANCES
The Company designs and markets an extensive line of kitchen and small
household electrical appliances under the Salton(R), Maxim(R), Breadman(R)
Juiceman(R), George Foreman Grills(R), White-Westinghouse(R) and Farberware(R)
brand names. The Company currently markets approximately 618 SKUs under its
brand names in this category. Growth within this product category has
historically been driven primarily by the introduction of new or enhanced
products and the development of the White-Westinghouse(R), Farberware(R) and
other product lines.
The Company's kitchen and small household electrical appliance product
category includes:
- health conscious products;
- thermal products;
- coffee and tea related products;
- food preparation products; and
- home comfort products.
Health Conscious Products. The Company currently markets approximately 137
SKUs in its health conscious product subcategory, including a wide assortment of
food preparation products targeted to health conscious consumers who are
interested in preparing foods in a healthy fashion or from healthy ingredients,
ice cream from natural ingredients. These products range in retail price from
$9.99 to $199.99 and include thermal indoor grills, juicers, juice extractors,
rice cookers, vegetable steamers, ice cream makers and yogurt makers.
Representative health conscious products include:
- George Foreman's Lean Mean Fat Reducing Grilling Machines(R), which grill
meat, fish, chicken and vegetables evenly in minutes. The grills are
double non-stick coated and the sloped cooking surfaces with patented
grooves channel away measurable amounts of greasy fats into a separate
tray. These grills are offered in three different sizes.
- Juiceman(R) health conscious products include:
The Juiceman(R) Jr , a l/4 horsepower juicer offered at a competitive
price. The machine is designed for fresh and healthy juicing using a wide
variety of fruits and vegetables.
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The Juiceman(R) II, a juicer used by many serious health, fitness and
juicing advocates. It has a 1/2 horsepower, 690 watt motor, built-in
speed control, and an extra large feed tube and pulp receptacle.
The Juiceman(R) 210 and the Juiceman(R) 410 are elite professional series
models with patented dual electronic speed controls.
- The Yogurt Maker, a thermostatically controlled unit for producing
homemade yogurt.
- The Big Chill(R), a frozen yogurt and ice cream maker.
- The Nutritionist(R) line of cool touch sealed environment rice cookers.
Thermal Products. The Company currently markets approximately 192 SKUs in
its thermal products subcategory, including bread bakers, sandwich makers,
toasters, waffle makers, toaster ovens and irons. These products range in retail
price from $9.99 to $249.99.
Representative thermal products include:
- Breadman(R) automatic bread bakers, which are offered in the l-l/2 pound
capacity Breadman(R), the 2 pound capacity Breadman Plus(R) and the
Breadman Ultimate(R). These bread machines are computer-chip controlled
and pre-programmed to automatically control the entire bread making
process based on preferences selected by the consumer, including cycle
times for mixing, kneading, rising and baking healthy, whole grain
breads. The consumer just needs to add the ingredients and set the proper
cycle to bake the bread. A window allows the consumer to see the entire
bread making process without opening the lid. The machines have a
programmable timer that allows a preset bake time up to twelve hours in
advance. Additionally, the Breadman Ultimate(R) has advanced software and
patented features. It includes over 100 programs, pause buttons and a
patented integrated fruit, nut and herb dispenser.
- The Salton Snack 'N' Sandwich maker series.
- Cool Touch toasters and toaster ovens offered under the Salton(R),
Maxim(R), White-Westinghouse(R) and Farberware(R) brand names.
Coffee and Tea Related Products. The Company currently markets
approximately 178 SKUs in its coffee and tea related product subcategory,
including combination espresso/cappuccino/drip coffee makers, coffee makers,
coffee urns, coffee percolators, ice tea/ice coffee makers and a broad range of
coffee related accessories. These products range in retail price from $9.99 to
$229.99.
Representative coffee and tea related products include:
- 1,2,3 Spresso(R), a patented, easy to use espresso/cappuccino coffee
maker. This machine has a vertical brewing system and operates cleanly,
utilizing espresso coffee pods that are vacuum packed for freshness. The
pods are fully bio-degradable. The product is simple to operate and a
novice maker of espresso/cappuccino can operate the product in minutes.
- The Three For All(R), a combination espresso/cappuccino/drip coffee maker
with a patented 2 cup adapter for direct cappuccino-espresso brewing. The
Company believes that the Three For All(R) coffee/cappuccino maker
resulted in the creation of a new product category in the small kitchen
appliance industry.
- The Cappuccino Espresso(R), a line of cappuccino espresso makers which
make two to four cups of espresso in minutes. The patented steam jet
froths milk for cappuccino while the coffee brews.
In addition, the Company offers coffee urns providing up to 55 cups of
coffee and percolators under the well recognized Farberware(R) brand name.
Coffee related accessories include coffee mills and grinders, mug warmer sets,
electric kettles and replacement carafes.
Food Preparation Products. The Company currently markets approximately 97
SKUs in its food preparation product subcategory, including electric woks, crepe
makers, mixers, can openers, blenders, hand-held blenders, choppers and warming
trays. These products range in retail price from $9.99 to $99.99.
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Representative food preparation products include:
- The Professional Wok, consisting of a 6- 1/2 quart capacity die-cast
aluminum body with a heavy gauge aluminum dome cover. A patented 1600
watt heating element design allows for even heat distribution for
successful cooking with an electric wok.
- The Electric Brunch Pan, an electric pan with thick aluminum for uniform
heat distribution, an easy to clean non-stick coating and a ready light
to indicate proper cooking temperatures.
- The Donut Bites(R), an electric donut maker, makes six light, crispy
baked donuts, and other dessert creations. It has a cool touch housing
and non-stick surface for easy use.
Food preparation products have been expanded to offer a range of these
types of basic appliances under the White-Westinghouse(R) and Farberware(R)
brand names.
Home Comfort Products. The Company currently markets approximately 14 SKUs
in its home comfort products subcategory, consisting of fans, fan heaters and
humidifiers marketed under the White-Westinghouse(R) brand name. These products
range in retail price from $7.99 to $69.99.
TABLETOP PRODUCTS
The Company currently markets approximately 2,218 SKUs under its brand
names in this product category. These products range in retail price from $9.99
to $499.99.
The Company entered this category of business in fiscal year 1997 to add a
complementary product line to its kitchen and home small appliances. The
Block(R) China division of the Company designs and markets tabletop products
including china, crystal and glassware. The Block product line was further
augmented on June 19, 1997 with the acquisition of the assets of Jonal Crystal
Ltd. Jonal products include the Crystal Kiss(R) line of glassware and giftware
featuring the famous shape of the Hershey's Chocolate Kiss.
Tabletop products include crystal products offered under the Block(R),
Atlantis(R) Crystal and Jonal(R) brand names, fine china and basic dinnerware in
various designs and patterns under the Block(R) brand name and ceramic products
under the Block(R) brand name. In addition, Block(R) provides the Gear(R) line
of products including Father Christmas(R) Country Farm(TM), Country Orchard(TM),
and Country Village(TM).
PERSONAL AND BEAUTY CARE APPLIANCES, GIFTS AND TIME PRODUCTS
The Company currently markets approximately 129 SKUs in the personal and
beauty care appliances, gifts and time products category. Personal and beauty
care appliances range in retail price from $7.99 to $49.99, time products range
from $1.99 to $99.99 and gifts range from $7.99 to $39.99. Salton Creations(R)
hair dryers feature high quality materials, long life motors and high air flow
systems. Hair dryers are offered in various sizes, shapes and colors, and are
designed to mix form and function to enable consumers to correctly address power
and heat to hair type and styling needs.
The Company designs and markets a variety of other personal and beauty care
appliances under the Salton Creations(R) brand name, including curling irons and
brushes, make-up mirrors, massagers, manicure systems and shower radios. The Wet
Tunes(R) series of shower radios, introduced under the Salton(R) brand name in
1984, features an AM/FM radio with waterproof mylar speakers and wall mount
brackets. Wet Tunes(R) radios are offered in several different shapes, sizes and
colors. Also included in this series are the Wet Reflections(R), which has a
light and fog-free mirror, the Wet Cassette(R) and the Wet Lantern(R). In
addition to Salton Creations(R), the Company began offering the appliances under
the White-Westinghouse(R) brand name in fiscal year 1997.
The Company also has a "gifts" program designed for department stores.
Under this program, the Company provides department stores with practical,
special occasion, small gift products. The Company's gifts programs include the
mini tool kit, calcutape, travel smoke alarm, emergency auto flasher, deluxe art
kit and the 7-piece gardening kit.
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The Company's Salton Time(R) products include decorative quartz wall and
alarm clocks and have approximately 203 SKUs. Salton Time(R) has introduced a
number of innovative products such as the waterproof Wet Times(R) indoor/outdoor
clock.
NEW PRODUCT DEVELOPMENT
The Company believes that the enhancement and extension of the Company's
existing products and the development of new products are necessary for the
Company's continued success and growth. The Company directs the style, features
and functionality of its products to meet customer requirements for quality,
performance, product mix and pricing. Salton works closely with both retailers
and suppliers to identify consumer needs and preferences and to generate new
product ideas. Salton's product design and engineering department evaluates new
ideas and seeks to develop new products and improvements to existing products to
satisfy industry requirements and changing consumer preferences.
During fiscal 1998, the Company introduced 175 new SKUs in the kitchen and
small household electrical appliance products category, 65 in the personal and
beauty care, gifts and time products category and 635 new SKUs in the tabletop
products category.
During fiscal 1997, the Company introduced 173 new SKUs in the kitchen and
small household electrical appliance household products category and 59 SKUs in
the personal and beauty care, gifts and time products category. The introduction
of products under the White-Westinghouse(R) and Farberware(R) brands added
approximately 74 of these new SKUs.
MARKETING AND DISTRIBUTION
The Company markets its products throughout the United States under the
brand names of Salton(R), Maxim(R), Breadman(R), Juiceman(R), Salton
Creations(R) Salton Time(R), George Foreman Grills(R), White Westinghouse(R),
Farberware(R), Block(R) China, Atlantis(R) Crystal and Gear(R), primarily to
mass merchandisers, department stores, direct mail catalogs and showrooms and
other direct distribution channels. The Company is also expanding its retailer
base for certain of its products to include drug stores and other mass
merchandisers, as well as additional retailers within its existing channels of
distribution.
In addition to directing its marketing efforts toward retailers, the
Company sells certain of its products, primarily Juiceman(R), fresh juice
machines and the George Foreman Grills(R), direct to consumers via the internet
and through the use of paid half-hour television programs commonly referred to
as "infomercials." The Company also provides promotional support for its
products with the aid of national television, radio and print advertising,
cooperative advertising with retailers, and in-store displays and product
demonstrations. The Company believes that these promotional activities are
important to strengthening the Company's brand name recognition.
The Company relies on its management's ability to determine the existence
and extent of available markets for its products. The Company's management has
extensive marketing and sales backgrounds and devotes a significant portion of
its time to marketing-related activities. The Company markets its products
primarily through its own sales force and approximately 170 independent sales
representatives. The Company's representatives are located throughout the United
States and Canada and are paid a commission based upon sales in their respective
territories. The Company's sales representative agreements are generally
terminable by either party upon 30 days notice.
The Company directs its marketing efforts toward retailers and believes
that obtaining favorable product placement at the retail level is an important
factor in its business, especially when introducing new products. In an effort
to provide its retail customers with the highest level of customer service, the
Company has an advanced electronic data interchange system to receive customer
orders and transmit shipping and invoice information electronically. This system
is also used by management to monitor point-of sale information at certain
accounts.
The Company also emphasizes the design and packaging of its products in
order to increase their appeal to consumers and to stand out among other brands
on retailers' shelves. The Company believes that
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distinctive packaging, designed to answer consumers' questions concerning the
Company's products, has resulted in increased shelf space and greater sales.
Some of the Company's products are sold with recipe books and VHS Video
Manuals(R) to provide step by step guidelines for the use and care of such
products.
The Company's total net sales to its five largest customers during fiscal
1998 and 1997 were 47% and 47%, respectively, of its net sales. In 1997, the
Company entered into a seven-year supply agreement with Kmart for Kmart to
purchase, distribute, market and sell a broad range of kitchen and small
household electrical appliances under the White-Westinghouse(R) brand name.
Kmart is the exclusive United States discount department store to market these
White-Westinghouse(R) products. The supply agreement provides Kmart sole
distribution rights to the White-Westinghouse(R) brand name for the mass
merchandiser market, but does allow distribution through other retail channels
under certain conditions. During fiscal 1998, Kmart purchased approximately
$58.9 million of products from Salton pursuant to the supply agreement, which
accounted for approximately 19% of Salton's net sales.
The supply agreement with Kmart provides for minimum purchases by Kmart,
which increase through the term of the supply agreement, and for the payment of
penalties for shortfalls. In the event that aggregate U.S. retail sales in the
consumer electronics industry for any specified category decrease by more than
10% in any year from that sold in the prior year, Kmart has the right to reduce
the minimum purchase requirements for such category to an amount not less than
80% of the minimum for such period. The Company pays Windmere a fee based upon
the Company's net sales less specified costs and expenses relating to the Kmart
supply agreement in consideration of Windmere's guarantee of the Company's
obligations under the supply agreement.
SOURCES OF SUPPLY
Most of the Company's products are manufactured to the Company's
specifications by over 45 unaffiliated manufacturers located primarily in Far
East locations, such as Hong Kong, the People's Republic of China and Taiwan,
and in Europe. Many of these suppliers are ISO 9000 certified. The Company
believes that it maintains good business relationships with its overseas
manufacturers. The Company also manufactures and assembles woks and warming
trays in its plant located in Kenilworth, New Jersey.
The Company does not maintain long-term purchase contracts with
manufacturers and operates principally on a purchase order basis. The Company
believes that it is not currently dependent on any single manufacturer for any
of its products. However, during fiscal 1998, three manufacturers located in
China accounted for approximately 12.7%, 12.4% and 10.1% respectively, of the
Company's product purchases. The Company believes that the loss of any one
manufacturer would not have a long term material adverse effect on the Company
because other manufacturers with which the Company does business would be able
to increase production to fulfill the Company's requirements. However, the loss
of a supplier could, in the short term, adversely effect the Company's business
until alternative supply arrangements were secured.
The Company's purchase orders are generally made in United States dollars
in order to maintain continuity in the Company's pricing structure and to limit
exposure to currency fluctuations. The Company's policy is to maintain an
inventory base to service the seasonal demands of its customers. In certain
instances, the Company places firm commitments for products from six to twelve
months in advance of receipt of firm orders from customers.
Quality assurance is particularly important to the Company and its product
shipments are required to satisfy quality control tests established by its
internal product design and engineering department. The Company employs
independent agents to perform quality control inspections at the manufacturers'
factories during the manufacturing process and prior to acceptance of goods.
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COMPETITION
The Company's industry is mature and highly competitive. Competition is
based upon price, access to retail shelf space, product features and
enhancements, brand names, new product introductions, marketing support and
distribution approaches. The Company competes with established companies, some
of which have substantially greater facilities, personnel, financial and other
resources than those of the Company. In the sale of kitchen and small household
electrical appliances, the Company competes with, among others, Toastmaster,
Rival, Hamilton Beach, Krups, Rowenta, Black and Decker, Windmere-Durable and
Sunbeam/Oster. In the sale of tabletop products, the Company competes with,
among others, Mikasa, Lenox, Miller Rogaska, Villeroy Boch, Waterford Crystal
and Baccarat Crystal. In the sale of personal and beauty care appliances, the
Company principally competes with, among others, Clairol, Inc. (wholly-owned
subsidiary of Bristol-Myers Squibb Company), Conair Corporation, Vidal Sassoon,
Windmere-Durable, Helen of Troy and Andis.
The Company believes that its success is dependent on its ability to offer
a broad range of existing products and to continually introduce new products and
enhancements to existing products which have substantial consumer appeal based
upon price, design, performance and features. The Company also believes that its
trademarks, particularly Salton(R), Maxim(R), Breadman(R), Juiceman(R), Salton
Creations(R) and Salton Time(R), and Block(R) are important to its ability to
compete effectively. The Company further believes that the White-Westinghouse(R)
and Farberware(R) brand names give it the additional capability to provide
consumers with appealing, well priced products to meet competition.
EMPLOYEES
As of September 26, 1998, the Company employed approximately 220 persons,
of whom approximately 54 persons, who work at the Company's Kenilworth, New
Jersey facility, were covered by a collective bargaining agreement which expires
on February 28, 1999. The Company generally considers its relationship with its
employees to be satisfactory and has never experienced a work stoppage.
REGULATION
The Company is subject to federal, state and local regulations concerning
the environment, occupational safety and health, and consumer products safety.
In general, the Company has not experienced difficulty complying with such
regulations and compliance has not had an adverse effect on the Company's
business. Most of the Company's products are listed by UL. Satisfaction of the
standards of UL for the Company's consumer electrical appliances is important to
the Company and the Company has not experienced difficulty in satisfying such
standards.
BACKLOG
Orders for the Company's products are typically subject to cancellation
until shipment. Customer order patterns vary from year to year, largely because
of annual differences in consumer acceptance of product lines, product
availability, marketing strategies, inventory levels of retailers and
differences in overall economic conditions. As a result, comparisons of backlog
as of any date in a given year with backlog at the same date in a prior year are
not necessarily indicative of sales for that entire given year. As of September
26, 1998, the Company had a backlog of approximately $181.9 million. At June 27,
1998 the Company has a backlog of approximately $275.0 million compared to
approximately $83 million as of June 28, 1997. The Company does not believe that
backlog is necessarily indicative of the Company's future results of operations
or prospects.
TRADEMARKS, PATENTS AND LICENSING ARRANGEMENTS
The Company holds a number of patents and trademarks registered in the
United States and foreign countries for various products and processes. The
Company has registered certain of its trademarks with the United States Patent
and Trademark Office. The Company considers these trademarks to be of
considerable value and of material importance to its business.
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<PAGE> 77
The Company holds numerous United States and foreign patents, including
design patents. The Company believes that none of the Company's product lines is
dependent upon any single patent or group of patents.
During 1996, the Company entered into license agreements with WCI for use
of the White-Westinghouse(R) trademark for small kitchen appliances, personal
care products, fans, heaters, air cleaners and humidifiers. The license
agreements grant the Company the exclusive right and license to use the
White-Westinghouse(R) trademark in the United States and Canada in exchange for
certain license fees, royalties and minimum royalties. The license agreements
also contain minimum sales requirements which, if not satisfied, may result in
the termination of the agreements. Each of these license agreements is also
terminable on or after the fifth anniversary of such agreement upon one-years
notice or upon a breach by the Company.
The Company has a joint venture agreement with George Foreman Products,
Inc., a Nevada corporation, and Benjamin H., a California corporation (the
"Joint Venture"). The Joint Venture is engaged solely in the business of
acquiring, selling and distributing a thermal household grill product under the
name "George Foreman's Lean Mean Fat Reducing Grilling Machine." Mr. Foreman is
both a former Olympic champion and a former World Boxing Organization's
heavyweight champion of the world.
In the second quarter of fiscal 1997, the Company obtained the exclusive,
worldwide right to distribute Farberware(R) small electric appliances.
Farberware(R) is a time-honored trade name in the cookware and small electric
appliance industry.
The Company has other licensing arrangements with various other companies
to market products bearing the trademark or likeness of the subject matter of
the license. These licenses include the right to market various products under
Gino's East Pizza, Gear, Taco Bell(R), Hershey Kiss(R), Looney Tunes(R), Andy
Warhol, Marilyn Monroe, James Dean and Campbell Soup(R). The Company believes
that these other license arrangements help to demonstrate its creativity and
versatility in product design and the enhancement of existing products. However,
the Company does not believe that its product lines are dependent upon any
single license or group of other licenses.
In general, the Company's joint venture and licensing arrangements place
commercialization obligations on the Company in exchange for varying fees and
royalties based upon net sales or profits. Typically, each of these agreements
is terminable if certain minimum commercialization obligations are not satisfied
or upon breach of the agreement by the Company.
WARRANTIES
The Company's products are generally sold with a limited one-year warranty
from the date of purchase. In the case of defects in material or workmanship,
the Company agrees to replace or repair the defective product without charge. To
date, the Company has not experienced significant warranty claims.
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<PAGE> 78
PROPERTIES
The Company does not own any facilities. A summary of the Company's leased
properties is as follows:
<TABLE>
<CAPTION>
LEASE
LOCATION DESCRIPTION AREA (SQ. FT.) EXPIRATION
-------- ----------- -------------- ----------
<S> <C> <C> <C>
Mt. Prospect, IL Executive office, warehousing and 34,600 June 30, 1999
repair facility
Rancho Dominguez, CA Warehouse and distribution 340,672 October 31, 2002
facility and retail outlet
Harrison, NJ Warehouse and distribution 146,555 May 31, 2002
facility and retail outlet
Kenilworth, NJ Manufacturing and 97,800 March 31, 2000
warehouse/distribution facilities
New York, NY Block sales office 11,500 December 31, 2001
Gurnee, IL Retail outlet 6,141 January 31, 2000
Mt. Prospect, IL Consumer Services 3,018 June 30, 1999
Long Branch, NJ Retail outlet 1,200 Month-to-month
Chicago, IL Retail store 560 October 31, 2007
</TABLE>
LEGAL PROCEEDINGS
In November 1996, WCI filed suit for injunctive relief and damages against
CBS in the United States District Court for the Northern District of Ohio
alleging that CBS's grant of licenses to the Westinghouse(TM) name for use on
lighting products, fans and electrical accessories for use in the home violates
WCI's rights to the Westinghouse(TM) name and constitutes a breach of the
agreements under which CBS's predecessor sold WCI its appliance business and
licensed certain trademark rights in 1975. In response to that suit, CBS filed a
related action in December 1996 in the United States District Court for the
Western District of Pennsylvania, naming WCI, Windmere, Salton, Newtech and
certain other parties as defendants. The two actions have now been consolidated
in the Pennsylvania court. A trial date of June 21, 1999 has been set by the
court. CBS seeks an injunction prohibiting the Company, Newtech and WCI from
using the White-Westinghouse(R) name on products not specifically enumerated in
the sale documents between CBS's predecessor and WCI, and unspecified damages
and attorneys' fees. An adverse decision in the Trademark Litigation could
result in the Company and Newtech being limited in further use of the
White-Westinghouse(R) name and therefore the possible termination or significant
modification of the supply agreement between the Company and Kmart.
The legal costs that may be incurred in defending against this action could
be substantial. In addition, the litigation could be protracted and result in
diversion of management and other resources of the Company. WCI is currently
defending the Company in this action. There can be no assurance that WCI will
prevail in its lawsuit, or that WCI, the Company and their co-defendants will
prevail in their defense of CBS's lawsuit. In the event that a favorable outcome
for the Company is not obtained, the Company intends to vigorously pursue its
right to indemnification under indemnification provisions in the license
agreements between WCI and the Company relating to the White-Westinghouse(R)
brand name. There can be no assurance that WCI will agree on the scope of the
indemnity, or that any such indemnity payment which may become due to the
Company will be paid fully or in a timely fashion or at all.
Related proceedings have also been commenced before the Trademark Board in
opposition to WCI's and CBS's efforts to register certain uses of the
Westinghouse(TM) and White-Westinghouse(R) names. Such proceedings have been
stayed pending resolution of the Trademark Litigation in the Pennsylvania court.
Even if the Trademark Litigation is resolved in the Company's favor, it is
possible that the proceedings
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<PAGE> 79
before the Trademark Board will continue and could have a material adverse
effect upon the Company's business, financial condition and results of
operations.
The Company is a party to various other actions and proceedings incident to
its normal business operations. The Company believes that the outcome of such
litigation will not have a material adverse effect on the financial condition or
results of operations of the Company. The Company also has product liability and
general liability insurance policies in amounts it believes to be reasonable
given its current level of business. Although historically the Company has not
had to pay any material product liability claims, it is conceivable that the
Company could incur claims for which it is not insured.
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<PAGE> 80
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following tables sets forth certain information with respect to each of
the Company's directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
<S> <C> <C>
David C. Sabin.......................... 49 Chairman of the Board of Directors and
Secretary
Leonhard Dreimann....................... 50 Chief Executive Officer and Director
William B. Rue.......................... 51 President, Chief Operating Officer,
Chief Financial Officer and Director
Robert A. Bergmann...................... 32 Director
Frank Devine............................ 54 Director
Bert Doornmalen......................... 54 Director
Bruce G. Pollack........................ 39 Director
</TABLE>
DAVID C. SABIN has served as Chairman of the Company since September 1991
and has served as Secretary and a Director of the Company since its inception in
August 1988 and is a founder of the Company. Mr. Sabin served as the president
and a director of Glacier Holdings, Inc., a publicly held company ("Glacier
Holdings"), from December 1988 through May 1994 and as a director of Salton Time
Inc., a wholly-owned subsidiary of Glacier Holdings, since 1989. Salton Time was
an importer and distributor of quartz wall and alarm clocks. From 1991 through
May 1994, Mr. Sabin was an officer and a director of Stylemaster, Inc., a
wholly-owned subsidiary of Glacier Holdings, which was engaged in the
manufacture and distribution of plastic housewares articles. Stylemaster, Inc.
filed for protection under Chapter 11 of the United States Bankruptcy Code in
March 1994. During 1994, Glacier Holdings and its subsidiaries ceased operations
and were liquidated.
LEONHARD DREIMANN has served as Chief Executive Officer and a Director of
the Company since its inception in August 1988 and is a founder of the Company.
From 1988 to July 1998, Mr. Dreimann served as President of the Company. From
1987 to 1988, Mr. Dreimann served as president of the Company's predecessor
Salton, Inc., a wholly-owned subsidiary of SEVKO, Inc. Prior to 1987, Mr.
Dreimann served as managing director of Salton Australia Pty. Ltd., a
distributor of Salton brand kitchen appliances. From 1988 to December 1993, Mr.
Dreimann served as an officer and a director of Glacier Holdings, and as a
director of its wholly-owned subsidiary Glacier Water Systems, Inc. ("Glacier")
from 1987 to December 1993. Glacier developed, manufactured and marketed an
in-home water filtration system. During 1994, Glacier Holdings and its
subsidiaries ceased operations and were liquidated. From 1989 to December 1993,
Mr. Dreimann served as an officer and a director of Salton Time Inc.
WILLIAM B. RUE has served as President of the Company since August 1998, as
Chief Operating Officer of the Company since December, 1994 and as Chief
Financial Officer and Treasurer of the Company since September, 1988. From 1985
to 1988, he was Treasurer of SEVKO, Inc. and from 1982 to 1984 he was Vice
President-Finance of Detroit Tool Industries Corporation. Prior to that time,
Mr. Rue had been employed since 1974 by the accounting firm of Touche Ross & Co.
ROBERT A. BERGMANN has been a Principal of Centre Partners Management LLC
since 1995. From 1989 to 1991 and from 1993 to 1995, Mr. Bergmann was an
Associate of Centre Partners L.P. Mr. Bergman serves as a director of Music
Holdings Corp., Rembrandt Photo Services and a number of other private
corporations.
FRANK DEVINE has been a Director of the Company since December, 1994. Mr.
Devine serves as a business consultant for various entities. He has founded or
co-founded Bachmann-Devine, Incorporated, a venture capital firm, American Home,
Inc., an importer of hand-loomed rugs and decorative accessories, World Wide
Digital Vaulting, Inc., an on-line digital data storage company and Shapiro,
Devine &
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<PAGE> 81
Craparo, Inc., a household goods manufacturers representation company serving
the retail industry. Mr. Devine also serves on the board of directors of these
companies.
BERT DOORNMALEN has been a Director of the Company since July, 1994. Mr.
Doornmalen has been the Managing Director of Markpeak Ltd., a Hong Kong company
which represents the Company in the procurement and inspection of products in
the Far East, since 1981.
BRUCE G. POLLACK has been a Managing Director of Centre Partners Management
LLC since 1995. Mr. Pollack is also a Partner of Centre Partners L.P. which he
joined in 1991. Mr. Pollack serves as a director of Music Holdings Corp., KIK
Corp. Holdings Inc., Rembrandt Photo Services, Johnny Rockets Group, Inc. and a
number of other private corporations.
The Board of Directors is divided into three classes, each of whose members
serve for a staggered three-year term. The Board is comprised of two Class I
Directors (David C. Sabin and Robert A. Bergmann), three Class II Directors
(William B. Rue, Bert Doornmalen and Bruce G. Pollack) and two Class III
Directors (Leonhard Dreimann and Frank Devine).
Pursuant to the Preferred Stock Agreement, Centre Partners has the right to
designate: (i) two directors to serve on the Board of Directors so long as it
and its affiliates own at least 12.5% of the total voting power of the Company,
and (ii) one director to serve on the Board of Directors so long as it and its
affiliates own at least 7.5% of the total voting power of the Company. Centre
Partners has designated Robert A. Bergmann and Bruce G. Pollack to serve on the
Board of Directors.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors of the Company held 12 meetings during the fiscal
year ended June 27, 1998.
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee held two meetings and the Compensation Committee held 3
meetings during 1998. The Committees received their authority and assignments
from the Board of Directors and report to the Board of Directors. No Director
attended fewer than 75% of the aggregate number of meetings of the Board of
Directors and the Committees on which he served during the period for which he
was a member of the Board.
Mr. Doornmalen and Mr. Devine, and Mr. Schulman, a former
Windmere-designated director who resigned upon consummation of the Stock
Repurchase, served as members of the Audit Committee during 1998. The Audit
Committee recommends the engagement of the Company's independent auditors and is
primarily responsible for approving the services performed by the Company's
independent auditors. The Committee also reviews and evaluates the Company's
accounting principles and its system of internal accounting controls.
Mr. Doornmalen and Mr. Devine, and Mr. Friedson and Mr. Schulman, two
former Windmere-designated directors who resigned upon consummation of the Stock
Repurchase, served as members of the Compensation Committee during 1998. The
Compensation Committee reviews and approves the Company's executive compensation
policy, makes recommendations concerning the Company's employee benefit policies
for executives, and has authority to administer the Company's stock option
plans.
COMPENSATION OF DIRECTORS
Each Director who is not an employee of the Company receives a Director's
fee in the amount of $7,500 per annum and $1,000 per meeting he or she attends
(plus reimbursement for out-of-pocket expenses incurred in connection with
attending such meetings). During the fiscal year ended June 27, 1998, each
non-employee Director was granted options to purchase 2,000 shares of common
stock under the Company's Non-Employee Directors Stock Option Plan.
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<PAGE> 82
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the total compensation received by the Company's
Chief Executive Officer and its most highly compensated officers for the fiscal
years ending June 27, 1998, June 28, 1997 and June 29, 1996, respectively.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- --------------------- -------
OTHER RESTRICTED
ANNUAL STOCK OPTIONS/ LTPP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR $ $ ($)(1) ($) (#) ($) ($)
------------------ ---- ------ ----- ------------ ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leonhard Dreimann......... 1998 350,000 191,552 55,364 -- 47,147(3) -- --
(Chief Executive 1997 282,000 150,000 54,000 -- -- -- --
Officer) 1996 200,000 15,000 55,000 -- 70,000(2) -- --
David C. Sabin............ 1998 350,000 191,552 11,087 -- 47,147(3) -- --
(Chairman and 1997 251,000 150,000 17,000 -- -- -- --
Secretary) 1996 150,000 15,000 20,000 -- 70,000(2) -- --
William B. Rue............ 1998 240,000 142,296 11,453 -- 47,146(3) -- --
(President, Chief 1997 192,000 50,000 17,000 -- -- -- --
Operating Officer and 1996 150,000 15,000 25,000 -- 70,000(2) -- --
Chief Financial Officer)
</TABLE>
- -------------------------
(1) Consists primarily of reimbursement for costs associated with use and
maintenance of an automobile.
(2) Options were awarded on October 26, 1995 under the Company's 1995 Employee
Stock Option Plan at an exercise price equal to the fair market value of the
common stock on the date of grant ($2.50).
(3) Options were awarded on May 6, 1998 under the Company's 1995 Employee Stock
Option Plan at an exercise price equal to the fair market value of the
common stock on the date of grant ($12.25).
The following table sets forth certain information concerning options
granted to the named executive officers during the fiscal year ended June 27,
1998.
OPTIONS GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF
SECURITIES TOTAL OPTIONS EXERCISE STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Leonhard Dreimann.................. 47,147 22.9% 12.25 5/17/08 $363,219 $920,467
David C. Sabin..................... 47,147 22.9% 12.25 5/17/08 363,219 920,467
William B. Rue..................... 47,146 22.9% 12.25 5/17/08 363,211 920,448
</TABLE>
- -------------------------
(1) Options vest 33 1/3% on each anniversary of December 19, 1997.
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<PAGE> 83
The following table sets forth certain information with respect to the
unexercised options to purchase the Company's common stock held by the named
executive officers at June 27, 1998. None of the named executive officers
exercised any stock options during the fiscal year ended June 27, 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUES OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT
OPTIONS/SARS AT FY-END (#) FY-END ($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Leonhard Dreimann.......................... 155,716 31,431 $ 875,181 $ 35,360
David C. Sabin............................. 85,716 31,431 778,931 35,360
William B. Rue............................. 135,715 31,431 1,181,429 35,360
</TABLE>
- -------------------------
(1) Based on the fair market value of the common stock on June 26, 1998 ($13.375
per share) less the option exercise price.
EMPLOYMENT AGREEMENTS
Messrs David C. Sabin, Chairman of the Board, Leonhard Dreimann, Chief
Executive Officer, and William B. Rue, President, Chief Operating Officer and
Chief Financial Officer (collectively, the "Executives"), have each entered into
employment agreements (the "Employment Agreements"), effective as of December
19, 1997, which provide for their continued employment in their present
capacities with the Company through December 31, 2001. Messrs. Sabin and
Dreimann are entitled to an annual salary at the rate of $425,000 through June
30, 1998 and $500,000 thereafter. Mr. Rue is entitled to an annual salary at the
rate of $285,000 through June 30, 1998 and $350,000 thereafter. In addition,
commencing with calendar 1998, each of the Executives is entitled to an annual
bonus each calendar year ranging from 25% of his base salary (if the Company
achieves threshold performance goals) to 100% of his salary (if the Company
achieves target performance goals) to 125% of his salary (if the Company
achieves maximum performance goals).
Under the terms of the Employment Agreements, if an Executive is terminated
without cause or resigns with good reason, he is entitled to receive a lump-sum
payment equal to his salary for the remainder of the term, plus the bonuses he
would have received if the Company achieved target performance goals for the
remainder of the term and other benefits which he would have been entitled to
for the remainder of the term. The termination without cause of an Executive or
resignation for good reason by an Executive constitutes good reason for the
other Executives to resign under the Employment Agreements. In addition, if an
Executive voluntarily terminates his employment within two years after a change
of control of the Company, he is entitled to receive a lump sum payment equal to
his salary and other benefits for the remainder of the term; provided that the
termination of employment by an Executive during the 30 day period immediately
following the one-year anniversary of the change of control constitutes good
reason under the Executive's Employment Agreement.
The Employment Agreements provide for the granting of 126,358 options to
purchase shares of Salton common stock to each Executive (63,179 options with an
exercise price equal to the closing price of Salton common stock on the Nasdaq
National Market on December 18, 1998 and 63,179 options with an exercise price
equal to the closing price of Salton common stock on the Nasdaq National Market
on December 17, 1999). Upon a change of control prior to the granting of such
options, each Executive may elect to receive in lieu of the exercise of such
options a lump sum payment equal to (i) the difference between (x) the average
of the closing price of Salton common stock on the Nasdaq National Market for
the five trading days immediately preceding the change of control and (y)
$15.25, multiplied by (ii) the number of shares of Salton common stock subject
to such options.
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<PAGE> 84
SHARE OWNERSHIP
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of December 28, 1998 by (i) each
person known to the Company to beneficially own 5% or more of the Company's
common stock, (ii) each of the Directors and executive officers of the Company
and (iii) all executive officers and Directors of the Company as a group. The
number of shares of common stock shown as owned by the persons and group named
below assumes the exercise of all currently exercisable options and the
conversion of all shares of Convertible Preferred Stock held by such persons and
group, and the percentage shown assumes the exercise of such options and the
conversion of such shares and assumes that no options held by others are
exercised. Unless otherwise indicated below, the persons named below have sole
voting and investment power with respect to the number of shares set forth
opposite their names. For purposes of the following table, each person's
beneficial "ownership" of the Company's common stock has been determined in
accordance with Section 13(d) of the Exchange Act and Rule 13d-3 promulgated
thereunder.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES OF SHARES
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL HOLDER OWNED OWNED
- ------------------------- ------------ ------------
<S> <C> <C>
Centre Partners Group(1).................................... 2,566,641 28.8%
Mr. Leonhard Dreimann(2).................................... 845,949 9.1
Mr. William B. Rue(2)....................................... 639,617 6.9
Mr. David C. Sabin(3)....................................... 354,392 3.8
Mr. Frank Devine(4)......................................... 31,000 *
Mr. Bert Doornmalen(4)...................................... 16,000 *
Mr. Robert A. Bergmann(1)................................... 0 *
Mr. Bruce G. Pollack(1)..................................... 0 *
All Directors and executive officers as a group (7
persons)(5)............................................... 1,263,057 13.6%
</TABLE>
- -------------------------
* Less than 1%.
(1) Consists of an aggregate of 213,700 shares of common stock and 40,000 shares
of Convertible Preferred Stock: (i) 65,777 shares of common stock and 12,312
shares of Convertible Preferred Stock owned of record by Centre Capital
Investors II, L.P. ("Investors II"), (ii) 21,401 shares of common stock and
4,006 shares of Convertible Preferred Stock owned of record by Centre
Capital Tax-Exempt Investors II, L.P. ("Tax-Exempt II"), (iii) 14,312 shares
of common stock and 2,679 shares of Convertible Preferred Stock owned of
record by Centre Capital Offshore Investors II, L.P. ("Offshore II"), (iv)
1,010 shares of common stock and 189 shares of Convertible Preferred Stock
owned of record by Centre Parallel Management Partners, L.P. ("Parallel"),
(v) 11,311 shares of common stock and 2,177 shares of Convertible Preferred
Stock owned of record by Centre Partners Coinvestment, L.P. ("Coinvestment")
and (vi) 99,889 shares of common stock and 18,697 shares of Convertible
Preferred Stock owned of record by the State Board of Administration of
Florida (the "Florida Board"). As of November 23, 1998, the 40,000 shares of
Convertible Preferred Stock were convertible into 2,352,941 shares of the
Company's common stock. Investors II, Tax-Exempt II and Offshore II are
limited partnerships, of which the general partner of each is Centre
Partners II, L.P. ("Partners II"), and of which Centre Partners Management
LLC ("Centre Management") is an attorney-in-fact. Parallel and Coinvestment
are also limited partnerships. In its capacity as manager of certain
investments for the Florida Board pursuant to a management agreement, Centre
Management is an attorney-in-fact of Parallel. Centre Partners II LLC is the
ultimate general partner of each of Investors II, Tax-Exempt II, Offshore
II, Parallel and Coinvestment. Bruce G. Pollack is Managing Director of
Centre Management and Centre Partners II LLC and as such may be deemed to
beneficially own and share the power to vote or dispose the common stock and
Convertible Preferred Stock held by Investors II, Tax-Exempt II, Offshore
II, Parallel, Coinvestment and the Florida
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<PAGE> 85
Board. Mr. Pollack disclaims the beneficial ownership of such common stock
and Convertible Preferred Stock. The foregoing is based upon information
contained in a Schedule 13D/A dated September 16, 1998, filed with the
Commission.
(2) Includes, with respect to Mr. Dreimann and Mr. Rue: (i) 463,580 shares owned
by Dominator Investors Group, a Hong Kong corporation ("Dominator"), which
is owned 71.9% by Mr. Dreimann and 28.1% by Mr. Rue; and (ii) 155,716 shares
and 135,715 shares, respectively, of common stock which may be acquired upon
the exercise of immediately exercisable options.
(3) Includes 85,716 shares of common stock which may be acquired upon the
exercise of immediately exercisable stock options. Also includes (i) 179,676
shares owned by Duquesne Financial Corporation ("Duquesne"), an Illinois
corporation which is owned by Susan Sabin, and (ii) 89,000 shares owned by
Susan Sabin. Susan Sabin is David Sabin's wife. Mr. Sabin disclaims
beneficial ownership of all shares owned by Duquesne and Susan Sabin.
(4) Includes, with respect to each of Messrs. Doornmalen and Devine, 16,000
shares of common stock which may be acquired upon the exercise of
immediately exercisable options.
(5) Includes an aggregate of 409,147 shares which may be acquired by Directors
and officers of the Company upon the exercise of immediately exercisable
options. See footnotes 2 through 4 above.
The addresses of the persons shown in the table above who are beneficial
owners of more than five percent of the Company's common stock are as follows:
Messrs. Dreimann, Sabin and Rue, 550 Business Center Drive, Mount Prospect,
Illinois 60056; and Centre Partners Management LLC, 30 Rockefeller Plaza, Suite
5050, New York, New York 10020.
CERTAIN TRANSACTIONS
Prior to the Stock Repurchase, Windmere owned approximately 50% of Salton's
outstanding common stock. In connection with the Stock Repurchase, Windmere and
Salton agreed to continue various commercial and other arrangements. These
arrangements include, among other things, (i) a letter agreement requiring the
Company to pay to Windmere a continuing fee with respect to the Company's sales
to Kmart under its supply agreement in consideration of Windmere's guarantee of
the Company's obligations under the supply agreement; and (ii) an agreement
relating to the credit terms which Durable Electrical Metal Factory, Ltd.
("Durable"), a wholly-owned subsidiary of Windmere, will provide to the Company
with respect to future product orders.
The Company purchased inventory from Durable of $27.1 million, $23.5
million and $3.2 million in fiscal 1998, 1997 and 1996, respectively. The
Company had amounts due to Windmere, including Durable, totaling approximately
$4.8 million at June 27, 1998.
Pursuant to the Convertible Preferred Stock Issuance, the Company issued to
affiliates of Centre Partners 40,000 shares of Convertible Preferred Stock. The
Convertible Preferred Stock is generally non-dividend bearing and is convertible
into 2,352,941 shares of Salton common stock (reflecting a $17 per share
conversion price). In connection with the Convertible Preferred Stock Issuance,
the Company paid Centre Partners a $500,000 transaction fee. The Preferred Stock
Agreement provides that Centre Partners generally has the right to designate two
directors as long as it and its affiliates own at least 12.5% of the total
voting power of the Company and one director as long as it and its affiliates
own at least 7.5% of the total voting power of the Company. The affiliates of
Centre Partners and the Company also entered into a Registration Rights
Agreement which grants such affiliates certain demand and piggyback registration
rights with respect to their shares of Convertible Preferred Stock and shares of
Salton common stock which are issuable upon conversion thereof.
Mr. Bert Doornmalen, a Director of the Company, is the Managing Director of
Markpeak, Ltd., a Hong Kong company. The Company recorded inventory purchases
from Markpeak, Ltd. of $15.7 million, $7.8 million and $10.2 million in fiscal
1998, 1997 and 1996, respectively. The Company paid commissions to Markpeak of
$272,000, $432,000 and $739,000 in fiscal 1998, 1997 and 1996, respectively.
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<PAGE> 86
Mr. Frank M. Devine, a Director of the Company, is a co-founder of the firm
Shapiro, Devine and Craparo, Inc. ("SDC"), a manufacturers representation firm.
The firm represents many major manufacturers of household products (including
the Company) to the retail industry. The Company recorded commissions with SDC
of approximately $290,000, $241,000 and $160,000 in fiscal 1998, 1997 and 1996,
respectively. As of June 27, 1998, the Company owed SDC approximately $38,000
for current charges.
DESCRIPTION OF PREFERRED STOCK AND
CERTAIN INDEBTEDNESS
CONVERTIBLE PREFERRED STOCK
The Second Amended and Restated Certificate of Incorporation of the Company
(the "Certificate of Incorporation") provides that the Company may issue
2,000,000 shares of preferred stock, $.01 par value per share, of which 40,000
shares have been designated as the Convertible Preferred Stock. The Convertible
Preferred Stock is generally non-dividend bearing; however, if the Company
breaches in any material respect any of its material obligations in the
Preferred Stock Agreement or the Certificate of Incorporation relating to the
Convertible Preferred Stock, the holders of Convertible Preferred Stock are
entitled to receive quarterly cash dividends on each share of Convertible
Preferred Stock from the date of such breach until it is cured at a rate per
annum equal to 12% of the Liquidation Preference (as defined below). The payment
of dividends is limited by the indenture governing the Notes and the New Credit
Agreement.
Each holder of the Convertible Preferred Stock is generally entitled to one
vote for each share of Salton common stock which such holder could receive upon
the conversion of the Convertible Preferred Stock. Each share of Convertible
Preferred Stock is convertible at any time into that number of shares of Salton
common stock obtained by dividing $1,000 by the Conversion Price in effect at
the time of conversion. The "Conversion Price" is equal to $17.00, subject to
certain anti-dilution adjustments.
In the event of a Change of Control (as defined in the Certificate of
Incorporation), each holder of shares of Convertible Preferred Stock has the
right to require the Company to redeem such shares at a redemption price equal
to the Liquidation Preference plus an amount equivalent to interest accrued
thereon at a rate of 7% per annum compounded annually on each anniversary date
of July 28, 1998 for the period from July 28, 1998 through the earlier of the
date of such redemption or July 28, 2003.
In the event of a liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, holders of the Convertible Preferred Stock are
entitled to be paid out of the assets of the Company available for distribution
to its stockholders an amount in cash equal to $1,000 per share, plus the amount
of any accrued and unpaid dividends thereon (the "Liquidation Preference"),
before any distribution is made to the holders of any Salton common stock or any
other of Salton's capital stock ranking junior as to liquidation rights to the
Convertible Preferred Stock.
The Company may optionally redeem, in whole or in part, the Convertible
Preferred Stock at any time on and after July 15, 2003 at a cash price per share
of 100% of the then effective Liquidation Preference per share, if the daily
closing price per share of Salton's common stock for a specified 20 consecutive
trading day period is greater than or equal to 200% of the then current
Conversion Price. On September 15, 2008, the Company will be required to
exchange all outstanding shares of Convertible Preferred Stock at a price equal
to the Liquidation Preference per share, payable at the Company's option in cash
or shares of Salton common stock.
NEW CREDIT AGREEMENT
To facilitate the Recapitalization, the Company entered into the New Credit
Agreement. The New Credit Agreement provides for $215.0 million in Senior Credit
Facilities, consisting of a $90.0 million Tranche A Term Loan, a $75.0 million
Delayed Draw Term Loan and a $50.0 million Revolving Credit
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Facility. The Company used borrowings of $90.0 million under the Tranche A Term
Loan and the net proceeds from the Convertible Preferred Stock Issuance to (1)
pay the cash portion of the purchase price for the Stock Repurchase, (2)
refinance all outstanding indebtedness under the Old Credit Agreement and (3)
pay certain related fees and expenses. Following the repayment of the Tranche A
Term Loan from the proceeds of this offering, such facility will be permanently
terminated.
The Senior Secured Revolving Credit Facility includes a $10.0 million
sublimit for the issuance of letters of credit. All amounts outstanding under
the Revolving Credit Facility are payable on July 27, 2003. The Tranche A Term
Loan is payable in 20 consecutive quarterly installments, commencing on
September 30, 1998, in an amount equal to: (1) $1,250,000 for the first eight
installments; (2) $6,250,000 for the next eight installments; and (3) $7,500,000
for the final four installments. Any amounts outstanding under the Delayed Draw
Term Loan, which amounts may be borrowed by the Company from time to time until
July 27, 1999, are payable in 16 consecutive quarterly installments, commencing
on September 30, 1999, in an amount equal to: (1) $2,500,000 for the first four
installments; (2) $5,000,000 for the next eight installments; and (3) $6,250,000
for the final four installments; provided that if less than $75.0 million in
aggregate principal amount of the Delayed Draw Term Loan is borrowed, each of
the foregoing installments is reduced proportionately. The Delayed Draw Term
Loan is available for certain acquisitions, subject to the terms of the New
Credit Agreement.
The Company expects to amend and restate the New Credit Agreement in
accordance with the Commitment Letter to, among other things, (a) replace the
Delayed Draw Term Loan with the Tranche B Term Loan as part of the Senior Credit
Facilities, and (b) increase the Revolving Credit Facility to $80.0 million and
effectively extend the availability of the Revolving Credit Facility until five
years after consummation of the Toastmaster Acquisition. The $45.0 million
Tranche B Term Loan is expected to be payable in 24 consecutive quarterly
installments, in an amount equal to: $125,000 for the first 20 consecutive
quarterly installments; and (2) $10,625,000 for the final four installments.
Interest accrues on loans made under the Senior Credit Facilities at the
Company's option at either (1) Eurodollar base rate plus an applicable margin
ranging from 3.00% to 2.00% based upon the consolidated leverage of the Company
or (2) the base rate, which is the highest of (x) Citibank, N.A.'s prime rate,
(y) a rate based on the secondary market rate for three-month certificates of
deposit plus 1.00% and (z) the federal funds rate plus 0.50%, plus an applicable
margin ranging from 2.00% to 1.00% based upon the consolidated leverage of the
Company. The post-default rate on outstanding loans is 2.00% above the otherwise
applicable rate of interest.
The aggregate amount outstanding under the Senior Credit Facilities will be
prepaid by amounts equal to 100% of the net proceeds from certain indebtedness,
a specified portion of asset sales by the Company and its subsidiaries and by
50% of cash flow in excess of certain expenditures, costs and payments
commencing with the fiscal year ending June 26, 1999. Under certain
circumstances, optional and mandatory prepayments of principal in respect of the
Tranche B Term Loan may require a prepayment fee equal to (1) 2% of the amount
of the principal prepaid if such prepayment occurs prior to the first
anniversary of the consummation of the Toastmaster Acquisition and (2) 1% of the
amount of the principal prepaid if such prepayment occurs between the first and
third anniversary of the consummation of the Toastmaster Acquisition. The
Company may at its option reduce the amounts available under the Senior Credit
Facilities to the extent such amounts are unused or prepaid in certain minimum
amounts.
The Company pays certain administrative fees to Lehman Commercial Paper
Inc. for its own account as well as a commitment fee and certain fees relating
to letters of credit to Lehman Commercial Paper Inc. for its own account and the
account of the other lenders under the Senior Credit Facilities.
The Senior Credit Facilities are secured by a security interest in
substantially all of the real and personal property, tangible and intangible, of
the Company and its domestic subsidiaries, as well as a pledge of all of the
stock of such domestic subsidiaries. The Senior Credit Facilities are also
guaranteed by all of the domestic subsidiaries of the Company.
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The Senior Credit Facilities contain a number of significant covenants
that, among other things, restrict the ability of the Company to dispose of
assets, incur additional indebtedness, prepay other indebtedness, pay dividends,
repurchase or redeem capital stock, enter into certain investments, enter into
sale and lease-back transactions, make certain acquisitions, engage in merger or
consolidations, create liens, or engage in certain transactions with affiliates,
and that otherwise restrict corporate and business activities. In addition,
under the Senior Credit Facilities, the Company is required to comply with
specified financial ratios and tests, including a minimum net worth test, a
minimum fixed charge coverage ratio, a minimum interest coverage ratio and a
maximum leverage ratio.
4% JUNIOR SUBORDINATED NOTE
In connection with the Stock Repurchase, the Company issued to Windmere the
Junior Subordinated Note. The Junior Subordinated Note matures on January 31,
2005 and bears interest at 4.0% per annum payable annually. The Note is subject
to offsets of principal and interest equal to 5.0% of the total purchase price
paid by Salton for product purchases from Windmere and its affiliates during the
term of the note. The principal amount of the Junior Subordinated Note is also
subject to reduction in the event Salton's supply agreement with Kmart is
terminated for any reason.
DESCRIPTION OF THE NEW NOTES
GENERAL
The Old Notes were issued pursuant to an Indenture dated December 16, 1998
(the "Indenture") by and among the Company, the Guarantors and Norwest Bank
Minnesota, National Association, as trustee (the "Trustee"), a copy of the form
of which will be made available upon request. Upon the issuance of the New
Notes, the Indenture will be subject to the Trust Indenture Act of 1939 (the
"Trust Indenture Act"). The New Notes are subject to all such terms, and Holders
of New Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summary of the material provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture, including the definitions therein of certain terms
used below. The definitions of certain terms used in the following summary are
set forth below under "-- Certain Definitions." For purposes of this summary,
the term "Company" refers only to Salton/Maxim Housewares, Inc. and not to any
of its Subsidiaries.
The New Notes will be general unsecured obligations of the Company and will
be subordinated in right of payment to all current and future Senior Debt. The
New Notes will rank pari passu in right of payment with all other senior
subordinated Indebtedness of the Company issued in the future, if any, and
senior in the right of payment to all subordinated Indebtedness of the Company
issued in the future, if any. As of September 26, 1998, on a pro forma basis
after giving effect to the Financing, the Company would have had no Senior Debt
outstanding (exclusive of unused commitments of up to $125.0 million under the
New Credit Agreement) and, through its Restricted Subsidiaries, would have had
additional liabilities (including trade payables and lease obligations)
aggregating approximately $2.3 million. Additionally, as of September 26, 1998,
on a pro forma basis after giving effect to the Financing and the Toastmaster
Acquisition, the Company would have had $99.5 million of Senior Debt outstanding
(exclusive of unused commitments of up to $25.5 million under the New Credit
Agreement) and, through its Restricted Subsidiaries, would have had additional
liabilities (including trade payables and lease obligations) aggregating
approximately $2.3 million. The Indenture will permit the incurrence of
additional indebtedness, including additional Senior Debt, subject to certain
restrictions.
As of the Issue Date, all of the Company's Subsidiaries will be Restricted
Subsidiaries. Under certain circumstances, the Company will able to designate
current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not be subject to any of the restrictive covenants set forth
in the Indenture.
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PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $125.0 million
and will mature on December 15, 2005. Interest on the Notes will accrue at the
rate of 10 3/4% per annum and will be payable semi-annually in arrears on
December 15 and June 15, commencing on June 15, 1999, to Holders of record on
the immediately preceding December 1 and June 1. 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 the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest and Liquidated Damages, if any, on the
Notes will be payable at the office or agency of the Company maintained for such
purpose within the City and State of New York or, at the option of the Company,
payment of interest and Liquidated Damages, if any, may be made by check mailed
to the Holders of the Notes at their respective addresses set forth in the
register of Holders of Notes; provided that all payments of principal, premium,
interest and Liquidated Damages, if any, with respect to Notes the Holders of
which have given wire transfer instructions to the Company will be required to
be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Company, the
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes will be issued in denominations of $1,000
and integral multiples thereof.
SUBORDINATION
The payment of principal of, premium, if any, interest on the Notes,
Liquidated Damages, if any, Change of Control Payments or other obligations of
the Company in respect of the Notes (collectively, the "Senior Subordinated Note
Payments") will be subordinated in right of payment, as set forth in the
Indenture, to the prior payment in full, in cash or Cash Equivalents, of all
Senior Debt, whether outstanding on the date of the Indenture or thereafter
incurred. (Section 10.1)
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, in
an assignment for the benefit of creditors or any marshaling of the Company=s
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full, in cash or Cash Equivalents, of all Obligations due in respect
of such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt) before the
Holders of Notes will be entitled to receive any payment with respect to the
Notes, and until all Obligations with respect to Senior Debt are paid in full,
in cash or Cash Equivalents, any distribution to which the Holders of Notes
would be entitled shall be made to the holders of Senior Debt (except that
Holders of Notes may receive and retain (i) Permitted Junior Securities and (ii)
payments made from the trust described under "-- Legal Defeasance and Covenant
Defeasance"). If a distribution is made to holders of the Notes that, due to the
subordination provisions, should not have been made to them, such holders will
be required to hold such distribution in trust for the holders of Senior Debt
and pay it over to them (pursuant to such written instructions as the holders of
Senior Debt or a representative on their behalf may provide to such holders of
the Notes) as their interests may appear. (Section 10.3)
The Company also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under
"-- Legal Defeasance and Covenant Defeasance") if (i) a default in the payment
of the principal of, premium, if any, or interest on Designated Senior Debt
occurs and is continuing beyond any applicable period of grace or (ii) any other
default occurs and is continuing with respect to Designated Senior Debt that
permits holders of the Designated Senior Debt as to which such default relates
to accelerate its maturity and the Trustee receives a notice of such default (a
"Payment Blockage Notice") from the Company or the holders of any Designated
Senior Debt. Payments on the Notes may and shall be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived and (b)
in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Debt has been accelerated. No new period of payment blockage
may be commenced unless and until 360 days have elapsed since the
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effectiveness of the immediately prior Payment Blockage Notice. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice unless such default shall have been waived for a period
of not less than 180 consecutive days. (Section 10.4)
The Indenture will further require that the Company promptly notify holders
of Senior Debt if payment of the Notes is accelerated because of an Event of
Default. (Section 10.7)
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Debt. On a pro forma basis,
after giving effect to the Financing and the application of the proceeds
therefrom, no Senior Debt would have been outstanding at September 26, 1998
(exclusive of unused commitments of up to $125.0 million under the New Credit
Agreement). Additionally, as of September 26, 1998, on a pro forma basis after
giving effect to the Financing and the Toastmaster Acquisition, the Company
would have had $99.5 million of Senior Debt outstanding (exclusive of unused
commitments of up to $25.5 million under the New Credit Agreement). The
Indenture will limit, subject to certain financial tests, the amount of
additional Indebtedness, including Senior Debt, that the Company and its
subsidiaries can incur. See "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock."
SUBSIDIARY GUARANTEE
The Company's payment obligations under the Notes will be jointly and
severally guaranteed (the "Subsidiary Guarantees") by the Guarantors. The
Subsidiary Guarantees will be subordinated to the prior payment in full of all
Senior Debt of the Guarantors and the amounts for which the Guarantors will be
liable under the guarantees issued from time to time with respect to Senior
Debt. As of September 26, 1998, no Senior Debt of the Guarantors was
outstanding. The obligations of each Guarantor under its Subsidiary Guarantee
will be limited so as not to constitute a fraudulent conveyance under applicable
law. See, however, "Risk Factors -- Risks Relating to the Notes -- Fraudulent
Conveyance Matters." (Section 12.1)
The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes and the Indenture; and (ii) immediately after giving
effect to such transaction, no Default or Event of Default exists.
The Indenture will provide that in the event of a sale or other disposition
of all the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under the Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "-- Repurchase
at the Option of Holders -- Asset Sales."
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to December
15, 2002. Thereafter, the Notes will be subject to redemption at any time at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages,
if any,
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thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on December 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2002........................................................ 105.375%
2003........................................................ 102.688%
2004 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, during the first 36 months after the Issue
Date, the Company may on any one or more occasions redeem up to 35% of the
aggregate principal amount of Notes originally issued under the Indenture at a
redemption price of 110.750% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the redemption date,
with the net cash proceeds of any Public Equity Offering of common stock of the
Company; provided that at least 65% of the aggregate principal amount of Notes
originally issued on the Issue Date remain outstanding immediately after each
occurrence of such redemption; and provided, further, that each such redemption
shall occur within 60 days of the date of the closing of such Public Equity
Offering. (Section 3.7)
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any Note is to be
redeemed in part only, the notice of redemption that relates 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. Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Notes or portions of them called
for redemption. (Sections 3.1, 3.2, 3.3 and 3.4)
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within ten days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control. (Section 4.15)
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On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officer's Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture will provide
that, prior to complying with the provisions of this covenant, but in any event
within 60 days following a Change of Control, the Company will either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of Notes
required by this covenant. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The New Credit Agreement prohibits the Company from purchasing any Notes
and also provides that certain change of control events with respect to the
Company would constitute a default thereunder. Any future credit agreements or
other agreements relating to Senior Debt to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing Notes,
the Company could seek the consent of its lenders to the purchase of Notes or
could attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture which would, in turn, constitute as default under the New Credit
Agreement. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the Holders of Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
Asset Sales
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; provided that the amount of (x) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet), of the
Company or any Restricted Subsidiary of the Company (other than contingent
liabilities and liabilities that are by their terms subordinated to the Notes or
any Guarantee thereof) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (y) any securities, notes or
other obligations received by the Company or any such Restricted Subsidiary from
such transferee that are
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immediately converted by the Company or such Restricted Subsidiary into cash (to
the extent of the cash received), shall be deemed to be cash for purposes of
this provision.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to repay Senior Debt
under any Credit Facility (and to correspondingly permanently reduce the
commitments with respect thereto in the case of revolving borrowings) or (b) to
the acquisition of a controlling interest in another business, the making of a
capital expenditure or the acquisition of other long-term assets, in each case,
in Permitted Businesses. Pending the final application of any such Net Proceeds,
the Company may temporarily reduce Senior Debt under any Credit Facility or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph shall be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company shall be required to make an offer to all Holders of Notes
(an "Asset Sale Offer") to purchase the maximum principal amount of Notes that
may be purchased out of the Excess Proceeds, at an offer price in cash in an
amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase, in
accordance with the procedures set forth in the Indenture. To the extent that
the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero. (Section 4.11)
CERTAIN COVENANTS
Restricted Payments
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any other payment or distribution on account of the Company's or any of its
Restricted Subsidiaries' Equity Interests (including, without limitation, any
dividend, distribution or payment on account of such Equity Interests in
connection with any merger or consolidation involving the Company or any of its
Restricted Subsidiaries) or to the direct or indirect holders of the Company's
or any of its Restricted Subsidiaries' Equity Interests in their capacity as
such (other than dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value (including without limitation, in connection with
any merger or consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company or other Affiliate of
the Company; (iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Notes, except a payment of interest or principal at Stated
Maturity; or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described below under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company or any of its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments
permitted by clauses (ii), (iii) or (iv) of the next succeeding
paragraph), is less than the sum of (i) 50% of the Consolidated Net
Income of the Company for the period
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(taken as one accounting period) from the beginning of the first fiscal
quarter immediately following the Issue Date to the end of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus (ii) 100% of the aggregate
Net Cash Proceeds received by the Company as a contribution to its
common equity capital or from the issue or sale since the Issue Date of
Equity Interests of the Company (other than Disqualified Stock), or of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Restricted
Subsidiary of the Company and other than Disqualified Stock or
convertible debt securities that have been converted into Disqualified
Stock), plus (iii) to the extent not already included in Consolidated
Net Income of the Company for such period without duplication, any
Restricted Investment that was made by the Company or any of its
Restricted Subsidiaries after the Issue Date is sold for cash or
otherwise liquidated or repaid for cash, or any Unrestricted Subsidiary
which is designated as an Unrestricted Subsidiary subsequent to the
Issue Date is sold for cash or otherwise liquidated or repaid for cash,
the lesser of (A) the cash return of capital with respect to such
Restricted Investment or Unrestricted Subsidiary (less the cost of
disposition, if any) and (B) the initial amount of such Restricted
Investment or designated amount of such Unrestricted Subsidiary.
