<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
January 8, 1999
-----------------------------------------------------
Date of Report (Date of earliest event reported)
Salton/Maxim Housewares, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-19557 36-3777824
- ---------------------------- ------------ -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
550 Business Center Drive, Mount Prospect, Illinois 60056
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(Address of principal executive offices) (Zip Code)
(847) 803-4600
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(Registrant's telephone number)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to an Agreement and Plan of Merger dated August 26, 1998 (the
"Merger Agreement"), by and among Salton/Maxim Housewares, Inc. (the "Company"),
Columbia Acquisition Corp., a wholly-owned subsidiary of the Company ("Merger
Sub"), and Toastmaster Inc. ("Toastmaster"), the Company completed its
acquisition of Toastmaster by means of a merger of Merger Sub with and into
Toastmaster (the "Toastmaster Acquisition"), with Toastmaster remaining as the
surviving corporation. The Toastmaster Acquisition was completed on January 7,
1999.
Pursuant to the Merger Agreement, the Company paid Toastmaster
shareholders $7.00 per share in cash, or a total purchase price of approximately
$53.2 million, and refinanced approximately $57.8 million of Toastmaster's
outstanding debt in connection with the acquisition.
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 and Ingraham.
The Company 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 it 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 its products into Toastmaster's
product lines.
Although the Company 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 the Company has identified include advertising,
ocean freight, warehousing and corporate overhead expenses.
The Company's ability to achieve revenue enhancements and recognize
cost savings from the acquisition of Toastmaster will depend to a significant
extent on its ability to successfully integrate the operations of the Company
and Toastmaster and other factors, including economic conditions and the retail
environment.
The purchase price for the Toastmaster Acquisition was determined as a
result of arms-length negotiations between representatives of both the Company
and Toastmaster. The Toastmaster Acquisition has been accounted for under the
purchase method of accounting.
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To facilitate the acquisition of Toastmaster, the Company entered into
an Amended and Restated Credit Agreement dated as of January 7, 1999 (the
"Amended and Restated Credit Agreement") among the Company, the several banks
and other financial institutions or entities from time to time parties thereto,
Lehman Brothers Inc., as advisor, arranger and book runner, Lehman Commercial
Paper Inc., as syndication agent, Lehman Commercial Paper Inc., as
administrative agent, and Fleet National Bank, as documentation agent. The
Amended and Restated Credit Agreement provides for senior credit facilities (the
"Senior Credit Facilities"), consisting of a $80.0 million senior secured
revolving credit facility (the "Revolving Credit Facility") and a $45.0 million
Tranche B Term Loan (the "Tranche B Term Loan").
The Company paid the purchase price for the acquisition of Toastmaster,
refinanced certain of Toastmaster's outstanding debt and paid certain related
fees and expenses with available cash and borrowings of $50.0 million under the
Revolving Credit Facility and $45.0 million under the Tranche B Term Loan.
All amounts outstanding under the Revolving Credit Facility are payable
on January 7, 2004. The $45.0 million Tranche B Term Loan is 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 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
Facility 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
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<PAGE> 4
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.
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
leverage ratio.
The information set forth above is qualified in its entirety by
reference to (i) the Merger Agreement, a copy of which is incorporated by
reference herein as Exhibit 2.1, and (ii) the Amended and Restated Credit
Agreement, a copy of which is filed herewith as Exhibit 10.1.
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ITEM 5. OTHER EVENTS
The Recapitalization
On July 28, 1998, the Company repurchased (the "Stock Repurchase")
6,535,072 shares of its 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 the Company, Windmere and the Company's executive
officers. Prior to the Stock Repurchase, Windmere owned approximately 50% of the
Company'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 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, the Company 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 the Company's 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 the Company in July, 1996;
- The Company 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 the Company agreed to continue various commercial and other
arrangements, including a fee agreement relating to our 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, the Company entered into a Credit Agreement dated as of
July 27, 1998 (the "Credit Agreement") among the Company, Lehman Brothers Inc.,
as arranger, and Lehman Commercial Paper Inc., as syndication agent. The Credit
Agreement provided for $215.0 million in senior secured 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 "Old Revolving Credit Facility").
On July 28, 1998, the Company 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 the Company's 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.
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The Repurchase, borrowings under the Old Credit Agreement and the Convertible
Preferred Stock Issuance are collectively referred to herein as the
"Recapitalization."
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:
- 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 the Company's 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 Financing
On December 16, 1998, the Company completed the private offering of $125
million of 10 3/4% Senior Subordinated Notes (the "Notes") due 2005 (the
"Financing"). The Company used the aggregate gross proceeds of the Financing:
- to repay a total of approximately $110.0 million of outstanding
indebtedness under the Credit Agreement, consisting of $90.0 million
under the Tranche A Term Loan and approximately $20.0 million under the
Old 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.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
The audited consolidated balance sheets of Toastmaster as of December
31, 1997 and 1996, the audited consolidated statements of operations, of
stockholders' equity and of cash flows of Toastmaster for the years ended
December 31, 1997, 1996 and 1995, the notes related thereto, and the Independent
Auditors' Report thereto, are filed herewith.
The unaudited consolidated balance sheets of Toastmaster as of
September 30, 1998 and the unaudited consolidated statements of operations and
cash flows of Toastmaster for the nine months ended September 30, 1998 and 1997,
and the notes thereto, are filed herewith.
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(b) Pro Forma Financial Information
The unaudited pro forma condensed consolidated balance sheet of the
Company as of September 26, 1998, and the related unaudited pro forma condensed
statements of operations for the fiscal year ended June 27, 1998 and the three
months ended September 26, 1998, and the notes thereto, are filed herewith.
(c) Exhibits
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger dated August 26, 1998 among
Salton/Maxim Housewares, Inc., Columbia Acquisition Corp.
and Toastmaster Inc. Incorporated by reference from the
Company's Current Report on Form 8-K dated August 26,
1998.
10.1 Amended and Restated Credit Agreement dated as of January
7, 1999 by and among Salton/Maxim Housewares, Inc., the
several banks and other financial institutions or
entities from time to time parties thereto; Lehman
Brothers, Inc., as advisor, arranger and book runner,
Lehman Commercial Paper Inc., as syndication agent and
administrative agent, and Fleet National Bank, as
documentation agent.
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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 Peat Marwick LLP
Kansas City, Missouri
February 25, 1998
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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.
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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.
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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.
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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.
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<PAGE> 13
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> 14
(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.
-13-
<PAGE> 15
(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.
-14-
<PAGE> 16
(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%.
-15-
<PAGE> 17
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>
-16-
<PAGE> 18
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>
-17-
<PAGE> 19
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
-18-
<PAGE> 20
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
-19-
<