The foregoing provisions shall not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Indebtedness which is subordinated to the Notes or Equity
Interests of the Company in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company) of,
other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (c) (ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of Indebtedness which is
subordinated to the Notes with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness; (iv) the payment of any dividend or
distribution by a Restricted Subsidiary of the Company to the holders of its
common Equity Interests so long as the Company or such Restricted Subsidiary
receives at least its pro rata share of such dividend or distribution in
accordance with its Equity Interests; (v) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company that
are held by any member of the Company's (or any of its Restricted Subsidiaries')
management pursuant to any management equity subscription agreement or stock
option agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$250,000 in any twelve-month period; (vi) repurchases of Capital Stock deemed to
occur upon the exercise of stock options if such Capital Stock represents a
portion of the exercise price thereof and (vii) (a) the payment to Windmere in
an amount not to exceed $15.0 million at the Stated Maturity of the Windmere
Note and (b) redemptions of the Windmere Note which are deemed to occur as a
result of purchases of inventory from Windmere in the ordinary course of
business, provided that, with respect to clauses (ii), (iii), (v) and (vii)(a)
above, no Default or Event of Default shall have occurred and be continuing
immediately after such transaction.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary of the Company, pursuant to the Restricted Payment. The fair market
value of any non-cash Restricted Payment shall be determined by the Board of
Directors of the Company whose resolution with respect thereto shall be
delivered to the Trustee, such determination to be based upon an opinion or
appraisal issued by an investment banking firm (or, if an investment banking
firm is generally not qualified to give such an opinion or appraisal, by an
appraisal firm) of national standing if such fair market value exceeds $5.0
million. Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant
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"-- Restricted Payments" were computed, together with a copy of any fairness
opinion or appraisal required by the Indenture.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under this covenant. All such outstanding Investments will be deemed to
constitute Investments in an amount equal to the fair market value of such
Investments at the time of such designation. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
Any designation of an Unrestricted Subsidiary by the Board of Directors
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the resolution of the Board of Directors of the Company giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the terms of the Indenture governing the designation of
Unrestricted Subsidiaries and was permitted by the covenant described above
under the caption "-- Certain Covenants -- Restricted Payments." If, at any
time, any Unrestricted Subsidiary fails to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock," the
Company shall be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period,
and (ii) no Default or Event of Default would be in existence immediately
following such designation. (Section 4.7)
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and that the
Company shall not issue any Disqualified Stock and shall not permit any of its
Restricted Subsidiaries to issue any shares of preferred stock; provided,
however, that the Company may incur Indebtedness (including Acquired Debt) or
issue shares of Disqualified Stock if the Company's Fixed Charge Coverage Ratio
for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least 2.00 to 1.00, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant shall not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt") so long as no Default has occurred and is continuing or would
be caused thereby:
(i) the incurrence by the Company of: (A) revolving credit Indebtedness under
any Credit Facility, letters of credit (with letters of credit being
deemed to have a principal amount equal to the maximum potential liability
of the Company and its Restricted Subsidiaries thereunder) and related
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Guarantees under any Credit Facility; provided that the aggregate principal
amount of all revolving Indebtedness and letters of credit of the Company
and its Restricted Subsidiaries (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of the
Company and its Restricted Subsidiaries thereunder) outstanding at any one
time under all such Credit Facilities after giving effect to such
incurrence, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any other Indebtedness incurred pursuant to
this clause (i), does not exceed $80.0 million less the aggregate amount
of Asset Sale proceeds applied by the Company and its Restricted
Subsidiaries to permanently reduce the availability of revolving credit
Indebtedness under the Credit Facility pursuant to the provisions
described under the caption "-- Repurchase at the Option of Holders --
Asset Sales;" and (B) up to $45.0 million of the Tranche B Term Loan or a
similar facility not to exceed $45.0 million (less the aggregate amount of
all repayments (optional or mandatory) of the principal of any term loan
pursuant to this clause (i) that has been made by the Company since the
Issue Date) for the purpose of financing the Toastmaster Acquisition if
such acquisition is consummated by April 30, 1999;
(ii) the incurrence by the Company and its Restricted Subsidiaries of Existing
Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the Notes and
the incurrence by the Guarantors of Indebtedness represented by the
Subsidiary Guarantees;
(iv) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or such Restricted Subsidiary, in an aggregate principal amount,
including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace Indebtedness incurred pursuant to this clause (iv),
not to exceed $5.0 million at any time outstanding;
(v) the incurrence by the Company or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in respect of Indebtedness that was
permitted by the Indenture to be incurred by such entity other than
pursuant to clause (i), (vi) and (vii) below;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that (i) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated
to the prior payment in full in cash of all Obligations with respect to
the Notes and the Indenture and (ii)(A) any subsequent event or issuance
or transfer of Equity Interests that results in any such Indebtedness
being held by a Person other than the Company or a Restricted Subsidiary
of the Company and (B) any sale or other transfer of any such Indebtedness
to a Person that is not either the Company or a Restricted Subsidiary of
the Company shall be deemed, in each case, to constitute an incurrence of
such Indebtedness by the Company or such Restricted Subsidiary, as the
case may be, that was not permitted by this clause (vi);
(vii) the incurrence by the Company or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred in the normal course of business and
consistent with past business practices for the purpose of fixing or
hedging currency, commodity or interest rate risk (including with respect
to any floating rate Indebtedness that is permitted by the terms of the
Indenture to be outstanding in connection with the conduct of their
respective businesses and not for speculative purposes);
(viii) the guarantee by the Company of Indebtedness of any of the Guarantors or
the Guarantee by any of the Guarantors of Indebtedness of the Company, in
each case that was permitted to be incurred by another provision of this
covenant "-- Incurrence of Indebtedness and Issuance of Preferred Stock";
(ix) the incurrence by a Restricted Subsidiary that is a Foreign Subsidiary of
Non-Recourse Debt in an amount not to exceed 75% of the net book value of
the non-Affiliate accounts receivable of such Restricted Foreign Subsidiary
determined in accordance with GAAP;
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(x) the incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse
Debt, provided, however, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (x);
(xi) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness arising from agreements of the Company or a Restricted
Subsidiary of the Company providing for indemnification, adjustment of
purchase price or other similar obligations, in each case, incurred or
assumed in connection with the disposition of any business, assets or a
Restricted Subsidiary of the Company, other than the guarantees of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or a Restricted Subsidiary for the purpose of financing
such acquisition; provided that (A) such Indebtedness is not reflected on
the balance sheet of the Company or any Subsidiary of the Company
(contingent obligations referred to in a footnote to financial statements
and not otherwise reflected on the balance sheet will not be deemed to be
reflected on such balance sheet for purposes of this clause (A)) and (B)
the maximum assumable liability in respect of all such Indebtedness with
respect to such disposition shall at no time exceed the gross proceeds
including noncash proceeds (the fair market value of such noncash proceeds
being measured at the time received and without giving effect to any
subsequent changes in value) actually received by the Company and its
Restricted Subsidiaries in connection with such disposition; and
(xii) the incurrence by the Company or any of its Restricted Subsidiaries that
are Guarantors of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any other Indebtedness incurred pursuant to this clause (xii), not
to exceed $10.0 million, provided that up to $5.0 million of such $10.0
million may be incurred by any of the Company's Foreign Restricted
Subsidiaries that are not Guarantors.
For purposes of determining compliance with this covenant, in the event
that an item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xii) above as of
the date of incurrence thereof or is entitled to be incurred pursuant to the
first paragraph of this covenant as of the date of incurrence thereof, the
Company shall, in its sole discretion, classify such item of Indebtedness as of
the date of incurrence thereof in any manner that complies with this covenant
and such item of Indebtedness shall be treated as having been incurred pursuant
to only one of such clauses or pursuant to the first paragraph hereof. Accrual
of interest, the accretion of accreted value and the payment of interest in the
form of additional Indebtedness will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant. (Section 4.9)
Liens
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind securing Indebtedness, Attributable Debt,
or trade payables (other than Permitted Liens) upon any of their property or
assets, now owned or hereafter acquired, unless all payments due under the
Indenture and the Notes are secured on an equal and ratable basis with the
obligations so secured until such time as such obligations are no longer secured
by a Lien; provided that in any case involving a Lien securing indebtedness
subordinated to the Notes, such Lien is subordinated to the Lien securing the
Notes to the same extent that such subordinated indebtedness is subordinated to
the Notes. (Section 4.12)
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to (i)(x) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (y) pay any Indebtedness
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owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii) transfer
any of its properties or assets to the Company or any of its Restricted
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (a) Existing Indebtedness as in effect on the Issue Date, (b) the
Credit Facility as in effect as of the Issue Date, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the Credit
Facility as in effect on the Issue Date, (c) the Indenture and the Notes, (d)
applicable law, (e) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred, (f) by
reason of customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (g) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, or (h) Permitted Refinancing Indebtedness, provided that
the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced. (Section 4.8)
Guarantees by Restricted Subsidiaries
The Indenture will provide that the Company will not permit any of its
Restricted Subsidiaries, directly or indirectly, to Guarantee, assume or in any
other manner become liable for the payment of any Indebtedness of the Company
unless: (i) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture providing for a Guarantee of payment of the Notes by such
Restricted Subsidiary, which Guarantee shall be (x) in the case of Indebtedness
that is subordinated to the Notes, senior to such Restricted Subsidiary's
Guarantee of or pledge to secure such other Indebtedness, (y) in the case of
Indebtedness that is pari passu with the Notes, pari passu with such Restricted
Subsidiary's Guarantee of or pledge to secure such other Indebtedness, and (z)
in the case of Indebtedness that is Senior Debt, subordinated to the Guarantee
of such Senior Debt to the same extent as the Notes are subordinated to such
other Senior Debt, and (ii) such Restricted Subsidiary waives, and will not in
any manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Guarantee until the Notes have been paid in full. (Section
4.17)
Merger, Consolidation, or Sale of Assets
The Company will not, directly or indirectly, consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell, assign,
transfer, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States, any state
thereof or the District of Columbia; (ii) the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company) or the
entity or Person to which such sale, assignment, transfer, conveyance or other
disposition shall have been made assumes all the obligations of the Company
under the Notes, the Registration Rights Agreement and the Indenture pursuant to
a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately before and after such transaction no Default or Event of Default
shall have occurred; and (iv) except in the case of a merger of the Company with
or into a wholly owned Restricted Subsidiary
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of the Company, the Company or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made will,
immediately after such transaction after giving pro forma effect thereto and any
related financing transactions as if the same had occurred at the beginning of
the applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock." The Indenture
will also provide that the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. (Section 5.1)
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any properties or assets to, or purchase any property or assets from,
or enter into or make or amend any transaction, contract, agreement,
understanding, loan, advance or Guarantee with, or for the benefit of, any
Affiliate of any such Person (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to
the Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of its Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of its Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $3.0 million, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an investment banking firm (or, if an investment banking firm is
generally not qualified to give such an opinion, by an appraisal firm) of
national standing; provided that none of the following shall be deemed to be
Affiliate Transactions: (1) any employment agreement entered into by the Company
or any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary,
as the case may be, (2) transactions between or among the Company and/or its
Restricted Subsidiaries on terms that are no less favorable to the Company
and/or such Subsidiary than those that would have been obtained in a comparable
transaction by the Company and/or such Subsidiary with an unrelated Person, (3)
any sale or other issuance of Equity Interests (other than Disqualified Stock)
of the Company, (4) Restricted Payments that are permitted by the covenant
described above under the caption "-- Restricted Payments," (5) fees and
compensation paid to members of the Board of Directors of the Company and of its
Restricted Subsidiaries in their capacity as such, to the extent such fees and
compensation are reasonable, customary and consistent with past practices, (6)
advances to employees for moving, entertainment and travel expenses, drawing
accounts and similar expenditures in the ordinary course of business and
consistent with past practices, (7) fees payable to Markpeak Ltd. in the
ordinary course of business and consistent with past practices, and (8) fees and
compensation paid to, and indemnity provided on behalf of, officers, directors
or employees of the Company or any of its Restricted Subsidiaries, as determined
by the Board of Directors of the Company or of any such Restricted Subsidiary,
to the extent such fees and compensation are reasonable, customary and
consistent with past practices. (Section 4.11)
Sale and Leaseback Transactions
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company may enter into a sale and leaseback transaction if (i) the Company
could have incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred
Stock" and (ii) the gross cash proceeds of such sale and leaseback transaction
are at
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least equal to the fair market value (as determined in good faith by the Board
of Directors and set forth in an Officer's Certificate delivered to the Trustee)
of the property that is the subject of such sale and leaseback transaction and
(iii) the transfer of assets in such sale and leaseback transaction is permitted
by, and the Company applies the proceeds of such transaction in compliance with,
the covenant described above under the caption "Repurchase at the Option of
Holders -- Asset Sales." (Section 4.19)
No Senior Subordinated Debt
The Indenture will provide that, notwithstanding any other provision
thereof, the Company will not incur, create, issue, assume, guarantee or
otherwise become liable, directly or indirectly, for any Indebtedness (including
Acquired Debt) that is subordinate or junior in right of payment to any Senior
Debt and senior in any respect in right of payment to the Notes. (Section 4.16)
Business Activities
The Company will not, and the Company will not permit any of its Restricted
Subsidiaries to, directly or indirectly, engage in any line of business other
than a Permitted Business, except to such extent as would not be material to the
Company and its Restricted Subsidiaries taken as a whole. (Section 4.13)
Payments for Consent
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Notes unless such consideration
is offered to be paid or is paid to all Holders of the Notes that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement. (Section 4.18)
Reports
The Indenture will provide that whether or not the Company is required by
the rules and regulations of the Commission, so long as any Notes are
outstanding and irrespective of whether the Exchange Offer Registration
Statement or the Shelf Registration Statement has been declared effective by the
Commission, the Company will furnish to each of the Holders of Notes (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such financial information, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
describes the financial condition and results of operations of the Company and
any consolidated Restricted Subsidiaries and, with respect to the annual
information only, reports thereon by the Company's independent public
accountants (which shall be firm(s) of established national reputation) and (ii)
all information that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. All such information and
reports shall be filed with the Commission on or prior to the dates on which
such filings would have been required to be made had the Company been subject to
the rules and regulations of the Commission. In addition, whether or not
required by the rules and regulations of the Commission, the Company shall file
a copy of all such information and reports with the Commission for public
availability within the time periods specified in the Commission=s rules and
regulations (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. For so long as any Notes remain outstanding, the Company and the
Guarantors shall furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act. (Section 4.3)
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EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (ii) default in
payment when due of the principal of or premium, if any, on the Notes (whether
or not prohibited by the subordination provisions of the Indenture); (iii)
failure by the Company or any of its Restricted Subsidiaries to comply with the
provisions described under the caption "-- Merger, Consolidation, or Sale of
Assets"; (iv) failure by the Company or any of its Restricted Subsidiaries for
30 days after notice from the Trustee or Holders of 25% in aggregate principal
amount of the Notes then outstanding to comply with the provisions described
under the captions "Repurchase at the Option of Holders -- Asset Sales,"
"-- Restricted Payments," "-- Incurrence of Indebtedness and Issuance of
Preferred Stock" or "Repurchase at the Option of Holders -- Change of Control";
(v) failure by the Company or any of its Restricted Subsidiaries for 60 days
after notice from the Trustee or Holders of 25% in aggregate principal amount of
the Notes then outstanding to comply with any of its other agreements in the
Indenture or the Notes; (vi) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or
is created after the Issue Date, which default (a) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the date of such
default (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates without duplication $2.5 million or
more; (vii) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $2.5 million (excluding amounts covered
by insurance), which judgments are not paid, discharged or stayed for a period
of 60 days and (viii) certain events of bankruptcy or insolvency with respect to
the Company or any of its Restricted Subsidiaries. (Section 6.1)
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any Restricted
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. (Section 6.2)
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
December 15, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to December 15, 2002, then the
premium specified in the Indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes. (Section 6.5)
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The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy. (Section 13.7)
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages, if any, on such Notes when such payments are due from
the trust referred to below, (ii) the Company's obligations with respect to the
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes. (Section
8.1)
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and Liquidated Damages,
if any, on the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether the
Notes are being defeased to maturity or to a particular redemption date; (ii) in
the case of Legal Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the Issue Date, there has
been a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion of counsel shall confirm that, the
Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary assumptions and
exclusions, the Holders of the outstanding Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any
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time in the period ending on the 91st day after the date of deposit; (v) such
Legal Defeasance or Covenant Defeasance will not result in a breach or violation
of, or constitute a default under any material agreement or instrument (other
than the Indenture) to which the Company or any of its Restricted Subsidiaries
is a party or by which the Company or any of its Restricted Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that, subject to customary assumptions and exclusions, after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (vii) the Company must deliver to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that, subject to customary assumptions and exclusions, all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with. (Section 8.2)
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
(Section 2.6)
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, 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 (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for Notes). (Section 9.2)
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders"), (iii) reduce the rate of or change
the time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders") or (viii) make any change in
the foregoing amendment and waiver provisions. In addition, any amendment to the
provisions of Article 10 of the Indenture (which relate to subordination) will
require the consent of the Holders of at least 75% in aggregate principal amount
of the Notes then outstanding if such amendment would adversely affect the
rights of Holders of Notes. Without the consent of at least 75% in principal
amount of the Notes then outstanding (including consents obtained in connection
with a tender offer or exchange offer for the Notes), no waiver or
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amendment to the Indenture may make any change in the provisions described above
under the captions "-- Repurchase at the Option of Holders -- Change of
Control," and "-- Repurchase at the Option of Holders -- Asset Sales" that
adversely affect the rights of any Holder of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then 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 in case an Event of Default
shall occur (which shall not be 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. (Section 7.1)
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchaser have entered into the Registration
Rights Agreement. Pursuant to the Registration Rights Agreement, the Company has
agreed to file with the Commission the Exchange Offer Registration Statement on
the appropriate form under the Securities Act with respect to the New Notes.
Upon the effectiveness of the Exchange Offer Registration Statement, the Company
will offer to the Holders of Transfer Restricted Securities pursuant to the
Exchange Offer who are able to make certain representations the opportunity to
exchange their Transfer Restricted Securities for New Notes. If (i) the Company
is not required to file the Exchange Offer Registration Statement or permitted
to consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy or (ii) any Holder of Transfer Restricted
Securities notifies the Company prior to the 20th day following consummation of
the Exchange Offer that (A) it is prohibited by law or Commission policy from
participating in the Exchange Offer or (B) that it may not resell the New Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (C) that it is a
broker-dealer and owns Notes acquired directly from the Company or an affiliate
of the Company, the Company will file with the Commission a Shelf Registration
Statement to cover resales of the Notes by the Holders thereof who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement. The Company will use its best efforts to cause
the applicable registration statement to be declared effective as promptly as
possible by the Commission. For purposes of the foregoing, "Transfer Restricted
Securities" means each Note until (i) the date on which such Note has been
exchanged by a person other than a broker-dealer for a New Note in the Exchange
Offer, (ii) following the exchange by a broker-dealer in the Exchange Offer of a
Note for a New Note, the date on which such New Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy of
the prospectus contained in the Exchange Offer Registration Statement,
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(iii) the date on which such Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Note is distributed to the public
pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company will file
an Exchange Offer Registration Statement with the Commission on or prior to 60
days after the Closing Date, (ii) the Company will use its best efforts to have
the Exchange Offer Registration Statement declared effective by the Commission
on or prior to 120 days after the Closing Date, (iii) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, the Company will
commence the Exchange Offer and use its best efforts to issue on or prior to 30
business days after the date on which the Exchange Offer Registration Statement
was declared effective by the Commission, New Notes in exchange for all Notes
tendered prior thereto in the Exchange Offer and (iv) if obligated to file the
Shelf Registration Statement, the Company will use its best efforts to file the
Shelf Registration Statement with the Commission on or prior to 60 days after
such filing obligation arises and to cause the Shelf Registration to be declared
effective by the Commission on or prior to 120 days after such obligation
arises. If (a) the Company fails to file any of the Registration Statements
required by the Registration Rights Agreement on or before the date specified
for such filing, (b) any of such Registration Statements is not declared
effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), or (c) the Company fails to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods specified in
the Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will pay
Liquidated Damages to each Holder of Notes, with respect to the first 90-day
period immediately following the occurrence of the first Registration Default in
an amount equal to $.05 per week per $1,000 principal amount of Notes held by
such Holder. The amount of the Liquidated Damages will increase by an additional
$.05 per week per $1,000 principal amount of Notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $.50 per week per $1,000 principal
amount of Notes. All accrued Liquidated Damages will be paid by the Company on
each damages payment date to the Global Note Holder by wire transfer of
immediately available funds or by federal funds check and to Holders of
Certificated Securities by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"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 purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
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"Asset Sale" means (i) the sale, lease, conveyance or other disposition
of any assets or rights (including, without limitation, by way of a sale and
leaseback) other than in the ordinary course of business consistent with past
practices (provided that the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole will be governed by the covenants described above
under the captions "-- Repurchase at the Option of Holders -- Change of Control"
and "-- Certain Covenants-- Merger, Consolidation, or Sale of Assets" and not by
the provisions of the covenant described above under the caption "-- Repurchase
at the Option of Holders -- Asset Sales"), and (ii) the issue or sale by the
Company or any of its Restricted Subsidiaries of Equity Interests of any the
Company's Restricted Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $1.0 million or (b) for Net Proceeds in
excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets
by the Company to a Restricted Subsidiary of the Company or by a Restricted
Subsidiary of the Company to the Company or to another Restricted Subsidiary of
the Company, (ii) an issuance or sale of Equity Interests by a Restricted
Subsidiary of the Company to the Company or to another Restricted Subsidiary of
the Company that is a Guarantor, (iii) a Restricted Payment that is permitted by
the covenant described above under the caption "-- Restricted Payments" and (iv)
a disposition of inventory in the ordinary course of business will not be deemed
to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board of Directors.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participation, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of not more than one year from the
date of acquisition, bankers' acceptances with maturities of not more than one
year from the date of acquisition and overnight bank deposits, in each case with
any domestic commercial bank having capital and surplus in excess of $500
million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or one of the two highest ratings from Standard & Poor's
with maturities of not more than six months from the date of acquisition and
(vi) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (i) -- (v) of this definition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries,
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) (other
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than persons who are, or groups of persons who are, made up entirely of
Principals or their Related Parties); (ii) the adoption of a plan relating to
the liquidation or dissolution of the Company; (iii) the consummation of any
transaction or series of related transactions (including, without limitation,
any merger or consolidation) the result of which is that any "person" (as
defined above), other than the Principals and their Related Parties, becomes the
"beneficial owners" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is currently exercisable or is exercisable only upon the occurrence
of a subsequent condition), directly or indirectly, of more than 30% of the
total Voting Stock of the Company (measured by voting power rather than number
of shares); provided that the Principals and their Related Parties beneficially
own (as defined in this clause (iii)) directly or indirectly, in the aggregate a
lesser percentage of the total voting power of the Voting Stock of the Company
than such other person and do not have the right or ability by voting power,
contract or otherwise, to elect or designate for election a majority of the
Board of Directors of the Company; (iv) the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing Directors;
or (v) the Company consolidates with, or merges with or into, any Person or
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which any of the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of the Company outstanding immediately prior
to such transaction is converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee Person constituting a
majority of the outstanding shares of such Voting Stock of such surviving or
transferee Person (immediately after giving effect to such issuance).
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, without
duplication, (i) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income), plus (ii) provision for
taxes based on income or profits of such Person and its Restricted Subsidiaries
for such period, to the extent that such provision for taxes was included in
computing such Consolidated Net Income, plus (iii) consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing such Consolidated Net Income, plus (iv) depreciation
and amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation and amortization were deducted in computing such
Consolidated Net Income, minus (v) non-cash items increasing such Consolidated
Net Income for such period, in each case, on a consolidated basis and determined
in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries (for such period, on a consolidated basis, determined in accordance
with GAAP); provided that (i) the Net Income (but not loss) of any Person that
is not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary,
(ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
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agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded and (v)
the Net Income (but not loss) of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to the Company or one of its Subsidiaries.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the New Credit Agreement) or
commercial paper facility with banks or other institutional lenders providing
for revolving credit 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 of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"Default" means any event that is or with the passage of time or the
giving of notice (or both) would be an Event of Default.
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
New Credit Agreement and (ii) any other Senior Debt permitted hereunder the
principal amount of which is $25.0 million or more and that has been designated
by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature, except to the extent that such Capital Stock is solely
redeemable with, or solely exchangeable for, any Capital Stock of such Person
that is not Disqualified Stock.
"Domestic Subsidiary" means a Subsidiary that is (i) formed under the laws
of the United States of America or a state or territory thereof or (ii) as of
the date of determination, treated as a domestic entity or a partnership or a
division of a domestic entity for United States federal income tax purposes.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means up to $15.0 million in aggregate principal
amount of Indebtedness of the Company and its Restricted Subsidiaries (other
than Indebtedness under the New Credit Agreement and the Notes) in existence on
the Issue Date, until such amounts are repaid.
"Financing" means the Offering of the Notes in an aggregate principal
amount of $125.0 million and the application of the proceeds of the Offering to
(i) repay approximately $110.0 million of outstanding Indebtedness under the New
Credit Agreement and (ii) pay certain fees and expenses incurred in connection
with the Offering.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), (ii) the consolidated interest of such Person and its
Restricted Subsidiaries that was capitalized during such period, (iii) any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or one of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or one of its Restricted Subsidiaries (whether or not such Guarantee
or Lien is called upon) and (iv) the product of (a) all dividend payments,
whether or not in cash, on any series of preferred stock of
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such Person or any of its Restricted Subsidiaries, other than dividend payments
on Equity Interests payable solely in Equity Interests of the Company (other
than Disqualified Stock), times (b) a fraction, the numerator of which is one
and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than working capital borrowings represented by
revolving credit Indebtedness under any Credit Facility) or issues preferred
stock subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but on or prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the definition
of Consolidated Net Income, (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
"Foreign Subsidiary" means any Subsidiary of the Company that is not a
Domestic Subsidiary.
"GAAP" means generally accepted accounting principles in the United States
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants, the statements and
pronouncements of the Financial Accounting Standards Board and such other
statements by such other entities (including the Commission) as have been
accepted by a significant segment of the accounting profession, which are
applicable at the Issue Date.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means Home Creations Direct Ltd., a Delaware corporation, and
any other Subsidiary that becomes a party to a Subsidiary Guarantee pursuant to
the Indenture.
"Hedging Obligations" means, with respect to any Person, the net payment
Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements in the ordinary course of business and pursuant to
past practices designed to protect such Person against fluctuations in commodity
prices, interest rates or currency exchange rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued
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expense or trade payable, if and to the extent any of the foregoing indebtedness
(other than letters of credit and Hedging Obligations) would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
as well as all Indebtedness of others secured by a Lien on any asset of such
Person (whether or not such Indebtedness is assumed by such Person) and, to the
extent not otherwise included, the Guarantee by such Person of any Indebtedness
of any other Person, and any liability, whether or not contingent, whether or
not it appears on the balance sheet of such Person. The amount of any
Indebtedness outstanding as of any date shall be (i) the accreted value thereof,
in the case of any Indebtedness that does not require current payments of
interest, and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other Obligations),
advances of assets or capital contributions (excluding commission, travel and
entertainment, moving, and similar advances to officers and employees made in
the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. If the Company or any of its Restricted
Subsidiaries sells or otherwise disposes of any Equity Interests of any direct
or indirect Restricted Subsidiary of the Company such that, after giving effect
to any such sale or disposition, such Person is no longer a direct or indirect
Restricted Subsidiary of the Company, the Company or such Restricted Subsidiary,
as the case may be, shall be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Equity
Interests of such Restricted Subsidiary not sold or disposed of in an amount
determined as provided in the third paragraph of the covenant described above
under the caption "-- Restricted Payments."
"Issue Date" means the date on which the Notes were originally issued.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in any asset and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary gain (but not loss),
together with any related provision for taxes on such extraordinary gain (but
not loss).
"Net Proceeds" means the aggregate cash proceeds or Cash Equivalents
received by the Company or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received in any Asset Sale), net
of (a) all costs relating to such Asset Sale (including, without limitation,
legal, accounting, investment banking and brokers fees, and sales and
underwriting commissions) and any relocation expenses incurred as a result
thereof, taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing arrangements), (b)
amounts required to be applied to repayment of Indebtedness (other than
Indebtedness under any Credit Facility) secured by a Lien on the asset or assets
that were the subject of such Asset Sale and (c) and any reserve for adjustment
in respect of the sale price of such asset or assets established in accordance
with GAAP.
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"New Credit Agreement" means that certain Credit Agreement, dated as of
July 27, 1998, by and among the Company, the several Lenders from time to time
parties thereto, Lehman Brothers Inc., as Arranger, Lehman Commercial Paper
Inc., as Syndication Agent and Lehman Commercial Paper Inc., as Administrative
Agent, providing for up to $125.0 million of borrowings, including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, in each case as amended, restated, modified, renewed,
refunded, replaced or refinanced from time to time (whether with the original
agents and lenders or other agents and lenders).
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity, agreement
or instrument that would constitute Indebtedness), (b) is directly or indirectly
liable (as a guarantor or otherwise) or (c) constitutes the lender; and (ii) no
default with respect to which (including any rights that the holders thereof may
have to take enforcement action against an Unrestricted Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness (other
than the Notes being offered hereby) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse against any of the assets or stock of the Company or any of
its Restricted Subsidiaries.
"Obligations" means any principal, premium, if any, interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company or its Restricted Subsidiaries whether or
not a claim for post-filing interest is allowed in such proceeding), penalties,
fees, charges, expenses, indemnifications, reimbursement obligations, damages
(including Liquidated Damages, if any), guarantees and other liabilities or
amounts payable under the documentation governing any Indebtedness or in respect
thereof.
"Permitted Business" means the lines of business conducted by the Company
and its Restricted Subsidiaries on the date hereof and businesses reasonably
related thereto.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Restricted Subsidiary of the Company in
a Person engaged in a Permitted Business, if as a result of such Investment (i)
such Person becomes a Restricted Subsidiary of the Company or (ii) such Person
is merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary of the Company; (d) any Restricted Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with the covenant described above under the
caption "-- Repurchase at the Option of Holders -- Asset Sales"; (e) any
acquisition of assets solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of the Company; (f) other Investments by the
Company or any of its Restricted Subsidiaries in any Person having an aggregate
fair market value (measured as of the date made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (f) that are at the time outstanding, not to exceed
$3.0 million; (g) Investments arising in connection with Hedging Obligations
that are incurred in the ordinary course of business consistent with past
practices, for the purpose of fixing or hedging currency, commodity or interest
rate risk (including with respect to any floating rate Indebtedness that is
permitted by the terms of the Indenture to be outstanding) in connection with
the conduct of the business of the Company and its Restricted Subsidiaries; and
(h) any Investment existing on the Issue Date and any amendment, modification,
restatement, supplement, extension, renewal, refunding, replacement,
refinancing, in whole or in part, thereof, provided that the aggregate principal
amount of all Investments of the Company pursuant to this clause (h) does not
exceed an amount equal to $3.0 million.
"Permitted Junior Securities" means Equity Interests in the Company or
debt securities that are subordinated to all Senior Debt (and any debt
securities issued in exchange for Senior Debt) to
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substantially the same extent as, or to a greater extent than, the Notes are
subordinated to Senior Debt pursuant to the Indenture.
"Permitted Liens" means (i) Liens on assets of the Company or any of its
Restricted Subsidiaries to secure Senior Debt permitted by the Indenture to be
incurred; (ii) Liens on the assets of the Company or any of its Restricted
Subsidiaries to secure Hedging Obligations with respect to Indebtedness under
any Credit Facility permitted by the Indenture to be incurred; (iii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Restricted Subsidiary of the Company;
provided that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with the Company; (iv) Liens on property
existing at the time of acquisition thereof by the Company or any Restricted
Subsidiary of the Company, provided that such Liens were in existence prior to
the contemplation of such acquisition and only extend to the property so
acquired; (v) Liens existing on the Issue Date; (vi) Liens to secure any
Permitted Refinancing Indebtedness incurred to refinance any Indebtedness
secured by any Lien referred to in the foregoing clauses (i) through (v), as the
case may be, at the time the original Lien became a Permitted Lien; (vii) Liens
in favor of the Company or any Restricted Subsidiary; (viii) Liens incurred in
the ordinary course of business of the Company or any Restricted Subsidiary of
the Company with respect to obligations that do not exceed $5.0 million in the
aggregate at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Restricted Subsidiary; (ix) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds, deposits to secure the
performance of bids, trade contracts, government contracts, leases or licenses
or other obligations of a like nature incurred in the ordinary course of
business (including, without limitation, landlord Liens on leased properties);
(x) Liens for taxes, assessments or governmental charges or claims that are not
yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently prosecuted, provided that any
reserve or other appropriate provision as shall be required to conform with GAAP
shall have been made therefor; (xi) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by clause (iv) of the second paragraph of
the covenant described above under the caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock" covering only the assets acquired with such
Indebtedness; (xii) carriers', warehousemen's, mechanics', landlords'
materialmen's, repairmen's or other like Liens arising in the ordinary course of
business in respect of obligations not overdue for a period in excess of 60 days
or which are being contested in good faith by appropriate proceedings promptly
instituted and diligently prosecuted; provided that any reserve or other
appropriate provision as shall be required to conform with GAAP shall have been
made therefor; (xiii) easements, rights-of-way, zoning and similar restrictions
and other similar encumbrances or title defects incurred, or leases or subleases
granted to others, in the ordinary course of business, which do not in any case
materially detract from the value of the property subject thereto or do not
interfere with or adversely affect in any material respect the ordinary conduct
of the business of the Company and its Restricted Subsidiaries taken as a whole;
(xiv) Liens in favor of customs and revenue authorities to secure payment of
customs duties in connection with the importation of goods in the ordinary
course of business and other similar Liens arising in the ordinary course of
business; and (xv) leases or subleases granted to third Persons not interfering
with the ordinary course of business of the Company or any of its Restricted
Subsidiaries, (xvi) Liens (other than any Lien imposed by ERISA or any rule or
regulation promulgated thereunder) incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance, and other types of social security; (xvii) deposits, in an aggregate
not to exceed $250,000, made in the ordinary course of business to secure
liability to insurance carriers; (xviii) Liens for purchase money obligations
(including refinancings thereof permitted under the covenant described above
under the caption "-- Incurrence of Indebtedness and Issuance of Preferred
Stock"), provided that (A) the Indebtedness secured by any such Lien is
permitted under the covenant described above under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock" and (B) any such Lien encumbers
only the asset so purchased; (xix) any attachment or judgment Lien not
constituting
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an Event of Default under clause (i) of the first paragraph of the section
described above under the caption "Events of Default and Remedies"; (xx) any
interest or title of a lessor or sublessor under any operating lease; and (xxi)
Liens under licensing agreements for use of Intellectual Property entered into
in the ordinary course of business.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued and unpaid interest on, any Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is pari passu with the
Notes, such Permitted Refinancing Indebtedness is pari passu with or
subordinated in right of payment to the Notes or is Disqualified Stock; (iv)
such Permitted Refinancing Indebtedness is recourse to the same extent as the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (v) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes, such
Permitted Refinancing Indebtedness is subordinated in right of payment to, the
Notes on terms at least as favorable to the Holders of Notes as those contained
in the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (vi) such Indebtedness is incurred
either by the Company or a Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Principals" means Centre Capital Investors II, L.P., Centre Capital
Tax-Exempt Investors II, L.P., Centre Capital Offshore Investors II, L.P., The
State Board of Administration of Florida, Centre Parallel Management Partners,
L.P., Centre Partners Coinvestment, L.P. and David C. Sabin, Leonhard Dreimann
and William B. Rue.
"Public Equity Offering" means any underwritten primary public offering of
the Common Stock or other Voting Stock of the Company pursuant to an effective
registration statement (other than a registration statement on Form S-4, Form
S-8, or any successor or similar form) under the Securities Act.
"Recapitalization" means, collectively, (i) the repurchase by the Company
of 6,535,072 shares of the Company's common stock owned by Windmere pursuant to
a stock purchase agreement by and among the Company, Windmere and certain
executive officers of the Company dated as of July 28, 1998 (the "Stock Purchase
Agreement"), (ii) the repurchase by the Company of Windmere's option to purchase
458,500 shares of the Company's common stock pursuant to the Stock Purchase
Agreement, (iii) the issuance of $40.0 million in convertible preferred stock of
the Company pursuant to a preferred stock purchase agreement between the Company
and certain affiliates of Centre Partners Management LLC and (iv) the borrowings
under the New Credit Agreement.
"Related Party" with respect to any Principal means (i) any controlling
stockholder, 50% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (ii) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding a more than 50% controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (i).
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"Representative" means the administrative agent under the New Credit
Agreement or its successor thereunder.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary; provided that, on the Issue Date,
both Subsidiaries of the Company shall be Restricted Subsidiaries of the
Company.
"Senior Debt" means (i) all Indebtedness outstanding under the Credit
Facility permitted under clause (i) of the second paragraph of the covenant
described above under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock," (ii) any other Indebtedness
permitted to be incurred by the Company under the terms of the Indenture, unless
the instrument under which such Indebtedness is incurred expressly provides that
it is on a parity with or subordinated in right of payment to the Notes and
(iii) all Obligations with respect to the foregoing. Notwithstanding anything to
the contrary in the foregoing, Senior Debt will not include (w) any liability
for federal, state, local or other taxes owed or owing by the Company, (x) any
Indebtedness of the Company to any of its Subsidiaries or other Affiliates, (y)
any trade payables or (z) any Indebtedness that is incurred in violation of the
Indenture; provided that Indebtedness under the Credit Facility will not cease
to be Senior Debt if borrowed (in the case of loans) or issued (in the case of
letters of credit) based upon a written certification (which can be included in
a borrowing request) from a purported officer of the Company to the effect that
such Indebtedness was permitted by the Indenture to be incurred.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the Credit Agreement or other
original documentation governing such Indebtedness, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock 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 such
Person and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or an entity described in clause (i) and
related to such Person or (b) the only general partners of which are such Person
or of one or more entities described in clause (i) and related to such Person
(or any combination thereof).
"Toastmaster Acquisition" means the acquisition of Toastmaster Inc. by the
Company pursuant to the Agreement and Plan of Merger by and among Toastmaster
Inc., Columbia Acquisition Corp. and the Company, dated as of August 26, 1998.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution;
but only to the extent that such Subsidiary: (a) has no Indebtedness other than
Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; and (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
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"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" means a Restricted Subsidiary, 100% of the
outstanding Capital Stock and other Equity Interests of which is directly or
indirectly owned by the Company.
"Windmere" means Windmere-Durable Holdings, Inc., a Florida corporation.
"Windmere Note" means that certain subordinated promissory note in the
amount of $15.0 million payable by the Company to Windmere.
BOOK-ENTRY DELIVERY AND FORM
The certificates representing the Notes will be issued in fully registered
form, without coupons. Except as described in the next paragraph, the Notes will
be deposited with, or on behalf of, The Depository Trust Company, New York, New
York ("DTC"), and registered in the name of Cede & Co., as DTC's nominee in the
form of a global Note certificate (the "Global Certificate") or will remain in
the custody of the Trustee pursuant to a FAST Balance Certificate Agreement
between DTC and the Trustee.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 180 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resales. In
addition, the Company agreed that it would not for a period of 120 days from
December 16, 1998, the date of the Offering Memorandum distributed in connection
with the sale of the Old Notes, directly or indirectly offer, sell, grant any
options to purchase or otherwise dispose of any debt securities other than in
connection with this Exchange Offer.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We have been advised by Lehman Brothers, the Initial Purchaser of the Old
Notes, that following completion of the Exchange Offer they intend to make a
market in the New Notes to be issued in the Exchange Offer; however, it is under
no obligation to do so and any market activities with respect to the New Notes
may be discontinued at any time.
114
<PAGE> 116
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
New Notes offered hereby will be passed upon for the Company by Sonnenschein
Nath & Rosenthal, Chicago, Illinois.
EXPERTS
The financial statements as of June 27, 1998 and June 28, 1997 and for each
of the three years in the period ended June 27, 1998 included in this prospectus
and the related financial statement schedules incorporated by reference in the
registration statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and incorporated by
reference in the registration statement, and have been so included and
incorporated by reference in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
The financial statements of Toastmaster as of December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997, included
in this Prospectus, have been audited by KPMG LLP, independent auditors, as set
forth in their report appearing elsewhere herein.
115
<PAGE> 117
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SALTON
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of June 27, 1998 and June 28,
1997...................................................... F-3
Consolidated Statements of Earnings for the Years ended June
27, 1998, June 28, 1997, and June 29, 1996................ F-4
Consolidated Statements of Stockholders' Equity for the
Years ended June 27, 1998, June 28, 1997, and June 29,
1996...................................................... F-5
Consolidated Statements of Cash Flows for the Years ended
June 27, 1998, June 28, 1997, and June 29, 1996........... F-6
Notes to Consolidated Financial Statements.................. F-7
THIRTEEN WEEKS ENDED SEPTEMBER 26, 1998 AND SEPTEMBER 27,
1997
Consolidated Balance Sheets at September 26, 1998
(Unaudited) and June 27, 1998............................. F-20
Consolidated Statements of Earnings for the Thirteen Weeks
ended September 26, 1998 and September 27, 1997
(Unaudited)............................................... F-21
Consolidated Statements of Cash Flows for the Thirteen Weeks
ended September 26, 1998 and September 27, 1997
(Unaudited)............................................... F-22
Notes to Consolidated Financial Statements (Unaudited)...... F-23
TOASTMASTER
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Independent Auditors' Report................................ F-26
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-27
Consolidated Statements of Operations for the Years ended
December 31, 1997, 1996 and 1995.......................... F-28
Consolidated Statements of Stockholders' Equity for the
Years ended December 31, 1997, 1996 and 1995.............. F-29
Consolidated Statements of Cash Flows for the Years ended
December 31, 1997, 1996 and 1995.......................... F-30
Notes to Financial Statements............................... F-31
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
Consolidated Balance Sheets as of September 30, 1998
(Unaudited), December 31, 1997............................ F-41
Consolidated Statements of Operations for the nine months
ended September 30, 1998 and 1997 (Unaudited)............. F-42
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997 (Unaudited)............. F-43
Notes to Consolidated Financial Statements (Unaudited)...... F-44
</TABLE>
F-1
<PAGE> 118
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Salton/Maxim Housewares, Inc.
Mount Prospect, Illinois
We have audited the accompanying consolidated balance sheets of
Salton/Maxim Housewares, Inc. (the "Company") as of June 27, 1998 and June 28,
1997 and the related consolidated statements of earnings, of stockholders'
equity and of cash flows for each of the three years in the period ended June
27, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Salton/Maxim Housewares, Inc.
as of June 27, 1998 and June 28, 1997 and the results of its operations and its
cash flows for each of the three years in the period ended June 27, 1998 in
conformity with generally accepted accounting principles.
As described in Note 16 to the consolidated financial statements,
subsequent to June 27, 1998, the Company entered into a new debt agreement,
issued preferred shares, repurchased approximately 50% of its outstanding common
shares, and entered into a definitive merger agreement for the acquisition of
Toastmaster Inc.
Deloitte & Touche LLP
September 3, 1998
Chicago, Illinois
F-2
<PAGE> 119
SALTON/MAXIM HOUSEWARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 661,214 $ 2,612,871
Accounts receivable, less allowance:
1998 -- $3,000,000; 1997 -- $2,400,000................. 43,224,852 25,646,677
Inventories............................................... 76,505,088 41,967,801
Prepaid expenses and other current assets................. 2,940,624 3,717,062
Federal income taxes refundable........................... 1,105,336
Deferred income taxes..................................... 4,605,222 1,734,414
------------ ------------
Total current assets.............................. 127,937,000 76,784,161
Property, plant and equipment:
Molds and tooling......................................... 16,787,126 14,827,525
Warehouse equipment....................................... 452,715 380,487
Office furniture and equipment............................ 5,341,755 3,792,035
------------ ------------
22,581,596 19,000,047
Less accumulated depreciation............................. (14,266,296) (10,684,016)
------------ ------------
8,315,300 8,316,031
Intangibles, net of accumulated amortization................ 5,145,000 4,880,006
Non-current deferred income taxes........................... 205,580
Investment in Windmere common stock......................... 12,156,820
------------ ------------
Total assets........................................... $141,397,300 $102,342,598
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit.................................. $ 50,475,078 $ 37,977,230
Accounts payable.......................................... 18,960,008 17,361,238
Accrued expenses.......................................... 7,234,506 2,856,512
Income taxes payable...................................... 6,499,342 93,085
Current portion-Subordinated Debt......................... 500,000
------------ ------------
Total current liabilities.............................. 83,168,934 58,788,065
Non-current deferred income taxes........................... 517,000
Due to Windmere............................................. 4,932,730
------------ ------------
Total liabilities...................................... 83,685,934 63,720,795
Stockholders' equity:
Preferred stock, $.01 par value; authorized, 2,000,000
shares, no shares issued
Common Stock, $.01 par value; authorized, 20,000,000
shares; shares issued and outstanding:
1998 -- 13,099,644; 1997 -- 13,029,144................. 130,996 130,291
Unrealized gains on securities available for sale......... 1,337,250
Additional paid-in capital................................ 53,480,678 53,035,981
Less note receivable from stock issuance.................. (10,847,620) (10,847,620)
Retained earnings (Deficit)............................... 14,947,312 (5,034,099)
------------ ------------
Total stockholders' equity............................. 57,711,366 38,621,803
------------ ------------
Total liabilities and stockholders' equity.................. $141,397,300 $102,342,598
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 120
SALTON/MAXIM HOUSEWARES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Net sales........................................ $305,598,750 $182,806,323 $99,202,415
Cost of goods sold............................... 179,375,466 121,590,232 66,923,141
Distribution expenses............................ 12,327,187 7,808,631 5,856,477
------------ ------------ -----------
Gross profit..................................... 113,896,097 53,407,460 26,422,797
Selling, general and administrative expenses..... 84,216,473 42,944,341 21,342,872
------------ ------------ -----------
Operating income................................. 29,679,624 10,463,119 5,079,925
Interest expense, net............................ (5,333,109) (4,063,197) (3,934,325)
Costs associated with refinancing................ (1,132,814)
Realized gain on marketable securities........... 8,972,488
------------ ------------ -----------
Income before income taxes....................... 32,186,189 6,399,922 1,145,600
Income tax expense (benefit)..................... 12,204,778 2,000,764 (3,449,884)
------------ ------------ -----------
Net income....................................... $19,981,411.. $ 4,399,158 $ 4,595,484
============ ============ ===========
Weighted average common shares outstanding....... 13,062,465 12,840,279 6,508,572
Weighted average common and common equivalent
shares outstanding............................. 13,506,263 13,082,254 6,628,236
Net income per common share: Basic............... $ 1.53 $ 0.34 $ 0.71
Net income per common share: Diluted............. $ 1.48 $ 0.34 $ 0.69
</TABLE>
See Notes To Consolidated Financial Statements.
F-4
<PAGE> 121
SALTON/MAXIM HOUSEWARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996
<TABLE>
<CAPTION>
UNREALIZED
GAINS ON LESS NOTE
SECURITIES ADDITIONAL RECEIVABLE RETAINED TOTAL
COMMON HELD FOR PAID IN FROM SALES EARNINGS STOCKHOLDERS'
SHARES STOCK SALE CAPITAL OF STOCK (DEFICIT) EQUITY
---------- -------- ---------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, July 1, 1995...... 6,508,572 $ 65,086 $29,292,946 $(14,028,741) $15,329,291
Net income for fiscal
1996................... 4,595,484 4,595,484
---------- -------- ---------- ----------- ------------ ------------ -----------
BALANCE, June 29, 1996..... 6,508,572 65,086 29,292,946 (9,433,257) 19,924,775
Issuance of common
stock.................. 6,508,572 65,085 23,650,352 $(10,847,620) 12,867,817
Issuance of warrants..... 82,303 82,303
Unrealized gains on
securities available
for sale............... $1,337,250 1,337,250
Employee stock option
shares exercised....... 12,000 120 10,380 10,500
Net income fiscal
1997................... 4,399,158 4,399,158
---------- -------- ---------- ----------- ------------ ------------ -----------
BALANCE, June 28, 1997..... 13,029,144 130,291 1,337,250 53,035,981 (10,847,620) (5,034,099) 38,621,803
Issuance of common stock,
net of issuance costs.... 25,000 250 300,531 300,781
Sale of securities......... (1,337,250) (1,337,250)
Stock option shares
exercised................ 45,500 455 144,166 144,621
Net income fiscal
1998................... 19,981,411 19,981,411
---------- -------- ---------- ----------- ------------ ------------ -----------
BALANCE, June 27, 1998..... 13,099,644 $130,996 $53,480,678 $(10,847,620) $ 14,947,312 $57,711,366
========== ======== ========== =========== ============ ============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 122
SALTON/MAXIM HOUSEWARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 19,981,411 $ 4,399,158 $ 4,595,484
Adjustments to reconcile net income to net cash (used
in) operating activities:
Gain on sale of marketable securities................. (8,972,488)
Deferred income taxes................................. (1,428,170) 822,332 (3,482,384)
Depreciation and amortization......................... 4,300,647 3,136,060 2,195,510
Changes in assets and liabilities, net of acquisition:
Accounts receivable................................... (17,578,175) (9,776,051) (2,395,175)
Inventories........................................... (34,537,287) (13,679,836) (8,847,133)
Prepaid expenses and other current assets............. 776,438 (1,783,056) (892,342)
Federal income tax refund............................. 1,105,336 (1,105,336)
Accounts payable...................................... 1,598,770 7,304,043 4,650,026
Taxes payable......................................... 6,406,257 81,085 22,500
Accrued expenses...................................... 3,245,180 1,635,729 582,921
------------ ------------ -----------
Net cash used in operating activities......... (25,102,081) (8,965,872) (3,570,593)
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (4,564,910) (4,608,389) (4,279,838)
Proceeds from the sale of marketable securities......... 19,072,000
Block acquisition and related payments.................. (1,739,280) --
------------ ------------ -----------
Net cash provided by (used in) investing
activities.................................. 14,507,090 (6,347,669) (4,279,838)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving line of credit.............. 12,497,848 13,881,848 6,234,938
(Repayment) proceeds from subordinated debt and due to
Windmere.............................................. (5,432,730) 4,515,731 2,670,955
Offering costs associated with stock issue.............. (485,650)
Common stock issued..................................... 445,402 10,500
Payment for product line acquisitions................... (814,939)
Financing costs......................................... 1,132,814 (242,389)
------------ ------------ -----------
Net cash provided by financing activities..... 8,643,334 17,922,429 7,848,565
------------ ------------ -----------
Net (decrease) increase in cash......................... (1,951,657) 2,608,888 (1,866)
Cash -- Beginning of year............................... 2,612,871 3,983 5,849
------------ ------------ -----------
Cash -- End of year..................................... $ 661,214 $ 2,612,871 $ 3,983
============ ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest........................................... $ 5,893,266 $ 3,939,322 $ 3,510,123
Income taxes....................................... $ 5,798,521 $ 1,697,500 $ 10,000
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During fiscal 1997, a long-term debt obligation of $3,254,286 was canceled
by the consummation of a transaction with Windmere-Durable Holdings,
Inc.("Windmere"). In addition, the Company received a $10,847,620 note
receivable and 748,112 shares of Windmere common stock in exchange for 6,508,572
newly issued shares of common stock of the Company.
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 123
SALTON/MAXIM HOUSEWARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Salton/Maxim Housewares, Inc.("SMHI") and its subsidiaries ("Salton" or the
"Company") is a leading marketer of a broad range of kitchen and home
appliances, personal and beauty care appliances and decorative quartz wall and
alarm clocks under the brand names of Salton(R), Maxim(R), Breadman(R),
Juiceman(R), Salton Creations(R), Salton Time(R), White-Westinghouse(R) and
Farberware(R). The Company also designs and markets a broad range of tabletop
products, including china, crystal and glassware, under the brand names
Block(R)China, Atlantis(R)Crystal and Gear.(R)
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of SMHI and its subsidiaries, Home Creations Direct, Ltd.
and Salton Hong Kong, Ltd. Salton Hong Kong, Ltd. is a foreign corporation which
was organized under the laws of Hong Kong in fiscal year 1997. Intercompany
balances and transactions are eliminated in consolidation.
USE OF ESTIMATES -- In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates. Significant estimates
include the allowance for doubtful accounts, reserve for returns and allowances,
and depreciation and amortization, among others.
ACCOUNTING PERIOD -- The Company's fiscal year ends on the Saturday closest
to June 30. The fiscal years ended June 27, 1998, June 28, 1997 and June 29,
1996 each consisted of 52 weeks.
INVENTORIES -- Inventories are stated at the lower of cost or market. Cost
is determined on the first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated
at cost. Expenditures for maintenance costs and repairs are charged against
income. Depreciation is provided on the straight-line basis over the estimated
useful lives of the assets, not to exceed 5 years. For tax purposes, assets are
depreciated using accelerated methods.
INTANGIBLE ASSETS -- Intangible assets, which are amortized over their
estimated useful lives, consist of:
<TABLE>
<CAPTION>
USEFUL LIFE JUNE 27, JUNE 28,
(IN YEARS) 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Goodwill....................................... 10-40 $2,116,773 $1,926,454
Financing and organization costs............... 2-5 109,231 171,778
Patents and trademarks......................... 5-20 2,918,996 2,781,774
---------- ----------
Intangible assets, net......................... $5,145,000 $4,880,006
========== ==========
</TABLE>
Accumulated amortization of intangible assets was $4,722,608 at June 27,
1998, and $3,770,866 at June 28, 1997.
LONG-LIVED ASSETS -- Long-lived assets are reviewed for possible impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. If such review indicates that the carrying
amount of long-lived assets is not recoverable, the carrying amount of such
assets is reduced to estimated recoverable value.
REVENUE RECOGNITION -- The Company recognizes revenues when goods are
shipped to its customers.
DISTRIBUTION EXPENSES -- Distribution expenses consist primarily of
freight, warehousing, and handling costs of products sold.
F-7
<PAGE> 124
SALTON/MAXIM HOUSEWARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996
ADVERTISING -- The Company sponsors various programs under which it
participates in the cost of advertising and other promotional efforts for
Company products undertaken by its retail customers. Advertising and promotion
costs associated with these programs are recognized in the period in which the
advertising or other promotion by the retailer occurs.
The Company's tradenames and, in some instances, specific products, also
are promoted from time to time through direct marketing channels, primarily
television. Advertising and promotion costs are expensed in the period in which
direct customer response occurs.
INCOME TAXES -- The Company accounts for income taxes using the asset and
liability approach. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits that, based on available evidence,
management does not expect to be realized.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE -- The Company adopted
Statement of Financial Accounting Standards No. 128-Earnings per Share (SFAS
128) in fiscal 1998. Basic net income per common share is computed based upon
the weighted average number of common shares outstanding. Diluted net income per
common share is computed based upon the weighted average number of common shares
outstanding, adjusted for dilutive common stock equivalents applying the
treasury stock method. All earnings per share data presented in these financial
statements have been restated to conform with SFAS 128.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying values of financial
instruments included in current assets and liabilities approximate fair values
due to the short-term maturities of these instruments. During fiscal 1997, the
investment in Windmere common stock was accounted for as "available for sale'
and was carried at fair value. The stock was sold during fiscal 1998. See note 2
"Windmere Transaction."
ACCOUNTING PRONOUNCEMENTS -- The Company adopted Statement of Financial
Accounting Standards No. 128-Earnings per Share in Fiscal 1998. In June 1997,
the FASB issued Statement of Financial Accounting Standard No. 130 (SFAS 130),
"Reporting Comprehensive Income," No. 131 (SFAS 131), "Disclosures About
Segments of an Enterprise and Related Information," No. 132 (SFAS 132),
"Employer's Disclosures about Pensions and other Post Retirement Benefits which
Revises Current Disclosure Requirements for Employers' Pensions and other
Retiree Benefits" and No. 133 (SFAS 133), "Accounting for Derivative Instruments
and Hedging Activities." These statements are effective for fiscal years
commencing after December 15, 1997. The Company will be required to comply with
the provisions of these statements in fiscal 1999 or, with respect to SFAS 133,
in fiscal 2000. The Company has not assessed the effect that these new standards
will have on its consolidated financial statements.
2. WINDMERE TRANSACTION
On July 11, 1996, the Company consummated a transaction (the "Windmere
Transaction") with Windmere-Durable Holdings, Inc. ("Windmere"), pursuant to a
Stock Purchase Agreement dated February 27, 1996, as amended (the "Stock
Purchase Agreement"). Windmere is a corporation engaged principally in
manufacturing and distributing a wide variety of personal care products and
household appliances. Pursuant to the Stock Purchase Agreement, Windmere
purchased from the Company 6,508,572 newly issued shares of Common Stock (the
"Purchase"), which represented 50% of the outstanding shares of Common Stock of
the Company on February 27, 1996 after giving effect to the Purchase. As
consideration for the purchase, Windmere paid the Company: (i) $3,254,286 in
cancellation of a loan, as described below; (ii) a subordinated promissory note
in the aggregate principal amount of $10,847,620 (the "Note"), which Note is
payable July 11, 2001, bears interest at 8%, payable quarterly, and is secured
by certain assets of Windmere and its domestic subsidiaries and guaranteed by
such domestic subsidiaries; and (iii) 748,112 shares of Windmere's common stock.
Windmere's common stock
F-8
<PAGE> 125
SALTON/MAXIM HOUSEWARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996
is traded on the New York Stock Exchange. A portion of the consideration for the
Purchase was paid by the cancellation of the Company's obligation to repay a
loan in the principal amount of $3,254,286 which Windmere had made to the
Company in April 1996. Windmere was also granted an option to purchase up to
485,000 shares of Common Stock at $4.83 per share, which option was exercisable
only if and to the extent that options to purchase shares of Common Stock which
were outstanding on February 27, 1996 were exercised. Accordingly, Windmere
exercised options to purchase 26,500 shares of Common Stock during 1998.
During fiscal 1998 the Company sold 748,112 shares of Windmere's common
stock, realizing a gain of $8,972,488.
Subsequent to year-end the Company repurchased its common shares held by
Windmere. See note 16 "Subsequent Events."
3. BLOCK CHINA ACQUISITION
On July 1, 1996, the Company acquired substantially all of the assets and
certain liabilities of Block China Corporation, a tabletop product company, in a
transaction accounted for as a purchase. The Block China Division of the Company
designs and markets tabletop products, including china, crystal and glassware.
The consideration paid by the Company consisted of $1,485,000 in cash and a
warrant to purchase 25,000 shares of Common Stock with an exercise price of
$4.75. The consideration also included an earn-out of up to $500,000 and 150,000
shares of Common Stock based on financial performance over a three-year period
of the Division. The operating results of Block China before its acquisition by
the Company are not material. During 1998, the Company paid $83,333 and issued
25,000 shares of common stock to Block China under the earn-out.
4. REVOLVING LINE OF CREDIT AND LETTERS OF CREDIT
During the 1998 fiscal year, the Company increased its revolving line of
credit (the "Facility") with a commercial lender (the "Lender") from $50,000,000
to $75,000,000. Borrowings under this Facility bore interest at 1% over the
Lender's established prime rate, payable monthly, and included a provision which
provided the Company with the ability to reduce its borrowing rate, based on the
London InterBank Offered Rate (LIBOR), on up to 75% of outstanding borrowings.
The Facility had an expiration date of September 30, 2000. Under the terms of
the Facility, the Company must pay fees and related expenses to the Lender upon
early termination. Subsequent to year end, the Company entered into a new credit
agreement (the "New Credit Agreement") with an investment banking firm described
in note 16 "Subsequent Events." Accordingly, the Company accrued $1,132,814 in
termination fees and related expenses.
The Facility was secured by a first lien on substantially all the Company's
assets. Credit availability was based on a formula related to trade accounts
receivable, inventories and outstanding letters of credit and it contained
restrictive financial covenants, the more significant of which required the
Company to maintain specified ratios of total liabilities to net worth, minimum
tangible net worth, and minimum earnings before interest, taxes, depreciation
and amortization. Other covenants also limited the Company's activities in
mergers or acquisitions and sales of substantial assets. Compliance with these
covenants effectively restricted the ability of the Company to pay dividends,
and also required the Company to apply cash receipts to pay down borrowings
under the Facility.
F-9
<PAGE> 126
SALTON/MAXIM HOUSEWARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996
Information regarding short-term borrowings under the Facility is:
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
----------- -----------
<S> <C> <C>
Balance at end of fiscal period........................... $50,475,078 $37,977,230
Interest rate at end of fiscal period..................... 9.43% 10.5%
Maximum amount outstanding at any month-end............... $68,521,548 $43,632,702
Average amount outstanding................................ $56,374,193 $35,191,494
Weighted average interest rate during fiscal period....... 9.48% 10.5%
Outstanding letters of credit at end of fiscal period..... $ 5,566,840 $ 2,915,815
</TABLE>
5. SUBORDINATED DEBT AND DUE TO WINDMERE
SUBORDINATED DEBT
The Company had 10% subordinated notes payable aggregating $500,000. The
notes were repaid in fiscal 1998.
WINDMERE TRANSACTIONS AND DUE TO WINDMERE
The Company owed Windmere, including Durable Electrical Metal Factory,
Ltd., a wholly owned subsidiary of Windmere ("Durable"), approximately
$4,838,000 at June 27, 1998, primarily for trade accounts payable and interest.
The Company had amounts due to Windmere, including Durable, of
approximately $9,141,000, including notes payable of $4,932,730 at June 27,
1997. These amounts primarily represented working capital advances by Windmere
to the Company to fund the development of the White-Westinghouse(R) and
Farberware(R) product lines, as well as interest and trade accounts payable.
The Company and Windmere entered into a Marketing Cooperation Agreement on
July 11, 1996 (the "Marketing Cooperation Agreement"). Pursuant to this
agreement, until Windmere's interest in the Company is less than 30% for at
least ten consecutive days, each of the Company and Windmere has agreed to
participate in a variety of mutually satisfactory marketing cooperation efforts
designed to expand the market penetration of each party. Consequently, the
Company entered into a letter agreement dated April 30, 1997 (the "Letter
Agreement") with Windmere. The Letter Agreement provides that the Company will
pay to Windmere a fee in consideration of Windmere's marketing cooperation
efforts in connection with the Company's supply contract with Kmart and
Windmere's guarantee of the Company's obligations under such contract. See note
16 "Subsequent Events."
6. CAPITAL STOCK
The Company has authorized 20,000,000 shares of $.01 par value common
stock, at June 27, 1998 there were 13,099,644 shares issued and outstanding. As
more fully described in Note 2 "Windmere Transaction" on July 11, 1996, Windmere
purchased from the Company 6,508,572 newly issued shares of common stock which
represented 50% of the outstanding shares of common stock of the Company. During
fiscal 1998, Windmere exercised its option to buy 26,500 shares of Salton common
stock.
The Company has authorized 2,000,000 shares of $.01 par value preferred
stock. At June 27, 1998, no shares of preferred stock were issued.
F-10
<PAGE> 127
SALTON/MAXIM HOUSEWARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996
Subsequent to year end, the Company repurchased the 6,535,072 shares of
common stock issued to Windmere and issued 40,000 shares of preferred stock as
described in note 16 "Subsequent Events."
7. EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 27, 1998 JUNE 28, 1997 JUNE 29, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net Income*................................... $19,981 $4,399 $4,595
Average common shares outstanding........... 13,062 12,840 6,509
Earnings per share-basic.................... $ 1.53 $ 0.34 $ 0.71
Dilutive stock options...................... 444 242 119
Average common and common equivalent shares
outstanding.............................. 13,506 13,082 6,628
Earnings per share-diluted.................. $ 1.48 $ 0.34 $ 0.69
</TABLE>
- -------------------------
* Net income is the same for purposes of calculating basic and diluted EPS
Options to purchase 141,440, 130,000 and 130,000 shares of common stock at
prices of $12.25, $12.00 and $12.00 per share were outstanding at June 27, 1998,
June 28, 1997 and June 29, 1996, respectively, but were not included in the
computation of diluted EPS because the options exercise prices were greater than
the average market price of the common shares.
8. PROFIT SHARING PLAN
The Company has a 401(k) defined contribution plan that covers eligible
employees. The employees are eligible for benefits upon completion of a
specified number of years of service. Under the terms of the plan the company
currently matches a portion of the employee contributions. The Company's
discretionary matching contribution is based on a portion of a maximum of 6% of
participants' eligible wages, as defined. The Company's matching contributions
were approximately $97,000, $69,000, and $66,136 in 1998, 1997, and 1996,
respectively.
9. STOCK OPTION PLANS
In October 1995, SFAS No. 123, "Accounting For Stock-Based Compensation,"
was issued and is effective for financial statements for fiscal years beginning
after December 15, 1995. As permitted by the statement, the Company will
continue to measure compensation cost for stock option plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting For Stock Issued to
Employees." Accordingly, no compensation cost has been recognized for the
Company's fixed stock option plans. Had compensation cost for the Company's
stock option plans been determined consistent with the fair value
F-11
<PAGE> 128
SALTON/MAXIM HOUSEWARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996
method outlined in SFAS No. 123, the impact on the Company's net income and
earnings per common share would have been as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Net Income
As reported............................................ $19,981,411 $4,399,158
Pro forma.............................................. $18,940,500 $4,192,582
Net income per common share: Basic
As reported............................................ $1.53 $0.34
Pro forma.............................................. $1.45 $0.33
Net income per common share: Diluted
As reported............................................ $1.48 $0.34
Pro forma.............................................. $1.40 $0.32
</TABLE>
Options to purchase common stock of the Company have been granted to
employees under the 1992 and 1995 stock option plans at prices equal to the fair
market value of the stock on the dates the options were granted. Options have
also been granted to non-employee directors of the company, which are
exercisable one year after the date of grant. All options granted expire 10
years from the date of grant.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The following assumptions were used
during the respective years to estimate the fair value of options granted:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Dividend yield............................................. 0.0% 0.0%
Expected volatility........................................ 61.74% 65.96%
Risk-free interest rate.................................... 5.38% 6.11%
Expected life of options................................... 7.42 years 7.92 years
</TABLE>
In addition, on July 11, 1996 Windmere was granted an option to purchase up
to 485,000 shares of common stock at $4.83 per share. This option is exercisable
only if and to the extent that options to purchase shares of common stock which
were outstanding on February 27, 1996 are exercised. During fiscal 1998,
Windmere exercised their option to purchase 26,500 shares of Salton common
stock. Subsequent to year-end, the Company repurchased the remaining options.
See note 16 "Subsequent
F-12
<PAGE> 129
SALTON/MAXIM HOUSEWARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996
Events." A summary of the Company's fixed stock options for the fiscal years
ended June 27, 1998 and June 28, 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
WEIGHTED- WEIGHTED-
SHARES AVERAGE SHARES AVERAGE
(000) EXERCISE PRICE (000) EXERCISE PRICE
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.............. 966 $ 4.90 485 $4.83
Granted....................................... 206 10.82 493 4.88
Exercised..................................... (46) 3.11 (12) .88
Expired.......................................
Forfeited.....................................
----- ------ ---- -----
Outstanding at end of year.................... 1,126 $ 6.06 966 $4.90
Options exercisable at end of year............ 1,118 $ 6.05 958 $4.88
Weighted-average fair value of options granted
during the year............................. $ 8.14 $4.54
</TABLE>
The following information summarizes the stock options outstanding at June
27, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------- -------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
RANGE OF EXERCISE PRICES (000) LIFE (YEARS) PRICE (000) PRICE
------------------------ ------ ------------ --------- ------ ---------
<S> <C> <C> <C> <C> <C>
$0.875 - $2.500......................... 300 6.84 $ 2.12 300 $ 2.12
$3.438 - $5.375......................... 490 7.91 4.83 482 4.83
$8.000 - $12.250........................ 336 7.20 11.38 336 11.38
----- --- ------ ----- ------
$0.875 - $12.250........................ 1,126 N/A N/A 1,118 $ 6.05
</TABLE>
10. RELATED PARTY TRANSACTIONS
The Company purchased inventory from Durable of approximately $27,068,000,
$23,511,000, and $3,200,000 in fiscal years ended June 27, 1998, June 28, 1997,
and June 29, 1996, respectively.
The Company purchased inventory and paid commissions to Markpeak, Ltd., a
Hong Kong company, of approximately $15,699,000 and $272,000 respectively in
1998, $7,815,000 and $432,000, respectively in 1997, and $10,233,000 and
$739,000, respectively in 1996. A director of the Company is the Managing
Director of Markpeak, Ltd.
The Company paid Shapiro, Devine and Craparo, Inc. ("SDC"), a manufacturers
representation firm, commissions of approximately $290,000, $241,000 and
$160,000 in 1998, 1997 and 1996, respectively. A director of the Company was a
co-founder of SDC. At June 27, 1998, the Company owed SDC approximately $38,000
for current commissions.
11. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment under long-term
operating leases. Rental expense under all leases was approximately $1,564,000,
$1,183,000, and $665,000, for the fiscal years ended June 27, 1998, June 28,
1997, and June 29, 1996, respectively.
F-13
<PAGE> 130
SALTON/MAXIM HOUSEWARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996
The future minimum rental commitments as of June 27, 1998 were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
<S> <C>
1999........................................................ $2,666,095
2000........................................................ 2,075,056
2001........................................................ 1,938,911
2002........................................................ 915,798
2003........................................................ 36,400
Thereafter.................................................. 157,733
----------
Total....................................................... $7,789,993
==========
</TABLE>
The Company has employment agreements with its three executive officers
that are in effect until June 30, 2001. Such agreements provide for minimum
salary levels as well as for incentive bonuses that are payable if the Company
achieves specified target performance goals. The agreements also provide for
lump sum severance payments upon termination of employment under certain
circumstances. The Company's aggregate commitment for future salaries at June
30, 1998, excluding bonuses, was approximately $1,350,000.
The Company has license agreements with White Consolidated Industries, Inc.
("White Consolidated"), which require minimum royalty payments through the year
2011. The current level of royalty payments are in excess of the minimum
requirements. The Company also has various license agreements with other parties
for periods usually not exceeding three years. The agreements are then typically
renewable upon mutual consent. These license agreements require royalty payments
based on the sales of licensed product in the period. Total royalties paid under
these agreements, including the White Consolidated Industries, Inc. agreement,
were $20,266,000 in fiscal year 1998, $6,300,000 in fiscal year 1997 and
$1,600,000 in fiscal year 1996.
12. LEGAL PROCEEDINGS
The Company, White Consolidated, and certain other parties have been named
as defendants in litigation filed by Westinghouse Electric Corporation (now
known as CBS Corporation ("CBS")) in the United States District Court for the
Western District of Pennsylvania on December 18, 1996. The action arises from a
dispute between CBS and White Consolidated over rights to use the "Westinghouse"
trademark for consumer products, based on transactions between CBS and White
Consolidated in the 1970's and the parties' subsequent conduct. The action
seeks, among other things, an injunction enjoining the defendants from using the
trademark, unspecified damages and attorneys' fees. Pursuant to the Company's
license agreements with White Consolidated, White Consolidated is defending the
Company and is obligated to indemnify the Company from and against any and all
claims, losses and damages arising out of the action, including the costs of
litigation. An adverse decision in the litigation could result in Salton being
limited in further use of the White-Westinghouse(R) name and therefore the
possible termination or significant modification of the supply contract between
Salton and Kmart Corporation described in note 13.
The Company is a party to various other legal actions and proceedings
incident to its normal business operations. Management believes that the outcome
of such litigation will not have a material adverse effect on its financial
condition or annual results of operations.
F-14
<PAGE> 131
SALTON/MAXIM HOUSEWARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996
13. SUPPLY CONTRACT AND MAJOR CUSTOMERS
The Company entered into a major supply contract with Kmart Corporation
("Kmart") on January 31, 1997. Under the contract, the Company supplies Kmart
with small kitchen appliances, personal care products, heaters, fans and
electrical air cleaners and humidifiers under the White-Westinghouse(R) brand
name. Sales to Kmart approximated 19% and 16% of total net sales of the Company
in fiscal years 1998 and 1997, respectively.
The Company's net sales in the aggregate to its five largest customers
during the fiscal years ended June 27, 1998, June 28, 1997 and June 29, 1996
were 47%, 47% and 55% of total net sales in these periods, respectively. In
addition to Kmart, one customer accounted for 7%, 9%, and 15% of total net sales
during the fiscal years ended June 27, 1998, June 28, 1997, and June 29, 1996,
respectively. Another customer accounted for 8%, 9%, and 13%, respectively, over
the same fiscal years.
Although the Company has long-established relationships with many of its
customers, with the exception of Kmart Corporation, it does not have long-term
contracts with any of its customers. A significant concentration of the
Company's business activity is with department stores, upscale mass
merchandisers, specialty stores, and warehouse clubs whose ability to meet their
obligations to the Company is dependent upon prevailing economic conditions
within the retail industry.
14. INCOME TAXES
Federal, state and foreign taxes were approximately as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------------
JUNE 27, 1998 JUNE 28, 1997 JUNE 29, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Federal
Current.................................... $10,080,000 $ 371,000 $ 32,000
Deferred................................... (1,134,000) 822,000 (2,711,000)
State
Current.................................... 2,699,000 303,000
Deferred................................... (294,000) (771,000)
Foreign
Current.................................... 854,000 505,000
Deferred................................... -- -- --
----------- ---------- -----------
Total........................................ $12,205,000 $2,001,000 $(3,450,000)
=========== ========== ===========
</TABLE>
F-15
<PAGE> 132
SALTON/MAXIM HOUSEWARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996
Deferred taxes based upon differences between the financial statement and
tax bases of assets and liabilities and available tax carryforwards consisted
of:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------
JUNE 27, 1998 JUNE 28, 1997
------------- -------------
<S> <C> <C>
Allowance for doubtful accounts........................... $ 1,309,065 $ 960,000
Depreciation and amortization............................. (1,099,679) (1,060,680)
Other deferred items, net................................. 175,940 (302,415)
Net operating loss carry-forwards......................... 1,764,253 2,349,579
Inventory reserves and capitalization..................... 1,938,643 713,568
Unrealized gains on securities available for sale......... -- (720,058)
----------- -----------
Net deferred tax asset.................................... $ 4,088,222 $ 1,939,994
=========== ===========
</TABLE>
During 1996, the Company re-assessed the measurement of deferred tax assets
based on available evidence and concluded that a valuation allowance was
unnecessary. Accordingly, a valuation allowance of $3,463,066 was eliminated in
the fourth quarter of fiscal 1996.
The Company has net loss carry-forwards at June 27, 1998 expiring as
follows:
<TABLE>
<CAPTION>
YEAR CARRY-FORWARD EXPIRES AMOUNT
-------------------------- ----------
<S> <C>
2008........................................................ $1,273,000
2009........................................................ 2,665,000
2110........................................................ 60,000
2111........................................................ 45,000
----------
Total....................................................... $4,043,000
==========
</TABLE>
As a result of certain transactions, the Company's ability to utilize its
net operating loss carryforwards to offset otherwise taxable income is limited
annually under Internal Revenue Code Section 382. The amount of such annual
limitation is approximately $2,000,000.
A reconciliation of the statutory federal income tax rate to the effective
rate was as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax rate....................... 35.0% 35.0% 35.0%
Effective state tax rate................................ 4.9 4.8 4.8
Permanent differences................................... 0.3 2.3
Effect of foreign tax rate.............................. (2.1) (8.8)
Utilization of operating loss carryforwards............. (34.6)
Change in valuation allowance........................... (296.9)
Other................................................... (0.2) (2.0) (9.4)
---- ---- ------
Effective income tax rate............................... 37.9% 31.3% (301.1)%
==== ==== ======
</TABLE>
F-16
<PAGE> 133
SALTON/MAXIM HOUSEWARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996
U.S. income taxes were not provided on certain unremitted earnings of
Salton Hong Kong, Ltd. which the Company considers to be permanent investments.
The cumulative amount of U.S. income taxes which have not been provided totaled
approximately $854,000 at June 27, 1998.
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Unaudited quarterly financial data is as follows (amounts in thousands,
except per share data).
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- -------- ------- -------
<S> <C> <C> <C> <C>
1998
Net sales................................. $65,773 $102,153 $68,099 $69,574
Gross profit.............................. 24,797 35,029 26,159 27,911
Net income................................ 4,124 5,448 2,778 7,631
Earnings per share: Basic................. 0.32 0.42 0.21 0.58
Earnings per share: Diluted............... 0.31 0.40 0.21 0.56
1997
Net sales................................. $34,862 $ 58,837 $41,690 $47,417
Gross profit.............................. 9,689 18,027 12,582 13,109
Net income (loss)......................... 1,129 3,977 (677) (30)
Earnings (loss) per share: Basic.......... 0.09 0.31 (0.05) (0.00)
Earnings (loss) per share: Diluted........ 0.09 0.30 (0.05) (0.00)
</TABLE>
16. SUBSEQUENT EVENTS
THE NEW CREDIT AGREEMENT
The Company entered into the New Credit Agreement dated as of July 27, 1998
with an investment banking firm. This agreement provides for $215.0 million in
senior secured credit facilities consisting of a Tranche A $90.0 million term
loan, a $75.0 million Delayed Draw Term Loan, and a five year $50.0 million
senior secured revolving credit facility maturing on July 27, 2003. In addition,
the New Credit Agreement allows the Company to undertake a subordinated notes
offering of up to $125 million. Proceeds of the offering, if undertaken, would
be required to be used to repay the Tranche A $90 million term loan, amounts
outstanding, if any, under the Delayed Draw Term Loan and amounts outstanding
under the senior secured Revolving Credit Facility, respectively, up to a total
of $115 million. Any excess amount would be available as cash to the Company. On
July 28, 1998, the Company borrowed the Tranche A term loan in order to complete
the repurchase subsequently described in this note.
The Company's borrowings under the New Credit Agreement are at an
established base rate (equivalent to the prime rate of interest) plus an
applicable margin or, at the Company's election, a eurodollar rate (equivalent
to the LIBOR rate) plus an applicable margin based on a range of ratios of total
debt to earnings before interest, taxes, depreciation and amortization. At July
28, 1998, the base rate plus applicable margin was 9.6% and the eurodollar rate
plus applicable margin was 7.8%.
The New Credit Agreement contains certain limitations restricting company
activity and financial covenants, the most significant of which are, as defined,
minimum interest coverages, fixed charge coverages and maximum total leverage.
F-17
<PAGE> 134
SALTON/MAXIM HOUSEWARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996
The Tranche A term loan matures in twenty consecutive installments
commencing on September 30, 1998.
The future maturities are:
<TABLE>
<S> <C>
1999........................................................ $ 3,750,000
2000........................................................ 5,000,000
2001........................................................ 20,000,000
2002........................................................ 25,000,000
2003........................................................ 28,750,000
Thereafter.................................................. 7,500,000
-----------
$90,000,000
===========
</TABLE>
The commitment for the Delayed Draw Term Loan expires on July 27, 1999.
This loan, if drawn, matures in sixteen consecutive quarterly installments,
commencing on September 30, 1999. Future installment payments would be made
quarterly in accordance with the following table:
<TABLE>
<CAPTION>
INSTALLMENTS PRINCIPAL AMOUNT
------------ ----------------
<S> <C>
1 through 4................................................. $2,500,000
5 through 12................................................ 5,000,000
13 through 16............................................... 6,250,000
</TABLE>
In addition to the preceding maturity schedules, the Company is required to
make additional mandatory payments of 50% of the defined annual excess cash flow
of the Company, 100% of the net proceeds of any sale or disposition of certain
assets, and 100% of the net proceeds of the incurrence of certain indebtedness.
All such amounts are first applied to the prepayment of outstanding term loans
and secondly to the reduction of the Revolving Credit Facility.
THE PREFERRED STOCK
On July 28, 1998, Salton also issued $40 million of convertible preferred
stock to a private investment firm in connection with a Stock Purchase Agreement
dated July 15, 1998. The convertible preferred stock is generally non-dividend
bearing and is convertible into 2,352,941 shares of Salton common stock
(reflecting a $17 per share conversion price). The holders of the convertible
preferred stock are entitled to one vote for each share of Salton common stock
that the holder would receive upon conversion of the convertible preferred
stock.
In connection with the convertible preferred stock issuance, two
individuals representing the private investment firm were appointed to serve on
the Company's Board of Directors.
THE REPURCHASE
On July 28, 1998, the Company repurchased (the "Repurchase") 6,535,072
shares of Salton common stock owned by Windmere pursuant to a Stock Agreement
dated as of May 6, 1998 (the "Windmere Stock Agreement") by and among Salton,
Windmere and the executive officers of Salton. Prior to the Repurchase, Windmere
owned approximately 50% of Salton's outstanding common stock. The price for the
Repurchase was $12 per share in cash plus a $15 million subordinated promissory
note. The note, which has a term of six and one-half years and bears interest at
4% per annum payable annually, is subject to offsets of 5% of the total purchase
price paid by Salton for product purchases from Windmere and its
F-18
<PAGE> 135
SALTON/MAXIM HOUSEWARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 27, 1998, JUNE 28, 1997, AND JUNE 29, 1996
affiliates during the term of the note. The principal amount of the note is also
subject to reduction in the event Salton's supply agreement with Kmart is
terminated for any reason.
The Company (i) paid the cash portion of the purchase price for the
Repurchase, (ii) refinanced the Facility described in note 4 and (iii) paid
certain related fees and expenses in connection with the Repurchase with the net
proceeds from the Convertible Preferred Stock Issuance and borrowings of $90
million under the Tranche A term loan.
In connection with the Repurchase: (i) Windmere repaid in full its
promissory note in the principal amount of $10,847,620, that was issued to
Salton in July, 1996; (ii) Salton repurchased for approximately $3.3 million
Windmere's option to purchase up to 458,500 shares of Salton, that was granted
to Windmere in July, 1996; and (iii) Windmere and Salton agreed to continue
various commercial and other arrangements, including an agreement relating to
Salton's supply agreement with Kmart, subject to certain modifications.
Effective upon the closing of the Repurchase, each of the persons who had
been designated by Windmere to serve on Salton's Board of Directors resigned
from Salton's Board of Directors.
THE TOASTMASTER TRANSACTION
On August 26, 1998, the Company entered into a definitive merger agreement
("Agreement") for the acquisition of Toastmaster Inc. The Agreement provides for
Toastmaster Inc. shareholders to receive $7.00 per share in cash, for a total
purchase price, including related costs, of approximately $60.0 million. The
Company intends to finance the transaction through available credit facilities.
The transaction is expected to close in the last calendar quarter of 1998,
and is subject to, among other things, the approval of the holders of 66 2/3% of
the outstanding shares of Toastmaster Inc. common stock.
*****
F-19
<PAGE> 136
SALTON/MAXIM HOUSEWARES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 26, JUNE 27,
1998 1998
------------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,017 $ 661
Accounts receivable, net of allowances.................... 65,708 43,225
Inventories............................................... 93,151 76,505
Prepaid expenses and other current assets................. 2,668 2,941
Deferred tax assets....................................... 4,213 4,605
-------- --------
Total current assets................................. 166,757 127,937
Property, plant and equipment:
Molds and tooling......................................... 17,102 16,787
Warehouse equipment....................................... 481 453
Office furniture and equipment............................ 5,571 5,342
-------- --------
23,154 22,582
Less accumulated depreciation............................. (15,180) (14,266)
-------- --------
7,974 8,315
Intangibles, net of accumulated amortization................ 8,797 5,145
-------- --------
Total assets......................................... $183,528 $141,397
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 21,787 $ 18,960
Accrued expenses.......................................... 7,330 7,235
Income taxes payable...................................... 9,360 6,499
Revolving line of credit.................................. 20,000 50,475
Current portion -- Long-term debt......................... 5,000
-------- --------
Total current liabilities............................ 63,477 83,169
Non-current deferred tax liability.......................... 567 517
Long-term debt.............................................. 85,000
Note payable................................................ 8,907
-------- --------
Total liabilities.................................... 157,951 83,686
Stockholders' equity:
Preferred stock, $.01 par value; authorized, 2,000,000
shares; 40,000 shares of convertible preferred stock
issued
Common stock, $.01 par value; authorized, 20,000,000
shares; issued and outstanding, 1999-6,568,802
shares,1998-13,072,144 shares.......................... 131 131
Treasury Stock............................................ (90,804)
Additional paid-in capital................................ 90,484 53,481
Less Note Receivable -- Windmere.......................... (10,848)
Retained Earnings......................................... 25,766 14,947
-------- --------
Total stockholders' equity........................... 25,577 57,711
-------- --------
Total liabilities and stockholder's equity........... $183,528 $141,397
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-20
<PAGE> 137
SALTON/MAXIM HOUSEWARES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
<TABLE>
<CAPTION>
13 WEEKS ENDED
--------------------------------
SEPTEMBER 26, SEPTEMBER 27,
1998 1997
------------- -------------
<S> <C> <C>
Net sales................................................... $104,388 $65,773
Cost of goods sold.......................................... 55,004 38,697
Distribution expenses....................................... 3,609 2,279
---------- ----------
Gross profit................................................ 45,775 24,797
Selling, general and administrative expenses................ 27,780 16,977
---------- ----------
Operating income............................................ 17,995 7,820
Interest expense............................................ 2,399 1,263
---------- ----------
Income before income taxes.................................. 15,596 6,557
Income taxes................................................ 4,777 2,433
---------- ----------
Net income.................................................. $ 10,819 $ 4,124
========== ==========
Weighted average common shares outstanding.................. 8,794,014 13,029,144
Weighted average common and common equivalent shares
outstanding............................................... 10,680,269 13,446,461
Net income per common share:
Basic..................................................... $ 1.23 $ 0.32
Net income per common share:
Diluted................................................... $ 1.01 $ 0.31
</TABLE>
See Notes to Consolidated Financial Statements.
F-21
<PAGE> 138
SALTON/MAXIM HOUSEWARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
13 WEEKS ENDED
------------------------------
SEPTEMBER 26, SEPTEMBER 27,
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income:................................................. $ 10,819 $ 4,124
Adjustments to reconcile net income to net cash used in
operating activities:
Changes in deferred taxes............................... 442 330
Depreciation and amortization........................... 1,244 888
Purchase reduction of note payable and other noncash
items................................................. (251)
Changes in assets and liabilities:
Accounts receivable.................................. (22,483) (23,907)
Inventories.......................................... (16,646) (15,903)
Prepaid expenses and other current assets............ 273 (2,015)
Accounts payable..................................... 2,827 2,859
Taxes payable........................................ 2,861 1,105
Accrued expenses..................................... 95 2,458
-------- --------
Net cash used in operating activities.............. (20,819) (30,061)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (589) (884)
-------- --------
Net cash used in investing activities................ (589) (884)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment) proceeds from revolving line of credit.......... (30,475) 32,467
Proceeds from long-term debt................................ 90,000
Repayment of subordinated debt and due to Windmere.......... (3,796)
Costs associated with refinancing........................... (3,966)
Common stock issuance....................................... 2
Preferred stock issuance.................................... 40,000
Purchase of treasury stock.................................. (70,799)
Costs associated with preferred stock issuance.............. (2,998)
-------- --------
Net cash provided by financing activities............ 21,764 28,671
Net increase (decrease) in cash............................. $ 356 $ (2,274)
Cash, beginning of period................................... 661 2,613
-------- --------
Cash, end of period......................................... $ 1,017 $ 339
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.................................................. $ 610 $ 1,408
Income taxes.............................................. $ 1,474 $ 193
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In the quarter ended September 26,1998, the Company repurchased 6,535,072
shares of the Company's common stock from Windmere-Durable Holdings
Inc.("Windmere") for a total purchase price of $90,804,024. The purchase price
included the issuance of a six and one-half year $15,000,000 subordinated
promissory note which bears interest at 4% per annum recorded at its fair value
of $9,095,715 and the effective repayment of Windmere's promissory note to
Salton for the principal amount of $10,847,620.
See Notes to Consolidated Financial Statements.
F-22
<PAGE> 139
SALTON/MAXIM HOUSEWARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS.
The consolidated financial statements have been prepared from the Company's
records without audit and are subject to year end adjustments. The interim
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of financial information. The interim consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Salton/Maxim Housewares,
Inc. 1998 Annual Report to Shareholders and the Annual Report on Form 10-K. The
results of operations for the interim periods should not be considered
indicative of results to be expected for the full year.
2. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE.
Basic net income per common share is computed based upon the weighted
average number of common shares outstanding. Diluted net income per common share
is computed based upon the weighted average number of common shares outstanding,
adjusted for dilutive common stock equivalents applying the treasury stock
method for options and warrants and the if-converted method for convertible
securities.
3. EFFECT OF NEW ACCOUNTING STANDARDS AND STATEMENTS
During the first quarter of fiscal 1999 the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
This statement requires that the Company report the change in its net assets
during the period from non-owner sources. For the 13 weeks ended September 27,
1997 components of other comprehensive income include holding gains arising from
available for sale securities, net of tax.
<TABLE>
<CAPTION>
13 WEEKS ENDED
------------------------------
SEPTEMBER 26, SEPTEMBER 27,
1998 1997
------------- -------------
(Dollars in thousands)
<S> <C> <C>
Net income............................................... $10,819 $4,124
Other comprehensive income............................... -- 2,517
------- ------
$10,819 $6,641
======= ======
</TABLE>
In February 1998 the Financial Accounting Standards Board issued Financial
Accounting Standards," No. 132 (SFAS 132), "Employer's Disclosures about
Pensions and other Post-Retirement Benefits." This statement is effective for
fiscal years beginning after December 15, 1997 and will change disclosure
requirements for Pensions and other Post-Retirement Benefits. The Company will
be required to comply with the provisions of this statement in fiscal 1999. The
effect of this new statement will be limited to the form and content of
disclosures.
In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments
and Hedging Activities." This statement is effective for fiscal years beginning
after June 15, 1999 and will change disclosure requirements for Derivative
Instruments and Hedging Activities. The Company will be required to comply with
the provisions of this statement in fiscal 2000. The Company has not assessed
the effect that this new standard will have on its consolidated financial
statements and/or disclosures.
F-23
<PAGE> 140
SALTON/MAXIM HOUSEWARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. EVENTS OF THE QUARTER ENDED SEPTEMBER 26, 1998.
On July 28, 1998, Salton repurchased (the "Stock Repurchase") 6,535,072
shares of Salton common stock owned by Windmere-Durable Holdings, Inc.
("Windmere") pursuant to a Stock Agreement dated as of May 6, 1998 (the
"Windmere Stock Agreement") by and among Salton, Windmere and the executive
officers of Salton. Prior to the Stock Repurchase, Windmere owned approximately
50% of Salton's outstanding common stock. The price for the Stock Repurchase was
$12 per share in cash plus a $15.0 million subordinated promissory note (the
"Junior Subordinated Note"). The Junior Subordinated Note, which has a term of
six and one-half years and bears interest at 4.0% per annum payable annually, is
subject to offsets of 5% of the total purchase price paid by Salton for product
purchases from Windmere and its affiliates during the term of the note. During
the first quarter of fiscal 1999, the Company purchased approximately $13.9
million of products from Windmere. The principal amount of the Junior
Subordinated Note is also subject to reduction in the event Salton's supply
agreement with Kmart is terminated for any reason.
In connection with the Stock Repurchase: (i) Windmere effectively repaid
(the "Note Repayment") in full its promissory note (the "Windmere Note") in the
principal amount of approximately $10.8 million, that was issued to Salton in
July, 1996; (ii) Salton repurchased (the "Option Repurchase") for approximately
$3.3 million Windmere's option to purchase up to 458,500 shares of Salton that
was granted to Windmere in July, 1996; and (iii) Windmere and Salton agreed to
continue various commercial and other arrangements, including a fee agreement
relating to Salton's supply agreement with Kmart, subject to certain
modifications. The Stock Repurchase, the Option Repurchase and the Note
Repayment are collectively referred to herein as the "Repurchase."
On July 28, 1998, Salton entered into a Credit Agreement dated as of July
27, 1998 (the "New Credit Agreement") among Salton, Lehman Brothers Inc., as
arranger, and Lehman Commercial Paper Inc., as syndication agent. The New Credit
Agreement provides for $215.0 million in senior secured credit facilities (the
"Senior Credit Facilities") consisting of a $90.0 million Tranche A Term Loan
(the "Tranche A Term Loan"), a $75.0 million Delayed Draw Term Loan (the
"Delayed Draw Term Loan") and a $50.0 million revolving credit facility (the
"Revolving Credit Facility").
On July 28, 1998, Salton also issued (the "Convertible Preferred Stock
Issuance") $40.0 million of Series A Voting Convertible Preferred Stock of the
Company (the "Convertible Preferred Stock") to affiliates of Centre Partners
Management LLC ("Centre Partners") in connection with a Stock Purchase Agreement
dated July 15, 1998 (the "Preferred Stock Agreement"). The Convertible Preferred
Stock is generally non-dividend bearing and is currently convertible into
2,352,941 shares of Salton common stock (reflecting a $17 per share conversion
price). The Repurchase, borrowings under the New Credit Agreement and the
Convertible Preferred Stock Issuance are collectively referred to herein as the
"Recapitalization."
On August 26, 1998, the Company entered into a definitive merger agreement
to acquire Toastmaster Inc. ("Toastmaster"), a Columbia, Missouri based
manufacturer and marketer of kitchen and small household electrical appliances
and time products (the "Toastmaster Acquisition"). Toastmaster designs,
manufactures, markets and services a wide array of kitchen and small household
electrical appliances and time products under the brand names of Toastmaster(R)
and Ingraham(R). If the pending Toastmaster Acquisition is consummated, Salton
will pay Toastmaster shareholders $7.00 per share in cash, or a total purchase
price of approximately $53.6 million. Salton will also assume Toastmaster's
debt, which was approximately $52.2 million on September 30, 1998.
The consummation of the pending Toastmaster Acquisition is subject to the
satisfaction or waiver of certain conditions, including expiration or
termination of the Hart-Scott-Rodino Act waiting period and the
F-24
<PAGE> 141
SALTON/MAXIM HOUSEWARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
approval of the holders of 66 2/3% of the outstanding shares of Toastmaster
common stock. The Company currently expects the pending Toastmaster Acquisition
to be completed during the second or third quarter of fiscal 1999. There can be
no assurance as to if or when the pending Toastmaster Acquisition will be
completed, or that it will be completed on the terms described herein.
In November 1996, White Consolidated Industries, Inc. ("WCI") filed suit
for injunctive relief and damages against Westinghouse Electric Corporation (now
known as CBS Corporation ("CBS") in the United States District Court for the
Northern District of Ohio alleging that CBS's grant of licenses of the
Westinghouse(TM) name for use on lighting products, fans and electrical
accessories for use in the home violates WCI's rights to the
Westinghouse(TM)name and constitutes a breach of the agreements under which
CBS's predecessor sold WCI its appliance business and licensed certain trademark
rights in 1975. In response to that suit, CBS filed a related action in December
1996 in the United States District Court for the Western District of
Pennsylvania, naming WCI, Windmere, Salton, Newtech and certain other parties as
defendants. The two actions have now been consolidated in the Pennsylvania court
(the "Trademark Litigation"). A trial date of June 21, 1999 has been set by the
court. CBS seeks an injunction prohibiting the Company, Newtech and WCI from
using the White-Westinghouse(R) name on products not specifically enumerated in
the sale documents between CBS's predecessor and WCI, and unspecified damages
and attorneys' fees. An adverse decision in the Trademark Litigation could
result in the Company being limited in further use of the White-Westinghouse(R)
name and therefore the possible termination or significant modification of the
supply agreement between the Company and Kmart.
The legal costs that may be incurred in defending against this action could
be substantial. In addition, the litigation could be protracted and result in
diversion of management and other resources of the Company. WCI is currently
defending the Company in this action. There can be no assurance that WCI will
prevail in its lawsuit, or that WCI, the Company and their co-defendants will
prevail in their defense of CBS's lawsuit. In the event that a favorable outcome
for the Company is not obtained, the Company intends to vigorously pursue its
right to indemnification under indemnification provisions in the license
agreements between WCI and the Company relating to the
White-Westinghouse(R)brand name. There can be no assurance that WCI will agree
on the scope of the indemnity, or that any such indemnity payment which may
become due to the Company will be paid fully or in a timely fashion or at all.
Related proceedings have also been commenced before the Trademark Board in
opposition to WCI's and CBS's efforts to register certain uses of the
Westinghouse(TM) and White-Westinghouse(R) names. Such proceedings have been
stayed pending resolution of the Trademark Litigation in the Pennsylvania court.
Even if the Trademark Litigation is resolved in the Company's favor, it is
possible that the proceedings before the Trademark Board will continue and could
have a material adverse effect upon the Company's business, financial condition
and results of operations.
F-25
<PAGE> 142
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Toastmaster Inc.:
We have audited the accompanying consolidated balance sheets of Toastmaster
Inc. as of December 31, 1997 and 1996 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Toastmaster
Inc. at December 31, 1997 and 1996 and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting principles.
KPMG LLP
Kansas City, Missouri
February 25, 1998
F-26
<PAGE> 143
TOASTMASTER, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 178,030 $ 97,466
Accounts receivable, less allowances for doubtful
accounts, sales discounts and returns of $2,714,000 in
1997 and $2,674,000 in 1996 (note 3 and 7)............. 42,396,253 42,703,845
Inventories (notes 2 and 3)............................... 31,825,621 34,476,696
Deferred income taxes (note 4)............................ -- 2,279,741
Prepaid expenses and other current assets................. 2,144,645 794,104
Income taxes receivable................................... 4,070,503 768,428
------------ ------------
Total current assets................................... 80,615,052 81,120,280
Property, plant and equipment, at cost (note 3):
Land...................................................... 927,584 926,282
Buildings................................................. 9,884,855 9,057,296
Machinery and equipment................................... 45,660,717 42,327,069
------------ ------------
56,473,156 52,310,647
Less accumulated depreciation............................. 37,210,559 33,785,477
------------ ------------
Net property, plant and equipment...................... 19,262,597 18,525,170
Goodwill, net of accumulated amortization of $1,283,192 in
1997 and $1,170,572 in 1996............................... 3,265,499 3,378,119
Other assets................................................ 3,148,340 1,830,134
------------ ------------
$106,291,488 $104,853,703
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 3)........... $ 2,104,149 $ 2,144,643
Accounts payable.......................................... 4,382,729 3,755,131
Accrued advertising....................................... 2,528,768 2,970,125
Accrued warranty and product liability.................... 4,630,160 4,200,000
Accrued vacation.......................................... 1,161,698 1,379,717
Other accrued liabilities................................. 4,616,748 4,800,785
Deferred income taxes (note 4)............................ 1,455,992 --
------------ ------------
Total current liabilities.............................. 20,880,244 19,250,401
Long-term debt, excluding current installments (note 3)..... 42,597,072 44,611,075
Deferred income taxes (note 4)............................ 800,607 579,466
Other liabilities......................................... 695,448 249,111
------------ ------------
Total liabilities...................................... 64,973,371 64,690,053
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, none issued................................ -- --
Common stock, $.10 par value; 20,000,000 shares
authorized, 7,596,775 shares issued.................... 759,677 759,677
Additional paid-in capital................................ 25,343,543 25,339,958
Retained earnings......................................... 15,877,723 14,591,056
Minimum pension liability adjustment...................... (356,854) (227,321)
Foreign currency translation.............................. (18,457) (11,666)
------------ ------------
41,605,632 40,451,704
Treasury stock, at cost, 57,325 shares in 1997 and 58,525
in 1996................................................ (287,515) (288,054)
------------ ------------
Total stockholders' equity............................. 41,318,117 40,163,650
------------ ------------
Commitments and contingencies (note 6)...................... $106,291,488 $104,853,703
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE> 144
TOASTMASTER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales....................................... $154,346,785 $163,049,140 $188,509,337
Cost of sales (note 9).......................... 125,464,731 142,458,084 156,310,057
------------ ------------ ------------
Gross profit.................................... 28,882,054 20,591,056 32,199,280
Selling, general and administrative expenses.... 22,669,161 23,640,864 25,011,365
------------ ------------ ------------
Operating income (loss)......................... 6,212,893 (3,049,808) 7,187,915
Other expense
-- interest................................... 4,062,561 4,392,994 4,923,160
Other income
-- interest................................... 638,669 32,247 25,055
------------ ------------ ------------
Income (loss) before income taxes............... 2,789,001 (7,410,555) 2,289,810
Income tax expense (benefit) (note 4)........... 889,251 (2,719,913) 956,066
------------ ------------ ------------
Net income (loss)............................... $ 1,889,750 $ (4,690,642) $ 1,333,744
============ ============ ============
Basic and diluted earnings (loss) per common
share......................................... $ .25 $ (.62) $ 0.18
Weighted average shares used in computation:
Basic earnings per common share............... 7,538,455 7,538,250 7,560,267
Diluted earnings per common share............. 7,545,794 7,538,250 7,560,267
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE> 145
TOASTMASTER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Common stock:
Beginning and end of year........................ $ 759,677 $ 759,677 $ 759,677
----------- ----------- -----------
Additional paid-in capital:
Beginning of year................................ 25,339,958 25,339,958 25,339,958
Sale of 1,200 shares of treasury stock........... 3,585 -- --
----------- ----------- -----------
End of year...................................... 25,343,543 25,339,958 25,339,958
----------- ----------- -----------
Retained earnings:
Beginning of year................................ 14,591,056 19,885,776 19,159,164
Net income (loss)................................ 1,889,750 (4,690,642) 1,333,744
Cash dividends ($.08, $.08 and $.08 per share)... (603,083) (604,078) (607,132)
----------- ----------- -----------
End of year...................................... 15,877,723 14,591,056 19,885,776
----------- ----------- -----------
Minimum pension liability adjustment (note 5):
Beginning of year................................ (227,321) (267,078) (281,456)
Adjustment....................................... (129,533) 39,757 14,378
----------- ----------- -----------
End of year...................................... (356,854) (227,321) (267,078)
----------- ----------- -----------
Foreign currency translation:
Beginning of year................................ (11,666) (8,649) (54,725)
Adjustment....................................... (6,791) (3,017) 46,076
----------- ----------- -----------
End of year...................................... (18,457) (11,666) (8,649)
----------- ----------- -----------
Treasury stock:
Beginning of year................................ (288,054) (288,054) (17,695)
Purchase of 50,900 shares........................ -- -- (270,359)
Sales of 1,200 shares of treasury stock.......... 539 -- --
----------- ----------- -----------
End of year...................................... (287,515) (288,054) (288,054)
----------- ----------- -----------
Total end of year........................ $41,318,117 $40,163,650 $45,421,630
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE> 146
TOASTMASTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $ 1,889,750 $ (4,690,642) $ 1,333,744
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation and amortization................. 3,621,668 4,148,456 4,372,493
Gain on sale of property, plant and
equipment.................................. (25,209) (13,671) (241,825)
Deferred income taxes......................... 4,029,737 (1,933,677) (397,817)
Restructuring charge.......................... 122,547 7,600,000 --
Changes in assets and liabilities:
Accounts receivable........................ 307,592 21,800,263 (57,756)
Inventories................................ 1,797,453 (1,137,300) (2,005,928)
Prepaid expenses and other current
assets................................... (1,350,541) (207,460) 30,851
Other assets............................... (120,081) (65,033) 197,044
Accounts payable........................... 627,598 (2,188,267) (2,495,509)
Accrued advertising and other
liabilities.............................. (513,815) (2,475,806) 741,637
Income taxes............................... (3,302,075) (2,109,089) 476,437
------------- ------------- -------------
Total adjustments.......................... 5,194,874 23,418,416 619,627
------------- ------------- -------------
Net cash flows provided by operating
activities............................... 7,084,624 18,727,774 1,953,371
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment...... (4,372,380) (4,484,999) (3,248,827)
Proceeds from sale of property, plant and
equipment..................................... 28,567 29,895 943,372
------------- ------------- -------------
Net cash flows used in investing
activities............................... (4,343,813) (4,455,104) (2,305,455)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit agreements....... 155,588,324 172,649,840 193,441,044
Repayments of revolving credit agreements....... (155,505,295) (188,213,336) (190,149,814)
Proceeds from long-term debt.................... -- 4,119,052 55,353
Repayments of long-term debt.................... (2,137,526) (2,165,933) (2,145,965)
Dividends on common stock....................... (603,083) (604,078) (607,132)
Sale (purchase) of treasury stock............... 4,124 -- (270,359)
------------- ------------- -------------
Net cash flows provided by (used in)
financing activities..................... (2,653,456) (14,214,455) 323,127
------------- ------------- -------------
Foreign currency translation adjustment......... (6,791) (3,018) 46,076
Net increase in cash.......................... 80,564 55,197 17,119
Cash at beginning of year....................... 97,466 42,269 25,150
------------- ------------- -------------
Cash at end of year............................. $ 178,030 $ 97,466 $ 42,269
============= ============= =============
Cash paid during the year for:
Interest...................................... $ 3,996,000 $ 4,393,000 $ 4,861,000
Income taxes.................................. $ 222,000 $ 1,323,000 $ 877,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 147
TOASTMASTER, INC.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of Toastmaster
Inc. and its wholly-owned subsidiary, Toastmaster de Mexico S.A. de C.V.,
referred to collectively herein as the "Company." All significant intercompany
transactions and balances have been eliminated in the accompanying consolidated
financial statements.
(B) OPERATIONS
The Company manufactures small electrical kitchen and household appliances
and time products sold under the Toastmaster(R) and Ingraham(R) labels. The
Company has manufacturing facilities in Missouri and North Carolina. Although
the Company has long-established relationships with many of its customers, the
Company does not have long-term contracts with any of its customers. A
significant concentration of the Company's business activity is with entities
whose ability to meet their obligations with the Company is dependent upon
prevailing economic conditions within the retail industry.
The Company recognizes sales revenue when products are shipped. Net sales
reflect a reduction of amounts related to product returns, sales discount
programs, outbound freight and certain allowances for advertising, the latter of
which are accounted for by certain competitors as "advertising" expense. The
Company views these amounts as price reductions, thereby reducing net sales and
lowering gross profits, as well as selling, general and administrative expense.
(C) INVENTORIES
Inventories are valued at the lower of cost, determined by the last-in,
first-out (LIFO) method, or market.
(D) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost of acquisition or
construction. Maintenance and repairs are charged to operations as incurred.
Renewals and betterments are capitalized as additions to the appropriate asset
accounts. Upon sale or retirement of assets, the cost and related accumulated
depreciation applicable to such assets are removed from the accounts and any
resulting gain or loss is reported in the statements of operations.
(E) DEPRECIATION
The Company depreciates property, plant and equipment over the useful lives
of the various assets which range from three to forty years, using principally
the straight-line method for financial reporting purposes and accelerated
methods for income tax purposes.
(F) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities for subsequent changes in tax
rates is recognized in income in the period that includes the tax rate change.
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<PAGE> 148
(G) RESEARCH AND DEVELOPMENT
Research and development costs, which are included in selling, general and
administrative expenses, aggregated $457,000, $573,000 and $399,000 in 1997,
1996 and 1995, respectively.
(H) INTANGIBLE ASSETS
The excess of the cost of the acquisition of the Company over the estimated
fair value of the net assets acquired (goodwill) is being amortized on a
straight-line basis over forty years.
Costs associated with obtaining financing arrangements are included in
other assets and are being amortized over the term of the related borrowings.
(I) EMPLOYEE BENEFIT PLANS
The Company has noncontributory retirement plans covering salaried and
hourly employees. The policy of the Company is to fund retirement costs in
amounts sufficient to satisfy the minimum funding requirements under Employee
Retirement Income Security Act (ERISA) guidelines.
(J) PRODUCT WARRANTIES
The Company provides for estimated future costs that will be incurred under
product warranties presently in force.
(K) SELF-INSURANCE
The Company maintains a self-insurance program for health claims and
workers' compensation claims of all covered employees. The Company accrues
estimated future costs that will be incurred for existing employee claims. The
Company does not provide any post-retirement health care benefits.
(L) PRODUCT LIABILITY CLAIMS
The Company is involved in product liability litigation arising in the
normal course of business and purchases product liability insurance coverage. A
liability is recognized for product liability claims when payment for such
claims is determined to be probable and the amount can be reasonably estimated,
after consideration of the applicable insurance coverages and deductibles.
(M) FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimates of fair values are subjective in nature and involve uncertainties
and matters of significant judgment and therefore can not be determined with
precision. Changes in assumptions could effect the estimates. The fair market
value of the Company's financial instruments approximates the carrying value.
(N) FOREIGN CURRENCY TRANSLATION
Assets and liabilities in foreign currencies are translated into dollars at
rates prevailing at the balance sheet date. The net exchange differences
resulting from these translations are reported in stockholders' equity. Revenues
and expenses are translated at average rates for the year. Gains and losses
resulting from foreign currency transactions are included in the consolidated
statements of operations. The net losses resulting from foreign currency
transactions were $269,000, $64,000 and $189,000 in 1997, 1996 and 1995,
respectively.
(O) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
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<PAGE> 149
(P) ADVERTISING COSTS
Advertising costs are expensed as incurred and amounted to $7,714,000,
$8,491,000 and $8,918,000 in 1997, 1996 and 1995, respectively.
(Q) STOCK OPTION PLANS
Prior to January 1, 1996 the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of underlying stock exceeded the exercise price. On January
1, 1996, the Company adopted SFAS No. 123,Accounting for Stock-Based
Compensation, which permits entities to recognize as expense, over the vesting
period, the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the accounting provisions
of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS
No. 123.
(R) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets and intangibles are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the asset exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value of
the assets.
(S) EARNINGS PER COMMON SHARE
Prior to December 31, 1997 the Company computed earnings per share (EPS) in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 15, Earnings per Share and related interpretations. As such, primary
earnings per common share was based on the weighted average number of common
shares outstanding, giving effect to common stock equivalents (stock options),
if dilutive. On December 31, 1997 the Company adopted SFAS No. 128,Earnings per
Share, which replaces the presentation of primary and fully diluted EPS with a
presentation of basic and diluted EPS. Previously reported EPS information has
been restated to reflect the adoption of SFAS No. 128. Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
Company.
For the years ended December 31, 1997, 1996 and 1995 there are no
differences between the numerator used in computing basic and diluted earnings
per share which represents the net earnings of the Company. For the years ended
December 31, 1997, 1996 and 1995 the denominator used in computing basic
earnings per share represents the weighted average number of common shares
outstanding (7,538,455 shares -- 1997, 7,538,250 shares -- 1996, 7,560,267
shares -- 1995). The denominator used in computing diluted earnings per share
represents the weighted average number of common shares outstanding used for
purposes of the basic earnings per share computation increased to reflect the
potential dilution under the treasury stock method of the outstanding stock
options (7,339 shares in 1997 and 0 shares in 1996 and 1995).
(T) ENVIRONMENTAL REMEDIATION LIABILITIES
Environmental remediation liabilities are accrued when probable and
reasonably estimable.
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<PAGE> 150
(U) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
(2) INVENTORIES
A summary of inventories is as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Raw materials.............................................. $ 5,143,145 $ 4,329,623
Work-in-process............................................ 1,813,409 2,500,575
Finished goods............................................. 24,869,067 27,646,498
----------- -----------
Total............................................... $31,825,621 $34,476,696
=========== ===========
</TABLE>
If the first-in, first-out (FIFO) method of inventory valuation had been
used, inventories at December 31, 1997 and 1996 would have been approximately
$652,000 and $1,800,000 higher than reported. Net income for the year ended
December 31, 1997 would have been approximately $738,000 lower than reported and
net income for the years ended December 31, 1996 and 1995 would have been
approximately $71,000 and $173,000 higher than reported, respectively.
During 1997 and 1996, LIFO inventory layers were reduced. These reductions
resulted in charging lower inventory costs prevailing in previous years to cost
of goods sold in 1997 and 1996, thus reducing cost of goods sold by $114,000 and
$344,000, respectively, below the amount that would have resulted from
liquidating inventory recorded at December 31, 1997 and 1996 prices,
respectively.
(3) LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Borrowings under revolving credit agreements............... $35,286,620 $35,203,495
Term note, monthly payments of $154,762 plus interest,
balance of $1,798,000 due in November 2001............... 7,369,046 9,226,190
Other...................................................... 2,045,555 2,326,033
----------- -----------
Total long-term debt..................................... 44,701,221 46,755,718
Less current portion....................................... 2,104,149 2,144,643
----------- -----------
$42,597,072 $44,611,075
=========== ===========
</TABLE>
The Company has a revolving credit and term loan agreement which expires in
November 2001. The agreement, as modified, provides for borrowings of up to
$85,000,000 (including the balance of the term loan) from June 1 through January
31 or $60,000,000 from February 1 through May 31, or eligible accounts
receivable and inventory, as described therein. At December 31, 1997, the
Company could borrow an additional $10,300,000 under the agreement.
Borrowings under the revolving credit agreement generally bear interest at
prime plus .75% (9.25% at December 31, 1997), with the option to elect the
London Interbank Offering Rate (LIBOR) plus 2.25% (8.1875% at December 31,
1997). The Company had borrowings of $35,286,620 at December 31, 1997 under the
LIBOR option. The Company may elect to pay interest on a specified amount of
borrowings (not less than $4,000,000 or more than $12,000,000) at a fixed rate
based on the U.S. treasury note yield to maturity plus 2.5%. The interest period
for any fixed rate loan must be no less than one year.
At December 31, 1997, the Company had borrowed $7,369,046 under the term
loan provisions of the agreement, $469,046 of which bears interest at 9.50% and
$6,900,000 of which bears interest at 8.3125%.
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<PAGE> 151
The annual interest rate on any loan under the agreement shall not be less
than 5%. The Company must also pay a 1/2% annual fee, paid monthly on the unused
portion of the revolving credit agreement. Advances under the revolving credit
agreement are secured by accounts receivable, inventory and property, plant and
equipment. The agreement contains restrictions as to maintenance of net worth
and certain financial ratios, minimum levels of income and working capital,
payment of cash dividends or purchases of treasury stock, additions to property,
plant and equipment and incurrence of additional indebtedness. At December 31,
1997, the Company is in compliance with these covenants and has retained
earnings available for dividends of $1,247,000.
Aggregate long-term debt maturities at December 31, 1997, including the
revolving credit agreement which expires in 2001, are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
1998........................................................ $ 2,104,149
1999........................................................ 3,655,694
2000........................................................ 1,857,144
2001........................................................ 37,084,234
-----------
$44,701,221
===========
</TABLE>
The Company has obtained guarantees for letter of credit, primarily for
importing purposes, up to $8,000,000. Outstanding letters of credit at December
31, 1997 and 1996 aggregated approximately $982,000 and $709,000, respectively.
The fair market value of the Company's revolver and term notes approximated
their carrying value at December 31, 1997. Other long-term debt with a carrying
amount of $2,045,555 had a fair value of $2,057,329 at December 31, 1997.
(4) INCOME TAXES
The components of income tax expense (benefit) are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Current:
Federal...................................... $(2,903,272) $ (735,825) $1,238,132
State........................................ (237,297) (72,774) 107,664
----------- ----------- ----------
Total Current.................................. (3,140,569) (808,599) 1,345,796
----------- ----------- ----------
Deferred:
Federal...................................... 3,727,294 (1,757,303) (361,945)
State........................................ 312,526 (154,011) (27,785)
----------- ----------- ----------
Total deferred................................. 4,039,820 (1,911,314) (389,730)
----------- ----------- ----------
Total income tax expense....................... $ 899,251 $(2,719,913) $ 956,066
=========== =========== ==========
</TABLE>
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<PAGE> 152
The actual income tax expense differs from the expected expense computed by
applying the statutory federal rate of 34% to pre tax income for the following
reasons:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ----------- --------
<S> <C> <C> <C>
Computed "expected" expense (benefit)............. $ 948,260 $(2,519,589) $778,539
Amortization of goodwill.......................... 38,291 38,291 38,291
State income tax expense (benefit), net........... 49,651 (112,700) 47,190
(Income) loss of foreign subsidiary............... (138,720) (46,699) 86,700
Other............................................. 1,769 (79,214) 5,346
--------- ----------- --------
Actual income tax expense (benefit)............... $ 899,251 $(2,719,913) $956,066
========= =========== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred income tax assets:
Inventories............................................... $ 1,102,290 $ 1,482,408
Accrued liabilities....................................... 2,082,141 2,710,118
Allowances for doubtful accounts, sales discounts and
returns................................................ -- 602,992
Other..................................................... 348,998 --
----------- -----------
Total gross deferred assets................................. 3,533,429 4,795,518
----------- -----------
Deferred income tax liabilities:
Property, plant and equipment............................. (800,607) (579,466)
Inventories............................................... (3,389,671) (2,515,777)
Allowances for doubtful accounts, sales discounts and
returns................................................ (1,393,652) --
Interest receivable....................................... (206,098) --
----------- -----------
Total gross deferred liabilities............................ (5,790,028) (3,095,243)
----------- -----------
Net deferred tax asset (liability).......................... $(2,256,599) $ 1,700,275
=========== ===========
</TABLE>
A valuation allowance for deferred tax assets was not necessary at December
31, 1997 or 1996. Management believes it is more likely than not that the
results of future operations will generate sufficient taxable income to realize
the deferred tax assets.
(5) EMPLOYEE BENEFIT PLANS
Substantially all of the Company's employees are covered by two defined
benefit pension plans.
The following items are components of net pension cost:
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- -----------
<S> <C> <C> <C>
Service cost -- benefits earned during the
year.......................................... $ 632,271 $ 555,874 550,436
Interest cost on projected benefit obligation... 675,117 612,287 548,626
Actual return on plan assets.................... (1,244,075) (788,136) (1,323,955)
Net amortization and deferral................... 493,786 124,964 799,328
----------- --------- -----------
Net pension cost................................ $ 557,099 504,989 $ 574,435
=========== ========= ===========
</TABLE>
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<PAGE> 153
The following table sets forth the plans' funded status:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $8,018,907 and $6,630,660............................ $ 8,998,156 $ 7,476,284
Additional benefits based on future salary levels......... 1,130,555 908,352
----------- -----------
Projected benefit obligation.............................. 10,128,711 8,384,636
Plan assets at fair market value.......................... 9,119,571 7,564,007
----------- -----------
Plan assets less than projected benefit obligation........ 1,009,140 820,629
Unrecognized net loss (gain) from experience different
from that assumed....................................... (246,146) 134,977
Unrecognized net transition asset being amortized over
approximately fifteen years............................. 323,288 397,922
Additional pension liability in excess of unrecognized
prior service cost...................................... 565,817 364,792
----------- -----------
Accrued pension cost recorded in other accrued liabilities
in the accompanying balance sheets...................... $ 1,652,099 $ 1,718,320
=========== ===========
</TABLE>
Under the requirements of Statement of Financial Accounting Standards No.
87, "Employers' Accounting for Pensions," an additional minimum pension
liability for one plan, representing the excess of accumulated benefits over
plan assets and accrued pension costs, was recognized at December 31, 1997 and
1996.
The plans' assets consist of a balanced portfolio of investments in money
market, common stock, bond and real estate funds. The discount rate and the rate
of increase in future compensation levels used to determine the actuarial
present value of the projected benefit obligation were 7.0% and 5% for 1997 and
7.5% and 5% for 1996. The expected long-term rate of return on plan assets was
9%.
The Company has a cash incentive program for certain key employees. Under
the terms of the plan, cash awards are made based upon the achievement of
certain corporate and individual performance goals. Awards in total are limited
to not more than 5% of the Company's earnings before interest and taxes. No
awards were earned under the program in 1997 or 1996.
The Company maintains a defined contribution savings plan covering
substantially all employees. The plan is funded through employee and voluntary
employer contributions. The Company accrued contributions of $140,000, $140,000
and $125,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
The Company has adopted an incentive stock option plan (the ISO Plan), a
Nonemployee Director Stock Option Plan (the Directors' Plan) and a Non-Statutory
Stock Option Plan (the Non-Statutory Plan). Under the ISO Plan, options to
acquire a total of 111,000 shares of the Company's common stock were granted to
certain employees, 46,000 in 1993, 52,500 in 1994 and 12,500 in 1997. The
options vest over five years, with 20% cumulative vesting each year and expire
six years after the date of grant. The options granted in 1997 allow the holders
to acquire stock for $3.4375 per share, which was the fair market value of the
stock when the options were granted. In 1997, the exercise price and exercise
period for options granted in 1993 and 1994 and still held by active employees
were amended. The exercise price was reduced to $3.4375 per share, which was the
fair market value of the stock on the effective date of the amendment, and the
exercise period was extended an additional year to six years. Under the
Directors' Plan, options to acquire a total of 15,000 shares of common stock
were granted to nonemployee directors in 1993. The options vest immediately,
expire five years after the date of grant and allow the holders to acquire stock
for $7.375 per share, which was the fair market value of the stock when the
options were
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<PAGE> 154
granted. Also under the Directors' Plan, options to acquire a total of 15,000
additional shares of common stock were granted to nonemployee directors in 1997.
The options vest immediately, expire five years after the date of grant and
allow the holders to acquire stock for $3.4375 per share, which was the fair
market value of the stock when the options were granted. At December 31, 1997
and 1996, there were options on 93,000 shares and 88,000 shares, respectively,
outstanding of which 55,700 shares and 43,300 shares, respectively, were
exercisable at $3.4375 and $7.375 per share, respectively under the ISO Plan. At
December 31,1997 there were options on 30,000 shares, outstanding and
exercisable (15,000 at $3.4375 per share and 15,000 at $7.375 per share) under
the Directors' Plan. At December 31, 1996 there were 15,000 shares outstanding
and exercisable at $7.375 per share under the Director's Plan. No options have
been granted under the Non-Statutory Plan.
In 1994, the Company adopted a supplemental executive retirement plan
("SERP") for certain officers of the Company who were unable to participate in
the Company's qualified defined benefit plan beginning January 1, 1989, because
of changes in the tax laws which imposed certain antidiscrimination requirements
upon qualified plans. The SERP provides for a normal retirement benefit for each
of the officers. Early retirement benefits under the SERP would be actuarially
adjusted to reflect the earlier commencement of the benefit. The SERP is funded
by the purchase of life insurance policies to be held in trust. The Company
reimburses the participants for the current tax recognition resulting from
insurance policy purchases. The respective costs are being amortized over a five
year vesting employment period of the participants. The expense for this plan
was approximately $407,000, $401,000 and $484,000 for 1997, 1996 and 1995,
respectively.
(6) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases certain equipment under operating lease agreements. Rent
expense was approximately $1,250,000, $1,139,000 and $853,000 for the years
ended December 31, 1997, 1996 and 1995.
Future lease commitments under long-term, noncancelable operating leases
are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------
<S> <C>
1998........................................................ $ 817,000
1999........................................................ 631,000
2000........................................................ 488,000
2001........................................................ 445,000
2002........................................................ 436,000
Thereafter.................................................. 540,000
----------
$3,357,000
==========
</TABLE>
It is expected that in the normal course of business, leases that expire
will be renewed or replaced by leases on other properties; thus, it is
anticipated that future minimum lease commitments will not be less than the
amounts shown for 1998.
(B) CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial statements.
The Company is a party to environmental proceedings at two sites and is
investigating the need for remediation at two additional facilities of the
Company. The Company has accrued approximately $200,000 for the anticipated
future costs of investigation and remediation. Although such costs could
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<PAGE> 155
exceed that amount, the Company believes that any such excess will not have a
material impact on the Company's financial position or results of operations.
(7) SIGNIFICANT CUSTOMER AND FOREIGN OPERATIONS
One customer accounted for approximately 27%, 27% and 29% of net sales for
the years ended December 31, 1997, 1996 and 1995, respectively. As of December
31, 1997 accounts receivable from a single customer comprised 19% of total
accounts receivable and accounts receivable denominated in foreign currencies
amounted to approximately $4.0 million.
Income (loss) before income taxes attributable to Toastmaster de Mexico
S.A. de C.V. amounted to $408,000 in 1997, $236,000 in 1996 and ($255,000) in
1995.
(8) UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTER
----------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
1997:
Net sales..................................... $26,315 $27,757 $44,209 $56,066
Gross profit.................................. 4,134 4,967 8,639 11,142
Income (loss) before income taxes............. (1,782) (1,131) 2,123 3,579
Net income (loss)............................. (1,141) (712) 1,410 2,333
Basic and diluted earnings (loss) per common
share...................................... (0.15) (0.09) 0.19 0.30
1996:
Net sales..................................... $26,738 $32,634 $49,321 $54,356
Gross profit.................................. 3,359 4,282 9,573 3,377
Income (loss) before income taxes............. (2,605) (2,042) 1,481 (4,245)
Net income (loss)............................. (1,654) (1,312) 950 (2,675)
Basic and diluted earnings (loss) per common
share...................................... (.22) (.17) .13 (.36)
1995:
Net sales..................................... $30,827 $36,528 $56,356 $64,798
Gross profit.................................. 4,196 5,267 9,759 12,977
Income (loss) before income taxes............. (1,559) (939) 1,550 3,238
Net income (loss)............................. (1,091) (608) 962 2,071
Basic and diluted earnings (loss) per common
share...................................... (.14) (.08) .13 .27
</TABLE>
(9) RESTRUCTURING
The Company completed the process of restructuring its product lines and
operations in 1997. The Company disposed of its environmental products line and
discontinued the production of certain kitchen countertop appliances and time
products. The inventory and manufacturing equipment related to these products
will be disposed of through normal channels of distribution and sale and
abandonment, respectively.
Restructuring charges incurred in the fourth quarter of 1996 consisted of
inventory valuation charges of $5,666,000, anticipated losses on the disposal of
fixed assets of $1,684,000 and accrued expenses of $250,000. Total restructuring
charges in 1996 amounted to $7,600,000 before income taxes and are recorded in
cost of sales.
F-39
<PAGE> 156
Additional restructuring charges of $123,000 were incurred in 1997 for
anticipated losses on the disposal of fixed assets and are recorded in cost of
sales. At December 31, 1997, accrued restructuring expenses amounted to
$127,000.
(10) ACCOUNTING FOR STOCK BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans. Had compensation cost for the Company's stock
option plans been determined based upon the fair value at the grant date for
1997 awards and amendments under these plans consistent with the methodology
presented in Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, the Company's net income would have been reduced by
approximately $47,500 in 1997 or $0.01 for basic and diluted earnings per common
share. The fair value of the options granted and amended during 1997 is
estimated at values ranging from $0.62 to $1.03, on the dates of grant or
amendment using the Black-Scholes option-pricing model with the following
assumptions: dividend rate of $0.02 per share, volatility of 33.47%, risk-free
interest rate ranging between 5.88% and 6.31% and an expected life ranging
between 1.5 and 4.0 years.
Pro forma net income reflects only options granted or amended since
December 31, 1994. Therefore, the full impact of calculating compensation cost
for stock options under SFAS No. 123 is not reflected in the pro forma net
income amounts presented above because compensation cost is reflected over the
options vesting period and compensation cost for options granted prior to
January 1, 1995 is not considered.
F-40
<PAGE> 157
TOASTMASTER INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Cash........................................................ $ 356 $ 178
Accounts receivable, less allowances........................ 34,903 42,396
Inventories
Finished goods............................................ 38,677 26,029
Raw matl., WIP............................................ 8,225 7,157
LIFO/inventory valuation
Total inventory................................... 45,984 31,826
Deferred income tax......................................... 0 0
Prepaid expenses............................................ 2,077 2,145
Income taxes receivable..................................... 5,645 4,070
-------- --------
Total current assets.............................. 89,091 80,615
Property, plant and equipment
Land...................................................... 928 928
Buildings................................................. 10,602 9,885
Less: accumulated depreciation......................... (5,781) (5,393)
Machinery & equipment..................................... 39,759 45,661
Less: accumulated depreciation......................... (28,433) (31,818)
-------- --------
Net property, plant & equipment...................... 17,075 19,263
Goodwill, net of accumulated amortization................... 3,181 3,265
Other assets................................................ 3,129 3,148
-------- --------
$112,476 $106,291
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt.................... $ 2,054 $ 2,104
Accounts payable.......................................... 7,812 4,383
Accrued expenses.......................................... 12,138 12,936
Deferred income taxes..................................... 1,456 1,456
-------- --------
Total current liabilities......................... 23,460 20,879
Long term debt, excl. current installments.................. 50,135 42,597
Deferred income taxes....................................... 801 801
Other liabilities........................................... 805 695
-------- --------
Total liabilities................................. 75,201 64,972
-------- --------
Stockholders' equity:
Common stock, $.10 par value.............................. 760 760
Additional paid-in capital................................ 25,340 25,344
Retained earnings......................................... 11,905 15,878
Accumulated other comprehensive income.................... (492) (375)
-------- --------
37,513 41,607
Treasury stock............................................ (238) (288)
-------- --------
Total stockholders' equity........................ 37,275 41,319
-------- --------
$112,476 $106,291
======== ========
</TABLE>
See accompanying notes.
F-41
<PAGE> 158
TOASTMASTER INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
------- -------
<S> <C> <C>
Net sales................................................... $92,923 $98,281
Cost of sales............................................... 80,094 80,539
------- -------
Gross profit.............................................. 12,829 17,742
Selling, general and administrative expenses................ 15,430 16,101
------- -------
Operating income (loss)................................... (2,601) 1,640
Other income -- Interest.................................... 0 343
Other expense -- Interest................................... 2,821 2,775
------- -------
Income (Loss) before income taxes......................... (5,422) (791)
Income tax expense (benefit)................................ (1,905) (348)
------- -------
Net income (loss)...................................... $(3,517) $ (443)
======= =======
Basic earnings (loss) per common share...................... $ (0.47) $ (0.06)
Diluted earnings (loss) per common share.................... $ (0.46) $ (0.06)
Weighted average shares used in computation:
Basic earnings per common share........................... 7,547 7,538
Diluted earnings per common share......................... 7,588 7,542
</TABLE>
See accompanying notes.
F-42
<PAGE> 159
TOASTMASTER INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (3,517) $ (443)
Adjustments to reconcile net loss to net cash from operating
activities:
Depreciation and amortization............................. 2,911 2,814
Loss on sale of property, plant and equipment............. (26) 0
Restructuring charge...................................... 0 123
Accounts receivable....................................... 7,493 2,554
Inventories............................................... (14,284) (7,750)
Prepaid expenses & other current assets..................... (68) (1,311)
Other assets................................................ 15 (166)
Accounts payable............................................ 2,429 4,972
Accrued liabilities......................................... (688) (1,000)
Income taxes................................................ (1,575) (348)
2,605 (120)
--------- ---------
Net cash flows used in operating activities............ (6,122) (563)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.................. (1,349) (3,423)
Proceeds from sale of property, plant and equipment......... 688 0
--------- ---------
Net cash flows used in investing activities............ (661) (3,423)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit agreement.................... 111,128 106,005
Repayments of revolving credit agreement.................... (102,044) (99,946)
Stock options exercised..................................... 43 0
Dividends paid.............................................. (453) (453)
Repayment of long-term debt................................. (1,596) (1,608)
--------- ---------
Net cash flows provided by financing activities........ (7,078) (3,778)
--------- ---------
Foreign currency translation adjustment..................... (117) (3)
Net increase (decrease) in cash........................ (178) (15)
Cash at beginning of period................................. 178 97
--------- ---------
Cash at end of period....................................... $ 356 $ 112
========= =========
Cash paid during the period for:
Interest............................................... $ 2,736 $ 2,699
Income taxes........................................... $ 0 $ 0
</TABLE>
See accompanying notes.
F-43
<PAGE> 160
TOASTMASTER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying financial statements as of September 30, 1998 and
September 30, 1997 and for the nine months then ended are unaudited. The balance
sheet as of December 31, 1997 has been derived from the audited balance sheet as
of that date. The consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. These financial statements should be
read in conjunction with the consolidated financial statements for the year
ended December 31, 1997 and notes thereto contained in the Company's Annual
Report to Shareholders incorporated by reference in the Annual Report on Form
10-K for the year ended December 31, 1997. The results of operations for the
interim periods shown are not necessarily indicative of the results for the
entire fiscal year ending December 31, 1998.
2. The loan and security agreement between the Company and Fleet Capital
Corporation, as described in note 3 in the Notes to Consolidated Financial
Statements contained in the Company's Annual Report to Shareholders, was amended
as of March 11, 1998. The amendment reduced by .5% the interest rate under the
London Interbank Offering Rate (LIBOR) option for borrowings under the revolving
credit and term loan provisions of the agreement. The Company was not in
compliance with Sec. 9.3(C), Quarterly Pre-Tax Earnings, for the nine months
ended September 30, 1998. A waiver has been obtained for this non-compliance as
of September 30, 1998.
3. Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." The adjustments
that were previously made through stockholders' equity for the minimum pension
liability and foreign currency adjustments will now be disclosed as other
comprehensive income. For the nine months ended September 30, 1998, other
comprehensive loss was $117 thousand and the total comprehensive loss was $3,634
million. For the nine months ended September 30, 1997, other comprehensive loss
was $3 thousand and the total comprehensive loss was $440 thousand.
F-44
<PAGE> 161
================================================================================
$125,000,000
EXCHANGE OFFER
SALTON/MAXIM HOUSEWARES, INC.
[SALTON LOGO]
10 3/4% SENIOR SUBORDINATED
NOTES DUE 2005
PROSPECTUS
, 1999
================================================================================
<PAGE> 162
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal or investigative (other than an action by or
in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any action or proceeding, had no reasonable
cause to believe his conduct was unlawful. Section 145 further provides that a
corporation similarly may indemnify any such person serving in any such capacity
who was or is a party or is threatened to be made a part to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor, against expenses actually and reasonably
incurred in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
The Registrant's Restated Certificate of Incorporation (the "Certificate")
provides that the Company's directors shall not be liable to the Registrant or
its stockholders for monetary damages for breach of fiduciary duty as a director
except to the extent that exculpation from liabilities is not permitted under
the DGCL as in effect at the time such liability is determined. The Registrant's
Certificate further provides that the Registrant shall indemnify its directors
and officers to the fullest extent permitted by the DGCL.
II-1
<PAGE> 163
The directors and officers of the Company are covered under directors' and
officers' liability insurance policies maintained by the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith or to be filed by amendment:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Purchase Agreement dated December 16, 1998 by and among the
Registrant, Home Creations Direct Ltd. and Lehman Brothers
Inc.*
2.1 Agreement and Plan of Merger, dated August 26, 1998, among
the Registrant, Columbia Acquisition Corp. and Toastmaster
Inc. Incorporated by reference to the Registrant's Current
Report on Form 8-K dated August 26, 1998.
2.2 Shareholders Agreement, dated August 26, 1998, between the
Registrant and certain shareholders of Toastmaster.
Incorporated by reference to the Registrant's Current Report
on Form 8-K dated August 26, 1998.
3.1 Amended and Restated Certificate of Incorporation of
Registrant. Incorporated by reference to the Registrant's
Registration Statement on Form S-1 (Registration No.
33-42097).
3.2 By-laws of the Registrant. Incorporated by reference to the
Registrant's Registration Statement on Form S-1
(Registration No. 33-42097).
3.3 Certificate of Designation for the Series A Convertible
Preferred Stock of the Registrant. Incorporated by reference
to the Registrant's Current Report on Form 8-K dated July
28, 1998.
4.1 Specimen Certificate for shares of Common Stock, $.01 par
value, of the Registrant. Incorporated by reference to the
Registrant's Registration Statement on Form S-1
(Registration No. 33-42097).
4.2 Form of Note for the Registrant's 10 3/4% Senior
Subordinated Notes (included in Exhibit 4.3).
4.3 Indenture dated December 16, 1998 between Norwest Bank
National Association, as Issuer, and the Registrant relating
to the Registrant's 10 3/4% Senior Subordinated Notes.*
5.1 Opinion of Sonnenschein Nath & Rosenthal.**
10.1 Salton/Maxim Housewares, Inc. Stock Option Plan.
Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-42097).
10.2 Stockholders Agreement, dated August 6, 1991, by and among
the Registrant, Braddock Financial Corporation, Financo
Investors Fund, L.P., and Mesirow Private Equity, Inc.
(successor to Mesirow Venture Capital, Inc.) as the
authorized representative of Mesirow Capital Partners III,
Mesirow Capital Partners IV, Mesirow Capital Partners V and
Allied Investment Corporation. Incorporated by reference to
the Registrant's Registration Statement on Form S-1
(Registration No. 33-42097).
10.3 Form of Sales Representative Agreement generally used by and
between the Registrant and its sales representatives.
Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-42097).
10.4 Stock Registration Rights Agreement, dated as of August 6,
1991, by and between the Registrant, Braddock Financial
Corporation, Financo Investors Fund, L.P., Mesirow Capital
Partners II, Mesirow Capital Partners IV, Mesirow Capital
Partners V and Allied Investment Corporation. Incorporated
by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-42097).
10.5 Salton/Maxim Housewares, Inc. 1995 Employee Stock Option
Plan. Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
December 30, 1995.
</TABLE>
II-2
<PAGE> 164
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.6 Salton/Maxim Housewares, Inc. Non-Employee Directors Stock
Option Plan. Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
December 30, 1995.
10.7 Asset Purchase Agreement dated July 1, 1996 by and among the
Registrant, Block China Corporation and Robert C. Block
Incorporated by reference from the Company's Current Report
on Form 8-K dated July 1, 1996.
10.8 License Agreement dated as of February 1, 1996 by and
between White Consolidated Industries Inc. and the
Registrant. Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q/A for the fiscal quarter ended
December 28, 1996.
10.9 License Agreement dated as of May 21, 1996 by and between
White Consolidated Industries Inc. and the Registrant.
Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q/A for the fiscal quarter ended December
28, 1996.
10.10 Purchase, Distribution and Marketing Agreement dated as of
January 27, 1997 between the Registrant and Kmart
Corporation. Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q/A for the fiscal quarter ended
December 28, 1996.
10.11 Employment Agreement dated as of December 19, 1997 between
the Registrant and Leonhard Dreimann. Incorporated by
reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 27, 1998.
10.12 Employment Agreement dated as of December 19, 1997 between
the Registrant and David C. Sabin. Incorporated by reference
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 27, 1998.
10.13 Employment Agreement dated as of December 19, 1997 between
the Registrant and William B. Rue. Incorporated by reference
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 27, 1998.
10.14 Stock Agreement, dated as of May 6, 1998, by and between the
Registrant, Windmere-Durable Holdings, Inc. and the Salton
Executive Related Parties (as defined therein). Incorporated
by reference to the Registrant's Current Report on Form 8-K
dated May 6, 1998.
10.15 Note, dated July 27, 1998, issued by the Registrant to
Windmere-Durable Holdings, Inc. Incorporated by reference to
the Registrant's Current Report on Form 8-K dated July 28,
1998.
10.16 Agreement dated July 27, 1998, between the Registrant to
Windmere-Durable Holdings, Inc. Incorporated by reference to
the Registrant's Current Report on Form 8-K dated July 28,
1998.
10.17 Credit Agreement dated July 27, 1998 among the Registrant,
the several lenders from time to time parties thereto,
Lehman Brothers Inc., as arranger, Lehman Commercial Paper
Inc., as syndication agent, and Lehman Commercial Paper
Inc., as administrative agent. Incorporated by reference to
the Registrant's Current Report on Form 8-K dated July 28,
1998.
10.18 Stock Purchase Agreement dated July 15, 1998 by and among
the Registrant and Centre Capital Investors III, L.P.,
Centre Capital Tax-Exempt Investors II, L.P., Centre Capital
Offshore Investors, L.P., The State Board of Administration
of Florida, Centre Parallel Management Partners, L.P. and
Centre Partners Coinvestment, L.P. Incorporated by reference
to the Registrant's Current Report on Form 8-K dated July
15, 1998.
10.19 Registration Rights Agreement dated July 15, 1998 by and
among the Registrant and Centre Capital Investors II, L.P.,
Centre Capital Tax-Exempt Investors II, L.P., Centre Capital
Offshore Investors II, L.P., The State Board of
Administration of Florida, Centre Parallel Management
Partners, L.P. and Centre Partners Coinvestment, L.P.
Incorporated by reference to the Registrant's Current Report
on Form 8-K dated July 28, 1998.
21.1 Subsidiaries of the Company. Incorporated by reference to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 27, 1998.
</TABLE>
II-3
<PAGE> 165
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
23.1 Consent of Independent Accountants -- Deloitte & Touche
LLP.*
23.2 Consent of Sonnenschein Nath & Rosenthal (included in
Exhibit 5.1).**
23.3 Consent of Independent Accountants -- KPMG LLP.*
24.1 Power of Attorney (included on page II-5).
25.1 Statement of Eligibility of Norwest Bank Minnesota, National
Association.*
</TABLE>
- -------------------------
* Filed herewith.
** To be filed by Amendment.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant, pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by any such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether or not
such indemnification is against public policy as expressed in the Securities Act
of 1933 and will be governed by the final adjudication to such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 166
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago and the State of
Illinois, on the 4th day of January, 1999.
SALTON/MAXIM HOUSEWARES, INC.
By: /s/ LEONHARD DREIMANN
--------------------------------------
Leonhard Dreimann
Chief Executive
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the th day of December, 1998. Each person whose
signature appears below hereby authorizes Leonhard Dreimann, William B. Rue and
David C. Sabin and each of them, with full power of substitution, to execute in
the name and on behalf of such person any amendment or any post-effective
amendment to this Registration Statement and to file the same, with any exhibits
thereto and other documents in connection therewith, making such changes in this
Registration Statement as the Registrant deems appropriate, and appoints each of
Leonhard Dreimann, William B. Rue and David C. Sabin and each of them, with full
power of substitution, attorney-in-fact to sign any amendment and any
post-effective amendment to this Registration Statement and to file the same,
with any exhibits thereto and other documents in connection therewith.
<TABLE>
<CAPTION>
SIGNATURE
---------
<S> <C>
/s/ LEONHARD DREIMANN Chief Executive Officer and Director
- --------------------------------------------- (Principal Executive Officer)
Leonhard Dreimann
/s/ WILLIAM B. RUE President, Chief Operating Officer, Treasurer
- --------------------------------------------- and Chief Financial Officer (Principal
William B. Rue Accounting and Financial Officer)
/s/ DAVID C. SABIN Director
- ---------------------------------------------
David C. Sabin
/s/ FRANK DEVINE Director
- ---------------------------------------------
Frank Devine
/s/ BERT DOORNMALEN Director
- ---------------------------------------------
Bert Doornmalen
Director
- ---------------------------------------------
Robert A. Bergmann
Director
- ---------------------------------------------
Bruce G. Pollack
</TABLE>
II-5
<PAGE> 167
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Purchase Agreement dated December 16, 1998 by and among the
Registrant, Home Creations direct Ltd. and Lehman Brothers
Inc.*
2.1 Agreement and Plan of Merger, dated August 26, 1998, among
the Registrant, Columbia Acquisition Corp. and Toastmaster
Inc. Incorporated by reference to the Registrant's Current
Report on Form 8-K dated August 26, 1998.
2.2 Shareholders Agreement, dated August 26, 1998, between the
Registrant and certain shareholders of Toastmaster.
Incorporated by reference to the Registrant's Current Report
on Form 8-K dated August 26, 1998.
3.1 Amended and Restated Certificate of Incorporation of
Registrant. Incorporated by reference to the Registrant's
Registration Statement on Form S-1 (Registration No.
33-42097).
3.2 By-laws of the Registrant. Incorporated by reference to the
Registrant's Registration Statement on Form S-1
(Registration No. 33-42097).
3.3 Certificate of Designation for the Series A Convertible
Preferred Stock of the Registrant. Incorporated by reference
to the Registrant's Current Report on Form 8-K dated July
28, 1998.
4.1 Specimen Certificate for shares of Common Stock, $.01 par
value, of the Registrant. Incorporated by reference to the
Registrant's Registration Statement on Form S-1
(Registration No. 33-42097).
4.2 Form of Note for the Registrant's 10 3/4% Senior
Subordinated Notes (included in Exhibit 4.3).
4.3 Indenture dated December 16, 1998 between Norwest Bank
National Association, as Issuer, and the Registrant relating
to the Registrant's 10 3/4% Senior Subordinated Notes.*
5.1 Opinion of Sonnenschein Nath & Rosenthal.**
10.1 Salton/Maxim Housewares, Inc. Stock Option Plan.
Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-42097).
10.2 Stockholders Agreement, dated August 6, 1991, by and among
the Registrant, Braddock Financial Corporation, Financo
Investors Fund, L.P., and Mesirow Private Equity, Inc.
(successor to Mesirow Venture Capital, Inc.) as the
authorized representative of Mesirow Capital Partners III,
Mesirow Capital Partners IV, Mesirow Capital Partners V and
Allied Investment Corporation. Incorporated by reference to
the Registrant's Registration Statement on Form S-1
(Registration No. 33-42097).
10.3 Form of Sales Representative Agreement generally used by and
between the Registrant and its sales representatives.
Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-42097).
10.4 Stock Registration Rights Agreement, dated as of August 6,
1991, by and between the Registrant, Braddock Financial
Corporation, Financo Investors Fund, L.P., Mesirow Capital
Partners II, Mesirow Capital Partners IV, Mesirow Capital
Partners V and Allied Investment Corporation. Incorporated
by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-42097).
10.5 Salton/Maxim Housewares, Inc. 1995 Employee Stock Option
Plan. Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
December 30, 1995.
10.6 Salton/Maxim Housewares, Inc. Non-Employee Directors Stock
Option Plan. Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
December 30, 1995.
10.7 Asset Purchase Agreement dated July 1, 1996 by and among the
Registrant, Block China Corporation and Robert C. Block
Incorporated by reference from the Company's Current Report
on Form 8-K dated July 1, 1996.
10.8 License Agreement dated as of February 1, 1996 by and
between White Consolidated Industries Inc. and the
Registrant. Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q/A for the fiscal quarter ended
December 28, 1996.
</TABLE>
II-6
<PAGE> 168
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.9 License Agreement dated as of May 21, 1996 by and between
White Consolidated Industries Inc. and the Registrant.
Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q/A for the fiscal quarter ended December
28, 1996.
10.10 Purchase, Distribution and Marketing Agreement dated as of
January 27, 1997 between the Registrant and Kmart
Corporation. Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q/A for the fiscal quarter ended
December 28, 1996.
10.11 Employment Agreement dated as of December 19, 1997 between
the Registrant and Leonhard Dreimann. Incorporated by
reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 27, 1998.
10.12 Employment Agreement dated as of December 19, 1997 between
the Registrant and David C. Sabin. Incorporated by reference
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 27, 1998.
10.13 Employment Agreement dated as of December 19, 1997 between
the Registrant and William B. Rue. Incorporated by reference
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 27, 1998
10.14 Stock Agreement, dated as of May 6, 1998, by and between the
Registrant, Windmere-Durable Holdings, Inc. and the Salton
Executive Related Parties (as defined therein). Incorporated
by reference to the Registrant's Current Report on Form 8-K
dated May 6, 1998.
10.15 Note, dated July 27, 1998, issued by the Registrant to
Windmere-Durable Holdings, Inc. Incorporated by reference to
the Registrant's Current Report on Form 8-K dated July 28,
1998.
10.16 Agreement dated July 27, 1998, between the Registrant to
Windmere-Durable Holdings, Inc. Incorporated by reference to
the Registrant's Current Report on Form 8-K dated July 28,
1998.
10.17 Credit Agreement dated July 27, 1998 among the Registrant,
the several lenders from time to time parties thereto,
Lehman Brothers Inc., as arranger, Lehman Commercial Paper
Inc., as syndication agent, and Lehman Commercial Paper
Inc., as administrative agent. Incorporated by reference to
the Registrant's Current Report on Form 8-K dated July 28,
1998.
10.18 Stock Purchase Agreement dated July 15, 1998 by and among
the Registrant and Centre Capital Investors III, L.P.,
Centre Capital Tax-Exempt Investors II, L.P., Centre Capital
Offshore Investors, L.P., The State Board of Administration
of Florida, Centre Parallel Management Partners, L.P. and
Centre Partners Coinvestment, L.P. Incorporated by reference
to the Registrant's Current Report on Form 8-K dated July
15, 1998.
10.19 Registration Rights Agreement dated July 15, 1998 by and
among the Registrant and Centre Capital Investors II, L.P.,
Centre Capital Tax-Exempt Investors II, L.P., Centre Capital
Offshore Investors II, L.P., The State Board of
Administration of Florida, Centre Parallel Management
Partners, L.P. and Centre Partners Coinvestment, L.P.
Incorporated by reference to the Registrant's Current Report
on Form 8-K dated July 28, 1998.
21.1 Subsidiaries of the Company. Incorporated by reference to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 27, 1998.
23.1 Consent of Independent Accountants -- Deloitte & Touche
LLP.*
23.2 Consent of Sonnenschein Nach & Rosenthal (included in
Exhibit 5.1).**
23.3 Consent of Independent Accountants -- KPMG LLP.*
24.1 Power of Attorney (included on page II-5).
25.1 Statement of Eligibility of Norwest Bank Minnesota, National
Association.*
</TABLE>
- -------------------------
* Filed herewith.
** To be filed by Amendment.
II-7
<PAGE> 1
EXHIBIT 1.1
$125,000,000
SALTON/MAXIM HOUSEWARES, INC.
10 3/4% Senior Subordinated Notes due 2005
PURCHASE AGREEMENT
------------------
December 11, 1998
LEHMAN BROTHERS INC.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Salton/Maxim Housewares, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Initial Purchaser") $125.0 million in
aggregate principal amount at maturity of its 10 3/4% Senior Subordinated Notes
due 2005 (the "Initial Notes") to be issued pursuant to the terms of an
Indenture (the "Indenture") among the Company, Home Creations Direct Ltd., a
Delaware corporation (the "Guarantor"), and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee"), relating to the Initial Notes. The
Initial Purchaser proposes to purchase all the Initial Notes. Capitalized terms
used but not defined herein shall have the meanings given to such terms in the
Indenture.
Payment of principal of, premium, liquidated damages, if any, and
interest on the Notes (as defined) will be unconditionally guaranteed on a
senior subordinated basis by the Guarantor (the "Guarantee," together with the
Notes, the "Securities") and any newly acquired or created Domestic Restricted
Subsidiary.
The Initial Notes will be offered and sold to you pursuant to
exemptions from the registration requirements under the Securities Act of 1933,
as amended (the "Securities Act"). The Company has prepared a preliminary
offering memorandum, dated November 30, 1998 (the "Preliminary Offering
Memorandum"), and a final offering memorandum (the "Offering Memorandum"), dated
December 11, 1998, relating to the Company and the Initial Notes. As described
in the Offering Memorandum, the Company will use the net proceeds from the
offering of the Initial Notes to reduce existing indebtedness and for working
capital and general corporate purposes.
<PAGE> 2
2
Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Securities Act, the
Initial Notes (and all securities issued in exchange therefor or in substitution
thereof) shall bear the following legend:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISION OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) TO A PERSON
WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE
UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 UNDER THE SECURITIES ACT OR (d) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY
SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE
SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A)
ABOVE."
You have represented and warranted to the Company that you will make
offers (the "Exempt Resales") of the Initial Notes purchased by you hereunder on
the terms set forth in the Offering Memorandum, as amended or supplemented,
solely to (i) persons whom you reasonably believe to be "qualified institutional
buyers," as defined in Rule 144A under the Securities Act ("QIBs"), and (ii) to
persons other than U.S. Persons in offshore transactions meeting the
requirements of Rule 903 and 904 of Regulation S under the Securities Act (such
<PAGE> 3
3
persons specified in clauses (i) and (ii) being referred to herein as the
"Eligible Purchasers"). As used herein, the terms "offshore transaction" and
"U.S. person" have the respective meanings given to them in Regulation S. You
will offer the Initial Notes to Eligible Purchasers initially at a price equal
to 100% of the principal amount thereof. Such price may be changed at any time
without notice.
Holders (including subsequent transferees) of the Initial Notes will
have the registration rights set forth in the registration rights agreement (the
"Registration Rights Agreement"), to be dated December 16, 1998 (the "Closing
Date"), in the form of Exhibit A hereto, for so long as such Initial Notes
constitute "Transfer Restricted Securities" (as defined in the Registration
Rights Agreement). Pursuant to the Registration Rights Agreement, the Company
and the Guarantor will agree to file with the Securities and Exchange Commission
(the "Commission") under the circumstances set forth therein, (i) a
registration statement under the Securities Act (the "Exchange Offer
Registration Statement") relating to the Company's 10 3/4% New Notes due 2005
(the "New Notes" and, together with the Initial Notes, the "Notes") to be
offered in exchange for the Initial Notes (such offer to exchange being referred
to collectively as the "Exchange Offer") and (ii) a shelf registration statement
pursuant to Rule 415 under the Securities Act (the "Shelf Registration
Statement," and together with the Exchange Offer Registration Statement, the
"Registration Statements") relating to the resale of the Initial Notes by
certain holders of such Notes, and to use their best efforts to cause such
Registration Statements to be declared effective. This Agreement, the Indenture
and the Registration Rights Agreement are hereinafter referred to collectively
as the "Operative Documents." This is to confirm the agreements concerning the
purchase of the Initial Notes from the Company by you.
1. Representations, Warranties and Agreements of the Company and
the Guarantor. The Company and the Guarantor represent, warrant and agree as
follows:
(a) The Preliminary Offering Memorandum and the Offering Memorandum
have been prepared by the Company for use by the Initial Purchaser in connection
with the Exempt Resales. No order or decree preventing the use of the
Preliminary Offering Memorandum or the Offering Memorandum, or any order
asserting that the transactions contemplated by this Agreement are subject to
the registration requirements of the Securities Act, has been issued and no
proceeding for that purpose has commenced or is pending or, to the knowledge of
the Company or the Guarantor, is contemplated.
(b) The Preliminary Offering Memorandum and the Offering Memorandum
as of their respective dates did not, and the Offering Memorandum as of the
Closing Date will not, contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading, except that this representation and warranty does not apply to
statements in or omissions from the Preliminary Offering Memorandum and the
Offering Memorandum relating to the Initial Purchaser and made in reliance upon
and in conformity
<PAGE> 4
4
with information furnished to the Company in writing by or on behalf of the
Initial Purchaser expressly for use therein.
(c) The Company is a corporation duly incorporated and validly
existing and in good standing under the laws of Delaware with all requisite
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Preliminary Offering Memorandum and the
Offering Memorandum, and is duly registered and qualified to conduct its
business and is in good standing in each jurisdiction or place where the nature
of its properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify or to be in
good standing would not have a material adverse effect on the condition
(financial or other), business, prospects, properties, or results of operations
of the Company and its Subsidiaries, taken as a whole (a "Material Adverse
Effect").
(d) Each of the Company and the Guarantor has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement, the Indenture, the Securities and the Registration Rights
Agreement.
(e) This Agreement has been duly and validly authorized, executed
and delivered by each of the Company and the Guarantor, and assuming due
authorization, execution and delivery by the Initial Purchaser, constitutes the
valid and binding agreement of each of the Company and the Guarantor,
respectively, enforceable against them in accordance with its terms (subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally from time
to time in effect and to general principles of equity, including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing, regardless of whether in a proceeding in equity or at law, and except
as rights to indemnity and contribution hereunder may be limited by Federal or
State securities laws or principles of public policy).
(f) The Registration Rights Agreement has been duly and validly
authorized by each of the Company and the Guarantor, and, upon its execution and
delivery by each of the Company and the Guarantor, and, assuming due
authorization, execution and delivery by the Initial Purchaser, will constitute
the valid and binding agreement of each of the Company and the Guarantor,
respectively, enforceable against them in accordance with its terms (subject to
applicable bankruptcy, insolvency reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally from time
to time in effect and to general principals of equity, including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing, regardless of whether in a proceeding in equity or at law and except as
rights to indemnity and contribution hereunder may be limited by Federal or
State securities laws or principles of public policy).
(g) The Indenture has been duly and validly authorized by each of
the Company and the Guarantor, and upon its execution and delivery by each of
the Company and the Guarantor and, assuming due authorization, execution and
delivery by the Trustee, will
<PAGE> 5
5
constitute the valid and binding agreement of each of the Company and the
Guarantor, respectively, enforceable against them in accordance with its terms
(subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws affecting creditors' rights generally
from time to time in effect and to general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing, regardless of whether in a proceeding in equity or at law); no
qualification of the Indenture under the Trust Indenture Act of 1939 ( "TIA") is
required in connection with the offer and sale of the Initial Notes and the
Guarantee (collectively, the "Initial Securities") contemplated hereby or in
connection with the Exempt Resales.
(h) The Agreement and Plan of Merger by and among the Company,
Columbia Acquisition Corp. ("Mergeco"), and Toastmaster Inc. ("Toastmaster"),
dated as of August 26, 1998 (the "Merger Agreement") has been duly and validly
authorized, executed and delivered by each of the Company and Mergeco and,
assuming due authorization, execution and delivery by Toastmaster, constitutes
the valid and binding agreement of each of the Company and Mergeco,
respectively, enforceable against them in accordance with its terms (subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally from time
to time in effect and to general principles of equity, including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing, regardless of whether in a proceeding in equity or at law).
(i) The Guarantee has been duly and validly authorized by the
Guarantor and upon its execution and delivery by the Guarantor in accordance
with the terms of the Indenture and, assuming due authentication of the Initial
Notes by the Trustee, upon delivery to the Initial Purchaser against payment
therefor in accordance with the terms hereof, will constitute the valid and
binding agreement of the Guarantor, enforceable against it in accordance with
its terms (subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and other similar laws affecting creditors'
rights generally from time to time in effect and to general principles of
equity, including, without limitation, concepts of materiality, reasonableness,
good faith and fair dealing, regardless of whether in a proceeding in equity or
at law).
(j) The Initial Notes have been duly and validly authorized by the
Company and when duly executed by the Company in accordance with the terms of
the Indenture and, assuming due authentication of the Initial Notes by the
Trustee, upon delivery to the Initial Purchaser against payment therefor in
accordance with the terms hereof, will have been validly issued and delivered,
and will constitute valid and binding obligations of the Company entitled to the
benefits of the Indenture, enforceable against the Company in accordance with
their terms (subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and other similar laws affecting creditors'
rights generally from time to time in effect and to general principals of
equity, including, without limitation, concepts of materiality,
<PAGE> 6
6
reasonableness, good faith and fair dealing, regardless of whether in a
proceeding in equity or at law).
(k) The New Notes have been duly and validly authorized by the
Company and if and when duly issued and authenticated in accordance with the
terms of the Indenture and, assuming due authentication of the New Notes by the
Trustee, upon delivery in accordance with the Exchange Offer provided for in the
Registration Rights Agreement, will constitute valid and binding obligations of
the Company entitled to the benefits of the Indenture, enforceable against the
Company in accordance with their terms (subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and other similar
laws affecting creditors' rights generally from time to time in effect and to
general principals of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, regardless of whether
in a proceeding in equity or at law).
(l) All the shares of capital stock of the Company outstanding
prior to the issuance of the Initial Notes have been duly authorized and validly
issued and are fully paid and nonassessable, and the authorized capitalization
of the Company conforms to the description thereof under the caption
"Capitalization" in the Offering Memorandum.
(m) Neither the Company nor any of its Subsidiaries owns capital
stock or other equity interests of any corporation or entity other than as
disclosed in the Offering Memorandum. Each of the Subsidiaries of the Company
is a corporation duly incorporated and validly existing and in good standing
under the laws of the jurisdiction of its incorporation, with all requisite
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Preliminary Offering Memorandum and the
Offering Memorandum, and is duly registered and qualified to conduct its
business and is in good standing in each jurisdiction or place where the nature
of its properties or the conduct of its business requires such registration or
qualification, except where the failure to so register or qualify or be in good
standing would not have a Material Adverse Effect. All the outstanding shares
of capital stock of each of the Company's Subsidiaries have been duly authorized
and validly issued, are fully paid and nonassessable, and are wholly owned by
the Company directly, or indirectly through one of its other Subsidiaries, free
and clear of any lien, adverse claim, security interest, equity or other
encumbrance, except as specifically described in the Offering Memorandum.
(n) There are no legal or governmental proceedings pending or, to
the knowledge of the Company or its Subsidiaries, threatened against the Company
or any of its Subsidiaries or to which any of their respective properties is
subject, that are not disclosed in the Offering Memorandum and which are
reasonably likely to have a Material Adverse Effect or to materially affect the
issuance of the Securities or the consummation of any of the other transactions
contemplated by the Operative Documents. The Offering Memorandum contains
accurate summaries of all material agreements, contracts, indentures, leases or
other instruments. Neither the Company nor any of its Subsidiaries is involved
in any strike, job
<PAGE> 7
7
action or labor dispute with any group of employees, and, to the knowledge of
the Company or any of its Subsidiaries, no such action or dispute is threatened.
(o) Except as described in the Offering Memorandum, no material
relationship, direct or indirect, exists between or among the Company or any of
its Subsidiaries on the one hand, and the directors, officers, stockholders,
affiliates, customers or suppliers of the Company or any of its Subsidiaries on
the other hand.
(p) The execution, delivery and performance of this Agreement and
the other Operative Documents and the issuance of the Initial Notes and the New
Notes and the consummation of the transactions contemplated hereby and thereby
will not conflict with, or result in a breach or violation of any of the terms
or provisions of, or (including with the giving of notice or the lapse of time
or both) constitute a default under (i) any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument (including, without limitation,
the Merger Agreement) to which the Company or any of its Subsidiaries is a party
or by which the Company or any of its Subsidiaries is bound or to which any of
the properties or assets of the Company or any of its Subsidiaries is subject,
(ii) the provisions of the charter, by-laws or other organizational documents of
the Company or any of its Subsidiaries or (iii) any statute or any order, rule
or regulation of any court or governmental agency or body having jurisdiction
over the Company or any of its Subsidiaries or any of their properties or
assets, except in the cases of clause (i) or (iii), such breaches, violations or
defaults that in the aggregate would not have a Material Adverse Effect, and no
consent, approval, authorization or order of, or filing or registration with,
any court or governmental agency or body is required for the execution, delivery
and performance of this Agreement and the other Operative Documents and the
issuance of the Initial Notes and the New Notes and the consummation of the
transactions contemplated hereby and thereby except as may be required by the
securities or Blue Sky laws of any state of the United States in connection with
the sale of the Initial Notes and the New Notes and except as contemplated by
the Registration Rights Agreement.
(q) Each of the accountants, Deloitte & Touche LLP and KPMG Peat
Marwick LLP, who have certified certain of the financial statements included as
part of the Offering Memorandum, are independent public accountants under Rule
101 of the Code of Professional Conduct of the American Institute of Certified
Public Accountants (the "AICPA"), and its interpretation and rulings.
(r) The consolidated historical financial statements, together with
the related notes thereto, set forth in the Offering Memorandum comply as to
form in all material respects with the requirements of Regulation S-X under the
Securities Act applicable to registration statements on Form S-1 under the
Securities Act. Such historical financial statements fairly present the
financial position of each of the Company and Toastmaster at the respective
dates indicated and the results of operations and cash flows for the respective
periods indicated, in each case in accordance with generally accepted accounting
principles ("GAAP") consistently applied throughout such periods. The pro forma
financial statements contained in the Offering
<PAGE> 8
8
Memorandum have been prepared on a basis consistent with such historical
financial statements, except for the pro forma adjustments specified therein,
include all material adjustments to the historical financial data required by
Rule 11-02 of regulation S-X to reflect the Toastmaster Acquisition, the
Recapitalization and the Financing (each as defined in the Offering Memorandum),
give effect to assumptions made on a reasonable basis and present fairly in all
material respects the historical and proposed transactions contemplated by the
Offering Memorandum and this Agreement. The other financial information and
data included in the Offering Memorandum are, in all material respects,
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of each of the Company and Toastmaster.
(s) Except as disclosed in the Offering Memorandum, since the date
of the latest audited consolidated financial statements of the Company and its
Subsidiaries included in the Offering Memorandum, neither the Company nor any of
its Subsidiaries has incurred any liability or obligation, direct or contingent,
or entered into any transaction, in each case not in the ordinary course of
business, that is material to the Company and its Subsidiaries, and there has
been no Material Adverse Effect, nor to the Company's knowledge, after due
inquiry, any development or event involving a prospective Material Adverse
Effect and, except as disclosed in or contemplated by the Offering Memorandum,
since the date of the latest audited consolidated financial statements of the
Company included in the Offering Memorandum, there has been no (i) dividend or
distribution of any kind declared, paid or made by the Company on any class of
its capital stock, (ii) issuance of securities (other than the Initial Notes
offered hereby) or (iii) material increase in short-term or long-term debt of
the Company.
(t) Each of the Company and its Subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of consolidated financial statements in conformity with GAAP and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(u) All the property described in the Offering Memorandum as being
held under lease by the Company and its Subsidiaries is held by it under valid,
subsisting and enforceable leases, with only such exceptions as would not in the
aggregate, have a Material Adverse Effect. In addition, except as described in
the Offering Memorandum, the consummation of the transactions contemplated by
this Agreement will not give rise to any third party rights of first refusal
under any Material Agreement (as herein defined) as to which the Company and any
of its Subsidiaries or any of their property or assets may be subject.
(v) Each of the Company and its Subsidiaries owns or possesses
adequate rights to use all patents, trademarks, trademark registrations, service
marks, service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets and rights
<PAGE> 9
9
(collectively, "Intellectual Property") described in the Offering Memorandum as
being owned by any of them or necessary for the conduct of their respective
businesses, except where the failure to own or possess such Intellectual
Property would not have a Material Adverse Effect, and except as disclosed in
the Offering Memorandum, neither the Company nor any Subsidiary is aware of any
claim to the contrary or any challenge by any other person to the rights of the
Company or any of its Subsidiaries with respect to such rights that, if
determined adversely to the Company or any such Subsidiary, would in the
aggregate have a Material Adverse Effect.
(w) Each of the Company and its Subsidiaries has such permits,
licenses, franchises, certificates, consents, orders and other approvals or
authorizations of any governmental or regulatory authority ("Permits") as are
necessary under applicable law to own their respective properties and to conduct
their respective businesses in the manner described in the Offering Memorandum,
except to the extent that the failure to have such Permits would not have a
Material Adverse Effect. Each of the Company and its Subsidiaries has fulfilled
and performed, in all material respects, all their respective obligations with
respect to the Permits, and no event has occurred which allows, or after notice
or lapse of time would allow, revocation or termination thereof or results in
any other material impairment of the rights of the holders of any Permit,
subject in each case to such qualification as may be set forth in the Offering
Memorandum and except to the extent that any such revocation or termination
would not have a Material Adverse Effect. Except as described in the Offering
Memorandum, none of the Permits contains any restriction that is materially
burdensome to the Company or any of its Subsidiaries.
(x) Neither the Company nor any of its Subsidiaries nor any
director, officer, agent, employee or other person associated with or acting on
its behalf of the Company or any of its Subsidiaries, has used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expense relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment.
(y) Neither the Company nor any of its Subsidiaries is currently or
will be, upon sale of the Initial Notes in accordance herewith and the
application of the net proceeds therefrom as described in the Offering
Memorandum under the caption "Use of Proceeds," an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(z) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D ("Regulation D") under the Securities Act) of the Company
has directly, or through any agent (provided that no representation is made as
to the Initial Purchaser or any person acting on behalf), (i) sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect of, any
security (as defined in the Securities Act) which is or could be integrated with
the offering and sale of the Securities in a manner that would require the
<PAGE> 10
10
registration of the Securities under the Securities Act or (ii) engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D, including, but not limited to, advertisements, articles, notices
or other communications published in any newspaper, magazine, or similar medium
or broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising) in
connection with the offering of the Securities. No securities of the same class
as the Initial Notes have been issued and sold by the Company within the
six-month period immediately prior to the date hereof.
(aa) Except as permitted by the Securities Act, the Company has not
distributed and, prior to the later to occur of the Closing Date and completion
of the distribution of the Initial Securities, will not distribute any offering
material in connection with the offering and sale of the Initial Securities
other than the Preliminary Offering Memorandum and Offering Memorandum.
(ab) When the Initial Securities are issued and delivered pursuant
to this Agreement, such Initial Securities will not be of the same class (within
the meaning of Rule 144A under the Securities Act) as securities of the Company
that are listed on a national securities exchange registered under Section 6 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") or that
are quoted in a United States automated inter-dealer quotation system.
(ac) Assuming (i) that your representations and warranties in
Section 2 hereof are true, (ii) compliance by you with your covenants set forth
in Section 2 hereof and (iii) that each of the Eligible Purchasers is either (A)
an entity that you reasonably believe to be a QIB or (B) a person who is not a
"U.S. person" and who acquires the Initial Securities outside the United States
in an "offshore transaction" (within the meaning of Regulation S), the purchase
of the Initial Securities by you pursuant hereto and the resale of the Initial
Securities pursuant to the Exempt Resales is exempt from the registration
requirements of the Securities Act.
(ad) Each of the Company and its Subsidiaries is in compliance in
all material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder ("ERISA"), no "reportable event" (as
defined in ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not except to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including
the regulations and published interpretations thereunder (the "Code"); each
"pension plan" for which the Company would have any liability that is intended
to be qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act, which
would cause the loss of such qualification; and the statements set forth in the
Offering Memorandum under the caption "Notice to Investors" do not include any
untrue
<PAGE> 11
11
statements of material facts and do not omit any material facts necessary in
order to make such statements, in light of the circumstances under which they
were made, not misleading.
(ae) Set forth on Exhibit B hereto is a list of each employee
pension or benefit plan with respect to which the Company or any entity
considered an affiliate of the Company within the meaning of Section 407(d)(7)
of ERISA is a party in interest or a disqualified person. The execution and
delivery of this Agreement, the other Operative Documents and the sale of the
Initial Notes to be purchased by the Eligible Purchasers will not involve any
prohibited transaction within the meaning of Section 406 of ERISA or Section
4975 of the Code. The representation made by the Company in the preceding
sentence is made in reliance upon and subject to the accuracy of, and compliance
with, the representations and covenants made or deemed made by the Eligible
Purchasers as set forth in the Offering Memorandum under the section entitled
"Notice to Investors."
(af) Except (i) for the registration rights granted pursuant to that
certain stock registration rights agreement dated as of August 6, 1991 (the
"Stock Registration Rights Agreement") and (ii) as described in the Offering
Memorandum, there are no contracts, agreements or understandings between the
Company or any of its Subsidiaries and any person granting such person the right
to require the Company or any of its Subsidiaries to file a registration
statement under the Securities Act with respect to any securities of the Company
and its Subsidiaries owned or to be owned by such person or to require the
Company or any of its Subsidiaries to include such securities in the securities
registered pursuant to the Registration Statements or in any securities being
registered pursuant to any other registration statement filed by the Company or
any of its Subsidiaries under the Securities Act.
(ag) Each of the Company and its Subsidiaries carries, or is covered
by, insurance in such amounts and covering such risks as is adequate for the
conduct of its businesses and the value of its properties and as is customary
for companies engaged in similar businesses in similar industries.
(ah) Each of the Company and its Subsidiaries has filed all Federal,
state and local income and franchise tax returns required to be filed through
the date hereof and has paid all taxes due thereon, and no tax deficiency has
been determined adversely to the Company or any of its Subsidiaries nor does the
Company or any of its Subsidiaries have any knowledge of any tax deficiency
which, if determined adversely to the Company, would have a Material Adverse
Effect.
(ai) There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, hazardous
wastes or hazardous substances by the Company or any of its Subsidiaries (or, to
the knowledge of the Company, any of their predecessors in interest) at, upon or
from any of the property now or previously owned or leased by the Company or any
of its Subsidiaries in violation of any applicable law, ordinance, rule,
regulation, order, judgement, decree or permit or which would require remedial
action under any applicable law, ordinance, rule, regulation, order,
<PAGE> 12
12
judgement, decree or permit, except for any violation or remedial action which
would not have, or could not be reasonably likely to have, singularly or in the
aggregate, a Material Adverse Effect; there has been no material spill,
discharge, leak, emission, injection, escape, dumping or release of any kind
onto such property or into the environment surrounding such property of any
toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous
substances due to or caused by the Company or any of its Subsidiaries or with
respect to which the Company or any of its Subsidiaries has knowledge, except
for any such spill, discharge, leak, emission, injection, escape, dumping or
release which would not have or would not be reasonably likely to have,
singularly or in the aggregate, a Material Adverse Effect; and the terms
"hazardous wastes," "toxic wastes," "hazardous substances" and "medical wastes"
shall have the meanings specified in any applicable local, state, Federal and
foreign laws or regulations with respect to environmental protection.
(aj) Neither the Company nor any of its affiliates or any person
acting on its or their behalf has engaged or will engage during the applicable
restricted period in any directed selling efforts within the meaning of Rule
902(b) of Regulation S with respect to the Securities, and the Company and its
affiliates and all persons acting on their behalf have complied with and will
comply with the offering restriction requirements of Regulation S in connection
with the offering of the Securities outside the United States; provided that no
representation is made as to the Initial Purchaser or any person, acting on its
behalf.
(ak) The sale of the Initial Securities pursuant to Regulation S are
"offshore transactions" and are not part of a plan or scheme to evade the
registration provisions of the Securities Act.
(al) The Company is not required to deliver the information
specified in Rule 144A(d)(4) under the Securities Act in connection with the
Exempt Resales.
(am) Neither the Company nor any of its Subsidiaries has taken or
may take, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Securities to facilitate the
sale or resale of the Securities.
(an) On and immediately after the Closing Date, the Company (after
giving effect to the issuance of the Securities and to the other transactions
related thereto as described in the Offering Memorandum) will be Solvent. As
used in this paragraph, the term "Solvent" means, with respect to a particular
date, that on such date (i) the present fair market value (or present fair
saleable value) of the assets of the Company is not less than the total amount
required to pay the probable liabilities of the Company on its total existing
debts and liabilities (including contingent liabilities) as they become absolute
and matured, (ii) the Company is able to realize upon its assets and pay its
debts and other liabilities, contingent obligations and commitments as they
mature and become due in the normal course of business, (iii) assuming the sale
of the Securities as contemplated by this Agreement and the Offering Memorandum,
the Company is not incurring debts or liabilities beyond its ability to pay as
such debts and
<PAGE> 13
13
liabilities mature and (iv) the Company is not engaged in any business or
transaction, and is not about to engage in any business or transaction, for
which its property would constitute unreasonably small capital after giving due
consideration to the prevailing practice in the industry in which the Company is
engaged. In computing the amount of such contingent liabilities at any time, it
is intended that such liabilities will be computed at the amount that, in the
light of all the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured liability.
2. Representations, Warranties and Agreements of the Initial
Purchaser. The Initial Purchaser represents, warrants and agrees that:
(a) The Initial Purchaser is a QIB with such knowledge and
experience in financial and business matters as are necessary in order to
evaluate the merits and risks of an investment in the Securities.
(b) The Initial Purchaser (i) is not acquiring the Initial
Securities with a view to any distribution thereof or with any present intention
of offering or selling any of the Initial Securities in a transaction that would
violate the Securities Act or the securities laws of any State of the United
States or any other applicable jurisdiction; (ii) in connection with the Exempt
Resales, will solicit offers to buy the Securities only from and will offer to
sell the Securities only to, the Eligible Purchasers in accordance with this
Agreement and on the terms contemplated by the Offering Memorandum; and (iii)
will not offer or sell the Securities pursuant to, nor has it offered or sold
the Securities by, or otherwise engaged in, any form of general solicitation or
general advertising (within the meaning of Regulation D; including, but not
limited to, advertisements, articles, notices or other communications published
in any newspaper, magazine, or similar medium or broadcast over television or
radio, or any seminar or meeting whose attendees have been invited by any
general solicitation or general advertising).
(c) The Initial Purchaser represents that it has not offered, sold
or delivered the Notes, and will not offer, sell or deliver the Initial Notes
(i) as part of its distribution at any time or (ii) otherwise until 40 days
after the later of the commencement of the offering and the Closing Date (such
period, the "Restricted Period"), within the United States or to, or for the
account or benefit of U.S. persons, except in accordance with Rule 144A under
the Act. Accordingly, the Initial Purchaser represents and agrees that neither
it, its affiliates nor any persons acting on its or their behalf has engaged or
will engage in any directed selling efforts within the meaning of Rule 902(b) of
Regulation S with respect to the Initial Notes, and it, its affiliates and all
persons acting on its behalf have complied and will comply with the offering
restrictions requirements of Regulation S.
(d) The Initial Purchaser further represents and agrees that (i) it
has not offered or sold and will not offer or sell any Initial Notes to persons
in the United Kingdom prior to the expiry of the period of six months from the
issue date of the Initial Notes, except to persons whose ordinary activities
involve them in acquiring, holding, managing or
<PAGE> 14
14
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995, (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Notes in, from or otherwise
involving the United Kingdom, and (iii) it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issuance of the Initial Notes to a person who is a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
advertisements) (Exemptions) Order 1995 or is a person to whom the document may
otherwise lawfully be issued or passed on.
(e) The Initial Purchaser agrees not to cause any advertisement of
the Initial Notes to be published in any newspaper or periodical or posted in
any public place and not to issue any circular relating to the Notes, except
such advertisements as may be permitted by law.
(f) The Initial Purchaser understands that the Company and, for
purposes of the opinions to be delivered to you pursuant to Section 7 hereof,
counsel to the Company and counsel to the Initial Purchaser, will rely upon the
accuracy and truth of the foregoing representations and you hereby consent to
such reliance.
The terms used in this Section 2 that have meanings assigned to them in
Regulation S are used herein as so defined.
The Initial Purchaser further agrees that, in connection with the
Exempt Resales, it will solicit offers to buy the Initial Securities only from,
and will offer to sell the Initial Securities only to, the Eligible Purchasers
in Exempt Resales.
3. Purchase of the Securities by the Initial Purchaser. On the
basis of the representations and warranties contained in, and subject to the
terms and conditions of, this Agreement, the Company agrees to sell $125.0
million in aggregate principal amount of Initial Notes to the Initial Purchaser
and the Initial Purchaser agrees to purchase all of the Initial Notes. The
Initial Purchaser will purchase the Notes at an aggregate purchase price equal
to 97.25% of the principal amount thereof (the "Purchase Price").
The Company shall not be obligated to deliver any of the Initial Notes
to be delivered, except upon payment of all the Initial Notes to be purchased on
such Closing Date as provided herein.
4. Delivery of and Payment.
(a) Delivery to the Initial Purchaser of and payment for the
Initial Securities shall be made at 9:00 a.m., New York City time, on the
Closing Date at the offices of
<PAGE> 15
15
Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, or
such other place or time as you and the Company shall designate.
(b) One or more Initial Notes in definitive form, registered in the
name of Cede & Co., as nominee of The Depository Trust Company ( "DTC"), or such
other names as the Initial Purchaser may request upon at least one business
day's notice to the Company, having an aggregate principal amount at maturity
corresponding to the aggregate principal amount of Initial Notes sold pursuant
to Eligible Resales (collectively, the "Global Notes"), shall be delivered by
the Company to the Initial Purchaser, against payment by the Initial Purchaser
of the purchase price thereof by wire transfer of immediately available funds as
the Company may direct by written notice delivered to you two business days
prior to the Closing Date. The Global Notes in definitive form shall be made
available to you for inspection not later than 9:00 a.m. on the business day
immediately preceding the Closing Date.
(c) Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of the
obligation of the Initial Purchaser hereunder.
5. Further Agreements of the Company and the Guarantor. Each of
the Company and the Guarantor agrees:
(a) To advise you promptly and, if requested by you, to confirm
such advice in writing, of (i) the issuance by any state securities commission
of any stop order suspending the qualification or exemption from qualification
of any Securities for offering or sale in any jurisdiction, or the initiation of
any proceeding for such purpose by the Commission or any state securities
commission or other regulatory authority, and (ii) the happening of any event
that makes any statement of a material fact made in the Preliminary Offering
Memorandum or the Offering Memorandum untrue or that requires the making of any
additions to or changes in the Preliminary Offering Memorandum or the Offering
Memorandum in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company shall use
its best efforts to prevent the issuance of any stop order or order suspending
the qualification or exemption of the Securities under any state securities or
Blue Sky laws and, if at any time any state securities commission shall issue
any stop order suspending the qualification or exemption of the Securities under
any state securities or Blue Sky laws, the Company shall use every reasonable
effort to obtain the withdrawal or lifting of such order at the earliest
possible time.
(b) To furnish to you, without charge, as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum, and any amendments
or supplements thereto, as you may reasonably request. The Company consents to
the use of the Preliminary Offering Memorandum and the Offering Memorandum, and
any amendments and supplements thereto required pursuant to this Agreement, by
you in connection with the Exempt Resales that are in compliance with this
Agreement.
<PAGE> 16
16
(c) Not to amend or supplement the Offering Memorandum prior to the
Closing Date or during the period referred to in (d) below unless you shall
previously have been advised of, and shall not have reasonably objected to, such
amendment or supplement within a reasonable time, but in any event not longer
than five days after being furnished a copy of such amendment or supplement.
If, in connection with any Exempt Resales or market making transactions after
the date of this Agreement and prior to the consummation of the Exchange Offer,
any event shall occur that, in the judgment of the Company or in the judgment of
counsel to you, makes any statement of a material fact in the Offering
Memorandum untrue or that requires the making of any additions to or changes in
the Offering Memorandum in order to make the statements in the Offering
Memorandum, in light of the circumstances at the time that the Offering
Memorandum is delivered to prospective Eligible Purchasers, not misleading, or
if it is necessary to amend or supplement the Offering Memorandum to comply with
any applicable laws, the Company shall promptly notify you of such event and
prepare an appropriate amendment or supplement to the Offering Memorandum so
that (i) the statements in the Offering Memorandum as amended or supplemented
will, in light of the circumstances at the time that the Offering Memorandum is
delivered to prospective Eligible Purchasers, not be misleading and (ii) the
Offering Memorandum will comply with applicable law.
(d) To cooperate with you and your counsel in connection with the
qualification of the Initial Securities for offer and sale by you and by dealers
under the state securities or Blue Sky laws of such jurisdictions as you may
request; provided, however, that the Company shall not be obligated to qualify
as a foreign corporation in any jurisdiction in which it is not now so qualified
or to take any action that would subject it to general consent to service of
process in any jurisdiction in which it is not now so subject. The Company
shall continue such qualification in effect so long as required by law for
distribution of the Initial Securities and shall file such consents to service
of process or other documents as may be necessary in order to effect such
qualification.
(e) Prior to the Closing Date, to furnish to you, any internal
consolidated financial statements of the Company that have been prepared by the
Company for any period subsequent to the period covered by the financial
statements appearing in the Offering Memorandum.
(f) To use its reasonable best efforts to do and perform all things
required to be done and performed under this Agreement by it prior to or after
the Closing Date and to satisfy all conditions precedent on its part to the
delivery of the Initial Securities.
(g) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Securities
Act) that would be integrated with the sale of the Initial Securities in a
manner that would require the registration under the Securities Act of the sale
to you or the Eligible Purchasers of the Initial Securities.
<PAGE> 17
17
(h) For a period of 120 days from the date of the Offering
Memorandum, not to, directly or indirectly, sell, contract to sell, grant any
option to purchase, issue any instrument convertible into or exchangeable for,
or otherwise transfer or dispose of, any debt securities of the Company or any
of its Subsidiaries having a maturity of more than one year from the date of
issue of such securities, except (i) for the New Notes in connection with the
Exchange Offer or (ii) with your prior consent.
(i) For so long as the Initial Notes remain outstanding and are
Restricted Securities within the meaning of Rule 144(a)(3) under the Securities
Act, to make available to such registered holder or beneficial owner of Initial
Notes in connection with any sale thereof and any prospective purchaser of such
Initial Notes from such registered holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Securities Act (or any successor provision
thereto).
(j) To comply with its agreements in the Registration Rights
Agreement, and all agreements set forth in the representation letters of the
Company to DTC relating to the approval of the Securities by DTC for
"book-entry" transfer.
(k) To use its best efforts to effect the inclusion of the Notes in
the National Association of Securities Dealers, Inc. Automated Quotation System
- - PORTAL ("PORTAL").
(l) To apply the net proceeds from the sale of the Initial Notes
being sold by the Company as set forth in the Offering Memorandum under the
caption "Use of Proceeds."
(m) During the period that is two years after the Closing Date, to
take such steps as shall be necessary to ensure that the Company does not become
an "investment company" within the meaning of such term under the Investment
Company Act of 1940 and the rules and regulations of the Commission thereunder.
6. Expenses. The Company and the Guarantor agree that, whether or
not the transactions contemplated by this Agreement are consummated or this
Agreement becomes effective or is terminated, to pay all costs, expenses, fees
and taxes incident to and in connection with: (i) the preparation, printing,
filing and distribution of the Preliminary Offering Memorandum and the Offering
Memorandum (including, without limitation, financial statements) and all
amendments and supplements thereto (but not, however, legal fees and expenses of
your counsel incurred in connection therewith), (ii) the preparation, printing
(including, without limitation, word processing and duplication costs) and
delivery of this Agreement, the Indenture, any Blue Sky Memoranda and any other
agreements, memoranda, correspondence and other documents printed and delivered
in connection herewith and with the Exempt Resales (but not, however, legal fees
and expenses of your counsel incurred in connection with the foregoing), (iii)
the issuance and delivery by the Company of the Securities, (iv) the
qualification of the Securities for offer and sale under the securities or Blue
Sky laws of the several states (including, without limitation, the reasonable
fees and disbursements of your counsel relating to such registration or
qualification), (v) furnishing
<PAGE> 18
18
such copies of the Preliminary Offering Memorandum and the Offering Memorandum,
and all amendments and supplements thereto, as may be reasonably requested by
the Initial Purchaser for use in connection with the initial Exempt Resales,
(vi) the preparation of certificates for the Securities including, without
limitation, printing and engraving, (vii) the fees, disbursements and expenses
of the Company's counsel and accountants, (viii) all expenses and listing fees
in connection with the application for quotation of the Initial Securities in
PORTAL, (ix) all fees and expenses (including fees and expenses of counsel) of
the Company in connection with the approval of the Securities by DTC for
"book-entry" transfer, (x) the fees, disbursements and expenses of the Trustee
and the Trustee's counsel and (xi) the performance by the Company of its other
obligations under this Agreement to the extent not provided for above.
7. Conditions of Initial Purchaser's Obligations. The obligations
of the Initial Purchaser hereunder are subject to the accuracy, when made and
again on the Closing Date (as if made again on and as of such date), of the
representations and warranties of the Company and the Guarantor contained
herein, to the performance by the Company and the Guarantor of their obligations
hereunder and to each of the following additional terms and conditions:
(a) The Offering Memorandum shall have been printed and copies made
available to you not later than 11:00 a.m., New York City time, on the day
following the date of this Agreement, or at such later date and time as you may
approve in writing.
(b) The Initial Purchaser shall not have discovered and disclosed
to the Company on or prior to such Closing Date that the Offering Memorandum or
any amendment or supplement thereto contains an untrue statement of a fact
which, in the opinion of Simpson Thacher & Bartlett, counsel for the Initial
Purchaser, is material or omits to state a fact which, in the opinion of such
counsel, is material and is necessary to make the statements, in light of the
circumstances under which they were made, not misleading.
(c) All corporate proceedings and other legal matters incident to
the authorization, form and validity of this Agreement, the other Operative
Documents, the Offering Memorandum and all other legal matters relating to this
Agreement and the transactions contemplated hereby shall be reasonably
satisfactory in all material respects to counsel for the Initial Purchaser, and
the Company shall have furnished to such counsel all documents and information
that they may reasonably request to enable them to pass upon such matters.
(d) Sonnenschein Nath & Rosenthal shall have furnished to the
Initial Purchaser its written opinion, as counsel to the Company, addressed to
the Initial Purchaser and dated as of the Closing Date, in form and substance
reasonably satisfactory to the Initial Purchaser and its counsel, to the effect
that:
(i) Each of the Company and the Guarantor is a corporation
duly incorporated validly existing and in good standing under the laws of the
State of Delaware and
<PAGE> 19
19
each of the Company and the Guarantor has all requisite corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Offering Memorandum. Each of the Company and the Guarantor
is duly registered and qualified to conduct its business and is in good standing
in each jurisdiction or place where the nature of its properties or the conduct
of its business requires such registration or qualification, except where the
failure so to register or qualify or to be in good standing would not have a
Material Adverse Effect.
(ii) Each of the Company and the Guarantor has all
requisite power and authority to execute, deliver and perform its obligations
under this Agreement, the Merger Agreement (only with respect to the Company),
the Indenture and the Registration Rights Agreement, and to authorize, issue and
sell the Securities as contemplated by this Agreement.
(iii) This Agreement has been duly and validly authorized,
executed and delivered by each of the Company and the Guarantor.
(iv) The Registration Rights Agreement has been duly and
validly authorized, executed and delivered by each of the Company and the
Guarantor and, assuming due authorization, execution and delivery by the Initial
Purchaser, will constitute the valid and binding agreement of each of the
Company and Guarantor, enforceable against them in accordance with its terms
(subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws affecting creditors' rights generally
from time to time in effect and to general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing, regardless of whether in a proceeding in equity or at law and except as
rights to indemnity and contribution hereunder may be limited by Federal or
State securities laws or principles of public equity).
(v) The Merger Agreement has been duly and validly
authorized, executed and delivered by each of the Company and Mergeco and
constitutes the valid and binding agreement of each of the Company and Mergeco,
enforceable against them in accordance with its terms (subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
other similar laws affecting creditors' rights generally from time to time in
effect and to general principles of equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing, regardless
of whether in a proceeding in equity or at law).
(vi) The Indenture has been duly and validly authorized,
executed and delivered by each of the Company and the Guarantor and, assuming
due authorization, execution and delivery by the Trustee, will constitute the
valid and binding agreement of each of the Company and the Guarantor,
enforceable against them in accordance with its terms (subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
other similar laws affecting creditors' rights generally from time to time in
effect and to general principles of equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing, regardless
of whether in a proceeding in equity or
<PAGE> 20
20
at law); no qualification of the Indenture under the TIA is required in
connection with the offer and sale of the Initial Notes contemplated hereby or
in connection with the initial resale of such Initial Notes in the manner
contemplated by this Agreement and the Offering Memorandum to register the
Initial Notes under the Securities Act, it being understood that no opinion will
be expressed as to any subsequent resale of any Initial Notes.
(vii) The Initial Notes have been duly and validly
authorized by the Company and when duly executed by the Company in accordance
with the terms of the Indenture and, assuming due authentication of the Initial
Notes by the Trustee, upon delivery to the Initial Purchaser against payment
therefor in accordance with the terms hereof, will have been validly issued and
delivered, and will constitute valid and binding obligations of the Company
entitled to the benefits of the Indenture, enforceable against the Company in
accordance with their terms (subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and other similar laws affecting
creditors' rights generally from time to time in effect and to general
principles of equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, regardless of whether in a
proceeding in equity or at law).
(viii) The New Notes have been duly and validly authorized
by the Company and if and when duly issued and authenticated in accordance with
the terms of the Indenture and delivered in accordance with the Exchange Offer
provided for in the Registration Rights Agreement, will constitute valid and
binding obligations of the Company entitled to the benefits of the Indenture,
enforceable against the Company in accordance with their terms (subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally from time
to time in effect and to general principles of equity, including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing, regardless of whether in a proceeding in equity or at law).
(ix) The Guarantee has been duly and validly authorized by
the Guarantor, and when executed and delivered by the Guarantor in accordance
with the terms of the Indenture, will constitute a valid and binding obligation
of the Guarantor, enforceable against the Guarantor in accordance with its terms
(subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws affecting creditors' rights generally
from time to time in effect and to general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing, regardless of whether in a proceeding in equity or at law).
(x) The authorized capital stock of the Company conforms
to the description thereof under the caption "Capitalization" in the Offering
Memorandum.
(xi) All the outstanding shares of capital stock of the
Guarantor have been duly authorized and validly issued, are fully paid and
nonassessable, and are wholly
<PAGE> 21
21
owned by the Company directly, or indirectly through one of the other
Subsidiaries, free and clear of any lien, adverse claim, security interest,
equity or other encumbrance.
(xii) To the knowledge of such counsel, there are no legal
or governmental proceedings pending or threatened against the Company or any of
its Subsidiaries, or to which any of their respective properties, is subject,
that are not disclosed in the Offering Memorandum and which are reasonably
likely to have a Material Adverse Effect or to materially affect the issuance of
the Securities or the consummation of the other transactions contemplated by the
Operative Documents.
(xiii) None of the issuance, offer or sale of the Initial
Notes, the execution, delivery or performance by the Company of this Agreement,
the other Operative Documents, compliance by the Company with the provisions
hereof or thereof nor consummation by the Company of the transactions
contemplated hereby or thereby (i) requires any consent, approval, authorization
or other order of, or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or official (except
such as may be required in connection with the registration under the Securities
Act of the New Notes in accordance with the Registration Rights Agreement,
qualification of the Indenture under the TIA and compliance with the securities
or Blue Sky laws of various jurisdictions), or conflicts or will conflict with
or constitutes or will constitute a breach of, or a default under, the
certificate of incorporation or by-laws, or other organizational documents, of
the Company or the Guarantor or (ii) conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under any agreement
listed on a certificate of an officer of the Company as being the Company's and
its Subsidiaries' material agreements (the "Material Agreements"), or violates
or will violate any law, rule or regulation of the United States or the State of
Illinois or the General Corporation Law of the State of Delaware, or, to such
counsel's knowledge, an order or decree of any court or government agency or
instrumentality or will result in the creation or imposition of any Lien upon
any property or assets of the Company or any of its Subsidiaries pursuant to the
terms of any agreement or instrument to which any of them is a party or by which
any of them may be bound or under any to which any of their respective property
or assets is subject, except in each case such breaches, conflicts or defaults
that, individually or in the aggregate, would not have a Material Adverse
Effect.
(xiv) The Company is not and, upon sale of the Initial
Notes to be issued and sold in accordance with this Agreement and the
application of the net proceeds to the Company of such sale as described in the
Offering Memorandum under the caption "Use of Proceeds," will not be an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(xv) When the Initial Securities are issued and delivered
pursuant to this Agreement, such Initial Securities will not be of the same
class (within the meaning of Rule 144A under the Securities Act) as securities
of the Company that are listed on a national
<PAGE> 22
22
securities exchange registered under Section 6 of the Exchange Act or that are
quoted in a United States automated inter-dealer quotation system.
(xvi) Assuming (i) that your representations and
warranties in Section 2 hereof are true, (ii) compliance by you with your
covenants set forth in Section 2 hereof and (iii) that each of the Eligible
Purchasers is a QIB or a person who acquires the Initial Securities outside the
United States in an "offshore transaction" and is not a "U.S. Person" (within
the meaning of Regulation S), it is not necessary in connection with the offer,
sale and delivery of the Initial Securities hereunder or in connection with the
resale of such Initial Securities in the manner contemplated by this Agreement
and the Offering Memorandum to register the Initial Securities under the
Securities Act.
(xvii) To the knowledge of such counsel, except (i) for
the registration rights granted pursuant to the Stock Registration Rights
Agreement and (ii) as disclosed in the Offering Memorandum, there are no
contracts, agreements or understandings between the Company or any of its
Subsidiaries and any person granting such person the right to require the
Company or any of its Subsidiaries to file a registration statement under the
Securities Act with respect to any securities of the Company owned or to be
owned by such person or to require the Company or any of its Subsidiaries to
include such securities in all the securities registered pursuant to the
Registration Statements or in any securities being registered pursuant to any
other registration statement filed by the Company or any of its Subsidiaries
under the Securities Act.
(xviii) The Company is not required to obtain stockholder
consent for the issuance or offering of the Securities.
(xix) The descriptions of the Indenture, the Initial
Securities and the Registration Rights Agreement in the Offering Memorandum
conform in all material respects to the terms thereof.
(xx) The statements set forth under the heading
"Description of the Notes" in the Offering Memorandum, insofar as such
statements purport to summarize certain provisions of the Initial Securities,
provide a fair summary of such provisions.
(xxi) The statements set forth under the heading
"Description of Preferred Stock and Certain Indebtedness" in the Offering
Memorandum, insofar as such statements purport to summarize certain provisions
of the outstanding indebtedness and preferred stock of the Company, fairly
summarize such provisions described therein in all material respects.
(xxii) The statements set forth under the heading "Certain
United States Federal Income Tax Considerations" in the Offering Memorandum,
insofar as such statements purport to summarize the Federal laws of the United
States, fairly summarize such provisions described therein in all material
respects.
<PAGE> 23
23
(xxiii) The Company is not required to deliver to the
Eligible Purchasers the information specified in Rule 144A(d)(4) in connection
with Exempt Resales.
In addition, such counsel shall also state that such counsel has
participated in conferences with officers of the Company and with the
independent public accountants for the Company concerning the preparation of the
Offering Memorandum and, although such counsel has made certain inquiries and
investigations in connection with the preparation of the Offering Memorandum, it
is not passing upon and does not assume any responsibility for the accuracy or
completeness of the statements contained in the Offering Memorandum and on the
basis of the foregoing such counsel's work in connection with this matter did
not disclose any information that gave such counsel reason to believe that the
Offering Memorandum, as of its date or as of the Closing Date, included or
includes an untrue statement of a material fact or omitted or omits to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need express no belief or opinion with respect to the
financial statements and other financial data included therein).
The opinion of such counsel may be limited to the laws of the States of
Delaware and Illinois and the Federal laws of the United States. In rendering
such opinion, such counsel may rely as to matters of fact, to the extent such
counsel deems proper, on certificates of responsible officers of the Company and
public officials.
(e) The Initial Purchaser shall have received from Simpson Thacher
& Bartlett, counsel for the Initial Purchaser, such opinion or opinions, dated
as of the Closing Date, with respect to the issuance and sale of the Initial
Securities, the Offering Memorandum and other related matters as the Initial
Purchaser may reasonably require, and the Company shall have furnished to such
counsel such documents as they reasonably request for the purpose of enabling
them to pass upon such matters.
(f) The Company, the Guarantor and the Trustee shall have entered
into the Indenture and the Initial Purchaser shall have received counterparts,
conformed as executed, thereof.
(g) The Company, the Guarantor and the Initial Purchaser shall have
entered into the Registration Rights Agreement and the Initial Purchaser shall
have received counterparts, conformed as executed, hereof.
(h) With respect to the letter of Deloitte & Touche LLP delivered
to the Initial Purchaser concurrently with the execution of this Agreement (the
"Deloitte initial letter"), the Company shall have furnished to the Initial
Purchaser a letter (as used in this paragraph, the "Deloitte bring-down
letter") of such accountant, addressed to the Initial Purchaser and dated as of
the Closing Date (i) confirming that it is an independent public accountant
under the guidelines of the AICPA, (ii) stating, as of the date of the Deloitte
bring-down letter (or, with respect to matters involving changes or developments
since the respective dates as of which
<PAGE> 24
24
specified financial information is given in the Offering Memorandum, as of a
date not more than two days prior to the date of the Deloitte bring-down
letter), the conclusions and findings of such firm with respect to the financial
information and other matters covered by the Deloitte initial letter and (iii)
confirming in all material respects the conclusions and findings set forth in
the Deloitte initial letter.
(i) With respect to the letter of KPMG Peat Marwick LLP delivered
to the Initial Purchaser concurrently with the execution of this Agreement (the
"KMPG initial letter"), the Company shall have furnished to the Initial
Purchaser a letter (as used in this paragraph, the "KPMG bring-down letter") of
such accountant, addressed to the Initial Purchaser and dated as of the Closing
Date (i) confirming that it is an independent public accountant under the
guidelines of the AICPA, (ii) stating, as of the date of the KPMG bring-down
letter (or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in the
Offering Memorandum, as of a date not more than two days prior to the date of
the KPMG bring-down letter), the conclusions and findings of such firm with
respect to the financial information and other matters covered by the KPMG
initial letter and (iii) confirming in all material respects the conclusions and
findings set forth in the KPMG initial letter.
(j) The Company shall have furnished to the Initial Purchaser a
certificate, dated as of the Closing Date, of its Chief Executive Officer or
President and its Chief Financial Officer or Treasurer stating that:
(i) The representations, warranties and agreements of the
Company and the Guarantor in Section 1 hereof are true and correct as of such
Closing Date and after giving effect to the consummation of the transactions
contemplated by this Agreement; the Company and the Guarantor have complied with
all their agreements contained herein, and the condition set forth in Section
7(k) hereof has been fulfilled; and
(ii) They have carefully examined the Preliminary Offering
Memorandum and the Offering Memorandum and, in their opinion (i) as of their
respective dates and as of the Closing Date, the Preliminary Offering Memorandum
and the Offering Memorandum did not include any untrue statement of a material
fact and did not omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (ii) since the date of the Offering
Memorandum, no event has occurred which should have been set forth in a
supplement or amendment to the Offering Memorandum.
(k) (i) Neither the Company nor any of its Subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Offering Memorandum any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Offering Memorandum or (ii) since such
date there shall not have been any change in the capital stock
<PAGE> 25
25
or long-term debt of the Company or any of its Subsidiaries or any change, or
any development involving a prospective change, that would have a Material
Adverse Effect, otherwise than as set forth or contemplated in the Offering
Memorandum, the effect of which, in any such case described in clause (i) or
(ii), is, in the judgment of the Initial Purchaser, so material and adverse as
to make it impracticable or inadvisable to proceed with the payment for and
delivery of the Initial Notes being delivered on such Closing Date on the terms
and in the manner contemplated in the Offering Memorandum.
(l) There shall exist at and as of the Closing Date no conditions
that would constitute a default (or an event that with notice or the lapse of
time, or both, would constitute a default) under the Senior Credit Facilities
(as defined in the Offering Memorandum).
(m) Simpson Thacher & Bartlett shall have been furnished with such
other documents and opinions, in addition to those set forth above, as they may
reasonably require for the purpose of enabling them to review or pass upon the
matters referred to in this Agreement and in order to evidence the accuracy,
completeness or satisfaction in all material respects of any of the
representations, warranties or conditions herein contained.
(n) Subsequent to the execution and delivery of this Agreement (i)
no downgrading shall have occurred in the rating accorded the Company's debt
securities by any "nationally recognized statistical rating organization," as
that term is defined by the Commission for purposes of Rule 436(g)(2) under the
Securities Act and (ii) no such organization shall have publicly announced that
it has under surveillance or review, with possible negative implications, its
rating of any of the Company's debt securities.
(o) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or in
the over-the-counter market, or trading in any securities of the Company on any
exchange or in the over-the-counter market, shall have been suspended or minimum
prices shall have been established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have been
declared by Federal or state authorities, (iii) the United States shall have
become engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a declaration
of a national emergency or war by the United States or (iv) there shall have
occurred such a material adverse change in general economic, political or
financial conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment of
the Initial Purchaser, impracticable or inadvisable to proceed with the public
offering or delivery of the Securities being delivered on such Closing Date on
the terms and in the manner contemplated in the Offering Memorandum.
(p) The Initial Notes shall have been approved by the National
Association of Securities Dealers, Inc. for trading in the PORTAL market.
<PAGE> 26
26
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Initial Purchaser.
8. Indemnification and Contribution.
(a) Each of the Company and the Guarantor hereby jointly and
severally agrees to indemnify and hold harmless the Initial Purchaser, its
officers and employees and each person, if any, who controls the Initial
Purchaser within the meaning of the Securities Act, from and against any loss,
claim, damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or action
relating to purchases and sales of Securities), to which the Initial Purchaser,
officer, employee or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Offering
Memorandum or the Offering Memorandum (in each case as amended or supplemented)
or (B) in any blue sky application or other document prepared or executed by the
Company (or based upon any written information furnished by the Company)
specifically for the purpose of qualifying any or all of the Securities under
the securities laws of any state or other jurisdiction (any such application,
document or information being hereinafter called a "Blue Sky Application"),
(ii) the omission or alleged omission to state in any Preliminary Offering
Memorandum or the Offering Memorandum (in each case as amended or supplemented)
or in any Blue Sky Application any material fact required to be stated therein
or necessary to make the statements therein not misleading or (iii) any act or
failure to act or any alleged act or failure to act by the Initial Purchaser in
connection with, or relating in any manner to, the Securities or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon matters
covered by clauses (i) or (ii) above (provided that neither the Company nor the
Guarantor shall be liable under this clause (iii) to the extent that it is
determined in a final judgment by a court of competent jurisdiction that such
loss, claim, damage, liability or action resulted directly from any such acts or
failure to act undertaken or omitted to be taken by the Initial Purchaser
through its gross negligence or willful misconduct); and shall reimburse the
Initial Purchaser and each such officer, employee or controlling person promptly
upon demand for any legal or other expenses reasonably incurred by the Initial
Purchaser, officer, employee or controlling person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company and the Guarantor shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of, or
is based upon, any untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Offering Memorandum or the Offering
Memorandum (in each case as amended or supplemented) or in any Blue Sky
Application in reliance upon and in conformity with written information
concerning the Initial Purchaser furnished to the Company by or on behalf of the
Initial Purchaser specifically for inclusion therein. The foregoing indemnity
agreement is in addition
<PAGE> 27
27
to any liability which the Company and the Guarantor may otherwise have to the
Initial Purchaser or to any officer, employee or controlling person of the
Initial Purchaser.
(b) The Initial Purchaser shall indemnify and hold harmless the
Company, the Guarantor, their respective officers and employees, each of their
respective directors, and each person, if any, who controls the Company or the
Guarantor within the meaning of the Securities Act, from and against any loss,
claim, damage or liability, joint or several, or any action in respect thereof,
to which the Company or the Guarantor or any such director, officer or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in any Preliminary Offering Memorandum or the Offering
Memorandum (in each case as amended or supplemented) or (B) in any Blue Sky
Application or (ii) the omission or alleged omission to state in any Preliminary
Offering Memorandum or the Offering Memorandum (in each case as amended or
supplemented) or in any Blue Sky Application any material fact required to be
stated therein or necessary to make the statements therein not misleading, but
in each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information concerning the Initial Purchaser furnished
to the Company by or on behalf of the Initial Purchaser specifically for
inclusion therein, and shall reimburse the Company or the Guarantor and any such
director, officer or controlling person for any legal or other expenses
reasonably incurred by the Company or the Guarantor or any such director,
officer or controlling person in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or action as
such expenses are incurred. The foregoing indemnity agreement is in addition to
any liability which the Initial Purchaser may otherwise have to the Company, the
Guarantor or any such director, officer, employee or controlling person.
(c) Promptly after receipt by an indemnified party under this
Section 8 of the notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has
been materially prejudiced by such failure and, provided, however, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 8.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice
from the indemnifying party to the indemnified party of its election to assume
the defense of such claim or action, the indemnifying party shall not be liable
to the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Initial Purchaser shall have
<PAGE> 28
28
the right to employ counsel (in addition to local counsel, if necessary) to
represent jointly it and its officers, employees and controlling persons who may
be subject to liability arising out of any claim in respect of which indemnity
may be sought by the Initial Purchaser against the Company and the Guarantor
under this Section 8 if, in the reasonable judgment of the Initial Purchaser, it
is advisable for the Initial Purchaser and its officers, employees and
controlling persons to be jointly represented by separate counsel, and in that
event the fees and expenses of such separate counsel shall be paid by the
Company and the Guarantor. No indemnifying party shall (i) without the prior
written consent of the indemnified parties (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the consent of
the indemnifying party or if there be a final judgment of the plaintiff in any
such action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 8(a) or 8(b) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Guarantor on the one hand and the Initial
Purchaser on the other from the offering of the Initial Securities or (ii) if
the allocation provided by clause (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 (i) above but also the relative fault of the Company and
the Guarantor on the one hand and the Initial Purchaser on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Guarantor on the one hand and the Initial Purchaser on the other with respect to
such offerings shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Initial Securities purchased under this
Agreement (before deducting expenses) received by the Company and the Guarantor,
on the one hand, and the total discounts and commissions received by the Initial
Purchaser with respect to the Initial Securities purchased under this Agreement,
on the other hand, bear to the total gross proceeds from the offering of the
Initial Securities under this Agreement, in each case as set forth in the table
on the cover page of the Offering Memorandum. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company and the Guarantor or the Initial
<PAGE> 29
29
Purchaser, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Initial Purchaser agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were to be determined
by pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to herein. The amount paid
or payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this Section shall
be deemed to include, for purposes of this Section 8(d), 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 8(d), the Initial Purchaser shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Initial Securities purchased by it were resold to Eligible Purchasers
exceeds the amount of any damages which the Initial Purchaser has otherwise paid
or become liable to pay by reason of any 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.
(e) The Initial Purchaser confirms and the Company acknowledges
that the last paragraph on the cover page, the stabilization legend on page ii,
and the second, third, ninth, tenth and eleventh paragraphs of the section
entitled "Plan of Distribution" constitute the only information concerning the
Initial Purchaser furnished in writing to the Company by or on behalf of the
Initial Purchaser specifically for inclusion in the Preliminary Offering
Memorandum or the Offering Memorandum.
9. Termination. The obligations of the Initial Purchaser
hereunder may be terminated by the Initial Purchaser by notice given to the
Company prior to delivery of and payment for the Initial Securities if, prior to
that time, any of the events described in Sections 7(k), 7(n) or 7(o) shall have
occurred or if the Initial Purchaser shall decline to purchase the Initial
Securities for any reason permitted under this Agreement.
10. Reimbursement of Initial Purchaser's Expenses. If the Company
shall fail to tender the Initial Securities for delivery to the Initial
Purchaser by reason of any failure, refusal or inability on the part of the
Company or the Guarantor to perform any agreement on their part to be performed,
or because any other condition of the Initial Purchaser's obligations hereunder
required to be fulfilled by the Company or the Guarantor is not fulfilled, the
Company and the Guarantor will reimburse the Initial Purchaser for all
reasonable out-of-pocket expenses (including the fees and disbursements of its
counsel) incurred by the Initial Purchaser in connection with this Agreement and
the proposed purchase of the Initial Securities, and upon demand the Company and
the Guarantor shall pay the full amount thereof to the Initial Purchaser.
11. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
<PAGE> 30
30
(a) If to the Initial Purchaser, shall be delivered or sent by
mail, telex or facsimile transmission to Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285, Attention: Syndicate Department
(Fax: 212-526-6588), with a copy to Simpson Thacher & Bartlett, 425 Lexington
Avenue, New York, New York 10017, Attention: Rise B. Norman, Esq. (Fax:
212-455-2502); and
(b) If to the Company or the Guarantor, shall be delivered or sent
by mail, telex or facsimile transmission to Salton/Maxim Housewares, Inc., 550
Business Center Drive, Mt. Prospect, Ill. 60056, Attention: Chief Financial
Officer (Fax: 847-803-8080), with a copy to Sonnenschein Nath & Rosenthal, 8000
Sears Tower, Chicago, Illinois 60606, Attention: Neal Aizenstein, Esq. (Fax:
312-876-7934).
Any such statements, requests, notices or agreements shall take effect
at the time of receipt thereof. The Company and the Guarantor shall be entitled
to act and rely upon any request, consent, notice or agreement given or made by
the Initial Purchaser. Any notice of a change of address or facsimile
transmission number must be given by the Company, the Guarantor or by the
Initial Purchaser, as the case may be, in writing, at least three days in
advance of such change.
12. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Initial Purchaser, its personal
representatives and successors. This Agreement and the terms and provisions
hereof are for the sole benefit of only those persons, except that (i) the
representations, warranties, indemnities and agreements of the Company and the
Guarantor contained in this Agreement shall also be deemed to be for the benefit
of the person or persons, if any, who control the Initial Purchaser within the
meaning of Section 15 of the Securities Act and (ii) the representations,
warranties, indemnities and agreements of the Initial Purchaser contained in
this Agreement shall also be deemed to be for the benefit of officers and
directors of each of the Company and the Guarantor and any person who controls
the Company within the meaning of Section 15 of the Securities Act.
13. Survival. The respective indemnities, representations,
warranties and agreements of the Initial Purchaser and the Company and the
Guarantor contained in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Securities and shall remain in full force and effect, regardless
of any investigation made by on behalf of any of them or any person controlling
any of them.
14. Definition of the Terms "Business Day." For purposes of this
Agreement "business day" means any day on which the New York Stock Exchange,
Inc. is open for trading.
15. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of New York.
<PAGE> 31
31
16. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
17. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
[The remainder of this page left blank intentionally]
<PAGE> 32
32
If the foregoing correctly sets forth the agreement among the Initial
Purchaser, the Company and the Guarantor, please indicate your acceptance in the
space provided for the purpose below.
Very truly yours,
SALTON/MAXIM HOUSEWARES, INC.
By: ____________________________
Name:
Title:
HOME CREATIONS DIRECT LTD.
By: ____________________________
Name:
Title:
Accepted:
LEHMAN BROTHERS INC.,
as the Initial Purchaser
By: _________________________________
Name: Thomas E. Flanagan
Title: Senior Vice President
<PAGE> 33
33
EXHIBIT A
Registration Rights Agreement
<PAGE> 34
EXECUTION COPY
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of December 16, 1998
Among
SALTON/MAXIM HOUSEWARES, INC.
HOME CREATIONS DIRECT LTD.
and
LEHMAN BROTHERS INC.
as Initial Purchaser
================================================================================
<PAGE> 35
TABLE OF CONTENTS
-----------------
Page
----
1. Definitions....................................................... 1
2. Securities Subject to This Agreement.............................. 3
3. Registered Exchange Offer......................................... 3
4. Shelf Registration................................................ 4
5. Liquidated Damages................................................ 6
6. Registration Procedures........................................... 6
7. Registration Expenses............................................. 14
8. Indemnification and Contribution.................................. 14
9. Rule 144A......................................................... 17
10. Participation in Underwritten Registrations....................... 17
11. Selection of Underwriters......................................... 17
12. Miscellaneous..................................................... 17
i
<PAGE> 36
1
This Registration Rights Agreement (this "Agreement") is made and entered
into as of December 16, 1998 by and among Salton/Maxim Housewares, Inc., a
Delaware corporation (the "Company"), the Company's wholly-owned subsidiary,
Home Creations Direct Ltd. (the "Guarantor") and Lehman Brothers Inc. (the
"Initial Purchaser").
This Agreement is entered into in connection with the Purchase
Agreement, dated as of December 11, 1998, by and among the Company, the
Guarantor and the Initial Purchaser (the "Purchase Agreement"), which provides
for the sale by the Company to the Initial Purchaser of $125,000,000 aggregate
principal amount of the Company's 10 3/4% Senior Subordinated Notes due 2005
(the "Notes"). The Notes will be guaranteed on a senior subordinated basis by a
guarantee (the "Guarantee") issued by the Guarantor. The Notes and the
Guarantee are collectively referred to herein as the "Securities." In order to
induce the Initial Purchaser to enter into the Purchase Agreement, the Company
has agreed to provide the registration rights set forth in this Agreement for
the benefit of the Initial Purchaser and its direct and indirect transferees and
assigns. The execution and delivery of this Agreement is a condition to the
Initial Purchaser's obligations to purchase the Securities under the Purchase
Agreement. Capitalized terms used but not specifically defined herein have the
respective meanings ascribed thereto in the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions. As used in this Agreement, the following
capitalized terms shall have the following meanings:
Broker-Dealer: Any broker or dealer registered under the
Exchange Act.
Closing Date: The date on which the Securities were sold.
Commission: The Securities and Exchange Commission.
Consummate: A registered Exchange Offer shall be deemed
"Consummated" for purposes of this Agreement upon the occurrence of (i) the
filing and effectiveness under the Securities Act of the Exchange Offer
Registration Statement relating to the New Securities to be issued in the
Exchange Offer, (ii) the maintenance of such Registration Statement
continuously effective and the keeping of the Exchange Offer open for a
period not less than the minimum period required pursuant to Section 3(b)
hereof and (iii) the delivery by the Company of the New Securities in the
same aggregate principal amount as the aggregate principal amount of
Transfer Restricted Securities that were validly tendered by Holders
thereof pursuant to the Exchange Offer.
Effectiveness Target Date: As defined in Section 5(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by the Company under the
Securities Act of the New Securities pursuant to a Registration Statement
pursuant to which the Company offers the Holders of all outstanding
Transfer Restricted Securities the opportunity to exchange all such
outstanding Transfer Restricted Securities held by such Holders for New
Securities in an aggregate principal amount equal to the aggregate
principal amount of the Transfer Restricted Securities tendered in such
exchange offer by such Holders.
<PAGE> 37
2
Exchange Offer Registration Statement: The Registration
Statement relating to the Exchange Offer, including the Prospectus which
forms a part thereof.
Exempt Resales: The transactions in which the Initial
Purchaser proposes to sell the Securities to certain "qualified
institutional buyers," as such term is defined in Rule 144A under the
Securities Act and to certain non-U.S. persons.
Holders: As defined in Section 2(b) hereof.
Indenture: The Indenture, dated as of December 16, 1998,
among the Company, the Guarantor and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee"), pursuant to which the Securities
are to be issued, as such Indenture is amended or supplemented from time to
time in accordance with the terms thereof.
Initial Purchaser: Lehman Brothers Inc.
Liquidated Damages: As defined in Section 5(a) hereof.
NASD: National Association of Securities Dealers, Inc.
New Securities: The Securities to be issued pursuant to the
Indenture in the Exchange Offer.
Participant: As defined in Section 8(a) hereof.
Person: An individual, partnership, corporation, limited
liability company, trust or unincorporated organization, or a government or
agency or political subdivision thereof.
Prospectus: The prospectus included in a Registration
Statement, as amended or supplemented by any prospectus supplement and by
all other amendments thereto, including post-effective amendments, and all
material incorporated by reference into such Prospectus.
Registration Default: As defined in Section 5(a) hereof.
Registration Statement: Any registration statement of the
Company relating to (a) an offering of New Securities pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, which is filed
pursuant to the provisions of this Agreement, in either case, including the
Prospectus included therein, all amendments and supplements thereto
(including post-effective amendments) and all exhibits and material
incorporated by reference therein.
Securities Act: The Securities Act of 1933, as amended.
Shelf Filing Deadline: As defined in Section 4(a) hereof.
Shelf Registration Statement: As defined in Section 4(a)
hereof.
<PAGE> 38
3
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb), as amended.
Transfer Restricted Securities: Each Security, until the
earliest to occur of (a) the date on which such Security has been exchanged
by a person other than a Broker-Dealer for a New Security in the Exchange
Offer, (b) following the exchange by a Broker-Dealer in the Exchange Offer
of a Security for a New Security, the date on which such New Security is
sold to a purchaser who receives from such Broker-Dealer on or prior to the
date of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (c) the date on which such Security has been
effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (d) the date on which
such Security is eligible to be distributed to the public pursuant to Rule
144 under the Securities Act.
Underwritten Registration or Underwritten Offering: A
registration in which securities of the Company are sold to an underwriter
for reoffering to the public.
2. Securities Subject to This Agreement.
(a) Transfer Restricted Securities. The securities entitled
to the benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is
deemed to be a holder of Transfer Restricted Securities (each such Person,
a "Holder") whenever such Person owns Transfer Restricted Securities.
3. Registered Exchange Offer.
(a) Unless the Exchange Offer shall not be permissible under
applicable law or Commission policy (after the procedures set forth in
Section 6(a) below have been complied with) or one of the events set forth
in Section 4(a)(ii) has occurred, the Company shall (i) cause to be filed
with the Commission promptly after the Closing Date, but in no event later
than 60 days after the Closing Date, a Registration Statement under the
Securities Act relating to the New Securities and the Exchange Offer, (ii)
use its best efforts to cause such Registration Statement to become
effective no later than 120 days after the Closing Date, (iii) in
connection with the foregoing, file (A) all pre-effective amendments to
such Registration Statement as may be necessary in order to cause such
Registration Statement to become effective, (B) if applicable, a
post-effective amendment to such Registration Statement pursuant to Rule
430A under the Securities Act and (C) cause all necessary filings in
connection with the registration and qualification of the New Securities to
be made under the Blue Sky laws of such jurisdictions as are necessary to
permit Consummation of the Exchange Offer, and (iv) unless the Exchange
Offer would not be permitted by applicable law or Commission policy, the
Company will commence the Exchange Offer and use its best efforts to issue
on or prior to 30 business days after the date on which such Registration
Statement was declared effective by the Commission, New Securities in
exchange for all Securities tendered prior thereto in the Exchange Offer.
The Exchange Offer shall be on the appropriate form permitting registration
of the New Securities to be offered in exchange for the Transfer Restricted
Securities and to permit resales of New Securities held by Broker-Dealers
as contemplated by Section 3(c) below. The 60, 120 and 30 business day
periods referred to in (i), (ii) and (iv) of this Section
<PAGE> 39
4
3(a) shall not include any period during which the Company is pursuing a
Commission ruling pursuant to Section 6(a)(i) below.
(b) The Company shall use its best efforts to cause the
Exchange Offer Registration Statement to be effective continuously and
shall keep the Exchange Offer open for a period of not less than the
minimum period required under applicable federal and state securities laws
to Consummate the Exchange Offer; provided, however, that in no event shall
such period be less than 20 business days. The Company shall cause the
Exchange Offer to comply in all material respects with all applicable
federal and state securities laws. No securities other than the New
Securities shall be included in the Exchange Offer Registration Statement.
The Company shall use its best efforts to cause the Exchange Offer to be
Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30
business days thereafter.
(c) The Company shall indicate in a "Plan of Distribution"
section contained in the Prospectus contained in the Exchange Offer
Registration Statement that any Broker-Dealer who holds Securities that are
Transfer Restricted Securities and that were acquired for its own account
as a result of market-making activities or other trading activities (other
than Transfer Restricted Securities acquired directly from the Company),
may exchange such Securities pursuant to the Exchange Offer; however, such
Broker-Dealer may be deemed to be an "underwriter" within the meaning of
the Securities Act and must, therefore, deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of the
New Securities received by such Broker-Dealer in the Exchange Offer, which
prospectus delivery requirement may be satisfied by the delivery by such
Broker-Dealer of the Prospectus contained in the Exchange Offer
Registration Statement. Such "Plan of Distribution" section shall also
contain all other information with respect to such resales by
Broker-Dealers that the Commission may require in order to permit such
resales pursuant thereto, but such "Plan of Distribution" shall not name
any such Broker-Dealer or disclose the amount of New Securities held by any
such Broker-Dealer except to the extent required by the Commission as a
result of a change in policy announced after the date of this Agreement.
The Company shall use its reasonable best efforts to keep the Exchange
Offer Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for resales of New Securities acquired by
Broker-Dealers for their own accounts as a result of market-making activities or
other trading activities and to ensure that it conforms with the requirements of
this Agreement, the Securities Act and the policies, rules and regulations of
the Commission as announced from time to time, for a period of 180 days from the
date on which the Exchange Offer Registration Statement is declared effective.
The Company shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon request at any time during such
180-day period in order to facilitate such resales.
4. Shelf Registration.
(a) Shelf Registration. If (i) the Company is not required to
file an Exchange Offer Registration Statement or to Consummate the Exchange
Offer because the
<PAGE> 40
5
Exchange Offer is not permitted by applicable law or Commission policy
(after the procedures set forth in Section 6(a) below have been complied
with) or (ii) if any Holder of Transfer Restricted Securities that is a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) or an institutional "accredited investor" (as defined in
Rule 501(A)(1), (2), (3) or (7) under the Securities Act) shall notify the
Company at least 20 business days prior to the Consummation of the Exchange
Offer (A) that such Holder is prohibited by applicable law or Commission
policy from participating in the Exchange Offer or (B) that such Holder may
not resell the New Securities acquired by it in the Exchange Offer to the
public without delivering a prospectus and that the Prospectus contained in
the Exchange Offer Registration Statement is not appropriate or available
for such resales by such Holder or (C) that such Holder is a Broker-Dealer
and holds Securities acquired directly from the Company or one of its
affiliates, then the Company shall in lieu of, or in the event of (ii)
above, in addition to, effecting the registration of the New Securities
pursuant to the Exchange Offer Registration Statement use its best efforts
to:
(x) cause to be filed a shelf registration statement
pursuant to Rule 415 under the Securities Act, which may be an
amendment to the Exchange Offer Registration Statement (in either
event, the "Shelf Registration Statement"), on or prior to the earlier
to occur of (1) the 60th day after the date on which the Company
determines that it is not required to file the Exchange Offer
Registration Statement or (2) the 60th day after the date on which the
Company receives notice from a Holder of Transfer Restricted Securities
as contemplated by clause (ii) above (such earlier date being the
"Shelf Filing Deadline"), which Shelf Registration Statement shall
provide for resales of all Transfer Restricted Securities the Holders
of which shall have provided the information required pursuant to
Section 4(b) hereof; and
(y) cause such Shelf Registration Statement to be
declared effective by the Commission on or before the 120th day after
the Shelf Filing Deadline.
The Company shall use its best efforts to keep such Shelf Registration
Statement continuously effective, supplemented and amended as required by
the provisions of Sections 6(b) and (c) hereof to the extent necessary to
ensure that it is available for resales of Securities by the Holders of
Transfer Restricted Securities entitled to the benefit of this Section 4(a)
and to ensure that it conforms with the requirements of this Agreement, the
Securities Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period ending on the second anniversary
of the Closing Date.
(b) Provision by Holders of Certain Information in Connection
with the Shelf Registration Statement. No Holder of Transfer Restricted
Securities may include any of its Transfer Restricted Securities in any
Shelf Registration Statement pursuant to this Agreement unless and until
such Holder furnishes to the Company in writing, within 20 days after
receipt of a request therefor, such information as the Company may
reasonably request for use in connection with any Shelf Registration
Statement or Prospectus or preliminary Prospectus included therein. No
Holder of Transfer Restricted Securities shall be entitled to
<PAGE> 41
6
Liquidated Damages pursuant to Section 5 hereof unless and until such
Holder shall have used its best efforts to provide all such reasonably
requested information. Each Holder as to which any Shelf Registration
Statement is being effected agrees to furnish promptly to the Company all
information required to be disclosed in order to make the information
previously furnished to the Company by such Holder not materially
misleading.
5. Liquidated Damages
(a) If (a) any of the Registration Statements required by this
Agreement is not filed with the Commission on or prior to the date specified for
such filing in this Agreement, (b) any of such Registration Statements has not
been declared effective by the Commission on or prior to the date specified for
such effectiveness in this Agreement (the "Effectiveness Target Date"), (c) the
Exchange Offer has not been Consummated within 30 business days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (d) any Registration Statement required by this Agreement is filed
and declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded within two business days
by a post-effective amendment to such Registration Statement that cures such
failure and that is itself immediately declared effective (each such event
referred to in clauses (a) through (d), a "Registration Default"), additional
cash interest ("Liquidated Damages") shall accrue to each Holder of the
Securities commencing upon the occurrence of such Registration Default in an
amount equal to $.05 per week per $1,000 principal amount of Securities held by
such Holder. The amount of Liquidated Damages will increase by an additional
$.05 per week per $1,000 principal amount of Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages for all Registration Defaults of $.50 per
week per $1,000 principal amount of Securities. All accrued Liquidated Damages
shall be paid to Holders by the Company in the same manner as interest is paid
pursuant to the Indenture. Following the cure of all Registration Defaults
relating to any particular Transfer Restricted Securities, the accrual of
Liquidated Damages with respect to such Transfer Restricted Securities will
cease.
All obligations of the Company set forth in the preceding paragraph
that have accrued and are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
Transfer Restricted Security shall have been satisfied in full.
(b) The Company shall notify the Trustee within one business day
after each and every date on which an event occurs in respect of which
Liquidated Damages are required to be paid. Liquidated Damages shall be paid by
depositing Liquidated Damages with the Trustee, in trust, for the benefit of the
Holders of the Securities, on or before the applicable Interest Payment Date (as
defined in the Indenture) (whether or not any payment other than Liquidated
Damages is payable on such Securities), in immediately available funds in sums
sufficient to pay the Liquidated Damages then due to such Holders. Each
obligation to pay Liquidated Damages shall be deemed to accrue from the
applicable date of the occurrence of the Registration Default.
6. Registration Procedures.
(a) Exchange Offer Registration Statement. In connection with
the Exchange Offer, the Company shall comply with all of the provisions of
Section 6(c) below, shall use its best efforts to effect such exchange to
permit the sale of Transfer Restricted
<PAGE> 42
7
Securities being sold in accordance with the intended method or methods of
distribution thereof, and shall comply with all of the following
provisions:
(i) If in the reasonable opinion of counsel to the Company
there is a question as to whether the Exchange Offer is permitted by
applicable law, the Company hereby agrees to seek a no-action letter or
other favorable decision from the Commission allowing the Company to
Consummate an Exchange Offer for such Securities. The Company hereby
agrees to pursue the issuance of such a decision to the Commission staff
level but shall not be required to take commercially unreasonable action to
effect a change of Commission policy. The Company hereby agrees, however,
to (A) participate in telephonic conferences with the Commission, (B)
deliver to the Commission staff an analysis prepared by counsel to the
Company setting forth the legal bases, if any, upon which such counsel has
concluded that such an Exchange Offer should be permitted and (C)
diligently pursue a resolution (which need not be favorable) by the
Commission staff of such submission.
(ii) As a condition to its participation in the Exchange
Offer pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the Company, prior
to the Consummation thereof, a written representation to the Company (which
may be contained in the letter of transmittal contemplated by the Exchange
Offer Registration Statement) to the effect that (A) it is not an affiliate
of the Company, (B) it is not engaged in, and does not intend to engage in,
and has no arrangement or understanding with any person to participate in,
a distribution of the New Securities to be issued in the Exchange Offer and
(C) it is acquiring the New Securities in its ordinary course of business.
In addition, all such Holders of Transfer Restricted Securities shall
otherwise cooperate in the Company's preparations for the Exchange Offer.
Each Holder hereby acknowledges and agrees that any Broker-Dealer and any
such Holder using the Exchange Offer to participate in a distribution of
the securities to be acquired in the Exchange Offer (1) could not under
Commission policy as in effect on the date of this Agreement rely on the
position of the Commission enunciated in Morgan Stanley and Co., Inc.
(available June 5, 1991) and Exxon Capital Holdings Corporation (available
May 13, 1988), as interpreted in the Commission's letter to Shearman &
Sterling dated July 2, 1993, and similar no-action letters (including Brown
& Wood LLP (available February 7, 1997), and any no-action letter obtained
pursuant to clause (i) above) and (2) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction and that such a secondary resale transaction
should be covered by an effective registration statement containing the
selling security holder information required by Item 507 or 508, as
applicable, of Regulation S-K if the resales are of New Securities obtained
by such Holder in exchange for Securities acquired by such Holder directly
from the Company.
(iii) Prior to the effectiveness of the Exchange Offer
Registration Statement, the Company shall provide a supplemental letter to
the Commission (A) stating that the Company is registering the Exchange
Offer in reliance on the position of the Commission enunciated in Exxon
Capital Holdings Corporation (available May 13, 1988), Morgan Stanley and
Co., Inc. (available June 5, 1991), Brown & Wood LLP (available February 7,
1997) and, if applicable, any no-action letter obtained
<PAGE> 43
8
pursuant to clause (i) above and (B) including a representation that the
Company has not entered into any arrangement or understanding with any
Person to distribute the New Securities to be received in the Exchange
Offer and that, to the best of the Company's information and belief, each
Holder participating in the Exchange Offer is acquiring the New Securities
in its ordinary course of business and has no arrangement or understanding
with any Person to participate in the distribution of the New Securities
received in the Exchange Offer.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) below and shall use its best efforts to effect such registration to
permit the sale of the Transfer Restricted Securities being sold in accordance
with the intended method or methods of distribution thereof, and pursuant
thereto the Company will prepare and file with the Commission a Registration
Statement relating to the registration on any appropriate form under the
Securities Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in accordance with
the provisions hereof.
(c) General Provisions. In connection with any Registration
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus required to permit resales of
Securities by Broker-Dealers), the Company shall:
(i) use its reasonable best efforts to keep such
Registration Statement continuously effective and provide all requisite
financial statements for the period specified in Section 3 or 4 of this
Agreement, as applicable; upon the occurrence of any event that would cause
any such Registration Statement or the Prospectus contained therein (A) to
contain a material misstatement or omission or (B) not to be effective and
usable for resale of Transfer Restricted Securities during the period
required by this Agreement, the Company shall file promptly an appropriate
amendment to such Registration Statement, in the case of clause (A),
correcting any such misstatement or omission, and, in the case of either
clause (A) or (B), use its reasonable best efforts to cause such amendment
to be declared effective and such Registration Statement and the related
Prospectus to become usable for their intended purpose(s) as soon as
practicable thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary
to keep the Registration Statement effective for the applicable period set
forth in Section 3 or 4 hereof, as applicable, or such shorter period as
will terminate when all Transfer Restricted Securities covered by such
Registration Statement have been sold; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Securities Act, and to comply
fully with the applicable provisions of Rules 424 and 430A under the
Securities Act in a timely manner; and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such Registration Statement during the applicable period in accordance with
the intended method or methods of distribution by
<PAGE> 44
9
the sellers thereof set forth in such Registration Statement or supplement
to the Prospectus;
(iii) in the case of a Shelf Registration Statement, advise
the underwriter(s), if any, and selling Holders promptly and, if requested
by such Persons, confirm such advice in writing, (A) when the Prospectus or
any Prospectus supplement or post-effective amendment has been filed, and,
with respect to any Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating
thereto, (C) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement under the Securities Act or
of the suspension by any state securities commission of the qualification
of the Transfer Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the preceding
purposes, or (D) of the existence of any fact or the happening of any event
that makes any statement of a material fact made in the Registration
Statement, the Prospectus, any amendment or supplement thereto, or any
document incorporated by reference therein untrue, or that requires the
making of any additions to or changes in the Registration Statement or the
Prospectus in order to make the statements therein not misleading. If at
any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order suspending
the qualification or exemption from qualification of the Transfer
Restricted Securities under state securities or Blue Sky laws, the Company
shall use its reasonable best efforts to obtain the withdrawal or lifting
of such order at the earliest possible time;
(iv) in the case of a Shelf Registration Statement, furnish
to each of the selling or exchanging Holders and each of the
underwriter(s), if any, before filing with the Commission, copies of any
Registration Statement or any Prospectus included therein or any amendments
or supplements to any such Registration Statement or Prospectus (including
all documents incorporated by reference after the initial filing of such
Registration Statement, if any), which documents will be subject to the
review of such Holders and underwriter(s), if any, for a period of at least
five business days, and the Company will not file any such Registration
Statement or Prospectus or any amendment or supplement to any such
Registration Statement or Prospectus (including all such documents
incorporated by reference) to which selling Holders of a majority in
aggregate principal amount of Transfer Restricted Securities covered by
such Registration Statement or the underwriter(s), if any, shall reasonably
object within five business days after the receipt thereof. A selling
Holder or underwriter, if any, shall be deemed to have reasonably objected
to such filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission;
(v) in the case of a Shelf Registration Statement, promptly
prior to the filing of any document that is to be incorporated by reference
into a Registration Statement or Prospectus, if any, provide copies of such
document to the selling Holders and to the underwriter(s), if any, make the
Company's representatives available for discussion of such document and
other customary due diligence matters, and include
<PAGE> 45
10
such information in such document prior to the filing thereof as such
selling Holders or underwriter(s), if any, reasonably may request;
(vi) in the case of a Shelf Registration Statement, make
available at reasonable times for inspection by the selling Holders, any
underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney or accountant retained by such selling Holders
or any of the underwriter(s), all financial and other records, pertinent
corporate documents and properties of the Company and cause the Company's
officers, directors, managers and employees to supply all information
reasonably requested by any such Holder, underwriter, attorney or
accountant in connection with such Registration Statement subsequent to the
filing thereof and prior to its effectiveness;
(vii) in the case of a Shelf Registration Statement, if
requested by any selling Holders or the underwriter(s), if any, promptly
incorporate in any Registration Statement or Prospectus, pursuant to a
supplement or post-effective amendment if necessary, such information as
such selling Holders and underwriter(s), if any, may reasonably request to
have included therein, including, without limitation, information relating
to the "Plan of Distribution" of the Transfer Restricted Securities,
information with respect to the principal amount of Transfer Restricted
Securities being sold to such underwriter(s), the purchase price being paid
therefor and any other terms of the offering of the Transfer Restricted
Securities to be sold in such offering, and make all required filings of
such Prospectus supplement or post-effective amendment as soon as
practicable after the Company is notified of the matters to be incorporated
in such Prospectus supplement or post-effective amendment;
(viii) cause the Transfer Restricted Securities covered by the
Registration Statement to be rated with the appropriate rating agencies, if
so requested by the Holders of a majority in aggregate principal amount of
Securities covered thereby or the underwriter(s), if any;
(ix) in the case of a Shelf Registration Statement, furnish
to each selling Holder and each of the underwriter(s), if any, without
charge, at least one copy of the Registration Statement, as first filed
with the Commission, and of each amendment thereto, including all documents
incorporated by reference therein, if any, and all exhibits (including
exhibits incorporated therein by reference);
(x) in the case of a Shelf Registration Statement, deliver
to each selling Holder and each of the underwriter(s), if any, without
charge, as many copies of the Prospectus (including each preliminary
prospectus) and any amendment or supplement thereto as such Persons
reasonably may request; the Company hereby consents to the use of the
Prospectus and any amendment or supplement thereto by each of the selling
Holders and each of the underwriter(s), if any, in connection with the
offering and the sale of the Transfer Restricted Securities covered by the
Prospectus or any amendment or supplement thereto;
(xi) in the case of a Shelf Registration Statement, enter
into such agreements (including an underwriting agreement) and make such
representations and
<PAGE> 46
11
warranties, and take all such other actions in connection therewith, in
order to expedite or facilitate the disposition of the Transfer Restricted
Securities pursuant to any Registration Statement contemplated by this
Agreement, all to such extent as may be requested by any purchaser or by
any Holder of Transfer Restricted Securities or underwriter, if any, in
connection with any sale or resale pursuant to any Registration Statement
contemplated by this Agreement; and in connection with an Underwritten
Registration, the Company shall:
(A) upon request, furnish (or in the case of paragraphs
(i) and (iii), use its reasonable best efforts to furnish) to each
selling Holder and each underwriter, if any, in such substance and
scope as they may request and as are customarily made by issuers to
underwriters in primary underwritten offerings, upon the date of
the effectiveness of the Shelf Registration Statement:
(1) a certificate, dated the date of the
effectiveness of the Shelf Registration Statement, signed by
(y) the Chairman of the Board, its President or a Vice
President and (z) the Chief Financial Officer of the Company,
confirming, as of the date thereof, such matters as such
parties may reasonably request;
(2) an opinion, dated the date of the
effectiveness of the Shelf Registration Statement, of counsel
for the Company, covering such matters as such parties may
reasonably request, and in any event including a statement to
the effect that such counsel has participated in conferences
with officers and other representatives of the Company,
representatives of the independent public accountants for the
Company, the Initial Purchaser's representatives and the
Initial Purchaser's counsel in connection with the preparation
of such Registration Statement and the related Prospectus and
have considered the matters required to be stated therein and
the statements contained therein, although such counsel has not
independently verified the accuracy, completeness or fairness
of such statements, and that such counsel advises that, on the
basis of the foregoing (relying as to materiality to a large
extent upon facts provided to such counsel by officers and
other representatives of the Company and without independent
check or verification), no facts came to such counsel's
attention that caused such counsel to believe that the
applicable Registration Statement, at the time such
Registration Statement or any post-effective amendment thereto
became effective, contained an 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 contained in such
Registration Statement as of its date, contained an untrue
statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. Without limiting the foregoing, such counsel may
state further that such counsel assumes no responsibility for,
and has not independently verified, the accuracy, completeness
or fairness
<PAGE> 47
12
of the financial statements, notes and schedules and other
financial and statistical data included in any Registration
Statement contemplated by this Agreement or the related
Prospectus; and
(3) a customary comfort letter, dated the date of
the effectiveness of the Shelf Registration Statement, from the
Company's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters by underwriters in connection with primary underwritten
offerings.
(4) a customary comfort letter, dated the date of
the effectiveness of the Shelf Registration Statement, from
Toastmaster's independent accountants, in the customary form
and covering matters of the type customarily covered in comfort
letters by underwriters in connection with primary underwritten
offerings.
(B) set forth in full or incorporate by reference in
the underwriting agreement, if any, the indemnification provisions
and procedures of Section 8 hereof with respect to all parties to
be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as
may be reasonably requested by such parties to evidence compliance
with clause (A) above and with any customary conditions contained
in the underwriting agreement or other agreement entered into by
the Company pursuant to this clause (xi), if any.
If at any time the representations and warranties of the
Company contemplated in clause (A)(1) above cease to be true and correct,
the Company shall so advise the Initial Purchaser and the underwriter(s),
if any, and each selling Holder promptly and, if requested by such Persons,
shall confirm such advice in writing.
(xii) in the case of a Shelf Registration Statement, prior to
any public offering of Transfer Restricted Securities, cooperate with the
selling Holders, the underwriter(s), if any, and their respective counsel
in connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders or underwriter(s) may reasonably
request and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Transfer Restricted
Securities covered by the Shelf Registration Statement; provided, however,
that the Company shall not be required to register or qualify as a foreign
corporation where it is not now so qualified or to take any action that
would subject it to service of process in suits or to taxation, other than
as to matters and transactions relating to the Registration Statement, in
any jurisdiction where it is not now so subject;
(xiii) in the case of a Shelf Registration Statement, shall
issue, upon the request of any Holder of Securities covered by the Shelf
Registration Statement, New Securities in the same amount as the Securities
surrendered to the Company by
<PAGE> 48
13
such Holder in exchange therefor or being sold by such Holder, such New
Securities to be registered in the name of such Holder or in the name of
the purchaser(s) of such Securities, as the case may be; in return, the
Securities held by such Holder shall be surrendered to the Company for
cancellation;
(xiv) in the case of a Shelf Registration Statement,
cooperate with the selling Holders and the underwriter(s), if any, to
facilitate the timely preparation and delivery of certificates representing
Transfer Restricted Securities to be sold and not bearing any restrictive
legends and enable such Transfer Restricted Securities to be in such
denominations and registered in such names as the Holders or the
underwriter(s), if any, may request at least two business days prior to any
sale of Transfer Restricted Securities made by such underwriter(s);
(xv) use its best efforts to cause the Transfer Restricted
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriter(s), if
any, to consummate the disposition of such Transfer Restricted Securities,
subject to the proviso contained in clause (xii) above;
(xvi) if any fact or event contemplated by clause (c)(iii)(D)
above shall exist or have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain an untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(xvii) obtain CUSIP numbers for all Transfer Restricted
Securities not later than the effective date of the Registration Statement
and provide certificates for the Transfer Restricted Securities;
(xviii) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by
any underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD, and use its best efforts to cause such Registration Statement to
become effective and approved by such governmental agencies or authorities
as may be necessary to enable the Holders selling Transfer Restricted
Securities to consummate the disposition of such Transfer Restricted
Securities; provided, however, that the Company shall not be required to
register or qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject it to service of process
in suits or to taxation, other than as to matters and transactions relating
to the Registration Statement, in any jurisdiction where it is not now so
subject;
(xix) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission, and make
generally available to its security holders, as soon as
practicable, a consolidated earning statement meeting the
requirements of Rule 158 under the Securities Act (which need not
be audited) for the
<PAGE> 49
14
twelve-month period (A) commencing at the end of any fiscal quarter in
which Transfer Restricted Securities are sold to underwriters in a firm or
best efforts Underwritten Offering or (B) if not sold to underwriters in
such an offering, beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the Registration
Statement;
(xx) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement required
by this Agreement, and, in connection therewith, cooperate with the Trustee
and the Holders of Securities to effect such changes to the Indenture as
may be required for such Indenture to be so qualified in accordance with
the terms of the TIA, and execute and use its best efforts to cause the
Trustee to execute all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner;
and
(xxi) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the requirements of Section
13 and Section 15 of the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted
Security that, upon receipt of any notice from the Company of the existence
of any fact of the kind described in Section 6(c)(iii)(D) hereof, such
Holder will forthwith discontinue disposition of Transfer Restricted
Securities pursuant to the applicable Registration Statement until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(xvi) hereof, or until it is advised in writing
(the "Advice") by the Company that the use of the Prospectus may be
resumed, and has received copies of any additional or supplemental filings
that are incorporated by reference in the Prospectus. If so directed by
the Company each Holder will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Transfer Restricted Securities
that was current at the time of receipt of such notice. In the event the
Company shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4
hereof, as applicable, shall be extended by the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 6(c)(iii)(D) hereof to and including the date when each selling
Holder covered by such Registration Statement shall have received the
copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xvi) hereof or shall have received the Advice.
7. Registration Expenses.
All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses (including
filings made by any purchaser or Holder with the NASD (and, if applicable,
the fees and expenses of any "qualified independent underwriter" and its
counsel that may be required by the rules and regulations of the NASD));
(ii) all fees and expenses of compliance with federal securities and state
Blue Sky or securities laws; (iii) all expenses of printing (including
printing certificates for the New Securities to be issued in the Exchange
Offer and printing of
<PAGE> 50
15
Prospectuses), and associated messenger and delivery services and
telephone; (iv) all fees and disbursements of counsel for the Company; (v)
all application and filing fees in connection with listing Securities on a
national securities exchange or automated quotation system, and the
obtaining of a rating of the Securities, if applicable; and (vi) all fees
and disbursements of independent certified public accountants of the
Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers
and employees performing legal or accounting duties), the expenses of any
annual audit and the fees and expenses of any Person, including special
experts, retained by the Company.
8. Indemnification and Contribution.
(a) In connection with a Shelf Registration Statement or in
connection with any delivery of a Prospectus contained in an Exchange Offer
Registration Statement by any participating Broker-Dealer or the Initial
Purchaser, as applicable, who seeks to sell New Securities, the Company shall
indemnify and hold harmless each Holder of Transfer Restricted Securities
included within any such Shelf Registration Statement and each participating
Broker-Dealer or the Initial Purchaser selling New Securities, and each person,
if any, who controls any such person within the meaning of Section 15 of the
Securities Act (each, a "Participant") from and against any loss, claim, damage
or liability, joint or several, or any action in respect thereof (including, but
not limited to, any loss, claim, damage, liability or action relating to
purchases and sales of Securities) to which such Participant or controlling
person may become subject, under the Securities Act or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained in any such Registration Statement or any prospectus forming part
thereof or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
each Participant promptly upon demand for any legal or other expenses reasonably
incurred by such Participant in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or action as
such expenses are incurred; provided, however, that (i) the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement or
alleged untrue statement or omission or alleged omission made in any such
Registration Statement or any prospectus forming part thereof or in any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Participant
specifically for inclusion therein; and provided further that as to any
preliminary Prospectus, the indemnity agreement contained in this Section 8(a)
shall not inure to the benefit of any such Participant or any controlling person
of such Participant on account of any loss, claim, damage, liability or action
arising from the sale of the New Securities to any person by that Participant if
(i) that Participant failed to send or give a copy of the Prospectus, as the
same may be amended or supplemented, to that person within the time required by
the Securities Act and (ii) the untrue statement or alleged untrue statement of
a material fact or omission or alleged omission to state a material fact in such
preliminary Prospectus was corrected in the Prospectus, unless, in each case,
such failure resulted from non-compliance by the Company with Section 6(c)
hereof. The foregoing indemnity agreement is in addition to any liability which
the Company may otherwise have to any Participant or to any controlling person
of that Participant.
<PAGE> 51
16
(b) Each Participant, severally and not jointly, shall indemnify
and hold harmless the Company, each of its directors, officers, employees or
agents and each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act, from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof, to which the
Company or any such director, officer, employees or agents or controlling person
may become subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained in any
preliminary Prospectus, Registration Statement or Prospectus or in any amendment
or supplement thereto or (ii) the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent that the
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by or on behalf of that Participant specifically for inclusion
herein, and shall reimburse the Company and any such director, officer, employee
or agent or controlling person for any legal or other expenses reasonably
incurred by the Company or any such director, officer, employee or agent or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred. The foregoing indemnity agreement is in addition to any
liability which any Participant may otherwise have to the Company or any such
director, officer or controlling person.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 8.
If any such claim or action shall be brought against an indemnified party, and
it shall have notified the indemnifying party thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it wishes,
jointly with any other similarly notified indemnifying party, to assume the
defense thereof with counsel satisfactory to the indemnified party. After
notice from the indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, the indemnifying party shall not be
liable to the indemnified party under this Section 8 for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that the indemnified party shall have the right to employ separate counsel to
represent jointly the indemnified party and those other Participants and their
respective officers, employees and controlling persons who may be subject to
liability arising out of any claim in respect of which indemnity may be sought
by the Participants against the indemnifying party under this Section 8 if, in
the reasonable judgment of the indemnified party it is advisable for the
indemnified party and those Participants, officers, employees and controlling
persons to be jointly represented by separate counsel, and in that event the
fees and expenses of such separate counsel shall be paid by the indemnifying
party. In no event shall the indemnifying parties be liable for the fees and
expenses of more than one counsel (in addition to local counsel). Each
indemnified party, as a condition of the indemnity agreements contained in
Section 8, shall use its best efforts to cooperate with the indemnifying party
in the defense of any such action or claim. No indemnifying party shall (i)
without the prior written consent of the indemnified parties (which consent
shall not be unreasonably withheld), settle or compromise or consent to the
entry of any judgment with respect to any pending or threatened
<PAGE> 52
17
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding
or (ii) be liable for any settlement of any such action effected without its
written consent (which consent shall not be unreasonably withheld), but if
settled with its written consent or if there be a final judgment of the
plaintiff in any such action, the indemnifying party agrees to indemnify and
hold harmless any indemnified party from and against any loss or liability by
reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 8(a) or 8(b) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, in such
proportion as shall be appropriate to reflect the relative fault of the Company
on the one hand and the Participants on the other with respect to the statements
or omissions which resulted in such loss, claim, damage or liability, or action
in respect thereof, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Participants, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Participants agree that it would not be just and equitable
if contributions pursuant to this Section 8(d) were to be determined by pro rata
allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 8(d) shall be
deemed to include, for purposes of this Section 8(d), 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 8(d), no Participant shall be required to contribute
any amount in excess of the amount by which proceeds received by such
Participant from an offering of the Securities exceeds the amount of any damages
which such Participant has otherwise paid or become liable to pay by reason of
any 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 Participants'
obligations to contribute as provided in this Section 8(d) are several and not
joint.
9. Rule 144A.
The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding, to make available to any Holder or
beneficial owner of Transfer Restricted Securities in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted Securities
from such Holder or beneficial owner, the information required by Rule
144A(d)(4) under the Securities Act in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144A.
10. Participation in Underwritten Registrations.
<PAGE> 53
18
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
11. Selection of Underwriters.
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided that such investment bankers and managers must be
reasonably satisfactory to the Company.
12. Miscellaneous.
(a) Remedies. The Company agrees that monetary damages
(including Liquidated Damages) would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or
after the date of this Agreement enter into any agreement with respect to
its securities that is inconsistent with the rights granted to the Holders
in this Agreement or otherwise conflicts with the provisions hereof.
Except for that certain Stock Registration Rights Agreement dated as of
August 6, 1991 between the Company and certain investors parties thereto,
the Company has not previously entered into any agreement granting any
registration rights with respect to its securities to any Person. The
rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the
Company's securities under any agreement in effect on the date hereof.
(c) Adjustments Affecting the Securities. The Company will
not take any action, or permit any change to occur, with respect to
Securities that would materially and adversely affect the ability of the
Holders to Consummate any Exchange Offer unless such action or change is
required by applicable law.
(d) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless the Company
has obtained the written consent of Holders of a majority of the
outstanding principal amount of Transfer Restricted Securities.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof that relates exclusively to the rights of Holders whose
securities are being tendered pursuant to the Exchange Offer and that does
not affect directly or indirectly the rights of other Holders whose
securities are not being tendered pursuant to such Exchange Offer may be
given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities being tendered or registered.
<PAGE> 54
19
(e) Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand-delivery,
first-class mail (registered or certified, return receipt requested),
telex, telecopier, or air courier guaranteeing overnight delivery:
(i) if to a Holder, at the address of such Holder
maintained by the Registrar under the Indenture; and
(ii) if to the Company:
Salton/Maxim Housewares, Inc.
550 Business Center Drive
Mt. Prospect, IL 60056
Facsimile: 847-803-1186
With a copy to:
Neal Aizenstein, Esq.
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, IL 60606
Facsimile: 312-876-7934
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered;
five business days after being deposited in the mail, postage prepaid, if
mailed; when answered back, if telexed; when receipt acknowledged, if
telecopied; and on the next business day, if timely delivered to an air
courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the
Trustee at the address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be
binding upon a successor or assign of a Holder unless and to the extent
such successor or assign acquired Transfer Restricted Securities from such
Holder.
(g) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
<PAGE> 55
20
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity,
legality and enforceability of any such provision in every other respect
and of the remaining provisions contained herein shall not be affected or
impaired thereby.
(k) Entire Agreement. This Agreement together with the other
transaction documents is intended by the parties as a final expression of
their agreement and intended to be a complete and exclusive statement of
the agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Transfer Restricted Securities. This Agreement supersedes
all prior agreements and understandings between the parties with respect to
such subject matter.
(l) Required Consents. Whenever the consent or approval of
Holders of a specified percentage of Transfer Restricted Securities is
required hereunder, Transfer Restricted Securities held by the Company or
its affiliates (as such term is defined in Rule 405 under the Securities
Act) shall not be counted in determining whether such consent or approval
was given by the Holders of such required percentage.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
SALTON/MAXIM HOUSEWARES, INC.
By:_______________________________
Name:
Title:
HOME CREATIONS DIRECT LTD.
By:_______________________________
Name:
Title:
<PAGE> 56
21
Accepted as of the date hereof:
LEHMAN BROTHERS INC.,
as Initial Purchaser
By:_______________________________
Name:
Title:
<PAGE> 57
34
EXHIBIT B
ERISA Plans
<PAGE> 1
EXHIBIT 4.3
EXECUTION COPY
- --------------------------------------------------------------------------------
SALTON/MAXIM HOUSEWARES, INC.,
AS ISSUER
HOME CREATIONS DIRECT LTD.
AND
EACH NEWLY ACQUIRED OR
CREATED DOMESTIC RESTRICTED SUBSIDIARY
OF THE ISSUER, AS
GUARANTORS
10 3/4% SENIOR SUBORDINATED NOTES DUE 2005
INDENTURE
Dated as of December 16, 1998
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as
Trustee
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section
310(a)(1)............................................................ 7.10
(a)(2).......................................................... 7.10
(a)(3).......................................................... N.A.
(a)(4).......................................................... N.A.
(a)(5).......................................................... 7.10
(i)(b).......................................................... 7.10
(ii)(c)......................................................... N.A.
311(a).......................................................... 7.11
(b)............................................................. 7.11
(iii)(c)........................................................ N.A.
312(a)............................................................... 2.5
(b)(5).......................................................... 13.3
(iv)(c)......................................................... 13.3
313(a)............................................................... 7.6
(b)(1).......................................................... 10.3
(b)(2).......................................................... 7.7
(v)(c).......................................................... 7.6
13.2
(v)(d).......................................................... 7.6
314(a)............................................................... 4.3;
13.2
(A)(b).......................................................... 10.2
(c)(1).......................................................... 13.4
(c)(2).......................................................... 13.4
(c)(3).......................................................... N.A.
(vi)(e)......................................................... 13.5
(f)............................................................. N.A.
315(a)............................................................... 7.1
(b)............................................................. 7.5
13.2
(B)(c).......................................................... 7.1
(d)............................................................. 7.1
(e)............................................................. 6.11
316(a)(last sentence)................................................ 2.9
(a)(1)(A)....................................................... 6.5
(a)(1)(B)....................................................... 6.4
(a)(2).......................................................... N.A.
(b)............................................................. 6.7
(C)(c).......................................................... 2.12
317(a)(1)............................................................ 6.8
(a)(2).......................................................... 6.9
(b)............................................................. 2.2
318(a)............................................................... 13.1
(b)............................................................. N.A.
(c)............................................................. 13.1
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C>
SECTION 1.1 DEFINITIONS................................................1
SECTION 1.2 OTHER DEFINITIONS.........................................18
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE
ACT.......................................................18
SECTION 1.4 RULES OF CONSTRUCTION.....................................19
SECTION 1.5 ONE CLASS OF SECURITIES...................................19
ARTICLE 2.
THE NOTES
SECTION 2.1 FORM AND DATING...........................................20
SECTION 2.2 EXECUTION AND AUTHENTICATION..............................21
SECTION 2.3 REGISTRAR AND PAYING AGENT................................22
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST.......................22
SECTION 2.5 HOLDER LISTS..............................................23
SECTION 2.6 TRANSFER AND EXCHANGE.....................................23
SECTION 2.7 REPLACEMENT NOTES.........................................36
SECTION 2.8 OUTSTANDING NOTES.........................................36
SECTION 2.9 TREASURY NOTES............................................37
SECTION 2.10 TEMPORARY NOTES...........................................37
SECTION 2.11 CANCELLATION..............................................37
</TABLE>
i
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 2.12 DEFAULTED INTEREST........................................37
SECTION 2.13 CUSIP NUMBERS.............................................38
ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.1 NOTICES TO TRUSTEE........................................38
SECTION 3.2 SELECTION OF NOTES TO BE REDEEMED.........................38
SECTION 3.3 NOTICE OF REDEMPTION......................................39
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION............................39
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE...............................40
SECTION 3.6 NOTES REDEEMED IN PART....................................40
SECTION 3.7 OPTIONAL REDEMPTION.......................................40
SECTION 3.8 MANDATORY REDEMPTION......................................41
SECTION 3.9 OFFER TO PURCHASE BY APPLICATION OF EXCESS
PROCEEDS..................................................41
ARTICLE 4.
COVENANTS
SECTION 4.1 PAYMENT OF NOTES..........................................43
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY...........................43
SECTION 4.3 REPORTS...................................................44
SECTION 4.4 COMPLIANCE CERTIFICATE....................................44
SECTION 4.5 TAXES.....................................................45
SECTION 4.6 STAY, EXTENSION AND USURY LAWS............................45
</TABLE>
ii
<PAGE> 5
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 4.7 RESTRICTED PAYMENTS.......................................46
SECTION 4.8 DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES.........................48
SECTION 4.9 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF
PREFERRED STOCK...........................................49
SECTION 4.10 ASSET SALES...............................................52
SECTION 4.11 TRANSACTIONS WITH AFFILIATES..............................53
SECTION 4.12 LIENS.....................................................54
SECTION 4.13 BUSINESS ACTIVITIES.......................................54
SECTION 4.14 CORPORATE EXISTENCE.......................................54
SECTION 4.15 OFFER TO REPURCHASE UPON CHANGE OF CONTROL................55
SECTION 4.16 NO SENIOR SUBORDINATED DEBT...............................56
SECTION 4.17 LIMITATION ON ISSUANCES OF GUARANTEES OF
INDEBTEDNESS..............................................56
SECTION 4.18 PAYMENTS FOR CONSENT......................................56
SECTION 4.19 SALE AND LEASEBACK TRANSACTIONS...........................56
ARTICLE 5.
SUCCESSORS
SECTION 5.1 MERGER, CONSOLIDATION, OR SALE OR LEASE OF ASSETS.........57
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED.........................57
ARTICLE 6.
EVENTS OF DEFAULT
SECTION 6.1 EVENTS OF DEFAULT.........................................58
</TABLE>
iii
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<TABLE>
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SECTION 6.2 ACCELERATION..............................................60
SECTION 6.3 OTHER REMEDIES............................................61
SECTION 6.4 WAIVER OF PAST DEFAULTS...................................61
SECTION 6.5 CONTROL BY MAJORITY.......................................62
SECTION 6.6 LIMITATION ON SUITS.......................................62
SECTION 6.7 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.............62
SECTION 6.8 COLLECTION SUIT BY TRUSTEE................................63
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM..........................63
SECTION 6.10 PRIORITIES................................................63
SECTION 6.11 FOR COSTS.................................................64
ARTICLE 7.
TRUSTEE
SECTION 7.1 DUTIES OF TRUSTEE.........................................64
SECTION 7.2 RIGHTS OF TRUSTEE.........................................65
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE..............................66
SECTION 7.4 TRUSTEE'S DISCLAIMER......................................66
SECTION 7.5 NOTICE OF DEFAULTS........................................67
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES................67
SECTION 7.7 COMPENSATION AND INDEMNITY................................67
SECTION 7.8 REPLACEMENT OF TRUSTEE....................................68
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC..........................69
</TABLE>
iv
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<TABLE>
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SECTION 7.10 ELIGIBILITY; DISQUALIFICATION.............................69
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST
COMPANY...................................................70
SECTION 7.12 OTHER CAPACITIES..........................................70
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT
DEFEASANCE................................................70
SECTION 8.2 LEGAL DEFEASANCE AND DISCHARGE............................70
SECTION 8.3 COVENANT DEFEASANCE.......................................71
SECTION 8.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE................71
SECTION 8.5 DEPOSITED MONEY AND GOVERNMENT SECURITIES
TO BE HELD IN TRUST; OTHER MISCELLANEOUS
PROVISIONS................................................73
SECTION 8.6 REPAYMENT TO COMPANY......................................73
SECTION 8.7 REINSTATEMENT.............................................74
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF NOTES.......................74
SECTION 9.2 WITH CONSENT OF HOLDERS OF NOTES..........................75
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT.......................76
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS.........................76
SECTION 9.5 NOTATION ON OR EXCHANGE OF NOTES..........................77
</TABLE>
v
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SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC...........................77
ARTICLE 10.
SUBORDINATION
SECTION 10.1 AGREEMENT TO SUBORDINATE..................................77
SECTION 10.2 CERTAIN DEFINITIONS.......................................77
SECTION 10.3 LIQUIDATION; DISSOLUTION; BANKRUPTCY......................78
SECTION 10.4 DEFAULT ON DESIGNATED SENIOR DEBT.........................79
SECTION 10.5 ACCELERATION OF SECURITIES................................80
SECTION 10.6 WHEN DISTRIBUTION MUST BE PAID OVER.......................80
SECTION 10.7 NOTICE BY COMPANY.........................................80
SECTION 10.8 SUBROGATION...............................................80
SECTION 10.9 RELATIVE RIGHTS...........................................81
SECTION 10.10 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY
OR GUARANTORS.............................................81
SECTION 10.11 DISTRIBUTION OR NOTICE TO REPRESENTATIVE..................81
SECTION 10.12 ARTICLE 10 NOT TO PREVENT EVENTS OF DEFAULT OR
LIMIT RIGHT TO ACCELERATE.................................82
SECTION 10.13 RIGHTS OF TRUSTEE AND PAYING AGENT........................82
SECTION 10.14 AUTHORIZATION TO EFFECT SUBORDINATION.....................82
SECTION 10.15 AMENDMENTS................................................82
SECTION 10.16 TRUSTEE'S COMPENSATION NOT PREJUDICED.....................82
ARTICLE 11.
</TABLE>
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GUARANTEE
SECTION 11.1 UNCONDITIONAL GUARANTEE...................................83
SECTION 11.2 SEVERABILITY..............................................83
SECTION 11.3 LIMITATION OF GUARANTOR'S LIABILITY.......................84
SECTION 11.4 CONTRIBUTION..............................................84
SECTION 11.6 ADDITIONAL SUBSIDIARY GUARANTEES..........................84
ARTICLE 12.
SUBORDINATION OF GUARANTEE
SECTION 12.1 GUARANTEE OBLIGATIONS SUBORDINATED TO SENIOR
DEBT......................................................85
SECTION 12.2 NO PAYMENT IN CERTAIN CIRCUMSTANCES; PAYMENT
OVER OF PROCEEDS UPON DISSOLUTION, ETC....................85
ARTICLE 13.
MISCELLANEOUS
SECTION 13.1 TRUST INDENTURE ACT CONTROLS..............................85
SECTION 13.2 NOTICES...................................................87
SECTION 13.3 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER
HOLDERS OF NOTES..........................................88
SECTION 13.4 CERTIFICATE AND OPINION AS TO CONDITIONS
PRECEDENT.................................................88
SECTION 13.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.............89
SECTION 13.6 RULES BY TRUSTEE AND AGENTS...............................89
SECTION 13.7 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND SHAREHOLDERS................................90
</TABLE>
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SECTION 13.8 GOVERNING LAW.............................................90
SECTION 13.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.............90
SECTION 13.10 SUCCESSORS................................................90
SECTION 13.11 SEVERABILITY..............................................90
SECTION 13.12 COUNTERPART ORIGINALS.....................................91
SECTION 13.13 TABLE OF CONTENTS, HEADINGS, ETC..........................91
</TABLE>
EXHIBITS:
A-1 Form of Note
A-2 Form of Note
B Form of Certificate of Transfer
C Form of Certificate of Exchange
D Form of Supplemental Indenture
E Form of Guarantee
viii
<PAGE> 11
INDENTURE dated as of December 16, 1998 among SALTON/MAXIM HOUSEWARES,
INC., a Delaware corporation (the "Company"), the Guarantors (as defined herein)
identified on the signature pages hereto and Norwest Bank Minnesota National
Association, as trustee (the "Trustee").
The Company, the Guarantors and the Trustee agree as follows for the
benefit of the other parties and for the equal and ratable benefit of the
Holders of the 10 3/4% Senior Subordinated Notes due 2005 (the "Initial Notes")
and the 10 3/4% Senior Subordinated Notes due 2005 if and when issued in the
Exchange Offer (the "New Notes" and, together with the Initial Notes, the
"Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by
a Lien encumbering any assets acquired by such specified Person.
"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 purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control.
"Agent" means any Registrar, Paying Agent, co-registrar, authenticating
agent or securities custodian.
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer or
exchange.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition
of any assets or rights (including, without limitation, by way of a sale and
leaseback) other than in the ordinary course of business consistent with past
practices (provided that the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of Section 4.15
<PAGE> 12
2
hereof and the provisions of Section 5.1 hereof and not by the provisions of
Section 4.10 hereof), and (ii) the issue or sale by the Company or any of its
Restricted Subsidiaries of Equity Interests of any of the Company's Restricted
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for Net Proceeds in excess of $1.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the Company
to a Restricted Subsidiary of the Company or by a Restricted Subsidiary of the
Company to the Company or to another Restricted Subsidiary of the Company, (ii)
an issuance or sale of Equity Interests by a Restricted Subsidiary of the
Company to the Company or to another Restricted Subsidiary of the Company that
is a Guarantor, (iii) a Restricted Payment that is permitted by Section 4.7
hereof and (iv) a disposition of inventory in the ordinary course of business
will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board of Directors.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
or the general partner, in the case of a limited partnership, of such Person
(or, if such Person is a partnership, one of its general partners) to have been
duly adopted by the Board of Directors of such Person or the general partner, in
the case of a limited partnership, of such Person and to be in full force and
effect on the date of such certification, and delivered to the Trustee.
"Broker-Dealer" has the meaning set forth in the Registration Rights
Agreement.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participation, rights
<PAGE> 13
3
or other equivalents (however designated) of corporate stock, (iii) in the case
of a partnership or limited liability company, partnership or membership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distribution of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of not more than one year from the
date of acquisition, bankers' acceptances with maturities of not more than one
year from the date of acquisition and overnight bank deposits, in each case with
any domestic commercial bank having capital and surplus in excess of $500.0
million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or one of the two highest ratings from Standard & Poor's
with maturities of not more than six months from the date of acquisition and
(vi) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (i) through (v) of this
definition.
"Cedel" means Cedel Bank, S.A.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance, or other disposition (other than by way
of merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) (other than persons who are, or groups of persons
who are, made up entirely of Principals or their Related Parties); (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company;
(iii) the consummation of any transaction or series of related transactions
(including, without limitation, any merger or consolidation) the result of which
is that any "person" (as defined above), other than the Principals and their
Related Parties, becomes the "beneficial owners" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition), directly or indirectly, of
more than 30% of the Voting Stock of the Company (measured by voting power
rather than number of shares) provided that the Principals and their Related
Parties beneficially own (as defined in this clause (iii)) directly or
indirectly, in the aggregate a lesser percentage of the total voting power of
the Voting Stock of the Company than such other person and do not have the right
or ability by voting power, contract or otherwise, to elect or designate for
election a majority of the Board of Directors of the Company; (iv) the first day
on which a majority of the members of the Board of Directors of the Company are
not Continuing Directors; or (v) the Company consolidates with, or merges
<PAGE> 14
4
with or into, any Person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any Person, or
any Person consolidates with, or merges with or into, the Company, in any such
event pursuant to a transaction in which any of the outstanding Voting Stock of
the Company is converted into or exchanged for cash, securities or other
property, other than any such transaction where the Voting Stock of the Company
outstanding immediately prior to such transaction is converted into or exchanged
for Voting Stock (other than Disqualified Stock) of the surviving or transferee
Person constituting a majority of the outstanding shares of such Voting Stock of
such surviving or transferee Person (immediately after giving effect to such
issuance).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Company" has the meaning assigned to it in the preamble to this
Indenture.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus, without
duplication, (i) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income), plus (ii) provision for
taxes based on income or profits of such Person and its Restricted Subsidiaries
for such period, to the extent that such provision for taxes was included in
computing such Consolidated Net Income, plus (iii) consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing such Consolidated Net Income, plus (iv) depreciation
and amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation and amortization were deducted in computing such
Consolidated Net Income, minus (v) non-cash items increasing such Consolidated
Net Income for such period, in each case, on a consolidated basis and determined
in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries (for such period, on a consolidated basis, determined in accordance
with GAAP); provided that (i) the Net Income (but not loss) of any Person that
is not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary,
(ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent
that the declaration or
<PAGE> 15
5
payment of dividends or similar distributions by that Restricted Subsidiary of
that Net Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded and (v) the Net Income (but not loss) of
any Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company or one of its Subsidiaries.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 13.2 hereof or such other address as to which the
Trustee may give notice to the Company.
"Credit Facilities" means, with respect to the Company, one or more
debt facilities (including, without limitation, the New Credit Agreement) or
commercial paper facility with banks or other institutional lenders providing
for revolving credit 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 of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"Custodian" means the Trustee, as custodian with respect to the Notes
in global form, or any successor entity thereto.
"Default" means any event that is or with the passage of time or the
giving of notice (or both) would be an Event of Default.
"Definitive Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.6 hereof, in the form
of Exhibit A-1 hereto except that such Note shall not bear the Global Note
Legend and shall not have the "Schedule of Exchanges of Interests in the Global
Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.3 hereof as
the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the
<PAGE> 16
6
Notes mature, except to the extent that such Capital Stock is solely
redeemable with, or solely exchangeable for, any Capital Stock of such Person
that is not Disqualified Stock.
"Domestic Subsidiary" means a Subsidiary that is (i) formed under the
laws of the United States of America or a state or territory thereof or (ii) as
of the date of determination, treated as a domestic entity or a partnership or a
division of a domestic entity for United States federal income tax purposes.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in
the Registration Rights Agreement.
"Existing Indebtedness" means up to $15.0 million in aggregate
principal amount of Indebtedness of the Company and its Restricted Subsidiaries
(other than Indebtedness under the New Credit Agreement and the Notes) in
existence on the date of this Indenture, until such amounts are repaid.
"Financing" means the Offering of the Notes in an aggregate principal
amount of $125.0 million and the application of the proceeds of the Offering to
(i) repay approximately $110.0 million of outstanding Indebtedness under the New
Credit Agreement and (ii) pay certain fees and expenses incurred in connection
with the Offering.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than working capital borrowings represented by
revolving credit Indebtedness under any Credit Facility) or issues preferred
stock subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable
<PAGE> 17
7
four-quarter reference period. In addition, for purposes of making the
computation referred to above, (i) acquisitions that have been made by the
Company or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (i) the consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
(including without limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations), (ii) the consolidated interest of such Person
and its Restricted Subsidiaries that was capitalized during such period, (iii)
any interest expense on Indebtedness of another Person that is Guaranteed by
such Person or one of its Restricted Subsidiaries or secured by a Lien on assets
of such Person or one of its Restricted Subsidiaries (whether or not such
Guarantee or Lien is called upon) and (iv) the product of (a) all dividend
payments, whether or not in cash, on any series of preferred stock of such
Person or any of its Restricted Subsidiaries, other than dividend payments on
Equity Interests payable solely in Equity Interests of the Company (other than
Disqualified Stock), times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"Foreign Subsidiary" means any Subsidiary of the Company that is not a
Domestic Subsidiary.
"GAAP" means generally accepted accounting principles in the United
States set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants, the statements
and pronouncements of the Financial Accounting Standards Board and such other
statements by such other entities (including the Commission) as have been
accepted by a significant segment of the accounting profession, which are
applicable at the date of this Indenture.
<PAGE> 18
8
"Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A hereto issued in accordance with Section 2.1, 2.6(b)(iv), 2.6(d)(ii)
or 2.6(f) hereof.
"Global Note Legend" means the legend set forth in Section 2.6(g)(ii),
which is required to be placed on all Global Notes issued under this Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantees" means (i) the guarantee of the Obligations of the Company
by Home Creations Direct Ltd., a Delaware corporation, under this Indenture,
(ii) each Subsidiary Guarantee and (iii) any guarantee of the Notes to be
executed by any Subsidiary of the Company pursuant to the provisions of this
Indenture.
"Guarantor" means Home Creations Direct Ltd., a Delaware corporation,
and any other Subsidiary that becomes a party to a Subsidiary Guarantee pursuant
to this Indenture.
"Hedging Obligations" means, with respect to any Person, the net
payment Obligations of such Person under (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements in the ordinary course of business and pursuant to
past practices designed to protect such Person against fluctuations in commodity
prices, interest rates or currency exchange rates.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, as well as all Indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any Indebtedness of any other
<PAGE> 19
9
Person, and any liability, whether or not contingent, whether or not it appears
on the balance sheet of such Person. The amount of any Indebtedness outstanding
as of any date shall be (i) the accreted value thereof, in the case of any
Indebtedness that does not require current payments of interest, and (ii) the
principal amount thereof, together with any interest thereon that is more than
30 days past due, in the case of any other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.
"Initial Notes" means $125.0 million in aggregate principal amount of
Notes issued under this Indenture on the date hereof.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other Obligations),
advances or capital contributions (excluding commission, travel and
entertainment, moving, and similar advances to officers and employees made in
the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. If the Company or any of its Restricted
Subsidiaries sells or otherwise disposes of any Equity Interests of any direct
or indirect Restricted Subsidiary of the Company such that, after giving effect
to any such sale or disposition, such Person is no longer a direct or indirect
Restricted Subsidiary of the Company, the Company or such Restricted Subsidiary,
as the case may be, shall be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Equity
Interests of such Restricted Subsidiary not sold or disposed of in an amount
determined as provided in the third paragraph of Section 4.7 hereof.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be prepared
by the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell
<PAGE> 20
10
or give a security interest in any asset and any filing of or agreement to give
any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary gain (but not loss),
together with any related provision for taxes on such extraordinary gain (but
not loss).
"Net Proceeds" means the aggregate cash proceeds or Cash Equivalents
received by the Company or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received in any Asset Sale), net
of (a) all costs relating to such Asset Sale (including, without limitation,
legal, accounting, investment banking and brokers fees, and sales and
underwriting commissions) and any relocation expenses incurred as a result
thereof, taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing agreements), (b)
amounts required to be applied to the repayment of Indebtedness (other than
Indebtedness under any Credit Facility) secured by a Lien on the asset or assets
that were the subject of such Asset Sale and (c) any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance with
GAAP.
"New Credit Agreement" means that certain Credit Agreement, dated as of
July 27, 1998, by and among the Company, the several Lenders from time to time
parties thereto, Lehman Brothers Inc., as Arranger, Lehman Commercial Paper
Inc., as Syndication Agent and Lehman Commercial Paper Inc., as Administrative
Agent, providing for up to $125.0 million of borrowings, including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, in each case as amended, restated, modified, renewed,
refunded, replaced or refinanced from time to time (whether with the original
agents and lenders or other agents and lenders).
"New Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides any guarantee or
credit support of any kind (including any undertaking, guarantee, indemnity,
agreement or instrument that would constitute Indebtedness), (b) is directly or
indirectly liable (as a guarantor or otherwise), or (c)
<PAGE> 21
11
constitutes the lender; and (ii) no default with respect to which (including any
rights that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness (other than the Notes being offered hereby) of
the Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (iii) as to which the lenders have been
notified in writing that they will not have any recourse against any of the
assets or stock of the Company or any of its Restricted Subsidiaries.
"Non-US. Person" means a Person who is not a U.S. Person.
"Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Obligations" means any principal, premium, if any, interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company or its Restricted Subsidiaries whether or
not a claim for post-filing interest is allowed in such proceeding), penalties,
fees, charges, expenses, indemnifications, reimbursement obligations, damages
(including Liquidated Damages, if any), guarantees and other liabilities or
amounts payable under the documentation governing any Indebtedness or in respect
thereof.
"Offering" means the offering of the Initial Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of any
Person by either the principal executive officer or the principal financial
officer, the treasurer or the principal accounting officer of such Person that
meets the requirements of Section 13.5 hereof.
"144A Global Note" means a global note in the form of Exhibit A-l
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold in reliance on Rule 144A.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
13.5 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
<PAGE> 22
12
"Participant" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and Cedel).
"Permitted Business" means the lines of business conducted by the
Company and its Restricted Subsidiaries on the date hereof and businesses
reasonably related thereto.
"Permitted Investments" means (i) any Investment in the Company or in a
Restricted Subsidiary of the Company; (ii) any Investment in Cash Equivalents;
(iii) any Investment by the Company or any Restricted Subsidiary of the Company
in a Person engaged in a Permitted Business, if as a result of such Investment
(x) such Person becomes a Restricted Subsidiary of the Company or (y) such
Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the Company
or a Restricted Subsidiary of the Company; (iv) any Restricted Investment made
as a result of the receipt of non-cash consideration from an Asset Sale that was
made pursuant to and in compliance with the provisions of Section 4.10 hereof;
(v) any acquisition of assets solely in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of the Company; (vi) other Investments
by the Company or any of its Restricted Subsidiaries in any Person having an
aggregate fair market value (measured as of the date made and without giving
effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (vi) that are at the time outstanding,
not to exceed $3.0 million; (vii) Investments arising in connection with Hedging
Obligations that are incurred in the ordinary course of business consistent with
past practices, for the purpose of fixing or hedging currency, commodity or
interest rate risk (including with respect to any floating rate Indebtedness
that is permitted by the terms of the Indenture to be outstanding) in connection
with the conduct of the business of the Company and its Restricted Subsidiaries;
and (viii) any Investment existing on the date of this Indenture and any
amendment, modification, restatement, supplement, extension, renewal, refunding,
replacement, refinancing, in whole or in part, thereof, provided that the
aggregate principal amount of all Investments of the Company pursuant to this
clause (viii) does not exceed an amount equal to $3.0 million.
"Permitted Liens" means (i) Liens on assets of the Company or any of
its Restricted Subsidiaries to secure Senior Debt permitted by this Indenture to
be incurred; (ii) Liens on the assets of the Company or any of its Restricted
Subsidiaries to secure Hedging Obligations with respect to Indebtedness under
any Credit Facility permitted by this Indenture to be incurred; (iii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Restricted Subsidiary of the Company;
provided that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with the Company; (iv) Liens on property
existing at the time of acquisition thereof by the Company or any Restricted
Subsidiary of the Company, provided that such Liens were in existence prior to
the contemplation of such acquisition and only extend to the property so
acquired, (v) Liens existing on the date of this Indenture; (vi) Liens to secure
any Permitted Refinancing Indebtedness incurred to refinance any Indebtedness
secured by any Lien referred
<PAGE> 23
13
to in the foregoing clauses (i) through (v), as the case may be, at the time the
original Lien became a Permitted Lien; (vii) Liens in favor of the Company or
any Restricted Subsidiary; (viii) Liens incurred in the ordinary course of
business of the Company or any Restricted Subsidiary of the Company with respect
to obligations that do not exceed $5.0 million in the aggregate at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by the Company or such Restricted Subsidiary; (ix) Liens
to secure the performance of statutory obligations, surety or appeal bonds,
performance bonds, deposits to secure the performance of bids, trade contracts,
government contracts, leases or licenses or other obligations of a like nature
incurred in the ordinary course of business (including, without limitation,
landlord Liens on leased properties); (x) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently prosecuted, provided that any reserve or other appropriate provision
as shall be required to conform with GAAP shall have been made therefor; (xi)
Liens to secure Indebtedness (including Capital Lease Obligations) permitted by
clause (iv) of the second paragraph of Section 4.9 hereof covering only the
assets acquired with such Indebtedness; (xii) carriers', warehousemen's,
mechanics', landlords', materialmen's, repairmen's or other like Liens arising
in the ordinary course of business in respect of obligations not overdue for a
period in excess of 60 days or which are being contested in good faith by
appropriate proceedings promptly instituted and diligently prosecuted; provided
that any reserve or other appropriate provision as shall be required to conform
with GAAP shall have been made therefor; (xiii) easements, rights-of-way, zoning
and similar restrictions and other similar encumbrances or title defects
incurred, or leases or subleases granted to others, in the ordinary course of
business, which do not in any case materially detract from the value of the
property subject thereto or do not interfere with or adversely affect in any
material respect the ordinary conduct of the business of the Company and its
Restricted Subsidiaries taken as a whole; (xiv) Liens in favor of customs and
revenue authorities to secure payment of customs duties in connection with the
importation of goods in the ordinary course of business and other similar Liens
arising in the ordinary course of business; (xv) leases or subleases granted to
third Persons not interfering with the ordinary course of business of the
Company or any of its Restricted Subsidiaries; (xvi) Liens (other than any Lien
imposed by ERISA or any rule or regulation promulgated thereunder) incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance, and other types of social security; (xvii)
deposits, in an aggregate not to exceed $250,000, made in the ordinary course of
business to secure liability to insurance carriers; (xviii) Liens for purchase
money obligations (including refinancings thereof permitted under Section 4.9
hereof, provided that (A) the Indebtedness secured by any such Lien is permitted
under Section 4.9 hereof and (B) any such Lien encumbers only the asset so
purchased; (xix) any attachment or judgment Lien not constituting an Event of
Default under clause (i) of the first paragraph of Section 6.1 hereof; (xx) any
interest or title of a lessor or sublessor under any operating lease; and (xxi)
Liens under licensing agreements for use of Intellectual Property entered into
in the ordinary course of business.
<PAGE> 24
14
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued and unpaid interest on, any Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is pari passu with the
Notes, such Permitted Refinancing Indebtedness is pari passu with or
subordinated in right of payment to the Notes or is Disqualified Stock; (iv)
such permitted Refinancing Indebtedness is recourse to the same extent as the
Indebtedness being extended refinanced, renewed, replaced, defeased or refunded;
(v) if the Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness business extended, refinanced, renewed,
replaced, defeased or refunded; and (vi) such Indebtedness is incurred either by
the Company or a Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such person over the holder
of the other Capital Stock issued by such Person.
"Principals" means Centre Capital Investors II, L.P., Centre Capital
Tax-Exempt Investors II, L.P., Centre Capital Offshore Investors II, L.P., The
State Board of Administration of Florida, Centre Parallel Management Partners,
L.P., Centre Partners Coinvestment, L.P. and David C. Sabin, Leonhard Dreimann
ad William B. Rue.
"Private Placement Legend" means the legend set forth in Section
2.6(g)(i) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.
"Public Equity Offering" means any underwritten primary public offering
of the Common Stock or other Voting Stock of the Company pursuant to an
effective registration
<PAGE> 25
15
statement (other than a registration statement on Form S-4, Form S-8, or any
successor or similar form) under the Securities Act.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Recapitalization" means, collectively, (i) the repurchase by the
Company of 6,535,072 shares of the Company's common stock owned by Windmere
pursuant to a stock purchase agreement by and among the Company, Windmere and
certain executive officers of the Company dated as of July 28, 1998 (the "Stock
Purchase Agreement"), (ii) the repurchase by the Company of Windmere's option to
purchase 458,500 shares of the Company's common stock pursuant to the Stock
Purchase Agreement, (iii) the issuance of $40.0 million in convertible preferred
stock of the Company pursuant to a preferred stock purchase agreement between
the Company and certain affiliates of Centre Partners Management LLC and (iv)
the borrowings under the New Credit Agreement. "Registration Rights Agreement"
means the Registration Rights Agreement, dated as of December 16, 1998, by and
among the Company, the Guarantor and the other parties named on the signature
pages thereof, as such agreement may be amended, modified or supplemented from
time to time.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Note" means a Regulation S Temporary Global Note
or Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global Note in
the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Regulation S Temporary Global Note upon
expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary global Note in
the form of Exhibit A-2 hereto bearing the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee, issued in a denomination equal to the outstanding principal amount
of the Notes initially sold in reliance on Rule 903 of Regulation S.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 50% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding a more than 50% controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
<PAGE> 26
16
"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Office of the Trustee (or any successor group
of the Trustee) 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 knowledge of and
familiarity with the particular subject.
"Restricted Global Note" means a Global Note bearing the Private
Placement Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Period" means the 40-day restricted period as defined in
Regulation S.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary; provided that, on the
date of this Indenture, both Subsidiaries of the Company shall be Restricted
Subsidiaries of the Company.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated under the Securities Act.
"Securities" means the Notes and the Guarantees issued under this
Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the Credit Agreement or other
original documentation governing such Indebtedness, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.
"Subordinated Obligations" means any Indebtedness of the Company that
is expressly subordinated or junior in right of payment to the Notes.
<PAGE> 27
17
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock 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 such
Person and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or an entity described in clause (i) and
related to such Person or (b) the only general partners of which are such Person
or of one or more entities described in clause (i) and related to such Person
(or any combination thereof).
"Subsidiary Guarantee" means, the supplemental indenture, in the form
of Exhibit D hereto, executed and delivered to the Trustee pursuant to which
each Guarantor will guarantee payment of the Notes.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Toastmaster Acquisition" means the acquisition of Toastmaster Inc. by
the Company pursuant to the Agreement and Plan of Merger by and among
Toastmaster Inc., Columbia Acquisition Corp. and the Company, dated as of August
26, 1998.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Definitive Note" means one or more Definitive Notes that
do not bear and are not required to bear the Private Placement Legend.
"Unrestricted Global Note" means a permanent global Note in the form of
Exhibit A-1 attached hereto that bears the Global Note Legend and that has the
"Schedule of Exchanges of Interests in the Global Note" attached thereto, and
that is deposited with or on behalf of and registered in the name of the
Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any direct
or indirect obligation (x) to subscribe for additional Equity Interests or (y)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; and (d) has not
guaranteed or
<PAGE> 28
18
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
"Voting Stock" of any person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" means a Restricted Subsidiary 100% of the
outstanding Capital Stock and other Equity Interests of which is directly or
indirectly owned by the Company.
"Windmere" means Windmere-Durable Holdings, Inc., a Florida
corporation.
"Windmere Note" means that certain subordinated promissory note in the
amount of $15.0 million payable by the Company to Windmere.
SECTION 1.2 OTHER DEFINITIONS
Defined in
Term Section
"Affiliate Transaction"...............................................4.11
"Asset Sale Offer"....................................................4.10
"Authentication Order".................................................2.2
"Change of Control Offer" ............................................4.15
"Change of Control Payment"...........................................4.15
"Change of Control Payment Date" .....................................4.15
"Covenant Defeasance"..................................................8.3
"Designated Senior Debt" .............................................10.2
"DTC" .................................................................2.3
"Event of Default".....................................................6.1
"Excess Proceeds".....................................................4.10
"Funding Guarantor"...................................................11.4
"incur" ...............................................................4.9
<PAGE> 29
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"Legal Defeasance" ....................................................8.2
"Offer Amount".........................................................3.9
"Offer Period" ........................................................3.9
"Paying Agent".........................................................2.3
"Payment Blockage Notice".............................................10.4
"Payment Default" .....................................................6.1
"Permitted Debt".......................................................4.9
"Permitted Junior Securities".........................................10.2
"Purchase Date" .......................................................3.9
"Registrar"............................................................2.3
"Representative"......................................................10.2
"Restricted Payments"..................................................4.7
"Senior Debt" ........................................................10.2
SECTION 1.3 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 and the Guarantees;
"indenture security Holder" means a Holder of a Security;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"Obligor" on the indenture securities means the Company, the Guarantors
and any successor obligor upon the indenture securities.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule under
the TIA have the meanings so assigned to them.
SECTION 1.4 RULES OF CONSTRUCTION
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
<PAGE> 30
20
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) or is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement or successor
sections or rules adopted by the Commission from time to time.
SECTION 1.5 ONE CLASS OF SECURITIES
The Initial Notes and the New Notes shall vote and consent
together on all matters as one class and none of the Initial Notes or the New
Notes shall have the right to vote or consent as a separate class on any matter.
ARTICLE 2.
THE NOTES
SECTION 2.1 FORM AND DATING
(a) General.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto. The Securities may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Security shall be dated the date of its authentication. The Notes
shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Securities shall
constitute, and are hereby expressly made, a part of this Indenture and the
Company, the Guarantors and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
However, to the extent any provision of any Security conflicts with the express
provisions of this Indenture, the provisions of this Indenture shall govern and
be controlling.
(b) Global Notes.
Notes issued in global form shall be substantially in the form of
Exhibits A-1 or A-2 attached hereto (including the Global Note Legend thereon
and the "Schedule of
<PAGE> 31
21
Exchanges of Interests in the Global Note" attached thereto). Notes issued in
definitive form shall be substantially in the form of Exhibit A-l attached
hereto (but without the Global Note Legend thereon and without the "Schedule of
Exchanges of Interests in the Global Note" attached thereto). Each Global Note
shall represent such of the outstanding Notes as shall be specified therein and
each shall provide that it shall represent the aggregate principal amount of
outstanding Notes from time to time endorsed thereon and that the aggregate
principal amount of outstanding Notes represented thereby may from time to time
be reduced or increased, as appropriate, to reflect exchanges and redemptions.
Any endorsement of a Global Note to reflect the amount of any increase or
decrease in the aggregate principal amount of outstanding Notes represented
thereby shall be made by the Trustee or the Note Custodian, at the direction of
the Trustee, in accordance with written instructions given by the Holder thereof
as required by Section 2.6 hereof.
(c) Temporary Global Notes
Notes offered and sold in reliance on Regulation S shall be issued
initially in the form of the Regulation S Temporary Global Note, which shall be
deposited on behalf of the purchasers of the Notes represented thereby with the
Trustee, at its Minneapolis office, as custodian for the Depositary, and
registered in the name of the Depositary or the nominee of the Depositary for
the accounts of designated agents holding on behalf of Euroclear or Cedel Bank,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. The Restricted Period shall be terminated upon the receipt by the
Trustee of (i) a written certificate from the Depositary, together with copies
of certificates from Euroclear and Cedel Bank certifying that they have received
certification of non-United States beneficial ownership of 100% of the aggregate
principal amount of the Regulation S Temporary Global Note (except to the extent
of any beneficial owners thereof who acquired an interest therein during the
Restricted Period pursuant to another exemption from registration under the
Securities Act and who will take delivery of a beneficial ownership interest in
a 144A Global Note bearing a Private Placement Legend, all as contemplated by
Section 2.6(a)(ii) hereof), and (ii) an Officers' Certificate from the Company.
Following the termination of the Restricted Period, beneficial interests in the
Regulation S Temporary Global Note shall be exchanged for beneficial interests
in Regulation S Permanent Global Notes pursuant to the Applicable Procedures.
Simultaneously with the authentication of Regulation S Permanent Global Notes,
the Trustee shall cancel the Regulation S Temporary Global Note. The aggregate
principal amount of the Regulation S Temporary Global Note and the Regulation S
Permanent Global Notes may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depositary or its
nominee, as the case may be, in connection with transfers of interest as
hereinafter provided.
(d) Euroclear Cedel Procedures Applicable.
The provisions of the "Operating Procedures of the Euroclear
System" and "Terms and Conditions Governing Use of Euroclear" and the "General
Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall
be applicable to transfers of
<PAGE> 32
22
beneficial interests in the Regulation S Temporary Global Note and the
Regulation S Global Notes that are held by Participants through Euroclear or
Cedel Bank.
SECTION 2.2 EXECUTION AND AUTHENTICATION
Two Officers shall sign the Notes for the Company by manual or
facsimile signature. The Company's seals, if any, shall be reproduced on the
Notes and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time a Security is authenticated, the Security shall nevertheless
be valid.
A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Security has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers of the Company (an "Authentication Order"), authenticate Notes for
original issue up to the aggregate principal amount of $125,000,000. The
aggregate principal amount of Notes outstanding at any time may not exceed such
amount except as provided in Section 2.7 hereof.
The Trustee may (at the expense of the Company) appoint an
authenticating agent acceptable to the Company 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 agent. An authenticating agent has the same rights as an
Agent to deal with Holders or an Affiliate of the Company and has the same
protections under Article 7 herein.
SECTION 2.3 REGISTRAR AND PAYING AGENT
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company, any of
its Subsidiaries or any Guarantor may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.
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23
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Custodian with respect to the Global Notes.
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of principal, premium or Liquidated Damages, if any, or interest on the
Notes, and will notify the Trustee in writing of any default by the Company in
making any such payment. While any such default continues, the Trustee may
require a Paying Agent to pay all money held by it to the Trustee. The Company
at any time may require a Paying Agent to pay all money held by it to the
Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the
Company or a Restricted Subsidiary) shall have no further liability for the
money. If the Company, a Restricted Subsidiary or a Guarantor acts as Paying
Agent, it shall segregate and hold in a separate trust funds for the benefit of
the Holders all money held by it as Paying Agent. Upon any bankruptcy or
reorganization proceedings relating to the Company, the Trustee shall serve as
Paying Agent for the Notes.
SECTION 2.5 HOLDER LISTS
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA ss. 312(a).
SECTION 2.6 TRANSFER AND EXCHANGE
(a) Transfer and Exchange of Global Notes.
A Global Note may not be transferred as a whole except by the
Depositary to a nominee of the Depositary, by a nominee of the Depositary to the
Depositary or to another nominee of the Depositary, or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. All Global Notes will be exchanged by the Company for Definitive
Notes if (i) the Company delivers to the Trustee written notice from the
Depositary that it is unwilling or unable to continue to act as Depositary or
that it is no longer a clearing agency registered under the Exchange Act and, in
either case, a successor Depositary is not appointed by the Company within 120
days after the date of such notice from the Depositary or (ii) the Company in
its sole discretion determines that the Global Notes (in whole but not in part)
should be exchanged for Definitive Notes and delivers a written notice to such
effect to the Trustee; provided that in no event shall the Regulation S
Temporary
<PAGE> 34
24
Global Note be exchanged by the Company for Definitive Notes prior to (x) the
expiration of the Restricted Period and (y) the receipt by the Registrar of any
certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities
Act. Upon the occurrence of either of the preceding events in (i) or (ii) above,
Definitive Notes shall be issued in such names as the Depositary shall instruct
the Trustee in writing. Global Notes also may be exchanged or replaced, in whole
or in part, as provided in Sections 2.7 and 2.10 hereof. Every Note
authenticated and delivered in exchange for, or in lieu of, a Global Note or any
portion thereof, pursuant to this Section 2.6 or Section 2.7 or 2.10 hereof,
shall be authenticated and delivered in the form of, and shall be, a Global
Note. A Global Note may not be exchanged for another Note other than as provided
in this Section 2.6(a), however, beneficial interests in a Global Note may be
transferred and exchanged as provided in Section 2.6(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes.
The transfer and exchange of beneficial interests in the Global
Notes shall be effected through the Depositary, in accordance with the
provisions of this Indenture and the Applicable Procedures. Beneficial interests
in the Restricted Global Notes shall be subject to restrictions on transfer
comparable to those set forth herein to the extent required by the Securities
Act. Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global
Note. Beneficial interests in any Restricted Global Note may be
transferred to Persons who take delivery thereof in the form of a
beneficial interest in the same Restricted Global Note in accordance
with the transfer restrictions set forth in the Private Placement
Legend; provided, however, that prior to the expiration of the
Restricted Period, transfers of beneficial interests in the Temporary
Regulation S Global Note may not be made to a U.S. Person or for the
account or benefit of a U.S. Person (other than the Initial Purchaser).
Beneficial interests in any Unrestricted Global Note may be transferred
to Persons who take delivery thereof in the form of a beneficial
interest in an Unrestricted Global Note. No written orders or
instructions shall be required to be delivered to the Registrar to
effect the transfers described in this Section 2.6(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial
Interests in Global Notes. In connection with all transfers and
exchanges of beneficial interests that are not subject to Section
2.6(b)(i) above, the transferor of such beneficial interest must
deliver to the Registrar either (A) (1) a written order from a
Participant or an Indirect Participant given to the Depositary in
accordance with the Applicable Procedures directing the Depositary to
credit or cause to be credited a beneficial interest in another Global
Note in an amount equal to the beneficial interest to be transferred or
exchanged and (2) instructions given in accordance with the Applicable
Procedures containing information regarding the Participant account to
be credited with such increase or (B)
<PAGE> 35
25
(1) a written order from a Participant or an Indirect Participant given
to the Depositary in accordance with the Applicable Procedures
directing the Depositary to cause to be issued a Definitive Note in an
amount equal to the beneficial interest to be transferred or exchanged
and (2) instructions given by the Depositary to the Registrar
containing information regarding the Person in whose name such
Definitive Note shall be registered to effect the transfer or exchange
referred to in (1) above; provided that in no event shall Definitive
Notes be issued upon the transfer or exchange of beneficial interests
in the Regulation S Temporary Global Note prior to (x) the expiration
of the Restricted Period and (y) the receipt by the Registrar of any
certificates required pursuant to Rule 903 under the Securities Act.
Upon consummation of an Exchange Offer by the Company in accordance
with Section 2.6(f) hereof, the requirements of this Section 2.6(b)(ii)
shall be deemed to have been satisfied upon receipt by the Registrar of
the instructions contained in the Letter of Transmittal delivered by
the Holder of such beneficial interests in the Restricted Global Notes.
Upon satisfaction of all of the requirements for transfer or exchange
of beneficial interests in Global Notes contained in this Indenture and
the Notes or otherwise applicable under the Securities Act, the Trustee
shall adjust the principal amount of the relevant Global Note(s)
pursuant to Section 2.6(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted
Global Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.6(b)(ii) above and the
Registrar receives the following:
(A) if the transferee will take delivery in the form of
a beneficial interest in the 144A Global Note, then the
transferor must deliver a certificate in the form of Exhibit
B hereto, including the certifications in item (1) thereof;
and
(B) if the transferee will take delivery in the form of
a beneficial interest in the Regulation S Temporary Global
Note or the Regulation S Global Note, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (2) thereof.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Note for Beneficial Interests in the Unrestricted
Global Note. A beneficial interest in any Restricted Global Note may be
exchanged by any holder thereof for a beneficial interest in an
Unrestricted Global Note or transferred to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note if the exchange or transfer complies with the requirements of
Section 2.6(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the holder of
<PAGE> 36
26
the beneficial interest to be transferred, in the case of an
exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is
not (1) a broker-dealer, (2) a Person participating in the
distribution of the New Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by a Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in
a Restricted Global Note proposes to exchange such
beneficial interest for a beneficial interest in an
Unrestricted Global Note, a certificate from such
holder in the form of Exhibit C hereto, including the
certifications in item (1)(a) thereof; or
(2) if the holder of such beneficial interest in
a Restricted Global Note proposes to transfer such
beneficial interest to a Person who shall take delivery
thereof in the form of a beneficial interest in an
Unrestricted Global Note, a certificate from such
holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B)or
(D) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.2 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
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27
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(i) Beneficial Interests in Restricted Global Notes to
Restricted Definitive Notes. If any holder of a beneficial interest in
a Restricted Global Note proposes to exchange such beneficial interest
for a Restricted Definitive Note or to transfer such beneficial
interest to a Person who takes delivery thereof in the form of a
Restricted Definitive Note, then, upon receipt by the Registrar of the
following documentation:
(A) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Restricted Definitive Note, a certificate from
such holder in the form of Exhibit C hereto, including the
certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred to
a QIB in accordance with Rule 144A under the Securities Act,
a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to
a Non-U.S. Person in an offshore transaction in accordance
with Rule 903 or Rule 904 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements
of the Securities Act in accordance with Rule 144 under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(a)
thereof;
(E) if such beneficial interest is being transferred to
the Company or any of its Subsidiaries, a certificate to the
effect set forth in Exhibit B hereto, including the
certifications in item (3)(b) thereof; or
(F) if such beneficial interest is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(c)
thereof,
the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to Section
2.6(h) hereof, and the Company shall execute and the Trustee shall upon
receipt of an Authentication Order authenticate and deliver to the
Person designated in the instructions a Definitive Note in the
appropriate principal amount. Any Definitive Note issued in exchange
for a beneficial interest in a Restricted Global Note pursuant to this
Section 2.6(c) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Registrar through instructions
from the Depositary
<PAGE> 38
28
and the Participant or Indirect Participant. The Trustee shall (at the
expense of the Company) deliver such Definitive Notes to the Persons in
whose names such Notes are so registered. Any Definitive Note issued in
exchange for a beneficial interest in a Restricted Global Note pursuant
to this Section 2.6(c)(i) shall bear the Private Placement Legend and
shall be subject to all restrictions on transfer contained therein.
(ii) Notwithstanding Sections 2.6(c)(i)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Note may not
be exchanged for a Definitive Note or transferred to a Person who takes
delivery thereof in the form of a Definitive Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the
Registrar of any certificates required pursuant to Rule
903(c)(3)(ii)(B) under the Securities Act, except in the case of a
transfer pursuant to an exemption from the registration requirements of
the Securities Act other than Rule 903 or Rule 904.
(iii) Beneficial Interests in Restricted Global Notes to
Unrestricted Definitive Notes. A holder of a beneficial interest in a
Restricted Global Note may exchange such beneficial interest for an
Unrestricted Definitive Note or may transfer such beneficial interest
to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the holder of such beneficial interest, in the case
of an exchange, or the transferee, in the case of a transfer,
certifies in the Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of
the New Notes or (3) a Person who is an affiliate (as defined in
Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant
to the Exchange Offer Registration Statement in accordance with
the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Definitive Note that does not bear the
Private Placement Legend, a certificate from such holder in
the form of Exhibit C hereto, including the certifications
in item (1)(b) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall
<PAGE> 39
29
take delivery thereof in the form of a Definitive Note that
does not bear the Private Placement Legend, a certificate
from such holder in the form of Exhibit B hereto, including
the certifications in item (4) thereof,
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require,
an Opinion of Counsel in form reasonably acceptable to the
Registrar to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are
no longer required in order to maintain compliance with the
Securities Act.
(iv) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Definitive Notes. If any holder of a beneficial interest
in an Unrestricted Global Note proposes to exchange such beneficial
interest for a Definitive Note or to transfer such beneficial interest
to a Person who takes delivery thereof in the form of a Definitive
Note, then, upon satisfaction of the conditions set forth in Section
2.6(b)(ii) hereof, the Trustee shall cause the aggregate principal
amount of the applicable Global Note to be reduced accordingly pursuant
to Section 2.6(h) hereof, and the Company shall execute and the Trustee
shall upon receipt of an Authentication Order authenticate and (at the
expense of the Company) deliver to the Person designated in the
instructions a Definitive Note in the appropriate principal amount. Any
Definitive Note issued in exchange for a beneficial interest pursuant
to this Section 2.6(c)(iv) shall be registered in such name or names
and in such authorized denomination or denominations as the holder of
such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall (at the expense of the Company) deliver
such Definitive Notes to the Persons in whose names such Notes are so
registered. Any Definitive Note issued in exchange for a beneficial
interest pursuant to this Section 2.6(c)(iv) shall not bear the Private
Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial
Interests.
(i) Restricted Definitive Notes to Beneficial Interests in
Restricted Global Notes. If any Holder of a Restricted Definitive
Note proposes to exchange such Note for a beneficial interest in a
Restricted Global Note or to transfer such Restricted Definitive
Note to a Person who takes delivery thereof in the form of a
beneficial interest in a Restricted Global Note, then, upon
receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in
item (2)(b) thereof;
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30
(B) if such Restricted Definitive Note is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (1)
thereof;
(C) if such Restricted Definitive Note is being
transferred to a Non-U.S. Person in an offshore transaction
in accordance with Rule 903 or Rule 904 under the Securities
Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being
transferred pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Rule
144 under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (3)(a) thereof;
(E) if such Restricted Definitive Note is being
transferred to the Company or any of its Subsidiaries, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(b) thereof; or
(F) if such Restricted Definitive Note is being
transferred pursuant to an effective registration statement
under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (3)(c) thereof, the Trustee shall cancel the Restricted
Definitive Note, increase or cause to be increased the
aggregate principal amount of, in the case of clause (A)
above, the appropriate Restricted Global Note, in the case of
clause (B) above, the 144A Global Note, and in the case of
clause (C) above, the Regulation S Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Restricted Definitive Note to a Person who takes
delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
Letter of Transmittal that it is not (1) a broker-dealer, (2)
a Person participating in the distribution of the New Notes
or (3) a Person who is an affiliate (as defined in Rule 144)
of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
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31
(C) such transfer is effected by a Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes
proposes to exchange such Notes for a beneficial
interest in the Unrestricted Global Note, a certificate
from such Holder in the form of Exhibit C hereto,
including the certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes
proposes to transfer such Notes to a Person who shall
take delivery thereof in the form of a beneficial
interest in the Unrestricted Global Note, a certificate
from such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require,
an Opinion of Counsel in form reasonably acceptable to the
Registrar to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are
no longer required in order to maintain compliance with the
Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs
in this Section 2.6(d)(ii), the Trustee shall cancel the
Definitive Notes and increase or cause to be increased the
aggregate principal amount of the Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note
may exchange such Note for a beneficial interest in an Unrestricted
Global Note or transfer such Definitive Notes to a Person who takes
delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note at any time. Upon receipt of a written request
for such an exchange or transfer, the Trustee shall cancel the
applicable Unrestricted Definitive Note and increase or cause to be
increased the aggregate principal amount of one of the Unrestricted
Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.2 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Definitive Notes so transferred.
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(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such
Holder's compliance with the provisions of this Section 2.6(e), the Registrar
shall register the transfer or exchange of Definitive Notes. Prior to such
registration of transfer or exchange, the requesting Holder shall present or
surrender to the Registrar the Definitive Notes duly endorsed or accompanied by
a written instruction of transfer in form satisfactory to the Registrar duly
executed by such Holder or by his attorney, duly authorized in writing. In
addition, the requesting Holder shall provide any additional certifications,
documents and information, as applicable, required pursuant to the following
provisions of this Section 2.6(e).
(i) Restricted Definitive Notes to Restricted
Definitive Notes. Any Restricted Definitive Note may be transferred to
and registered in the name of Persons who take delivery thereof in the
form of a Restricted Definitive Note if the Registrar receives the
following:
(A) if the transfer will be made pursuant to Rule
144A under the Securities Act, then the transferor must
deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule
903 or Rule 904, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including
the certifications in item (2) thereof; and
(C) if the transfer will be made pursuant to any
other exemption from the registration requirements of
the Securities Act, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including
the certifications, certificates and Opinion of Counsel
required by item (3) thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted
Definitive Notes. Any Restricted Definitive Note may be exchanged by
the Holder thereof for an Unrestricted Definitive Note or transferred
to a Person or Persons who take delivery thereof in the form of an
Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant
to the Exchange Offer in accordance with the
Registration Rights Agreement and the Holder, in the
case of an exchange, or the transferee, in the case of a
transfer, certifies in the Letter of Transmittal that it
is not (1) a broker-dealer, (2) a Person participating
in the distribution of the New Notes or (3) a Person who
is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
<PAGE> 43
33
(C) any such transfer is effected by a
Broker-Dealer pursuant to the Exchange Offer
Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted
Definitive Notes proposes to exchange such Notes
for an Unrestricted Definitive Note, a certificate
from such Holder in the form of Exhibit C hereto,
including the certifications in item (I)(d)
thereof; or
(2) if the Holder of such Restricted
Definitive Notes proposes to transfer such Notes to
a Person who shall take delivery thereof in the
form of an Unrestricted Definitive Note, a
certificate from such Holder in the form of Exhibit
B hereto, including the certifications in item (4)
thereof;
and, in each such case set forth in this subparagraph
(D), if the Registrar so requests, an Opinion of Counsel
in form reasonably acceptable to the Registrar to the
effect that such exchange or transfer is in compliance
with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain
compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted
Definitive Notes. A Holder of Unrestricted Definitive Notes may
transfer such Notes to a Person who takes delivery thereof in the
form of an Unrestricted Definitive Note. Upon receipt of a request
to register such a transfer, the Registrar shall register the
Unrestricted Definitive Notes pursuant to the instructions from
the Holder thereof.
(f) Exchange Offer.
Upon the occurrence of the Exchange Offer in accordance
with the Registration Rights Agreement, the Company shall issue and, upon
receipt of an Authentication Order in accordance with Section 2.2, the Trustee
shall authenticate (i) one or more Unrestricted Global Notes in an aggregate
principal amount equal to the principal amount of the beneficial interests in
the Restricted Global Notes tendered for acceptance by Persons that certify in
the Letters of Transmittal that (x) they are not broker-dealers, (y) they are
not participating in a distribution of the New Notes and (z) they are not
affiliates (as defined in Rule 144) of the Company, and accepted for exchange in
the Exchange Offer and (ii) Definitive Notes in an aggregate principal amount
equal to the principal amount of the Restricted Definitive Notes accepted for
exchange in the Exchange Offer. Concurrently with the issuance of such Notes,
the Trustee shall cause the aggregate principal amount of the applicable
Restricted Global Notes to be reduced accordingly, and the Company shall execute
and the Trustee shall authenticate and (at
<PAGE> 44
34
the expense of the Company) deliver to the Persons designated by the Holders of
Definitive Notes so accepted Definitive Notes in the appropriate principal
amount.
(g) Legends.
The following legends shall appear on the face of all Global
Notes and Definitive Notes issued under this Indenture unless specifically
stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each
Global Note and each Definitive Note (and all Notes issued in exchange therefor
or substitution thereof) shall bear the legend in substantially the following
form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5
OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER
OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISION OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT
OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (I) (a) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED
IN RULE 144A OF THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE
UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 UNDER THE SECURITIES ACT OR (d) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE,
IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE."
<PAGE> 45
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(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii),
(d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.6 (and all Notes
issued in exchange therefor or substitution thereof) shall not bear the Private
Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend
in substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE
TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE
MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO
SECTION 2.7 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.6(a) OF
THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE
TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE
AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR
DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY."
(iii) Regulation S Temporary Global Note Legend. The
Regulation S Temporary Global Note shall bear a legend in substantially the
following form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE,
AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR
CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED
HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS
REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE
PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes.
At such time as all beneficial interests in a particular
Global Note have been exchanged for Definitive Notes or a particular Global Note
has been redeemed, repurchased or canceled in whole and not in part, each such
Global Note shall be returned to or retained and canceled by the Trustee in
accordance with Section 2.11 hereof. At any time prior to such cancellation, if
any beneficial interest in a Global Note is exchanged for or transferred to a
Person who will take delivery
<PAGE> 46
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thereof in the form of a beneficial interest in another Global Note or for
Definitive Notes, the principal amount of Notes represented by such Global Note
shall be reduced accordingly and an endorsement shall be made on such Global
Note by the Trustee or by the Depositary at the direction of the Trustee to
reflect such reduction; and if the beneficial interest is being exchanged for or
transferred to a Person who will take delivery thereof in the form of a
beneficial interest in another Global Note, such other Global Note shall be
increased accordingly and an endorsement shall be made on such Global Note by
the Trustee or by the Depositary at the direction of the Trustee to reflect such
increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Global
Notes and Definitive Notes upon receipt of an Authentication Order
in accordance with Section 2.2 hereof or upon receipt of a written
request of the Registrar.
(ii) No service charge shall be made to a holder of a
beneficial interest in a Global Note or to a Holder of a
Definitive Note for any registration of transfer or exchange, 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 similar
governmental charge payable upon exchange or transfer pursuant to
Sections 2.10, 3.6, 3.9, 4.10, 4.15 and 9.5 hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption in whole
or in part, except the unredeemed portion of any Note being
redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive
Notes shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this
Indenture, as the Global Notes or Definitive Notes surrendered
upon such registration of transfer or exchange.
(v) The Company shall not be required (A) to issue, to
register the transfer of or to exchange any Notes during a period
beginning at the opening of business 15 days before the day of any
selection of Notes for redemption under Section 3.2 hereof and
ending at the close of business on the day of selection, (B) to
register the transfer of or to exchange any Note so selected for
redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part or (c) to register the transfer of
or to exchange a Note between a record date and the next
succeeding interest payment date.
(vi) Prior to due presentment for the registration of a
transfer of any Note, the Trustee, any Agent and the Company may
deem and treat the Person in whose name any Note is registered as
the absolute owner of such Note for the purpose of receiving
payment of principal of and interest on such Notes and for all
other purposes, and none of the Trustee, any Agent or the Company
shall be affected by notice to the contrary.
<PAGE> 47
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(vii) The Trustee shall authenticate Global Notes and
Definitive Notes in accordance with the provisions of Section 2.2
hereof.
(viii) All certifications, certificates and Opinions of
Counsel required to be submitted to the Registrar pursuant to this
Section 2.6 to effect a registration of transfer or exchange may
be submitted by facsimile.
SECTION 2.7 REPLACEMENT NOTES
If any mutilated Note is surrendered to the Trustee or the Company and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon receipt of an
Authentication Order, shall authenticate a replacement Note if the Trustee's
requirements are met. If required by the Trustee or the Company, an indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Company and the Trustee may charge for their expenses in replacing
a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
SECTION 2.8 OUTSTANDING NOTES
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.9 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note; however, Notes held by the Company or a Subsidiary of
the Company shall not be deemed to be outstanding for purposes of Section 3.7(b)
hereof.
If a Note is replaced pursuant to Section 2.7 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.1 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
<PAGE> 48
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SECTION 2.9 TREASURY NOTES
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or any Guarantor, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or any
Guarantor shall be considered as though not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Notes that the Trustee knows are so
owned shall be so disregarded.
SECTION 2.10 TEMPORARY NOTES
Until certificates representing Notes are ready for delivery, the
Company may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Company
considers appropriate for temporary Notes and as shall be reasonably acceptable
to the Trustee.
Without unreasonable delay, the Company shall prepare and the Trustee
shall authenticate Definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
SECTION 2.11 CANCELLATION
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all canceled Notes shall be delivered
(at the expense of the Company) to the Company. The Company may not issue new
Notes to replace Notes that it has paid or that have been delivered to the
Trustee for cancellation.
SECTION 2.12 DEFAULTED INTEREST
If the Company defaults in a payment of interest on the Notes, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.1 hereof. The Company shall notify the Trustee in writing of
the amount of defaulted interest proposed to be paid on each Note and the date
of the proposed payment. The Company shall fix or cause to be fixed each such
special record date and payment date, provided that no such special record date
shall be less than 10
<PAGE> 49
39
days prior to the related payment date for such defaulted interest. At least 15
days before the special record date, the Company (or, upon the written request
of the Company, the Trustee in the name and at the expense of the Company) shall
mail or cause to be mailed to Holders a notice that states the special record
date, the related payment date and the amount of such interest to be paid.
SECTION 2.13 CUSIP NUMBERS
The Company in issuing the Notes may use "CUSIP" numbers (if then
generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders, provided, however, that any such
notice may 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 a
redemption and that reliance may be placed only on the other identification
numbers printed on the Notes, and any such redemption shall not be affected by
any defect in or omission of such numbers.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.1 NOTICES TO TRUSTEE
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee, at
least 30 days but not more than 60 days before a redemption date, an Officers'
Certificate setting forth (i) the clause of this Indenture pursuant to which the
redemption shall occur, (ii) the redemption date, (iii) the principal amount of
Notes to be redeemed and (iv) the redemption price.
SECTION 3.2 SELECTION OF NOTES TO BE REDEEMED
If less than all of the Notes are to be redeemed or purchased in an
offer to purchase at any time, the Trustee shall select the Notes to be redeemed
or purchased among the Holders of the Notes in compliance with the requirements
of the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not so listed, on a pro rata basis, by lot or in
accordance with any other method the Trustee considers fair and appropriate. In
the event of partial redemption by lot, the particular Notes to be redeemed
shall be selected, unless otherwise provided herein, not less than 30 nor more
than 60 days prior to the redemption date by the Trustee from the outstanding
Notes not previously called for redemption.
The Trustee shall promptly notify the Company of the Notes selected for
redemption and, in the case of any Note selected for partial redemption, the
principal amount thereof to be redeemed. Notes and portions of Notes selected
shall be in amounts of $1,000 or whole multiples of $1,000; except that if all
of the Notes of a Holder are to be redeemed, the entire outstanding amount of
Notes held by such Holder, even if not a multiple of $1,000,
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shall be redeemed. Except as provided in the preceding sentence, provisions of
this Indenture that apply to Notes called for redemption also apply to portions
of Notes called for redemption.
SECTION 3.3 NOTICE OF REDEMPTION
Subject to the provisions of Section 3.9 and Section 4.15 hereof,
at least 30 days but not more than 60 days before a redemption date, the Company
shall mail or cause to be mailed, by first class mail, a notice of redemption to
each Holder whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption date
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
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SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION
Once notice of redemption is mailed in accordance with Section 3.3
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE
One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amounts necessary to pay the redemption price of, and accrued interest on,
all Notes to be redeemed.
If the Company complies with the provisions of the preceding paragraph,
on and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the preceding paragraph,
interest shall be paid on the unpaid principal, from the redemption date until
such principal is paid, and to the extent lawful on any interest not paid on
such unpaid principal, in each case at the rate provided in the Notes and in
Section 4.1 hereof.
SECTION 3.6 NOTES REDEEMED IN PART
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon receipt of an Authentication Order, the Trustee shall
authenticate for the Holder at the expense of the Company a new Note equal in
principal amount to the unredeemed portion of the Note surrendered.
SECTION 3.7 OPTIONAL REDEMPTION
(a) as set forth in clause (b) of this Section 3.7, the Company shall
not have the option to redeem the Notes pursuant to this Section
3.7 prior to December 15, 2002. Thereafter, the Company shall have
the option to redeem the Notes, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on December 15 of the years
indicated below:
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YEAR REDEMPTION PRICE
---- ----------------
2002..................................................... 105.375%
2003..................................................... 102.668%
2004 and thereafter...................................... 100.000%
(b) Notwithstanding the provisions of clause (a) of this Section 3.7,
during the first 36 months after the date of this Indenture, the
Company may, on any one or more occasions, redeem up to 35% of the
aggregate principal amount of Notes originally issued under this
Indenture at a redemption price of 110.750% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net cash
proceeds of any Public Equity Offering of common stock of the
Company; provided that at least 65% of the aggregate principal
amount of Notes originally issued on the date of this Indenture
remain outstanding immediately after each occurrence of such
redemption; and provided further, that each such redemption shall
occur within 60 days of the date of the closing of such Public
Equity Offering.
(c) Any redemption pursuant to this Section 3.7 shall be made pursuant
to the provisions of Section 3.1 through 3.6 hereof.
SECTION 3.8 MANDATORY REDEMPTION
Except as set forth in Section 4.10 and Section 4.15, the Company shall
not be required to make mandatory redemption or sinking fund payments with
respect to the Notes.
SECTION 3.9 OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Company shall
be required to commence an Asset Sale Offer, it shall follow the procedures
specified below.
The Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period"). No later than five
Business Days after the termination of the Offer Period (the "Purchase Date"),
the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
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Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a written notice to the Trustee and to each of the Holders.
The notice shall contain all instructions and materials necessary to enable such
Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer
shall be made to all Holders. The notice, which shall govern the terms of the
Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.9 and Section 4.10 hereof and the length of time the Asset Sale
Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrete or accrue interest;
(d) that, unless the Company defaults in making such payment, any Note
accepted for payment pursuant to the Asset Sale Offer shall cease
to accrete or accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an
Asset Sale Offer may only elect to have all of such Note purchased
and may not elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse
of the Note completed, or transfer by book-entry transfer, to the
Company, a depositary, if appointed by the Company, or a Paying
Agent at the address specified in the notice at least three days
before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the Depositary or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a
telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the Note the
Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the
Notes to be purchased on a pro rata basis (with such adjustments
as may be deemed appropriate by the Company so that only Notes in
denominations of $1,000, or integral multiples thereof, shall be
purchased); and
<PAGE> 54
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(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered (or transferred by book-entry
transfer).
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in accordance
with the terms of this Section 3.9. The Company, the Depositary or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Notes tendered by such Holder and accepted by
the Company for purchase, and the Company shall promptly issue a new Note, and
the Trustee, upon receipt of an Authentication Order from the Company shall
authenticate and mail or deliver such new Note to such Holder, in a principal
amount equal to any unpurchased portion of the Note surrendered. Any Note not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce the results of the Asset Sale Offer
on the Purchase Date.
Other than as specifically provided in this Section 3.9, any purchase
pursuant to this Section 3.9 shall be made pursuant to the provisions of
Sections 3.1 through 3.6 hereof.
ARTICLE 4.
COVENANTS
SECTION 4.1 PAYMENT OF NOTES
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest and Liquidated Damages, if any, on the Notes on the dates and
in the manner provided in the Notes. Principal, premium, if any, and interest
and Liquidated Damages, if any, shall be considered paid on the date due if the
Paying Agent, if other than the Company or a Subsidiary thereof, holds as of
10:00 a.m. Eastern Time on the due date money deposited by the Company in
immediately available funds and designated for and sufficient to pay all
principal, premium, if any, and interest and Liquidated Damages, if any, then
due. The Company shall pay all Liquidated Damages, if any, in the same manner on
the dates and in the amounts set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) at the same
rate to the extent lawful.
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SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY
The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at 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 Corporate Trust Office of the
Trustee.
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,
however, 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 shall 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 designates the Corporate Trust Office of the Trustee
as one such office or agency of the Company in accordance with Section 2.3.
SECTION 4.3 REPORTS
(a) Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding and irrespective of whether the
Exchange Offer Registration Statement or the Shelf Registration Statement has
been declared effective by the Commission, the Company shall furnish each of the
Holders of Notes (i) all quarterly and annual financial information that would
be required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Company were required to file such financial information, including
a "Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and any consolidated Restricted Subsidiaries and, with respect to
the annual information only, reports thereon by the Company's certified
independent accountants (which shall be firm(s) of established national
reputation) and (ii) all information that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports, in
each case within the time periods specified in the Commission's rules and
regulations. In addition, whether or not required by the rules and regulations
of the Commission, the Company shall file a copy of all such information and
reports with the Commission for public availability within the time periods
specified in the Commission's rules and regulations (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request.
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(b) For so long as any Notes remain outstanding, the Company and the
Guarantors shall furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
SECTION 4.4 COMPLIANCE CERTIFICATE
(a) The Company and each Guarantor (to the extent that such Guarantor
is so required under the TIA) shall deliver to the Trustee, within 90 days after
the end of each fiscal quarter, an Officers' Certificate stating that a review
of the activities of the Company and its Subsidiaries during the preceding
fiscal quarter has been made under the supervision of the signing Officers with
a view to determining whether the Company has kept, observed, performed and
fulfilled its obligations under this Indenture, and further stating, as to each
such Officer signing such certificate, that to the best of his or her knowledge
the Company has kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions of this Indenture
(or, if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action the Company is taking or proposes to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of or
interest, if any, on the Notes is prohibited or if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.3(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable, directly or indirectly, to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
SECTION 4.5 TAXES
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are
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contested in good faith and by appropriate proceedings or where the failure to
effect such payment is not adverse in any material respect to the Holders of the
Notes.
SECTION 4.6 STAY, EXTENSION AND USURY LAWS
Each of the Company and the Guarantors covenants (to the extent that it
may lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and the Company and
each Guarantor (to the extent that they may lawfully do so) hereby expressly
waive all benefit or advantage of any such law, and covenant that they shall
not, by resort to any such law, hinder, delay or impede the execution of any
power herein granted to the Trustee, but shall suffer and permit the execution
of every such power as though no such law had been enacted.
SECTION 4.7 RESTRICTED PAYMENTS
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any other payment or distribution on account of the Company's or any of its
Restricted Subsidiaries' Equity Interests (including, without limitation, any
dividend, distribution or payment on account of such Equity Interests in
connection with any merger or consolidation involving the Company or any of its
Restricted Subsidiaries) or to the direct or indirect holders of the Company's
or any of its Restricted Subsidiaries' Equity Interests in their capacity as
such (other than dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value (including, without limitation, in connection with
any merger or consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company or other Affiliate of
the Company; (iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Notes, except a payment of interest or principal at Stated
Maturity; or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.9 hereof; and
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(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company or any of its Restricted
Subsidiaries after the date of this Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii) or (iv) of the next succeeding paragraph), is
less than the sum of (i) 50% of the Consolidated Net Income of the Company for
the period (taken as one accounting period) from the beginning of the first
fiscal quarter immediately following the date of this Indenture to the end of
the Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate Net Cash Proceeds received by the
Company as a contribution to its common equity capital or from the issue or sale
since the date of this Indenture of Equity Interests of the Company (other than
Disqualified Stock),or of Disqualified Stock or debt securities of the Company
that have been converted into such Equity Interests (other than Equity Interests
(or Disqualified Stock or convertible debt securities) sold to a Restricted
Subsidiary of the Company and other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified Stock), plus (iii) to the
extent not already included in Consolidated Net Income of the Company for such
period without duplication, any Restricted Investment that was made by the
Company or any of its Restricted Subsidiaries after the date of this Indenture
is sold for cash or otherwise liquidated or repaid for cash, or any Unrestricted
Subsidiary which is designated as an Unrestricted Subsidiary subsequent to the
date of this Indenture is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment or Unrestricted Subsidiary (less the cost of disposition,
if any) and (B) the initial amount of such Restricted Investment or designated
amount of such Unrestricted Subsidiary.
The foregoing provisions shall not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Indebtedness which is subordinated to the Notes or Equity
Interests of the Company in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company) of,
other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (c)(ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of Indebtedness which is
subordinated to the Notes with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness; (iv) the payment of any dividend or
distribution by a Restricted Subsidiary of the Company to the holders of its
Common Equity Interests so long as the Company or such Restricted Subsidiary
receives at least its pro rata share of such dividend or distribution in
accordance with its Equity Interests; (v) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company that
are held by any member of the Company's (or any of its Restricted Subsidiaries')
management pursuant to any management equity subscription agreement, or stock
option agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$250,000 in any twelve month period; (vi) repurchases of Capital Stock
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deemed to occur upon the exercise of stock options if such Capital Stock
represents a portion of the exercise price thereof and (vii) (a) the payment to
Windmere in an amount not to exceed $15.0 million at the Stated Maturity of the
Windmere Note and (b) redemptions of the Windmere Note which are deemed to occur
as a result of purchases of inventory from Windmere in the ordinary course of
business, provided that, with respect to clauses (ii), (iii), (v) and (vii)(a)
above, no Default or Event of Default shall have occurred and be continuing
immediately after such transaction.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary of the Company, pursuant to the Restricted Payment. The
fair market value of any non-cash Restricted Payment shall be determined by the
Board of Directors of the Company whose resolution with respect thereto shall be
delivered to the Trustee, such determination to be based upon an opinion or
appraisal issued by an investment banking firm (or, if an investment banking
firm is generally not qualified to give such opinion or appraisal, by an
appraisal firm) of national standing if such fair market value exceeds $5.0
million. Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.7 were computed, together with a copy of
any fairness opinion or appraisal required by this Indenture.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under this covenant. All such outstanding Investments will be deemed to
constitute Investments in an amount equal to the fair market value of such
Investments at the time of such designation. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
Any designation of an Unrestricted Subsidiary by the Board of Directors
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the resolution of the Board of Directors of the Company giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the terms of the Indenture governing the designation of
Unrestricted Subsidiaries and was permitted by this Section 4.7. If, at any
time, any Unrestricted Subsidiary fails to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under Section 4.9 hereof,
the Company shall be in default of such covenant). The Board of Directors of the
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Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under Section 4.9 hereof
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period and (ii) no Default or Event of
Default would be in existence following such designation.
SECTION 4.8 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to (i) (a) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any Indebtedness owed to the Company or any
of its Restricted Subsidiaries, (ii) make loans or advances to the Company or
any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of this Indenture, (b) the Credit Facility
as in effect as of the date of this Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the Credit
Facility as in effect on the date of this Indenture, (c) this Indenture and the
Notes, (d) applicable law, (e) any instrument governing Indebtedness or Capital
Stock of a Person acquired by the Company or any of its Restricted Subsidiaries
as in effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of this Indenture to
be incurred, (f) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (g) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired or (h) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Financing Indebtedness are no more restrictive, than
those contained in the agreements governing the Indebtedness being refinanced.
SECTION 4.9 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
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The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and that the
Company shall not issue any Disqualified Stock and shall not permit any of its
Restricted Subsidiaries to issue any shares of preferred stock; provided,
however, that the Company may incur Indebtedness (including Acquired Debt) or
issue shares of Disqualified Stock if the Company's Fixed Charge Coverage Ratio
for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least 2.00 to 1.00, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this Section 4.9 shall not
apply to the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Debt") so long as no Default has occurred and is
continuing or would be caused thereby:
(i) the incurrence by the Company of (A) revolving credit
Indebtedness under any Credit Facility, letters of credit (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Restricted Subsidiaries
thereunder) and related Guarantees under any Credit Facility; provided that
the aggregate principal amount of all revolving Indebtedness and letters of
credit of the Company and its Restricted Subsidiaries (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Restricted Subsidiaries
thereunder) outstanding at any one time under all such Credit Facilities
after giving effect to such incurrence, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any other Indebtedness
incurred pursuant to this clause (i), does not exceed $80.0 million less the
aggregate amount of Asset Sale proceeds applied by the Company and its
Restricted Subsidiaries to permanently reduce the availability of revolving
credit Indebtedness under the Credit Facility pursuant to the provisions
described in Section 4.10 hereof; and (B) up to $45.0 million of the Tranche
B term loan or a similar facility not to exceed $45.0 million (less the
aggregate amount of all repayments (optional or mandatory) of the principal
of any term loan pursuant to this clause (i) that has been made by the
Company since the date of this Indenture) for the purpose of financing the
Toastmaster Acquisition if such acquisition is consummated by April 30,
1999;
(ii) the incurrence by the Company and its Restricted Subsidiaries
of Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by
the Notes and the incurrence by the Guarantors of Indebtedness represented
by the Subsidiary Guarantees;
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(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case incurred for
the purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary, in an aggregate
principal amount, including all Permitted Refinancing Indebtedness incurred
pursuant to this clause (iv), not to exceed $5.0 million at any time
outstanding;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in respect of
Indebtedness that was permitted by this Indenture to be incurred by such
entity other than pursuant to clause (i), (vi) and (vii) below;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Restricted Subsidiaries; provided, however, that (i) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Notes and this Indenture and (ii)(A) any subsequent event or
issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Restricted
Subsidiary of the Company and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Restricted
Subsidiary of the Company shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be, that was not permitted by this clause (vi);
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred in the normal course
of business and consistent with past business practices for the purpose of
fixing or hedging currency, commodity or interest rate risk (including with
respect to any floating rate Indebtedness that is permitted by the terms of
this Indenture to be outstanding in connection with the conduct of their
respective businesses and not for speculative purposes);
(viii) the guarantee by the Company of Indebtedness of any of the
Guarantors or the Guarantee by any of the Guarantors of Indebtedness of the
Company, in each case that was permitted to be incurred by another provision
of this Section 4.9;
(ix) the incurrence by a Restricted Subsidiary that is a Foreign
Subsidiary of Non-Recourse Debt in an amount not to exceed 75% of the net
book value of the non- Affiliate accounts receivable of such Restricted
Foreign Subsidiary determined in accordance with GAAP;
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(x) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (x);
(xi) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness arising from agreements of the Company or a
Restricted Subsidiary of the Company providing for indemnification,
adjustment of purchase price or other similar obligations, in each case,
incurred or assumed in connection with the disposition of any business,
assets or a Restricted Subsidiary of the Company, other than the guarantees
of Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or a Restricted Subsidiary for the purpose of financing
such acquisition; provided that (A) such Indebtedness is not reflected on
the balance sheet of the Company or any Subsidiary of the Company
(contingent obligations referred to in a footnote to financial statements
and not otherwise reflected on the balance sheet will not be deemed to be
reflected on such balance sheet for purposes of this clause (A)) and (B) the
maximum assumable liability in respect of all such Indebtedness with respect
to such disposition shall at no time exceed the gross proceeds including
noncash proceeds (the fair market value of such noncash proceeds being
measured at the time received and without giving effect to any subsequent
changes in value) actually received by the Company and its Restricted
Subsidiaries in connection with such disposition; and
(xii) the incurrence by the Company or any of its Restricted
Subsidiaries that are Guarantors of additional Indebtedness in an aggregate
principal amount (or accreted value, as applicable) at any time outstanding,
including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any other Indebtedness incurred pursuant to this clause
(xii), not to exceed $10.0 million, provided that up to $5.0 million of such
$10.0 million may be incurred by any of the Company's Foreign Restricted
Subsidiaries that are not Guarantors.
For purposes of determining compliance with this covenant, in the
event that an item of proposed Indebtedness meets the criteria of more than one
of the categories of Permitted Debt described in clauses (i) through (xii) above
as of the date of incurrence thereof or is entitled to be incurred pursuant to
the first paragraph of this covenant as of the date of incurrence thereof, the
Company shall, in its sole discretion, classify such item of Indebtedness as of
the date of incurrence thereof in any manner that complies with this covenant
and such item of Indebtedness shall be treated as having been incurred pursuant
to only one of such clauses or pursuant to the first paragraph hereof. Accrual
of interest, the accretion of accreted value and the payment of interest in the
form of additional Indebtedness will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
SECTION 4.10 ASSET SALES
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The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary, as the case may be, is in
the form of cash or Cash Equivalents; provided that the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet) of the Company or any Restricted Subsidiary of the Company
(other than contingent liabilities and liabilities that are by their terms
subordinated to the Notes or any Guarantee thereof) that are assumed by the
transferee of any such assets pursuant to a customary novation agreement that
releases the Company or such Restricted Subsidiary from further liability and
(y) any securities, notes or other obligations received by the Company or any
such Restricted Subsidiary from such transferee that are immediately converted
by the Company or such Restricted Subsidiary into cash (to the extent of the
cash received) shall be deemed to be cash for purposes of this provision.
Within 270 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds, at its option, (i) to repay
Senior Debt under any Credit Facility (and to correspondingly permanently reduce
the commitments with respect thereto in the case of revolving borrowings), or
(ii) to the acquisition of a controlling interest in a another business, the
making of a capital expenditure or the acquisition of other long-term assets, in
each case, in Permitted Businesses. Pending the final application of any such
Net Proceeds, the Company may temporarily reduce Senior Debt under any Credit
Facility or otherwise invest such Net Proceeds in any manner that is not
prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph shall be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company shall be required to make an offer to
all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase, in accordance with the procedures set forth in this Indenture. To
the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sale
provisions of this Indenture, the Company shall comply with the applicable
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securities laws and regulations and shall not be deemed to have breached its
obligations under the Asset Sale provisions of this Indenture by virtue thereof.
SECTION 4.11 TRANSACTIONS WITH AFFILIATES
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or Guarantee with, or for the benefit
of, any Affiliate of any such person (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to
the Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $3.0 million, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an investment banking firm (or, if an investment banking firm is
generally not qualified to give such an opinion, by an appraisal firm) of
national standing; provided that none of the following shall be deemed to be
Affiliate Transactions: (i) any employment agreement entered into by the Company
or any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary,
as the case may be,(ii) transactions exclusively between or among the Company
and/or its Restricted Subsidiaries on terms that are no less favorable to the
Company and/or such Subsidiary than those that would have been obtained in a
comparable transaction by the Company and/or such Subsidiary with an unrelated
Person; (iii) any sale or other issuance of Equity Interests (other than
Disqualified Stock) of the Company; (iv) Restricted Payments that are permitted
by the covenant described in Section 4.7 hereof; (v) fees and compensation paid
to members of the Board of Directors of the Company and of its Restricted
Subsidiaries in their capacity as such, to the extent such fees and compensation
are reasonable, customary and consistent with past practices; (vi) advances to
employees for moving, entertainment and travel expenses, drawing accounts and
similar expenditures in the ordinary course of business and consistent with past
practices; (vii) fees payable to Markpeak Ltd. in the ordinary course of
business and consistent with past practices, and (viii) fees and compensation
paid to, and indemnity provided on behalf of, officers, directors or employees
of the Company or any of its Restricted Subsidiaries, as determined by the Board
of Directors of the Company or of any such Restricted Subsidiary, to the extent
such fees and compensation are reasonable, customary and consistent with past
practices.
SECTION 4.12 LIENS
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The Company shall not and shall not permit any of its Restricted
Subsidiaries to create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind securing Indebtedness, Attributable Debt,
or trade payables (other than Permitted Liens) upon any of their property or
assets, now owned or hereafter acquired, unless all payments due under this
Indenture and the Notes are secured on an equal and ratable basis with the
obligations so secured until such time as such obligations are no longer secured
by a Lien; provided that in any case involving a Lien securing indebtedness
subordinated to the Notes, such Lien is subordinated to the Lien securing the
Notes to the same extent that such subordinated indebtedness is subordinated to
the Notes.
SECTION 4.13 BUSINESS ACTIVITIES
The Company shall not, and the Company shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, engage in any line of
business other than Permitted Business, except to such extent as would not be
material to the Company and its Restricted Subsidiaries taken as a whole.
SECTION 4.14 CORPORATE EXISTENCE
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence, and the corporate, partnership or other existence of each of its
Subsidiaries, in accordance with the respective organizational documents (as the
same may be amended from time to time) of the Company or any such Subsidiary and
(ii) the rights (charter and statutory), licenses and franchises of the Company
and its Subsidiaries; provided, however, that the Company shall not be required
to preserve any such right, license or franchise, or the corporate, partnership
or other existence of any of its Subsidiaries, if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct
of the business of the Company and its Subsidiaries, taken as a whole, and that
the loss thereof is not adverse in any material respect to the Holders of the
Notes.
SECTION 4.15 OFFER TO REPURCHASE UPON CHANGE OF CONTROL
(a) Upon the occurrence of a Change of Control, each Holder of Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to
the offer described in this Section 4.15 (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase (the "Change of Control Payment"). Within 10 days following any
Change of Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by this Indenture and described in such notice.
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The Company will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Notes as a result of a Change of Control.
(b) On a Change of Control Payment Date, the Company shall, to the
extent lawful, (i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (iii) deliver or cause to be delivered to
the Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent shall promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note shall be in a
principal amount of $1,000 or an integral multiple thereof. Prior to complying
with the provisions of this Section 4.15, but in any event within 60 days
following a Change of Control, the Company will either repay all outstanding
Senior Debt or obtain the requisite consents, if any, under all agreements
governing outstanding Senior Debt to permit the repurchase of Notes required by
this Section 4.15. The Company shall publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable
whether or not other provisions of this Indenture are applicable.
(c) The Company shall not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer in a manner, at the times and otherwise in compliance with the
requirements set forth in this Section 4.15 and Section 3.9 hereof and purchases
all Notes validly tendered and not withdrawn under such Change of Control Offer.
SECTION 4.16 NO SENIOR SUBORDINATED DEBT
Notwithstanding any other provision hereof, the Company shall not incur
create, issue, assume, guarantee or otherwise become liable, directly or
indirectly, for any Indebtedness (including Acquired Debt) that is subordinate
or junior in right of payment to any Senior Debt and senior in any respect in
right of payment to the Notes.
SECTION 4.17 LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
The Company shall not permit any of its Restricted Subsidiaries,
directly or indirectly, to Guarantee, assume or in any manner become liable for
the payment of any Indebtedness of the Company unless: (i) such Restricted
Subsidiary simultaneously executes
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and delivers a supplemental indenture to this Indenture providing for the
Guarantee of the payment of the Notes by such Restricted Subsidiary, which
Guarantee shall be (x) in the case of Indebtedness that is subordinated to the
Notes senior to such Restricted Subsidiary's Guarantee of or pledge to secure
such other Indebtedness, (y) in the case of Indebtedness that is pari passu with
the Notes, pari passu with such Restricted Subsidiary's Guarantee of or pledge
to secure such other Indebtedness, and (z) in the case of Indebtedness that is
Senior Debt, subordinated to the Guarantee of such Senior Debt to the same
extent as the Notes are subordinated to such other Senior Debt, and (ii) such
Restricted Subsidiary waives, and will not in any manner whatsoever claim or
take the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Guarantee until the Notes have been paid in full.
SECTION 4.18 PAYMENTS FOR CONSENT
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of this Indenture or the Notes unless such consideration
is offered to be paid or is paid to all Holders of the Notes that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
SECTION 4.19 SALE AND LEASEBACK TRANSACTIONS
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company may enter into a sale and leaseback transaction if (i) the Company
could have incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.9 hereof and
(ii) the gross cash proceeds of such sale and leaseback transaction are at least
equal to the fair market value (as determined in good faith by the Board of
Directors and set forth in an Officers' Certificate delivered to the Trustee) of
the property that is the subject of such sale and leaseback transaction and
(iii) the transfer of assets in such sale and leaseback transaction is permitted
by, and the Company applies the proceeds of such transaction in compliance with
Section 4.10 hereof.
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ARTICLE 5.
SUCCESSORS
SECTION 5.1 MERGER, CONSOLIDATION, OR SALE OR LEASE OF ASSETS.
The Company shall not, directly or indirectly, consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States, any state
thereof or the District of Columbia; (ii) the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company) or the
entity or Person to which such sale, assignment, transfer, conveyance or other
disposition shall have been made assumes all the obligations of the Company
under the Registration Rights Agreement, the Notes and this Indenture pursuant
to a supplemental indenture in a form reasonably satisfactory to the Trustee;
(iii) immediately before and after such transaction no Default or Event of
Default shall have occurred and (iv) except in the case of a merger of the
Company with or into a Wholly owned Restricted Subsidiary of the Company, the
Company or Person formed by or surviving any such consolidation or merger (if
other than the Company), or to which such sale, assignment, transfer, conveyance
or other disposition shall have been made will, immediately after such transfer
after, giving pro forma effect thereto and any related financing transactions as
if the same had occurred at the beginning of the applicable four-quarter period,
be permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.9
hereof.
The entity or the Person formed by or surviving any consolidation or
merger (if other than the Company) will succeed to, and be substituted for, and
may exercise every right and power of, the Company under this Indenture.
The Company shall not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person.
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED
(a) Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with Section 5.1 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, conveyance or other
disposition, the
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provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
the Company's assets that meets the requirements of Section 5.1 hereof.
(b) Each Guarantor, if any, shall not, and the Company will not permit
a Guarantor to, consolidate or merge with or into (whether or not such Guarantor
is the surviving Person), another corporation, Person or entity whether or not
affiliated with such Guarantor unless (i) subject to the provisions of the
following paragraph, the Person formed by or surviving any such consolidation or
merger (if other than such Guarantor) assumes all the obligations of such
Guarantor pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Trustee, under the Notes and this Indenture; and (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists.
In the event of a sale or other disposition of all the assets of any
Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor, than such Guarantor (
in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the capital stock of such Guarantor) or
the corporation acquiring the property (in the event of a sale or other
disposition of all of the assets of such Guarantor) will be released and
relieved of any obligations under the Subsidiary Guarantee; provided that the
Net Proceeds of such sale or other disposition are applied in accordance with
Section 4.10 hereof.
ARTICLE 6.
EVENTS OF DEFAULT
SECTION 6.1 EVENTS OF DEFAULT
An "Event of Default" occurs if:
(a) the Company defaults in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes and such default
continues for a period of 30 days, whether or not such payment is prohibited
by the provisions of Article 10 hereof;
(b) the Company defaults in the payment when due of principal of or
premium, if any, on the Notes, whether or not such payment is prohibited by
the provisions of Article 10 hereof;
(c) the Company or any of its Restricted Subsidiaries fail to comply
with any of the provisions of Section 5.1 hereof;
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(d) the Company or any of its Restricted Subsidiaries fail for 30 days
after notice from the Trustee or the Holders of at least 25% in principal
amount of the Notes then outstanding to comply with the provisions of
Sections 3.9, 4.7, 4.9, 4.10 or 4.15;
(e) the Company or any of its Restricted Subsidiaries fail to observe
or perform any other covenant, representation, warranty or other agreement
in this Indenture or the Notes for 60 days after notice to the Company from
the Trustee or the Holders of at least 25% in aggregate principal amount of
the Notes then outstanding;
(f) the Company or any of its Restricted Subsidiaries defaults under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the
date of this Indenture, which default (a) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness on the date
of such default (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the
principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates without
duplication $2.5 million or more;
(g) the Company or any of its Restricted Subsidiaries fail to pay
final judgments aggregating in excess of $2.5 million (excluding amounts
covered by insurance) which judgments are not paid, discharged or stayed for
a period of 60 days;
(h) the Company or any of its Restricted Subsidiaries pursuant to or
within the meaning of Bankruptcy Law:
(i) commence a voluntary case,
(ii) consent to the entry of an order for relief against them
in an involuntary case,
(iii) consent to the appointment of a Custodian of them or for
all or substantially all of their property,
(iv) make a general assignment for the benefit of their
creditors, or
(v) generally are not paying their debts as they become due;
or
(i) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
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(i) is for relief against the Company or any of its
Restricted Subsidiaries in an involuntary case;
(ii) appoints a Custodian of the Company or any of its
Restricted Subsidiaries or for all or substantially all of the property
of the Company or any of its Subsidiaries; or
(iii) orders the liquidation of the Company or any of its
Subsidiaries; and the order or decree remains unstayed and in effect
for 60 consecutive days; and
(j) except as permitted by this Indenture, any Guarantee is held in
any judicial proceeding to be unenforceable or invalid or ceases for any
reason to be in full force and effect or any Guarantor, or any Person acting
on behalf of any Guarantor, denies or disaffirms its obligations under its
Guarantee.
SECTION 6.2 ACCELERATION
If any Event of Default (other than an Event of Default specified in
clause (h) or (i) of Section 6.1 hereof with respect to the Company
or any Restricted Subsidiaries) occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, if an Event of Default specified in clause (h) or (i) of Section 6.1
hereof occurs with respect to the Company or any Restricted Subsidiary, all
outstanding Notes shall be due and payable without further action or notice.
Holders of the Notes may not enforce this Indenture or the Notes except as
provided in this Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest. The
Holders of a majority in aggregate principal amount of the then outstanding
Notes by notice to the Trustee may on behalf of the Holders of all of the Notes
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal, interest or premium that has become due solely
because of the acceleration) have been cured or waived.
The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event or Default and its consequences
under this Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
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In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the Notes pursuant to the optional
redemption provisions of this Indenture, an equivalent premium shall also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the Notes. If an Event of Default occurs prior to December 15,
2002 by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to December 15, 2002, then the premium specified
in Section 3.7 hereof shall also become immediately due and payable to the
extent permitted by law upon the acceleration of the Notes.
The Company is required to deliver to the Trustee annually a written
statement regarding compliance with this Indenture, and the Company is required
upon becoming aware of any Default or Event of Default, to deliver to the
Trustee a written statement specifying such Default or Event of Default.
SECTION 6.3 OTHER REMEDIES
If an Event of Default occurs and is continuing, the Trustee, in its
sole discretion, may pursue any available remedy to collect the payment of
principal, premium, if any, interest and Liquidated Damages, if any, 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. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.4 WAIVER OF PAST DEFAULTS
Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by written notice to the Trustee may on behalf of the
Holders of all of the Notes waive an existing Default or Event of Default and
its consequences hereunder, except a continuing Default or Event of Default in
the payment of the principal of, premium and Liquidated Damages, if any, or
interest on, the Notes (including in connection with an offer to purchase)
(provided, however, that the Holders of a majority in aggregate principal amount
of the then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
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 impair any right consequent thereon.
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SECTION 6.5 CONTROL BY MAJORITY
Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture or that the Trustee determines may be
unduly prejudicial to the rights of other Holders of Notes or that may involve
the Trustee in personal liability. The Trustee may take any other action
consistent with this Indenture relating to any such direction.
SECTION 6.6 LIMITATION ON SUITS
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee security and indemnity satisfactory to the Trustee
against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
security and indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
SECTION 6.7 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), 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.
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SECTION 6.8 COLLECTION SUIT BY TRUSTEE
If an Event of Default specified in Section 6.1(a) or (b) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, fees, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM
The Trustee is authorized to 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, fees, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian 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 compensation, fees, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under or
in connection with this Indenture. To the extent that the payment of any such
compensation, fees, expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee under or in connection
with this Indenture out of the estate in any such proceeding, shall be denied
for any reason, payment of the same shall be secured by a perfected, first
priority Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise, and such Lien in favor of a
predecessor Trustee shall be senior to the Lien in favor of the current Trustee.
Nothing herein contained shall be deemed to authorize 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, 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, it shall
pay out the money in the following order:
First: to the Trustee (including any predecessor Trustee), its agents
and attorneys for amounts due under Section 7.7 hereof, including payment of all
compensation,
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fees, expenses and liabilities incurred, and all advances made, by the Trustee
and the costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium and Liquidated Damages, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium and Liquidated Damages, if any and
interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
SECTION 6.11 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 a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of 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 does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.7 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
SECTION 7.1 DUTIES OF TRUSTEE
(a) If 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 its exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
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(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), (c), (e) and (f) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request or direction of any Holders, unless such Holder shall have offered and,
if requested, provided to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.2 RIGHTS OF TRUSTEE
(a) The Trustee may conclusively 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, 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 to examine the
books, records and premises of the Company personally or by agent or attorney.
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(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) 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 the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) 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 and, if requested,
provided 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.
(g) No permissive right of the Trustee to act hereunder shall be
construed as a duty.
(h) 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, an Opinion of Counsel, or both.
SECTION 7.3 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 any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the Commission
for permission to continue as trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
SECTION 7.4 TRUSTEE'S DISCLAIMER
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The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture, the Notes or the Registration
Rights Agreement; it shall not be accountable for the Company's use of the
proceeds from the Notes or any money paid to the Company or upon the Company's
direction under any provision of this Indenture; it shall not be responsible for
the use or application of any money received by any Paying Agent other than the
Trustee, and it shall not be responsible for any statement or recital herein or
any statement in the Notes or any other document in connection with the sale of
the Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.5 NOTICE OF DEFAULTS
If a Default or Event of Default occurs and is continuing and if the
Trustee receives written notice thereof, the Trustee shall (at the expense of
the Company) mail to Holders of Notes a notice of the Default or Event of
Default within 90 days after it occurs. Except in the case of a Default or Event
of Default in payment of principal of, premium, if any, Liquidated Damages, if
any, or interest on any Note, the Trustee may withhold the notice if and so long
as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of the Holders of the Notes.
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall (at the expense of the Company) mail to the Holders of the Notes a
brief report dated as of such reporting date that complies with TIA Sections
313(a)(but if no event described in TIA Sections 313(a) has occurred within the
twelve months preceding the reporting date, no report need be transmitted). The
Trustee also shall comply with TIA Sections 313(b)(2). The Trustee shall also
transmit by mail all reports as required by TIA Sections 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Notes are listed in accordance with TIA Sections
313(d). The Company shall promptly notify the Trustee when the Notes are listed
on any stock exchange.
SECTION 7.7 COMPENSATION AND INDEMNITY
The Company and the Guarantors jointly and severally agree to pay to
the Trustee from time to time compensation as agreed upon by the Trustee and the
Company, and, in the absence of any such agreement, reasonable compensation for
its acceptance of this Indenture and services hereunder. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company and the Guarantors shall reimburse the Trustee
promptly upon request for all disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the compensation, disbursements and expenses of the Trustee's agents and
counsel.
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The Company and the Guarantors shall indemnify the Trustee against any
and all losses, liabilities or expenses incurred by it arising out of or in
connection with the acceptance or administration of its duties under this
Indenture, including the costs and expenses of enforcing this Indenture against
the Company and the Guarantors (including this Section 7.7) and defending itself
against any claim (whether asserted by the Company, the Guarantors or any Holder
or any other person) or liability in connection with, relating to, or arising
out of (i) the exercise or performance of any of its powers or duties hereunder,
or in connection herewith, and (ii) the validity, invalidity, adequacy or
inadequacy of this Indenture, the Guarantees, the Notes or the Registration
Rights Agreement, except to the extent any such loss, liability or expense may
be attributable to its negligence or bad faith. The Trustee shall notify the
Company and the Guarantors promptly of any claim for which it intends to seek
indemnity. Failure by the Trustee to so notify the Company and the Guarantors
shall not relieve the Company and the Guarantors of their obligations hereunder.
The Company and the Guarantors shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and the Company
and the Guarantors shall pay the fees and expenses of such counsel. The Company
and the Guarantors need not pay for any settlement made without their consent,
which consent shall not be unreasonably withheld.
The obligations of the Company and the Guarantors to the Trustee under
this Indenture shall survive the satisfaction and discharge of this Indenture.
To secure the Company's and the Guarantors' payment obligations in this
Section, the Trustee shall have a Lien prior to the Notes on all money or
property held or collected by the Trustee, except that held in trust to pay
principal and interest on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(g) or (b) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Sections 313(b)(2)
to the extent applicable.
SECTION 7.8 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.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
by a Board Resolution remove the Trustee if:
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(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) 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 then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after receiving a written request by any Holder of a
Note who has been a bona fide Holder of a Note for at least six months, fails to
comply with Section 7.10, such Holder of a Note may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.7 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.8, the Company's obligations under Section 7.7 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC
If the Trustee or any Agent consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee or Agent, as the case may be.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION
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There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that together with its direct parent, if any, or in the case of
a corporation included in a bank holding company system, its related bank
holding company, has a combined capital and surplus of at least $50 million as
set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Sections 310(a)(1), (2) and (5). The Trustee is subject to
TIA Sections 310(b).
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY
The Trustee is subject to TIA Sections 311(a), excluding any creditor
relationship listed in TIA Sections 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Sections 311(a) to the extent indicated therein.
SECTION 7.12 OTHER CAPACITIES
All references in this Indenture to the Trustee shall be deemed to
refer to the Trustee in its capacity as Trustee and in its capacities as any
Agent, to the extent acting in such capacities, and every provision of this
Indenture relating to the conduct or affecting the liability or offering
protection, immunity or indemnity to the Trustee shall be deemed to apply with
the same force and effect to the Trustee acting in its capacities as any Agent.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have either
Section 8.2 or 8.3 hereof be applied to all outstanding Notes and the Guarantees
upon compliance with the conditions set forth below in this Article 8.
SECTION 8.2 LEGAL DEFEASANCE AND DISCHARGE
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.4 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes and to
have each Guarantor's obligations discharged with respect to its Guarantee on
the date the conditions set forth below are satisfied (hereinafter, "Legal
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Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.5 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive solely from the trust fund described in Section 8.4
hereof, and as more fully set forth in such Section, payments in respect of the
principal of, premium, if any, and interest and Liquidated Damages, if any, on
such Notes when such payments are due, (b) the Company's obligations with
respect to such Notes under Article 2 and Section 4.2 hereof, (c) the rights,
powers, trusts, duties and immunities of the Trustee and any Agent hereunder and
the Company's and Guarantors' obligations in connection therewith, including,
without limitation, Article 7 and Section 8.5 and 8.7 hereunder, and (d) this
Article 8. Subject to compliance with this Article 8, the Company may exercise
its option under this Section 8.2 notwithstanding the prior exercise of its
option under Section 8.3 hereof.
SECTION 8.3 COVENANT DEFEASANCE
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, the Company and each Guarantor shall, subject to
the satisfaction of the conditions set forth in Section 8.4 hereof, be released
from its obligations under the covenants contained in Sections 4.7, 4.8, 4.9,
4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.18, 4.19, and 5.1 hereof with respect to
the outstanding Notes on and after the date the conditions set forth in Section
8.4 are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.1 hereof, but,
except as specified above, the remainder of this Indenture and such Notes shall
be unaffected thereby. In addition, upon the Company's exercise under Section
8.1 hereof of the option applicable to this Section 8.3 hereof, subject to the
satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(d)
through 6.1(f) hereof shall not constitute Events of Default.
SECTION 8.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE
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The following shall be the conditions to the application of either
Section 8.2 or 8.3 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, cash in United States dollars,
non-callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest and Liquidated Damages, if any, on the outstanding Notes on the stated
maturity or on the applicable redemption date, as the case may be, and the
Company must specify whether the Notes are being defeased to maturity or to a
particular redemption date;
(b) in the case of an election under Section 8.2 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.3 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or insofar
as Sections 6.1(h) or 6.1(i) hereof are concerned, at any time in the period
ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument (other than this Indenture) to which the Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that (subject to customary qualifications and assumptions)
after the 91st day
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following the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others;
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that, subject to customary
assumptions and exclusions, all conditions precedent provided for or relating to
the Legal Defeasance or the Covenant Defeasance have been complied with; and
(i) the Trustee shall have received such other documents, assurances
and Opinions of Counsel as the Trustee shall have reasonably required.
SECTION 8.5 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS
Subject to Section 8.6 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.5, the
"Trustee") pursuant to Section 8.4 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent), to the
Holders of such Notes of all sums due and to become due thereon in respect of
principal, premium, if any, and interest, but such money need not be segregated
from other funds except to the extent required by law.
The Company and the Guarantors jointly and severally agree to pay and
indemnify the Trustee against any tax, fee or other charge imposed on or
assessed against the cash or non-callable Government Securities deposited
pursuant to Section 8.4 hereof or the principal and interest received in respect
thereof other than any such tax, fee or other charge which by law is for the
account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or non-callable Government Securities held by it as provided
in Section 8.4 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
8.4(a) hereof), are in excess of the amount thereof that would then be required
to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.6 REPAYMENT TO COMPANY
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Any money deposited with the Trustee or any Paying Agent, or then held
by the Company in trust for the payment of the principal of, premium, if any,
Liquidated Damages, if any, or interest on any Note and remaining unclaimed for
two years after such principal, and premium, if any, Liquidated Damages, if any,
or interest has become due and payable shall be paid to the Company on its
request or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Note shall thereafter, as a secured creditor, look only
to the Company for payment thereof, and all liability of the Trustee or such
Paying Agent with respect to such trust money, and all liability of the Company
as trustee thereof, shall thereupon cease; provided, however, that the Trustee
or such Paying Agent, before being required to make any such repayment, may at
the expense of the Company cause to be published once, in The New York Times and
The Wall Street Journal (national edition), notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such notification or publication, any unclaimed balance
of such money then remaining will be repaid to the Company.
SECTION 8.7 REINSTATEMENT
If the Trustee or Paying Agent is unable to apply any United States
dollars or non callable Government Securities in accordance with Section 8.2 or
8.3 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.2 or 8.3 hereof until such time as the Trustee or Paying Agent is
permitted by such court or governmental authority to apply all such money in
accordance with Section 8.2 or 8.3 hereof, as the case may be; provided,
however, that, if the Company makes any payment of principal of, premium, if
any, Liquidated Damages, if any, or interest on any Note following 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 held by the
Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF NOTES
Notwithstanding Section 9.2 of this Indenture, the Company, the
Guarantors and the Trustee may amend or supplement this Indenture, the
Guarantees or the Notes without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes or to alter the provisions of Article 2 hereof (including the
related definitions) in a manner that does not adversely affect any Holder;
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(c) to provide for the assumption of the Company's obligations to the
Holders of the Notes by a successor to the Company pursuant to Article 5 hereof;
(d) to add additional guarantees with respect to the Notes, including
any new Subsidiary Guarantees;
(e) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights hereunder of any Holder of the Notes; or
(f) to comply with requirements of the Commission in order to effect
or maintain the qualification of this Indenture under the TIA.
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental Indenture, and
upon receipt by the Trustee of the documents described in Section 7.2 hereof,
the Trustee shall join with the Company in the execution of any amended or
supplemental Indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations that may be
therein contained, but the Trustee shall not be obligated to enter into such
amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.2 WITH CONSENT OF HOLDERS OF NOTES
Except as provided below in this Section 9.2, the Company and the
Trustee may amend or supplement this Indenture (including Sections 3.9, 4.10 and
4.15 hereof) and the Notes and the Guarantees may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the Notes then outstanding voting as a single class (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for the Notes), and, subject to Sections 6.4 and 6.7 hereof,
any existing Default or Event of Default (other than a Default or Event of
Default in the payment of the principal of, premium, if any, Liquidated Damages,
if any, or interest on the Notes, except a payment default resulting from an
acceleration that has been rescinded) or compliance with any provision of this
Indenture, the Notes or the Guarantees may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes voting
as a single class (including consents obtained in connection with a tender offer
or exchange offer for, or purchase of, the Notes). Without the consent of at
least 75% in principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for, or purchase
of, such Notes), no waiver or amendment to this Indenture may make any change in
the provisions of Sections 3.9, 4.10 or 4.15 hereof that adversely affects the
rights of any Holder of Notes. In addition, any amendment to the provisions of
Article 10 hereof will require the consent of the Holders of at least 75% in
aggregate principal amount of the Notes then outstanding if such amendment would
adversely affect the rights of
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Holders of the Notes. Section 2.8 hereof shall determine which Notes are
considered to be "outstanding" for purposes of this Section 9.2.
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental Indenture, and
upon receipt by the Trustee of evidence satisfactory to the Trustee of the
consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of
the documents described in Section 7.2 hereof, the Trustee shall join with the
Company in the execution of such amended or supplemental Indenture unless such
amended or supplemental Indenture directly affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise, in which case the
Trustee may in its discretion, but shall not be obligated to, enter into such
amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.2 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. 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 amended or supplemental
Indenture or waiver. Subject to Sections 6.4 and 6.7 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding voting as a
single class may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Notes. However, without the consent of
each Holder affected, an amendment or waiver under this Section 9.2 may not
(with respect to any Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note
or alter or waive any of the provisions with respect to the redemption of the
Notes except as provided above with respect to Sections 3.9, 4.10 and 4.15
hereof;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest or Liquidated Damages, if any, on the Notes
(except a rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the then outstanding Notes and a
waiver of the payment default that resulted from such acceleration);
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(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or premium, if any, or interest or Liquidated Damages, if any,
on the Notes;
(g) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described in Sections 4.10 and 4.15);
or
(h) make any change in the foregoing amendment and waiver provisions.
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT
Every amendment or supplement to this Indenture or the Notes
shall be set forth in an amended or supplemental Indenture that complies with
the TIA as then in effect.
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.5 NOTATION ON OR EXCHANGE OF NOTES
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article Nine if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amendment or supplemental Indenture until the Board of Directors
approves it. In executing any amended or supplemental indenture, the Trustee
shall be entitled to receive and (subject to
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Section 7.1 hereof) shall be fully protected in relying upon, in addition to the
documents required by Section 13.4 hereof, an Officer's Certificate and an
Opinion of Counsel stating that the execution of such amended or supplemental
indenture is authorized or permitted by this Indenture.
ARTICLE 10.
SUBORDINATION
SECTION 10.1 AGREEMENT TO SUBORDINATE
The Company agrees, and each Holder by accepting a Note agrees, that
the Indebtedness evidenced by the Notes is subordinated in right of payment, to
the extent and in the manner provided in this Article 10, to the prior payment
in full, in cash or Cash Equivalents, of all Senior Debt (whether outstanding on
the date hereof or hereafter created, incurred, assumed or guaranteed), and that
the subordination is for the benefit of the holders of Senior Debt.
SECTION 10.2 CERTAIN DEFINITIONS
"Designated Senior Debt" means, (i) any Indebtedness outstanding under
the New Credit Agreement and (ii) any other Senior Debt permitted hereunder the
principal amount of which is $25.0 million or more and that has been designated
by the Company as "Designated Senior Debt."
"Permitted Junior Securities" means Equity Interests in the Company or
debt securities that are subordinated to all Senior Debt (and any debt
securities issued in exchange for Senior Debt) to substantially the same extent
as, or to a greater extent than, the Notes are subordinated to Senior Debt
pursuant to Article 10 of this Indenture.
"Representative" means the administrative agent under the New Credit
Agreement or its successor thereunder.
"Senior Debt" means (i) all Indebtedness outstanding under the Credit
Facility permitted under clause (i) of the second paragraph of Section 4.9
hereof, (ii) any other Indebtedness permitted to be incurred by the Company
under the terms of this Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes and (iii) all Obligations of the
Company with respect to the foregoing. Notwithstanding anything to the contrary
in the foregoing, Senior Debt shall not include (w) any liability for federal,
state, local or other taxes owed or owing by the Company, (x) any Indebtedness
of the Company to any of its Subsidiaries or other Affiliates, (y) any trade
payables or (z) any Indebtedness that is incurred in violation of the
restrictions described in Section 4.9 hereof; provided that Indebtedness under
the Credit Facility will not cease to be Senior Debt if borrowed (in the case of
loans) or
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issued (in the case of letters of credit) based upon a written certification
(which can be included in a borrowing request) form a purported officer of the
Company to the effect hat such Indebtedness is permitted by this Indenture to be
incurred.
A distribution may consist of cash, securities or other property, by
set-off or otherwise.
SECTION 10.3 LIQUIDATION; DISSOLUTION; BANKRUPTCY
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, in
an assignment for the benefit of creditors or any marshaling of such Company's
assets and liabilities:
(1) holders of Senior Debt shall be entitled to receive payment in
full in cash or Cash Equivalents of all Obligations due in respect of such
Senior Debt (including interest after the commencement of any such proceeding at
the rate specified in the applicable Senior Debt, whether or not such claim is
allowed under applicable law) before Holders of the Notes shall be entitled to
receive any payment with respect to the Notes (except that Holders may receive
and retain (i) Permitted Junior Securities and (ii) payments made from any
defeasance trust created pursuant to Section 8.1 hereof); and
(2) until all Obligations with respect to Senior Debt (as provided in
subsection (1) above) are paid in full, in cash or Cash Equivalents, any
distribution to which Holders of Notes would be entitled but for this Article 10
shall be made to holders of Senior Debt (except that Holders of Notes may
receive and retain (i) Permitted Junior Securities and (ii) payments made from
any defeasance trust created pursuant to Section 8.1 hereof), as their interests
may appear.
SECTION 10.4 DEFAULT ON DESIGNATED SENIOR DEBT
The Company may not make any payment or distribution to the Trustee or
any Holder in respect of Obligations with respect to the Notes and may not
acquire from the Trustee or any Holder any Notes for cash or property (other
than (i) Permitted Junior Securities and (ii) payments made from any defeasance
trust created pursuant to Section 8.1 hereof) until all principal and other
Obligations with respect to the Senior Debt have been paid in full if:
(i) a default in the payment of any principal of, premium, if any, or
interest with respect to Designated Senior Debt occurs and is continuing
beyond any applicable grace period in the agreement, indenture or other
document governing such Designated Senior Debt; or
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(ii) a default, other than a payment default defined in (i), on
Designated Senior Debt occurs and is continuing that then permits holders
of the Designated Senior Debt as to which such default relates to
accelerate its maturity and the Trustee receives a notice of the default (a
"Payment Blockage Notice") from the Company or the holders of any
Designated Senior Debt. If the Trustee receives any such Payment Blockage
Notice, no subsequent Payment Blockage Notice shall be effective for
purposes of this Section unless and until at least 360 days shall have
elapsed since the commencement of the effectiveness of the immediately
prior Payment Blockage Notice. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice unless such default shall have been cured or waived for a period of
at least 180 days.
The Company may and shall resume payments on and distributions in
respect of the Notes and may acquire them upon the earlier of:
(1) in the case of a default referred to in Section 10.4(i) hereof,
the date upon which such default is cured or waived or has ceased to exist or
such Designated Senior Debt has been discharged or repaid in full in cash, or
(2) in the case of a default referred to in Section 10.4(ii) hereof,
the earlier of the date on which such default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice is received or
has ceased to exist or such Designated Senior Debt has been discharged or repaid
in full in cash, unless the maturity of any Designated Senior Debt has been
accelerated,
if this Article 10 otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
SECTION 10.5 ACCELERATION OF SECURITIES
If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Debt of the
acceleration.
SECTION 10.6 WHEN DISTRIBUTION MUST BE PAID OVER
In the event that the Trustee or any Holder receives any payment of any
Obligations with respect to the Notes at a time when such payment is prohibited
by Section 10.4 hereof, such payment shall be held by the Trustee or such
Holder, in trust for the benefit of, and shall be paid forthwith over and
delivered, upon written request, to, the holders of Senior Debt as their
interests may appear or their Representative under the indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt remaining unpaid to the extent necessary
to pay such Obligations in full in accordance
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with their terms, after giving effect to any concurrent payment or distribution
to or for the holders of Senior Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 10, and no implied covenants or obligations with respect
to the holders of Senior Debt 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 Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders or the Company
or any other Person money or assets to which any holders of Senior Debt shall be
entitled by virtue of this Article 10, except if such payment is made as a
result of the willful misconduct or negligence of the Trustee.
SECTION 10.7 NOTICE BY COMPANY
The Company shall promptly notify in writing the Trustee and the Paying
Agent of any facts known to the Company that would cause a payment of any
Obligations with respect to the Notes to violate this Article 10, but failure to
give such notice shall not affect the subordination of the Notes to the Senior
Debt as provided in this Article 10.
SECTION 10.8 SUBROGATION
After all Senior Debt is paid in full and until the Notes are paid in
full, Holders of Notes shall be subrogated (equally and ratably with all other
Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt
to receive distributions applicable to Senior Debt to the extent that
distributions otherwise payable to the Holders of Notes have been applied to the
payment of Senior Debt. A distribution made under this Article 10 to holders of
Senior Debt that otherwise would have been made to Holders of Notes is not, as
between the Company and Holders, a payment by the Company on the Notes.
SECTION 10.9 RELATIVE RIGHTS
This Article 10 defines the relative rights of Holders of Notes and
holders of Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders of Notes, the
obligation of the Company, which is absolute and unconditional, to pay principal
of and interest on the Notes in accordance with their terms;
(2) affect the relative rights of Holders of Notes and creditors of
the Company other than their rights in relation to holders of Senior Debt; or
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(3) prevent the Trustee or any Holder of Notes from exercising its
available remedies upon a Default or Event of Default, subject to the rights of
holders and owners of Senior Debt to receive distributions and payments
otherwise payable to Holders of Notes.
If the Company fails because of this Article 10 to pay
principal of or interest on a Note on the due date, the failure is still a
Default or Event of Default.
SECTION 10.10 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY OR GUARANTORS
No right of any holder of Senior Debt to enforce the subordination of
the Indebtedness evidenced by the Notes or the related Guarantees shall be
impaired by any act or failure to act by the Company, any Guarantor or any
Holder or by the failure of the Company, any Guarantor or any Holder to comply
with this Indenture.
SECTION 10.11 DISTRIBUTION OR NOTICE TO REPRESENTATIVE
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article 10, the Trustee and the Holders of Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
of Notes for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Debt 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 10.
SECTION 10.12 ARTICLE 10 NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT RIGHT TO
ACCELERATE
The failure to make a payment in respect of the Notes, whether directly
or pursuant to any Guarantee, by reason of any provision in this Article 10
shall not be construed as preventing the occurrence of a Default or Event of
Default. Nothing in this Article 10 shall have any effect on the right of the
Holders or the Trustee to accelerate the maturity of the Notes or to make a
claim for payment under any Guarantee.
SECTION 10.13 RIGHTS OF TRUSTEE AND PAYING AGENT
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have
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received at its Corporate Trust Office at least five Business Days prior to the
date of such payment written notice of facts that would cause the payment of any
Obligations with respect to the Notes to violate this Article 10. Only the
Company or a Representative may give the notice. Nothing in this Article 10
shall impair the claims of, or payments to, the Trustee under or pursuant to
Section 7.7 hereof.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent may do
the same with like rights.
SECTION 10.14 AUTHORIZATION TO EFFECT SUBORDINATION
Each Holder of Notes, by the Holder's acceptance thereof, authorizes
and directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact
for any and all such purposes. If the Trustee does not file a proper proof of
claim or proof of debt in the form required in any proceeding referred to in
Section 6.9 hereof at least 30 days before the expiration of the time to file
such claim, the Representatives are hereby authorized to file an appropriate
claim for and on behalf of the Holders of the Notes.
SECTION 10.15 AMENDMENTS
The provisions of this Article 10 shall not be amended or modified
without the written consent of the Holders of at least 75% in aggregate
principal amount of the Notes then outstanding if such amendment would adversely
affect the rights of Holders of Notes.
SECTION 10.16 TRUSTEE'S COMPENSATION NOT PREJUDICED
Nothing in this Article 10 shall apply to amounts due to the Trustee
pursuant to other sections in this Indenture.
ARTICLE 11.
GUARANTEE
SECTION 11.1 UNCONDITIONAL GUARANTEE
Each Guarantor hereby unconditionally, jointly and severally,
guarantees to each Holder of a Note authenticated by the Trustee and to the
Trustee and its successors and assigns that: the principal of, premium, if any,
interest and Liquidated Damages, if any, on the Notes will be promptly paid in
full when due, subject to any applicable grace period, whether at maturity, by
acceleration or otherwise, and interest on the overdue principal and interest on
any overdue interest on the Notes and all other obligations of the Company to
the Holders or
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the Trustee hereunder or under the Notes will be promptly paid in full or
performed, all in accordance with the terms hereof and thereof; subject,
however, to the limitations set forth in Section 11.3. Each Guarantor hereby
agrees that its obligations hereunder shall be unconditional, irrespective of
the validity, regularity or enforceability of the Notes or this Indenture, the
absence of any action to enforce the same, any waiver or consent by any Holder
of the Notes with respect to any provisions hereof or thereof, the recovery of
any judgment against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a Guarantor. Each Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that the
Guarantees will not be discharged except by complete performance of the
obligations contained in the Notes and this Indenture. If any Holder or the
Trustee is required by any court or otherwise to return to the Company or any
Guarantor, or any custodian, trustee, liquidator or other similar official
acting in relation to the Company or any Guarantor, any amount paid by the
Company or any Guarantor to the Trustee or such Holder, the Guarantees, to the
extent theretofore discharged, shall be reinstated in full force and effect.
Each Guarantor further agrees that, as between each Guarantor, on the one hand,
and the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 6 for
the purpose of the Guarantees, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article 6, such obligations (whether or not due and payable)
shall become due and payable by each Guarantor for the purpose of the
Guarantees.
SECTION 11.2 SEVERABILITY
In case any provision of this Article 11 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 11.3 LIMITATION OF GUARANTOR'S LIABILITY
Each Guarantor, and by its acceptance hereof each Holder and the
Trustee, hereby confirms that it is the intention of all such parties that the
Guarantees not constitute a fraudulent transfer or conveyance for purposes of
Title 11 of the United States Code, as amended, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar U.S. Federal
or state or other applicable law. To effectuate the foregoing intention, the
Holders and each Guarantor hereby irrevocably agree that the obligations of each
Guarantor under the Guarantees shall be limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor pursuant to Section 11.4, result in the obligations of such Guarantor
not constituting such a fraudulent transfer or conveyance.
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SECTION 11.4 CONTRIBUTION
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under the
Guarantees such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount, based on the net assets of each Guarantor
(including the Funding Guarantor), determined in accordance with GAAP, subject
to Section 11.3, for all payments, damages and expenses incurred by such Funding
Guarantor in discharging the Company's obligations with respect to the Notes or
any other Guarantor's obligations under the Guarantees, as the case may be.
SECTION 11.5 EXECUTION OF GUARANTEE
To further evidence the Guarantees to the Holders, each of the
Guarantors hereby agrees to execute a guarantee to be endorsed on each Note
ordered to be authenticated and delivered by the Trustee. Each Guarantor hereby
agrees that its guarantee set forth in Section 11.1 shall remain in full force
and effect notwithstanding any failure to endorse on each Note a guarantee. Each
such guarantee shall be signed on behalf of each Guarantor by its Chairman of
the Board, its President or one of its Vice Presidents prior to the
authentication of the Note on which it is endorsed, and the delivery of such
Note by the Trustee, after the authentication thereof hereunder, shall
constitute due delivery of such guarantee on behalf of such Guarantor. Such
signature upon the guarantee may be a manual or facsimile signature of such
officer and may be imprinted or otherwise reproduced on the guarantee, and in
case such officer who shall have signed the guarantee shall cease to be such
officer before the Note on which such guarantee is endorsed shall have been
authenticated and delivered by the Trustee or disposed of by the Company, such
Note nevertheless may be authenticated and delivered or disposed of as though
the Person who signed the guarantee had not ceased to be such officer of such
Guarantor.
SECTION 11.6 ADDITIONAL SUBSIDIARY GUARANTEES
If the Company or any of its Restricted Subsidiaries shall acquire or
create another Subsidiary after the date of this Indenture, or if any Restricted
Subsidiary becomes a Subsidiary after the date of this Indenture, then such
newly acquired or created Restricted Subsidiary shall execute a Subsidiary
Guarantee and deliver an Opinion of Counsel, in accordance with the terms
hereof; provided, that all Restricted Subsidiaries that have properly been
designated as Unrestricted Subsidiaries in accordance herewith shall not be
subject to the requirements of this covenant for so long as they continue to
constitute Unrestricted Subsidiaries.
SECTION 11.7 SUBORDINATION OF SUBROGATION AND OTHER RIGHTS
Each Guarantor hereby agrees that any claim against the
Company that arises from the payment, performance or enforcement of such
Guarantor's obligations under the
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Guarantees or this Indenture, including, without limitation, any right of
subrogation, shall be subject and subordinate to, and no payment with respect to
any such claim of such Guarantor shall be made before, the payment in full in
cash of all outstanding Notes in accordance with the provisions provided
therefor in this Indenture.
ARTICLE 12.
SUBORDINATION OF GUARANTEE
SECTION 12.1 GUARANTEE OBLIGATIONS SUBORDINATED TO SENIOR DEBT
Each Guarantor covenants and agrees, and the Trustee and each Holder of
the Notes by its acceptance thereof likewise covenants and agrees, that the
Guarantees shall be issued subject to the provisions of this Article 12; and
each person holding any Note, whether upon original issue or upon transfer,
assignment or exchange thereof, accepts and agrees that all payments of the
principal of and interest on the Notes pursuant to the Guarantees made by or on
behalf of any Guarantor shall, to the extent and in the manner set forth in this
Article 12, be subordinated and junior in right of payment to the prior payment
in full in cash or Cash Equivalents of all amounts if any, payable under Senior
Debt of such Guarantor.
SECTION 12.2 NO PAYMENT IN CERTAIN CIRCUMSTANCES; PAYMENT OVER OF PROCEEDS
UPON DISSOLUTION, ETC
(a) Upon any payment or distribution of assets of a Guarantor of any
kind or character, whether in cash, property or securities, to creditors upon
any liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors or marshaling of assets of a Guarantor or in a bankruptcy,
reorganization, insolvency, receivership or other similar proceeding relating to
a Guarantor or its property, whether voluntary or involuntary, all Obligations
due or to become due upon all Senior Debt shall first be paid in full in cash or
Cash Equivalents, or such payment duly provided for to the satisfaction of the
holders of Senior Debt, before any payment or distribution of any kind or
character is made by or on behalf of such Guarantor on account of any
Obligations on the Guarantees of such Guarantor, or for the acquisition of any
of the Notes for cash or property or otherwise (except that holders of the Notes
may receive Permitted Junior Securities and payments made from any defeasance
trust created pursuant to Section 8.1 hereof). Before any payment may be made
by, or on behalf of, any Guarantor of the principal of, premium, if any,
Liquidated Damages, if any, or interest on the Notes upon any such dissolution
or winding-up or total liquidation or reorganization, any payment or
distribution of assets or securities of such Guarantor of any kind or character,
whether in cash, property or securities, to which the Holders of the Notes or
the Trustee on their behalf would be entitled, but for the subordination
provisions of this Indenture, shall be made by such Guarantor or by any
receiver, trustee in bankruptcy, liquidation trustee, agent or other Person
making such payment or distribution, directly to the holders of the Senior Debt
of such Guarantor (pro rata to such holders on the basis of the respective
amounts of such Senior Debt held by such holders) or their representatives or to
the
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trustee or trustees or agent or agents under any agreement or indenture pursuant
to which any of such Senior Debt may have been issued, as their respective
interests may appear, to the extent necessary to pay all such Senior Debt in
full in cash after giving effect to any prior or concurrent payment,
distribution or provision therefor to or for the holders of such Senior Debt.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of any Guarantor of any kind or character, whether in cash,
property or securities, shall be received by the Trustee or any Holder of Notes
at a time when such payment or distribution is prohibited by Section 12.2(a) and
before all obligations in respect of the Senior Debt of such Guarantor 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 such Senior Debt (pro rata to such holders on the
basis of the respective amounts of such Senior Debt held by such holders) or
their respective representatives, or to the trustee or trustees or agent or
agents under any indenture pursuant to which any of such Senior Debt may have
been issued, as their respective interests may appear, for application to the
payment of such Senior Debt remaining unpaid until all such Senior Debt has been
paid in full in cash or Cash Equivalents after giving effect to any prior or
concurrent payment, distribution or provision therefor to or for the holders of
such Senior Debt.
The consolidation of any Guarantor with, or the merger of any Guarantor
with or into, another corporation or the liquidation or dissolution of any
Guarantor following the conveyance or transfer of its property as an entirety,
or substantially as an entirety, to another corporation upon the terms and
conditions provided in Article 5 shall not be deemed a dissolution, winding-up,
liquidation or reorganization for the purposes of this Section 12.2 if such
other corporation shall, as a part of such consolidation, merger, conveyance or
transfer, comply with the conditions stated in Article 5.
If any default occurs and is continuing in the payment when due,
whether at maturity, upon any redemption, by acceleration or otherwise, of any
principal of, interest on, unpaid drawings for letters of credit issued in
respect of, or regularly accruing fees with respect to, any Senior Debt, no
payment of any kind or character shall be made by or on behalf of a Guarantor
or any other Person on its behalf with respect to any Obligations on the
Guarantees of such Guarantor or to acquire any of the Notes for cash or property
or otherwise (except that holders of the Notes may receive payments made from
any defeasance trust created pursuant to Section 8.1 hereof).
In addition, if any other event of default occurs and is continuing
with respect to any Designated Senior Debt, as such event of default is defined
in the instrument creating or evidencing such Designated Senior Debt, permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives a Payment Blockage Notice to the Trustee, then,
unless and until all events of default have been cured or waived or have ceased
to exist
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or the Trustee receives notice from the Representative for the respective issue
of Designated Senior Debt terminating the Payment Blockage Period, during the
Payment Blockage Period, neither Guarantor, nor any other Person on the
Guarantor's behalf, shall (x) make any payment of any kind or character with
respect to any Obligations on the Guarantees of such Guarantor or (y) acquire
any of the Notes for cash or property or otherwise (except that holders of the
Notes may receive payments made from any defeasance trust created pursuant to
Section 8.1 hereof).
Notwithstanding anything herein to the contrary, in no event will a
Payment Blockage Period extend beyond 179 days from the date the Payment
Blockage Notice is delivered and only one such Payment Blockage Period may be
commenced within any 360 consecutive days. No event of default which existed or
was continuing on the date of the commencement of any Payment Blockage Period
with respect to the Designated Senior Debt shall be, or be made, the basis for
commencement of a second Payment Blockage Period by the Representative of such
Designated Senior Debt 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 180 consecutive days (it being acknowledged that any subsequent
action, or any breach of any financial covenants for a period commencing after
the date of commencement of such Payment Blockage Period that, in either case,
would give rise to an event of default pursuant to any provisions under which an
event of default previously existed or was continuing shall constitute a new
event of default for this purpose).
SECTION 12.3 SUBROGATION
Upon the payment in full in cash or Cash Equivalents of all Senior Debt
of a Guarantor, or provision for payment, the Holders of the Notes shall be
subrogated to the rights of the holders of such Senior Debt to receive payments
or distributions of cash, property or securities of such Guarantor made on such
Senior Debt until the principal of and interest or Liquidated Damages, if any,
on the Notes shall be paid in full in cash or Cash Equivalents; and, for the
purposes of such subrogation, no payments or distributions to the holders of
such Senior Debt of any cash, property or securities to which the Holders of the
Notes or the Trustee on their behalf would be entitled except for the provisions
of this Article 12, and no payment over pursuant to the provisions of this
Article 12 to the holders of such Senior Debt by Holders of the Notes or the
Trustee on their behalf shall, as between such Guarantor, its creditors other
than holders of such Senior Debt, and the Holders of the Notes, be deemed to be
a payment by such Guarantor to or on account of such Senior Debt. It is
understood that the provisions of this Article 12 are and are intended solely
for the purpose of defining the relative rights of the Holders of the Notes, on
the one hand, and the holders of Senior Debt of each Guarantor, on the other
hand.
If any payment or distribution to which the Holders of the Notes would
otherwise have been entitled but for the provisions of this Article 12 shall
have been applied, pursuant to the provisions of this Article 12, to the payment
of all amounts payable under Senior Debt of a Guarantor, then and in such case,
the Holders of the Notes shall be entitled to
<PAGE> 101
91
receive from the holders of such Senior Debt any payments or distributions
received by such holders of Senior Debt in excess of the amounts required to
make payment in full in cash of such Senior Debt.
SECTION 12.4 OBLIGATIONS OF GUARANTORS UNCONDITIONAL
Subject to Sections 11.3 and 10.4, nothing contained in this Article 12
or elsewhere in this Indenture or in the Notes or the Guarantees is intended to
or shall impair as among each of the Guarantors and the Holders of the Notes,
the obligation of each Guarantor, which is absolute and unconditional, to pay to
the Holders of the Notes the principal of and interest or Liquidated Damages, if
any, on the Notes as and when the same shall become due and payable in
accordance with the terms of the Guarantees of such Guarantor, or is intended to
or shall affect the relative rights of the Holders of the Notes and creditors of
any Guarantor other than the holders of Senior Debt of such Guarantor, nor shall
anything herein or therein prevent the Holder of any Note 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 12 of the holders of Senior Debt in respect of cash, property or
securities of any Guarantor received upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained in
this Article 12 shall restrict the right of the Trustee or the Holders of Notes
to take any action to declare the Notes to be due and payable prior to their
stated maturity pursuant to Section 6.1 or to pursue any rights or remedies
hereunder; provided, however, that all Senior Debt of any Guarantor then due and
payable shall first be paid in full in cash or Cash Equivalents before the
Holders of the Notes or the Trustee are entitled to receive any direct or
indirect payment from such Guarantor of principal of or interest or Liquidated
Damages, if any, on the Notes pursuant to the Guarantees.
SECTION 12.5 NOTICE TO TRUSTEE
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Notes pursuant to the provisions of this Article 12.
The Trustee shall not be charged with knowledge of the existence of any event of
default with respect to any Senior Debt of a Guarantor or of any other facts
which would prohibit the making of any payment to or by the Trustee unless and
until the Trustee 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 Debt of a Guarantor or trustee or agent therefor; and prior to the
receipt of any such written notice, the Trustee shall, subject to Article 7, be
entitled to assume that no such facts exist. Nothing contained in this Section
12.5 shall limit the right of the holders of Senior Debt of a Guarantor to
recover payments as contemplated by Section 12.3. 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 Debt of a Guarantor (or a trustee
on behalf of, or other
<PAGE> 102
92
representative of, such holder) to establish that such notice has been given by
a holder of such Senior Debt or a trustee or representative on behalf of any
such holder.
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 Debt of a Guarantor to participate in any payment or distribution
pursuant to this Article 12, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Debt 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 12, and if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
SECTION 12.6 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT
Upon any payment or distribution of assets or securities of a Guarantor
referred to in this Article 12, the Trustee and the Holders of the Notes 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 person making such
payment or distribution, delivered to the Trustee or to the Holders of the Notes
for the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of Senior Debt of such Guarantor and other
indebtedness of such Guarantor, the amounts thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 12.
SECTION 12.7 TRUSTEE'S RELATION TO GUARANTOR SENIOR DEBT
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article 12 with respect to any Senior Debt of a Guarantor
which may at any time be held by them in their individual or any other capacity
to the same extent as any other holder of Senior Debt of a Guarantor, and
nothing in this Indenture shall deprive the Trustee or any Paying Agent of any
of its rights as such holder.
With respect to the holders of Senior Debt of a Guarantor, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article 12, and no implied covenants or
obligations with respect to the holders of such Senior Debt 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 Debt of a Guarantor. The Trustee 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 Guarantor Senior
Debt shall be entitled by virtue of this Article 12 or otherwise.
<PAGE> 103
93
SECTION 12.8 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE
GUARANTORS OR HOLDERS OF SENIOR DEBT
No right of any present or future holders of any Senior Debt of a
Guarantor to enforce subordination as provided herein shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of any
Guarantor or by any act or failure to act, in good faith, by any such holder, or
by any noncompliance by any Guarantor with the terms of this Indenture,
regardless of any knowledge thereof which any such holder may have or otherwise
be charged with. The provisions of this Article 12 are intended to be for the
benefit of, and shall be enforceable directly by, the holders of Senior Debt of
a Guarantor.
SECTION 12.9 NOTEHOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF
GUARANTEE
Each Holder of Notes by his acceptance of such 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 12, and appoints the Trustee his attorney-in-fact for such purposes,
including, in the event of any dissolution, winding-up, total liquidation or
reorganization of any 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
business and assets of such Guarantor, the filing of a claim for the unpaid
balance of its or his Notes in the form required in those proceedings.
SECTION 12.10 THIS ARTICLE NOT TO PREVENT EVENTS OF DEFAULT
The failure to make a payment on account of principal of or interest on
the Notes by reason of any provision of this Article 12 shall not be construed
as preventing the occurrence of an Event of Default.
SECTION 12.11 TRUSTEE'S COMPENSATION NOT PREJUDICED
Nothing in this Article 12 shall apply to amounts due to the Trustee
pursuant to other sections in this Indenture.
SECTION 12.12 NO WAIVER OF GUARANTEE SUBORDINATION PROVISIONS
Without in any way limiting the generality of Section 12.8, the holders
of Senior Debt of a Guarantor may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Notes, without
incurring responsibility to the Holders of the Notes and without impairing or
releasing the subordination provided in this Article 12 or the obligations
hereunder of the Holders of the Notes to the holders of such Senior Debt, do any
one or more of the following: (a) change the manner, place or terms of
<PAGE> 104
94
payment or extend the time of payment of, or renew or alter, such Senior Debt or
any instrument evidencing the same or any agreement under which such Senior Debt
is outstanding or secured; (b) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing such Senior Debt; (c)
release any Person liable in any manner for the collection of such Senior Debt;
and (d) exercise or refrain from exercising any rights against any Guarantor and
any other Person.
ARTICLE 13.
MISCELLANEOUS
SECTION 13.1 TRUST INDENTURE ACT CONTROLS
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 31 8(c), the imposed duties shall control.
SECTION 13.2 NOTICES
Any notice or communication by the Company, the Guarantors or the
Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telex, telecopier or overnight air courier guaranteeing next day delivery, to
the others' address
If to the Company and/or any Guarantor:
Salton/Maxim Housewares, Inc.
550 Business Center Drive
Mt. Prospect, Illinois 60056
Attention: Chief Financial Officer
With a copy to:
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
Attention: Neal Aizenstein, Esq.
If to the Trustee:
Norwest Bank Minnesota, National Association
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
<PAGE> 105
95
Attention: Corporate Trust Department
Facsimile: 612-667-9825
The Company, the Guarantors or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA Sections 313(c), to the extent required by the TIA.
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.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it, except for notices or communications to the Trustee, which shall be
effective only upon actual receipt thereof.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 13.3 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES
Holders may communicate pursuant to TIA Sections 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA Sections 312(c).
SECTION 13.4 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:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 13.5 hereof) stating that, in the opinion of the signers, all conditions
precedent and covenants, if any, provided for in this Indenture relating to the
proposed action have been satisfied; and
<PAGE> 106
96
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 13.5 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 13.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Sections 314(a)(4)) shall comply with the provisions of
TIA Sections 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him or her to
express an informed opinion as to whether or not such covenant or condition has
been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 13.6 RULES BY TRUSTEE AND AGENTS
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 13.7 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes, the Guarantees, this Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
Notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the Commission that such a waiver is against public policy.
SECTION 13.8 GOVERNING LAW
<PAGE> 107
97
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE GUARANTEES.
SECTION 13.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 13.10 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 successors.
SECTION 13.11 SEVERABILITY
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 13.12 COUNTERPART 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 13.13 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 of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
<PAGE> 108
98
SIGNATURES
Dated as of December 16,1998
SALTON/MAXIM HOUSEWARES, INC.
By:_____________________________
Name:
Title:
HOME CREATIONS DIRECT LTD.
By:_____________________________
Name:
Title:
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:_____________________________
Name:
Title:
<PAGE> 109
EXHIBIT A-1
(Face of Note)
[INSERT THE GLOBAL NOTE LEGEND, IF APPLICABLE PURSUANT TO THE
PROVISIONS OF THE INDENTURE] [INSERT THE PRIVATE PLACEMENT LEGEND, IF
APPLICABLE PURSUANT TO THE PROVISIONS OF THE INDENTURE]
CUSIP/CINS 795757AA1
10 3/4% SENIOR SUBORDINATED NOTES DUE 2005
No.______ $__________
SALTON/MAXIM HOUSEWARES, INC.
promises to pay to_____________________________________________________
or registered assigns,
the principal sum of__________________________________________________
Dollars on December 15, 2005.
Interest Payment Dates: June 15 and December 15
Record Dates: June 1 and December 1
SALTON/MAXIM HOUSEWARES, INC.
BY:________________________
Name:
Title:
BY:________________________
Name:
Title:
This is one of the Global
Notes referred to in the
within-mentioned Indenture:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
By: _______________________ Dated: December 16 , 1998
Name:
Title:
<PAGE> 110
(Back of Note)
10 3/4% Senior Subordinated Notes due 2005
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Salton/Maxim Housewares, Inc. (the "Company"), a
Delaware corporation, promises to pay interest on the principal amount of this
Note at 10 3/4% per annum from December 15, 1998 until maturity and shall pay
the Liquidated Damages, if any, payable pursuant to Section 5 of the
Registration Rights Agreement referred to below. The Company shall pay interest
and Liquidated Damages, if any, semi-annually on June 15 and December 15 of each
year, or if any such day is not a Business Day, on the next succeeding Business
Day (each an "Interest Payment Date"). 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 the date of issuance; provided that if there is no existing Default
in the payment of interest, and if this Note is authenticated between a record
date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be June 15, 1999.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1% per annum in excess of the rate
then in effect; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages, if any (without regard to any applicable grace periods) from
time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages, if any, to the Persons who
are registered Holders of Notes at the close of business on the or June 15 or
December 15 next preceding the Interest Payment Date, even if such Notes are
canceled after such record date and on or before such Interest Payment Date,
except as provided in Section 2.12 of the Indenture (as herein defined) with
respect to defaulted interest. The Notes will be payable as to principal,
premium and Liquidated Damages, if any, and interest at the office or agency of
the Company maintained for such purpose within the City and State of New York,
or, at the option of the Company, payment of interest and Liquidated Damages, if
any, may be made by check mailed to the Holders at their addresses set forth in
the register of Holders, and provided that all payments of principal, premium,
if any, interest and Liquidated Damages, if any, with respect to Notes the
Holders of which have given wire transfer instructions to the Company at least
ten business days prior to the applicable payment date will be required to be
made by wire transfer of immediately available funds to the accounts specified
by the Holders thereof. Such payment shall be in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, Norwest Bank Minnesota,
National Association, the Trustee under the Indenture, will act as Paying Agent
and Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company, any of its Subsidiaries or any Guarantor may
act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture
dated as of December 16, 1998, as amended or supplemented from time to time
("Indenture"), among the Company, the Guarantor and the Trustee. 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 of 1939, as amended (15 U.S.
Code Sections
A-1-2
<PAGE> 111
77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred
to the Indenture and such Act for a statement of such terms. To the extent any
provision of this Note conflicts with the express provisions of the Indenture,
the provisions of the Indenture shall govern and be controlling. The Notes are
obligations of the Company limited to $125.0 million in aggregate principal
amount.
The payment of principal of, and premium, if any, and interest on, and
other Obligations evidenced by, the Notes is subordinated in right of payment,
to the extent and in the manner provided in the Indenture, to the prior payment
in full of all present and future Senior Debt (as defined in the Indenture) of
the Company. Each Holder of this Note, by accepting the same, (i) agrees to such
provisions, (ii) authorizes and directs the Trustee on such Holder's behalf to
take such action as may be necessary or appropriate to effectuate the
subordination as provided in the Indenture and (iii) appoints the Trustee to act
as attorney-in-fact for any and all such purposes.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph 5,
the Notes will not be redeemable at the Company' option prior to December 15,
2002. Thereafter, the Notes will be subject to redemption at any time at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on ________ of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . 105.375%
2003 . . . . . . . . . . . . . . . . . . . 102.688%
2004 and thereafter . . . . . . . . . . . 100.000%
</TABLE>
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time during the first 36 months after the date of the
Indenture, the Company may on any one or more occasions redeem up to 35% of the
aggregate principal amount of Notes originally issued under the Indenture at a
redemption price of 110.750% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the redemption date,
with the net cash proceeds of any Public Equity Offering of common stock of the
Company; provided that at least 65% of the aggregate principal amount of Notes
originally issued on the date of the Indenture remain outstanding immediately
after each occurrence of such redemption; and provided further that each such
redemption shall occur within 60 days of the date of the closing of such Public
Equity Offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption or sinking fund payments with respect to
the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, the Company shall
be required to make an offer (a "Change of Control Offer") to repurchase all or
any part (equal to $1,000 or an integral
A-1-3
<PAGE> 112
multiple thereof) of each Holder's Notes at an offer price in cash equal to 101%
of the aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of purchase (the "Change of
Control Payment"). Within 10 days following any Change of Control, the Company
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Notes on the
date specified in such notice, which date shall be no earlier than 30 days and
no later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice.
(b) If the Company or a Restricted Subsidiary consummates any
Asset Sale for which the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company shall be required to commence an offer to all Holders of
Notes (an "Asset Sale Offer") pursuant to Section 4.10 of the Indenture to
purchase the maximum principal amount of Notes that may be purchased out of the
Excess Proceeds at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the date of purchase, in accordance with the procedures set
forth in the Indenture. To the extent that any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use such Excess Proceeds
for any purpose not otherwise prohibited by the Indenture. If the aggregate
principal amount of Notes tendered into such Asset Sale surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes to be purchased on a pro rata basis. Holders of Notes that are the subject
of an offer to purchase will receive an Asset Sale Offer from the Company prior
to any related purchase date and may elect to have such Notes purchased by
completing the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date, interest ceases to accrue on Notes
or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Company may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the next succeeding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture, the Guarantees or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the then outstanding Notes voting as a single class, and any existing
default or compliance with any provision of the Indenture, the Guarantees or the
Notes may be waived with the consent of the Holders of a majority in principal
amount of the then outstanding Notes voting as a single class. Without the
consent of any Holder of a Note, the Indenture, the Guarantees or the Notes may
be amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for
A-1-4
<PAGE> 113
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in case of a merger or consolidation, to add additional guarantees with respect
to the Notes, to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, or to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
12. DEFAULTS AND REMEDIES. An "Event of Default" occurs if: the
Company defaults in the payment when due of interest on, or Liquidated Damages,
if any, with respect to, the Notes and such default continues for a period of 30
days, whether or not such payment is prohibited by the provisions of Article 10
of the Indenture; the Company defaults in the payment when due of principal of
or premium, if any, on the Notes, whether or not such payment is prohibited by
the provisions of Article 10 of the Indenture; the Company or any of its
Restricted Subsidiaries fail to comply with any of the provisions of Section 5.1
of the Indenture; the Company or any of its Restricted Subsidiaries fail for 30
days after written notice from the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes to comply with the provisions of
Sections 3.9, 4.7, 4.9, 4.10 or 4.15 of the Indenture; the Company or any of its
Restricted Subsidiaries fail to observe or perform any other covenant,
representation, warranty or other agreement in the Indenture or the Notes for 60
days after written notice to the Company by the Trustee or the Holders of at
least 25% in aggregate principal amount of the Notes then outstanding; the
Company or any of its Restricted Subsidiaries defaults under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Restricted Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries), whether such Indebtedness or
guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "(viii) s22
Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates without duplication $2.5 million or more; the Company
or any of its Restricted Subsidiaries fail to pay final judgments aggregating in
excess of $2.5 million (excluding amounts covered by insurance) which judgments
are not paid, discharged or stayed for a period of 60 days; and certain events
of bankruptcy or insolvency with respect to the Company or any of its Restricted
Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company or any Restricted Subsidiary, all
outstanding Notes shall be due and payable without further action or notice.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may in writing direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest. In the case of any
Event of Default occurring by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company with the intention of avoiding
payment of the premium that the Company would have had to pay if the Company
then had elected to redeem the Notes pursuant to the optional redemption
provisions of the Indenture, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law upon the acceleration
of the Notes. If an Event of Default occurs prior to December 15, 2002 by reason
of any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding the
A-1-5
<PAGE> 114
prohibition on redemption of the Notes prior to December 15, 2002, then the
premium specified in the Indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the Notes. The Holders
of a majority in aggregate principal amount of the Notes then outstanding by
written notice to the Trustee may on behalf of the Holders of all of the Notes
waive any existing Default or Event of Default and its consequences under the
Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes. The Company is required to deliver
to the Trustee annually a statement regarding compliance with the Indenture, and
the Company is required upon becoming aware of any Default or Event of Default,
to deliver to the Trustee a statement specifying such Default or Event of
Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, 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.
14. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or stockholder of the Company, as such, shall have any liability
for any obligations of the Company under the Notes, the Guarantees or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. 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. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. 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).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of December 16, 1998, among the Company, the Guarantor and
Lehman Brothers Inc. ( the "Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
19. Guarantees. This Note will be entitled to the benefits of
certain Guarantees made for the benefit of the Holders. Reference is hereby made
to the Indenture for a statement of the respective rights, limitations of
rights, duties and obligations thereunder of the Guarantors, the Trustee and the
Holders.
A-1-6
<PAGE> 115
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Salton/Maxim Housewares, Inc.
550 Business Center Drive
Mt. Prospect, Illinois 60056
Attention: Chief Financial Officer
20. Counterparts. This Note may be executed by one or more of the parties
to this Note on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
A-1-7
<PAGE> 116
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
________________________________________________________________________________
Date: _______________
Your signature:______________________________
(Sign exactly as your name appears on the
face of this Note)
Tax Identification No.:___________________
SIGNATURE GUARANTEE:
_____________________
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
A-1-8
<PAGE> 117
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $________
Date: _________________
Your signature:______________________________
(Sign exactly as your name appears on the
face of this Note)
Tax Identification No.:______________________
SIGNATURE GUARANTEE:
_______________________
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
A-1-9
<PAGE> 118
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE1
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of Amount of increase of this Global Note Signature of
decrease in in Principal following such authorized officer
Principal Amount Amount of this decrease (or of Trustee or Note
Date of Exchange of this Global Note Global Note increase) Custodian
- ---------------- ------------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
</TABLE>
- ---------
(1) This should be included only if the Note is issued in global form.
A-1-10
<PAGE> 119
EXHIBIT A-2
(Face of Regulation S Temporary Global Note)
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND
THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE
AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"),
TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE 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.
THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (2) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903
OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) TO AN INSTITUTIONAL
ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (4) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN
ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED
STATES AND OTHER JURISDICTIONS.
CUSIP/CINS U79618AA9
10 3/4% SENIOR SUBORDINATED NOTES DUE 2005
No.______ $_______________
A-2-1
<PAGE> 120
SALTON/MAXIM HOUSEWARES, INC.
promises to pay to _____________________________________________________________
or registered assigns,
the principal sum of __________________________________________________
Dollars on December 15, 2005.
Interest Payment Dates: June 15 and December 15
Record Dates: June 1 and December 1
SALTON/MAXIM HOUSEWARES, INC.
BY:_______________________________________
Name:
Title:
BY:_______________________________________
Name:
Title:
This is one of the Global
Notes referred to in the
within-mentioned Indenture:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
By:________________________ Dated: December 16, 1998
Name:
Title:
<PAGE> 121
(Back of Regulation S Temporary Global Note)
10 3/8% Senior Subordinated Notes due 2005
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Salton/Maxim Housewares, Inc. (the "Company"), a Delaware
corporation, promises to pay interest on the principal amount of this Note at 10
3/4% per annum from December 16, 1998 until maturity and shall pay the
Liquidated Damages, if any, payable pursuant to Section 5 of the Registration
Rights Agreement referred to below. The Company shall pay interest and
Liquidated Damages, if any, semi-annually on June 15 and December 15 of each
year, or if any such day is not a Business Day, on the next succeeding Business
Day (each an "Interest Payment Date"). 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 the date of issuance; provided that if there is no existing Default
in the payment of interest, and if this Note is authenticated between a record
date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be June 15, 1999.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1% per annum in excess of the rate
then in effect; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages, if any (without regard to any applicable grace periods) from
time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
Until this Regulation S Temporary Global Note is exchanged for one or
more Regulation S Permanent Global Notes, the Holder hereof shall not be
entitled to receive payments of interest hereon; until so exchanged in full,
this Regulation S Temporary Global Note shall in all other respects be entitled
to the same benefits as other Notes under the Indenture.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages, if any, to the Persons who
are registered Holders of Notes at the close of business on the June 15 or
December 15 next preceding the Interest Payment Date, even if such Notes are
canceled after such record date and on or before such Interest Payment Date,
except as provided in Section 2.12 of the Indenture (as herein defined) with
respect to defaulted interest. The Notes will be payable as to principal,
premium and Liquidated Damages, if any, and interest at the office or agency of
the Company maintained for such purpose within the City and State of New York,
or, at the option of the Company, payment of interest and Liquidated Damages, if
any, may be made by check mailed to the Holders at their addresses set forth in
the register of Holders, and provided that all payments of principal, premium,
if any, interest and Liquidated Damages, if any, with respect to Notes the
Holders of which have given wire transfer instructions to the Company at least
ten business days prior to the applicable payment date will be required to be
made by wire transfer of immediately available funds to the accounts specified
by the Holders thereof. Such payment shall be in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, Norwest Bank Minnesota,
National Association, the Trustee under the Indenture, will act as Paying Agent
and Registrar. The Company may
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<PAGE> 122
change any Paying Agent or Registrar without notice to any Holder. The Company,
any of its Subsidiaries or any Guarantor may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture
dated as of December 16, 1998, as amended or supplemented from time to time
("Indenture"), among the Company, the Guarantor and the Trustee. 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 of 1939, as amended (15 U.S.
Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and Holders
are referred to the Indenture and such Act for a statement of such terms. To the
extent any provision of this Note conflicts with the express provisions of the
Indenture, the provisions of the Indenture shall govern and be controlling. The
Notes are obligations of the Company limited to $125.0 million in aggregate
principal amount.
The payment of principal of, and premium, if any, and interest on, and
other Obligations evidenced by, the Notes is subordinated in right of payment,
to the extent and in the manner provided in the Indenture, to the prior payment
in full of all present and future Senior Debt (as defined in the Indenture) of
the Company. Each Holder of this Note, by accepting the same, (i) agrees to such
provisions, (ii) authorizes and directs the Trustee on such Holder's behalf to
take such action as may be necessary or appropriate to effectuate the
subordination as provided in the Indenture and (iii) appoints the Trustee to act
as attorney-in-fact for any and all such purposes.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph 5,
the Notes will not be redeemable at the Company's option prior to December 15,
2002. Thereafter, the Notes will be subject to redemption at any time at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on December 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . 105.375%
2003 . . . . . . . . . . . . . . . . . . . 102.688%
2004 and thereafter . . . . . . . . . . . 100.000%
</TABLE>
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time during the first 36 months after the date of the
Indenture, the Company may on any one or more occasions redeem up to 35% of the
aggregate principal amount of Notes originally issued under the Indenture at a
redemption price of 110.750% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the redemption date,
with the net cash proceeds of any Public Equity Offering of common stock of the
Company; provided that at least 65% of the aggregate principal amount of Notes
originally issued on the date of the Indenture remain outstanding immediately
after each occurrence of such redemption; and provided further that each such
redemption shall occur within 60 days of the date of the closing of such Public
Equity Offering.
6. MANDATORY REDEMPTION.
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<PAGE> 123
Except as set forth in paragraph 7 below, the Company will not be
required to make mandatory redemption or sinking fund payments with respect to
the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, the Company shall
be required to make an offer (a "Change of Control Offer") to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of each Holder's
Notes at an offer price in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any,
to the date of purchase (the "Change of Control Payment"). Within 10 days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase Notes on the date specified in such notice, which
date shall be no earlier than 30 days and no later than 60 days from the date
such notice is mailed (the "Change of Control Payment Date"), pursuant to the
procedures required by the Indenture and described in such notice.
(b) If the Company or a Restricted Subsidiary consummates any
Asset Sale for which the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company shall be required to commence an offer to all Holders of
Notes (an "Asset Sale Offer") pursuant to Section 4.10 of the Indenture to
purchase the maximum principal amount of Notes that may be purchased out of the
Excess Proceeds at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the date of purchase in accordance with the procedures set
forth in the Indenture. To the extent that any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use such Excess Proceeds
for any purpose not otherwise prohibited by the Indenture. If the aggregate
principal amount of Notes tendered into such Asset Sale surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes to be purchased on a pro rata basis. Holders of Notes that are the subject
of an offer to purchase will receive an Asset Sale Offer from the Company prior
to any related purchase date and may elect to have such Notes purchased by
completing the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date, interest ceases to accrue on Notes
or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Company may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the next succeeding Interest Payment Date.
This Regulation S Temporary Global Note is exchangeable in whole or in
part for one or more Global Notes only (i) on or after the termination of the
40-day restricted period (as defined in Regulation S) and (ii) upon presentation
of certificates (accompanied by an Opinion of Counsel, if
A-2-5
<PAGE> 124
applicable) required by Article 2 of the Indenture. Upon exchange of this
Regulation S Temporary Global Note for one or more Global Notes, the Trustee
shall cancel this Regulation S Temporary Global Note.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture, the Guarantees or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the then outstanding Notes voting as a single class, and any existing
default or compliance with any provision of the Indenture, the Guarantees or the
Notes may be waived with the consent of the Holders of a majority in principal
amount of the then outstanding Notes voting as a single class. Without the
consent of any Holder of a Note, the Indenture, the Guarantees or the Notes may
be amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company' obligations to Holders of
the Notes in case of a merger or consolidation, to add additional guarantees
with respect to the Notes, to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not adversely affect
the legal rights under the Indenture of any such Holder, or to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
12. DEFAULTS AND REMEDIES. An "Event of Default" occurs if: the
Company defaults in the payment when due of interest on, or Liquidated Damages,
if any, with respect to, the Notes and such default continues for a period of 30
days, whether or not such payment is prohibited by the provisions of Article 10
of the Indenture; the Company defaults in the payment when due of principal of
or premium, if any, on the Notes, whether or not such payment is prohibited by
the provisions of Article 10 of the Indenture; the Company or any of its
Restricted Subsidiaries fail to comply with any of the provisions of Section 5.1
of the Indenture; the Company or any of its Restricted Subsidiaries fail for 30
days after written notice from the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes to comply with the provisions of
Sections 3.9, 4.7, 4.9, 4.10 or 4.15 of the Indenture; the Company or any of its
Restricted Subsidiaries fail to observe or perform any other covenant,
representation, warranty or other agreement in the Indenture or the Notes for 60
days after written notice to the Company by the Trustee or the Holders of at
least 25% in aggregate principal amount of the Notes then outstanding; the
Company or any of its Restricted Subsidiaries defaults under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Restricted Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries), whether such Indebtedness or
guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "(viii) Payment
Default") or (b) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates without duplication $2.5 million or more; the Company
or any of its Restricted Subsidiaries fail to pay final judgments aggregating in
excess of $2.5 million (excluding amounts covered by insurance) which judgments
are not paid, discharged or stayed for a period of 60 days; and certain events
of bankruptcy or insolvency with respect to the Company or any of its Restricted
Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy
A-2-6
<PAGE> 125
or insolvency with respect to the Company or any Restricted Subsidiary, all
outstanding Notes shall be due and payable without further action or notice.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may in writing direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest. In the case of any
Event of Default occurring by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company with the intention of avoiding
payment of the premium that the Company would have had to pay if the Company
then had elected to redeem the Notes pursuant to the optional redemption
provisions of the Indenture, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law upon the acceleration
of the Notes. If an Event of Default occurs prior to December 15, 2002 by reason
of any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding the prohibition on redemption of the
Notes prior to December 15, 2002, then the premium specified in the Indenture
shall also become immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. The Holders of a majority in aggregate
principal amount of the Notes then outstanding by written notice to the Trustee
may on behalf of the Holders of all of the Notes waive any existing Default or
Event of Default and its consequences under the Indenture except a continuing
Default or Event of Default in the payment of interest on, or the principal of,
the Notes. The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Company is required
upon becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, may otherwise deal with the Company
or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or stockholder, of the Company, as such, shall have any liability
for any obligations of the Company under the Notes, the Guarantees or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. 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. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. 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).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of December 16, 1998, among the Company, the Guarantors and
Lehman Brothers Inc. ( the "Registration Rights Agreement").
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<PAGE> 126
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company have caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
19. Guarantees. This Note will be entitled to the benefits of
certain Guarantees made for the benefit of the Holders. Reference is hereby made
to the Indenture for a statement of the respective rights, limitations of
rights, duties and obligations thereunder of the Guarantors, the Trustee and the
Holders.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Salton/Maxim Housewares, Inc.
550 Business Center Drive
Mt. Prospect, Illinois 60056
Attention: Chief Financial Officer
20. Counterparts. This Note may be executed by one or more of the parties to
this Note on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
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<PAGE> 127
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
________________________________________________________________________________
Date:____________
Your signature:______________________________
(Sign exactly as your name appears on the
face of this Note)
Tax Identification No.:______________________
SIGNATURE GUARANTEE:
_______________________
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
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<PAGE> 128
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $_________
Date: _________________
Your signature:______________________________
(Sign exactly as your name appears on the
face of this Note)
Tax Identification No.:______________________
SIGNATURE GUARANTEE:
_______________________
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
A-2-10
<PAGE> 129
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S Temporary Global
Note for an interest in another Global Note, or of other Restricted Global Notes
for an interest in this Regulation S Temporary Global Note, have been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of Amount of increase of this Global Note Signature of
decrease in in Principal following such authorized officer
Principal Amount Amount of this decrease (or of Trustee or Note
Date of Exchange of this Global Note Global Note increase) Custodian
- ---------------- ------------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
</TABLE>
A-2-11
<PAGE> 130
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Salton/Maxim Housewares, Inc.
550 Business Center Drive
Mt. Prospect, Illinois 60056
Attention: Chief Financial Officer
Norwest Bank Minnesota, National Association
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Department
Re: 10 3/4% Senior Subordinated Notes due 2005
Reference is hereby made to the Indenture, dated as of December 16,
1998 (the "Indenture"), among Salton/Maxim Housewares, Inc. (the "Company"),
Home Creations Direct Ltd., as guarantor, and Norwest Bank Minnesota, National
Association, as trustee. Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
__________________ (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $____ in such Note[s] or interests (the "Transfer"), to
______ (the "Transferee"), as further specified in Annex A hereto. In connection
with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN
THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.
2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN
THE TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A
DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected
pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act
and, accordingly, the Transferor hereby further certifies that (i) the Transfer
is not being made to a person in the United States and (x) at the time the buy
order was originated, the Transferee was outside
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<PAGE> 131
the United States or such Transferor and any Person acting on its behalf
reasonably believed and believes that the Transferee was outside the United
States or (y) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither such Transferor nor any Person
acting on its behalf knows that the transaction was prearranged with a buyer in
the United States, (ii) no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S
under the Securities Act, (iii) the transaction is not part of a plan or scheme
to evade the registration requirements of the Securities Act and (iv) if the
proposed transfer is being made prior to the expiration of the Restricted
Period, the transfer is not being made to a U.S. Person or for the account or
benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of
the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on Transfer enumerated in the Private Placement Legend printed on
the Regulation S Global Note, the Temporary Regulation S Global Note and/or the
Definitive Note and in the Indenture and the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION
OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is
being effected in compliance with the transfer restrictions applicable to
beneficial interests in Restricted Global Notes and Restricted Definitive Notes
and pursuant to and in accordance with the Securities Act and any applicable
blue sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
(b) [ ] such Transfer is being effected to the Company or a
subsidiary thereof;
or
(c) [ ] such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act;
or
(d) [ ] such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904,
and the Transferor hereby further certifies that it has not engaged in any
general solicitation within the meaning of Regulation D under the Securities Act
and the Transfer complies with the transfer restrictions applicable to
beneficial interests in a Restricted Global Note or Restricted Definitive Notes
and the requirements of the exemption claimed, which certification is supported
by ( 1) a certificate executed by the Transferee and (2) if such Transfer is in
respect of a principal amount of Notes at the time of transfer of less than
$250,000, an Opinion of Counsel provided by the Transferor or the Transferee (a
copy of which the Transferor has attached to this certification), to the effect
that such Transfer is in compliance with the Securities Act. Upon consummation
of the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the IAI Global Note and/or the Definitive Notes and in the Indenture and the
Securities Act.
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<PAGE> 132
4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN
AN 9UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE.
(a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The
Transfer is being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i)
The Transfer is being effected pursuant to and in accordance with Rule 903 or
Rule 904 under the Securities Act and in compliance with the transfer
restrictions contained in the Indenture and any applicable blue sky securities
laws of any state of the United States and (ii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act. Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
(c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION.
(i) The Transfer is being effected pursuant to and in compliance with an
exemption from the registration requirements of the Securities Act other than
Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
State of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will not be subject to the restrictions
on transfer enumerated in the Private Placement Legend printed on the Restricted
Global Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company.
______________________________
[Insert Name of Transferor]
By:__________________________
Name:
Title:
Dated: ____________ ,____
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<PAGE> 133
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP _____), or
(ii) [ ] Regulation S Global Note (CUSIP _____), or
(iii) [ ] IAI Global Note (CUSIP _____); or
(b) [ ] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP _____), or
(ii) [ ] Regulation S Global Note (CUSIP _____), or
(iii) [ ] a IAI Global Note (CUSIP _____), or
(iv) [ ] Unrestricted Global Note (CUSIP _____); or
(b) [ ] a Restricted Definitive Note; or
(c) [ ] an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
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<PAGE> 134
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Salton/Maxim Housewares, Inc.
550 Business Center Drive
Mt. Prospect, Illinois 60056
Norwest Bank Minnesota, National Association
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Department
Re: 10 3/4% Senior Subordinated Notes due 2005
(CUSIP ____________________)
Reference is hereby made to the Indenture, dated as of
December 16, 1998 (the "Indenture"), among Salton/Maxim Housewares, Inc. (the
"Company"), Home Creations Direct Ltd., as guarantor, and Norwest Bank
Minnesota, National Association, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
________________ (the "Owner") owns and proposes to exchange
the Note[s] or interest in such Note[s] specified herein, in the principal
amount of $______ in such Note[s] or interests (the "Exchange"). In connection
with the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A
RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN AN UNRESTRICTED GLOBAL NOTE
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In
connection with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for a beneficial interest in an Unrestricted Global Note in an equal
principal amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner's own account without transfer, (ii) such Exchange
has been effected in compliance with the transfer restrictions applicable to the
Global Notes and pursuant to and in accordance with the United States Securities
Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
beneficial interest in an Unrestricted Global Note is being acquired in
compliance with any applicable blue sky securities laws of any state of the
United States.
(b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for an
Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and
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<PAGE> 135
in accordance with the Securities Act, (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the Definitive
Note is being acquired in compliance with any applicable blue sky securities
laws of any state of the United States.
(c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE
NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with
the Owner's Exchange of a Restricted Definitive Note for a beneficial interest
in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer, (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE
NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of
a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner
hereby certifies (i) the Unrestricted Definitive Note is being acquired for the
Owner's own account without transfer, (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to Restricted Definitive
Notes and pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the Unrestricted Definitive Note is being acquired in compliance with
any applicable blue sky securities laws of any state of the United States.
2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for a
Restricted Definitive Note with an equal principal amount, the Owner hereby
certifies that the Restricted Definitive Note is being acquired for the Owner's
own account without transfer. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Definitive Note
issued will continue to be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the Restricted Definitive Note and in
the Indenture and the Securities Act.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE
NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the
Exchange of the Owner's Restricted Definitive Note for a beneficial interest in
the [CHECK ONE] (b) 144A Global Note, (b) Regulation S Global Note, (b) IAI
Global Note with an equal principal amount, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner's own account without
transfer and (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes and pursuant to
and in accordance with the Securities Act, and in compliance with any applicable
blue sky securities laws of any state of the United States. Upon consummation of
the proposed Exchange in accordance with the terms of the Indenture, the
beneficial interest issued will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the relevant Restricted
Global Note and in the Indenture and the Securities Act.
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<PAGE> 136
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
___________________________
[Insert Name of Owner]
By:_________________________
Name:
Title:
Dated: ______________,____
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<PAGE> 137
EXHIBIT D
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated
as of _______________, among _______________ (the "Guaranteeing Subsidiary"), a
subsidiary of Salton/Maxim Housewares, Inc. (or its permitted successor), a
Delaware corporation (the "Company"), as issuer under the indenture referred to
below, the other Guarantors (as defined in the indenture referred to herein) and
Norwest Bank Minnesota, National Association, as trustee under the indenture
referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to
the Trustee an indenture (the "Indenture"), dated as of December 16, 1998
providing for the issuance of an aggregate principal amount of up to $125.0
million of 10 3/4% Senior Subordinated Notes due 2005 (the "Notes");
WHEREAS, the Indenture provides that under certain
circumstances the Guaranteeing Subsidiary shall execute and deliver to the
Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary
shall unconditionally guarantee all of the Company's Obligations under the Notes
and the Indenture on the terms and conditions set forth herein (the "Subsidiary
Guarantee"); and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee
is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary
hereby agrees as follows:
(a) Along with all Guarantors named in the Indenture, to
jointly and severally Guarantee 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 and enforceability of
the Indenture, the Notes or the obligations of the
Company hereunder or thereunder, that:
(i) the principal of and interest on the Notes
will be promptly paid in full when due,
whether at maturity, by acceleration,
redemption or otherwise, and interest on the
overdue principal of and interest on the
Notes, if any, if lawful, and all other
obligations of the Company to the Holders or
the Trustee hereunder or thereunder will be
promptly paid in full or performed, all in
accordance with the terms hereof and thereof;
and
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<PAGE> 138
(ii) in case of any extension of time of payment
or renewal of any Notes or any of such other
obligations, that same will be promptly paid
in full when due or performed in accordance
with the terms of the extension or renewal,
whether at stated maturity, by acceleration
or otherwise. Failing payment when due of any
amount so guaranteed or any performance so
guaranteed for whatever reason, the
Guarantors shall be jointly and severally
obligated to pay the same immediately.
(b) The obligations hereunder shall be unconditional,
irrespective of the validity, regularity or
enforceability of the Notes or the Indenture, the
absence of any action to enforce the same, any waiver
or consent by any Holder of the Notes with respect to
any provisions hereof or thereof, the recovery of any
judgment against the Company, any action to enforce
the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or
defense of a Guarantor.
(c) The following is hereby waived: diligence presentment,
demand of payment, filing of claims with a court in
the event of insolvency or bankruptcy of the Company,
any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever.
(d) This Subsidiary Guarantee shall not be discharged
except by complete performance of the obligations
contained in the Notes and the Indenture.
(e) If any Holder or the Trustee is required by any court
or otherwise to return to the Company, the Guarantors,
or any custodian, Trustee, liquidator or other similar
official acting in relation to either the Company or
the Guarantors, any amount paid by either to the
Trustee or such Holder, this Subsidiary Guarantee, to
the extent theretofore discharged, shall be reinstated
in full force and effect.
(f) The Guaranteeing Subsidiary shall 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.
(g) As between the Guarantors, on the one hand, and the
Holders and the Trustee, on the other hand, (x) the
maturity of the obligations guaranteed hereby may be
accelerated as provided in Article 6 of the Indenture
for the purposes of this Subsidiary Guarantee,
notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of
the obligations guaranteed hereby, and (y) in the
event of any declaration of acceleration of such
obligations as provided in Article 6 of the Indenture,
such obligations (whether or not due and payable)
shall forthwith become due and payable by the
Guarantors for the purpose of this Subsidiary
Guarantee.
(h) The Guarantors shall have the right to seek
contribution from any non-paying Guarantor so long as
the exercise of such right does not impair the rights
of the Holders under the Guarantee.
D-2
<PAGE> 139
(i) The obligations of each Guarantor will be limited to
the maximum amount, as will, after giving effect to
all other contingent and fixed liabilities of such
Guarantor, result in the obligations of such Guarantor
under the Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under
federal or state law.
(j) This Subsidiary Guarantee inures to the benefit of and
is enforceable by the Trustee, the Holders and their
successors, transferees and assigns.
3. EXECUTION AND DELIVERY. Each Guaranteeing Subsidiary agrees that the
Subsidiary Guarantees shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Subsidiary Guarantee.
4. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
(a) The Guaranteeing Subsidiary may not consolidate with
or merge with or into (whether or not such Guarantor
is the surviving Person) another corporation, Person
or entity whether or not affiliated with such
Guarantor unless:
(i) the Person formed by or surviving any such
consolidation or merger (if other than a
Guarantor or the Company) assumes all the
obligations of such Guarantor, pursuant to a
supplemental indenture in form and substance
reasonably satisfactory to the Trustee, under
the Notes and the Indenture; and
(ii) immediately after such transaction, no
Default or Event of Default exists.
(b) In case of any such consolidation, merger, sale or
conveyance and upon the assumption by the successor
corporation, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to
the Trustee, of the Subsidiary Guarantee endorsed upon
the Notes and the due and punctual performance of all
of the covenants and conditions of the Indenture to be
performed by the Guarantor, such successor corporation
shall succeed to and be substituted for the Guarantor
with the same effect as if it had been named herein as
a Guarantor. Such successor corporation thereupon may
cause to be signed any or all of the Subsidiary
Guarantees to be endorsed upon all of the Notes
issuable hereunder which theretofore shall not have
been signed by the Company and delivered to the
Trustee. All the Subsidiary Guarantees so issued shall
in all respects have the same legal rank and benefit
under the Indenture as the Subsidiary Guarantees
theretofore and thereafter issued in accordance with
the terms of the Indenture as though all of such
Subsidiary Guarantees had been issued at the date of
the execution hereof.
(c) Except as set forth in Articles 4 and 5 of the
Indenture, and notwithstanding clauses (a) and (b)
above, nothing contained in the Indenture or in any of
the Notes shall prevent any consolidation or merger of
a Guarantor with or into the Company or another
Guarantor, or shall prevent any sale or conveyance of
the property of a Guarantor as an entirety or
substantially as an entirety to the Company or another
Guarantor.
D-3
<PAGE> 140
5. RELEASES.
(a) In the event of a sale or other disposition of all of
the assets of any Guarantor, by way of merger,
consolidation or otherwise, or a sale or other
disposition of all to the capital stock of any
Guarantor, then such Guarantor (in the event of a sale
or other disposition, by way of such a merger,
consolidation or otherwise, of all of the capital
stock of such Guarantor) or the corporation acquiring
the property (in the event of a sale or other
disposition of all or substantially all of the assets
of such Guarantor) will be released and relieved of
any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other
disposition are applied in accordance with the
applicable provisions of the Indenture, including
without limitation Section 4.10 of the Indenture. Upon
delivery by the Company to the Trustee of an Officers'
Certificate and an Opinion of Counsel to the effect
that such sale or other disposition was made by the
Company in accordance with the provisions of the
Indenture, including without limitation Section 4.10
of the Indenture, the Trustee shall execute any
documents reasonably required in order to evidence the
release of any Guarantor from its obligations under
its Subsidiary Guarantee.
(b) Any Guarantor not released from its obligations under
its Subsidiary Guarantee shall remain liable for the
full amount of principal of and interest on the Notes
and for the other obligations of any Guarantor under
the Indenture as provided in Article 11 of the
Indenture.
6. NO RECOURSE AGAINST OTHERS. No director, officer,
employee, incorporator or stockholder of the Guaranteeing Subsidiary, as such,
shall have any liability for any obligations of the Company or any Guaranteeing
Subsidiary under the Notes, any Subsidiary Guarantees, the Indenture or this
Supplemental Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of the Notes by accepting a
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
7. FEES AND EXPENSES. The Guaranteeing Subsidiary hereby
agrees to pay any and all expenses (including reasonable counsel fees and
expenses) incurred by the Trustee or the Holders in enforcing any rights under
the Subsidiary Guarantees.
8. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE
OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.
9. COUNTERPARTS. The parties may sign any number of
copies of this Supplemental Indenture. Each signed copy shall be an original,
but all of them together represent the same agreement.
10. EFFECT OF HEADINGS. The Section headings herein are
for convenience only and shall not affect the construction hereof.
11. THE TRUSTEE. The Trustee shall not be responsible in
any manner whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the
D-4
<PAGE> 141
recitals contained herein, all of which recitals are made solely by the
Guaranteeing Subsidiary and the Company.
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed and attested, all as of the date
first above written.
Dated: __________, _____
[Guaranteeing Subsidiary]
By:_____________________________
Name:
Title:
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Trustee
By:_____________________________
Name:
Title:
D-5
<PAGE> 142
EXHIBIT E
FORM OF GUARANTEE
SENIOR SUBORDINATED GUARANTEE
The Guarantor (as defined in the Indenture referred to in the
Note upon which this notation is endorsed) hereby unconditionally guarantees on
a senior subordinated basis (such guarantee being referred to herein as the
Guarantee) the due and punctual payment of the principal of, premium, if any,
interest and Liquidated Damages, if any, on the Notes, whether at maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal, premium, if any, interest and Liquidated Damages, if any, on
the Notes, and the due and punctual performance of all other obligations of the
Company to the Holders or the Trustee, all in accordance with the terms set
forth in Article 11 of the Indenture.
The obligations of the Guarantor to the Holders of Notes and
to the Trustee pursuant to this Guarantee and the Indenture are expressly set
forth, and are expressly subordinated and subject in right of payment to the
prior payment in full of all Senior Debt (as defined in the Indenture) of the
Guarantor, to the extent and in the manner provided in Article 10 and Article 12
of the Indenture, and reference is hereby made to such Indenture for the precise
terms of this Guarantee therein made. This Guarantee will rank pari passu in
right of payment with any future senior subordinated indebtedness of the
Guarantor and will rank senior in right of payment to any other future
subordinated obligations of the Guarantor.
This Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Notes upon which this
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
This Guarantee shall be governed by and construed in
accordance with the laws of the State of New York.
This Guarantee is subject to release upon the terms set forth
in the Indenture.
[GUARANTOR]
By:____________________________________
Name:
Title:
E-1
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Salton/Maxim Housewares, Inc. (the "Company") on Form S-4 of our report dated
September 3, 1998, appearing in the Annual Report on Form 10-K of the Company
for the year ended June 27, 1998, and to the use of our report dated September
3, 1998 appearing in the Prospectus, which is part of this Registration
Statement. We also consent to the reference to us under the heading "Experts"
in such Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Chicago, Illinois
January 5, 1999
<PAGE> 1
EXHIBIT 23.3
[KPMG LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of our report dated February 25, 1998 with respect
to the consolidated balance sheets of Toastmaster Inc. as of December 31, 1997
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1997. We consent to the reference of our firm under the caption Experts in
the Form S-4 Registration Statement of Salton/Maxim Housewares, Inc. and
related Prospectus.
/s/ KPMG LLP
KPMG LLP
January 5, 1999
<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)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. NATIONAL BANKING ASSOCIATION 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)
SIXTH STREET AND MARQUETTE AVENUE
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Agent for Service)
_____________________________
SALTON/MAXIM HOUSWARES, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 36-3777824
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
550 BUSINESS CENTER DRIVE
MOUNT PROSPECT, IL 60056
(Address of principal executive offices) (Zip code)
_____________________________
10 3/4% SENIOR SUBORDINATED NOTES DUE 2005
(Title of the indenture securities)
================================================================================
<PAGE> 2
Item 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.
Comptroller of the Currency
Treasury Department
Washington, D.C.
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.
The trustee is authorized to exercise corporate trust
powers.
Item 2. Affiliations with Obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.
Item 15. Foreign Trustee. Not applicable.
Item 16. List of Exhibits. List below all exhibits filed as a part of this
Statement of Eligibility. Norwest Bank
incorporates by reference into this Form T-1 the
exhibits attached hereto.
Exhibit 1. a. A copy of the Articles of Association of the
trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority of the
trustee to commence business issued June 28, 1872,
by the Comptroller of the Currency to The
Northwestern National Bank of Minneapolis.*
b. A copy of the certificate of the Comptroller of the
Currency dated January 2, 1934, approving the
consolidation of The Northwestern National Bank of
Minneapolis and The Minnesota Loan and Trust
Company of Minneapolis, with the surviving entity
being titled Northwestern National Bank and Trust
Company of Minneapolis.*
c. A copy of the certificate of the Acting Comptroller
of the Currency dated January 12, 1943, as to
change of corporate title of Northwestern National
Bank and Trust Company of Minneapolis to
Northwestern National Bank of Minneapolis.*
d. A copy of the letter dated May 12, 1983 from the
Regional Counsel, Comptroller of the Currency,
acknowledging receipt of notice of
<PAGE> 3
name change effective May 1, 1983 from Northwestern
National Bank of Minneapolis to Norwest Bank
Minneapolis, National Association.*
e. A copy of the letter dated January 4, 1988 from the
Administrator of National Banks for the Comptroller
of the Currency certifying approval of
consolidation and merger effective January 1, 1988
of Norwest Bank Minneapolis, National Association
with various other banks under the title of
"Norwest Bank Minnesota, National Association."*
Exhibit 3. A copy of the authorization of the trustee to exercise
corporate trust powers issued January 2, 1934, by the
Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b) of the
Act.
Exhibit 7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is filed in paper format
pursuant to Form SE.
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to exhibit number 25 filed with registration
statement number 33-66026.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 30th day of December 1998.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Raymond S. Haverstock
----------------------------------
Raymond S. Haverstock
Vice President
<PAGE> 5
EXHIBIT 6
December 30, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Raymond S. Haverstock
----------------------------------
Raymond S. Haverstock
Vice President
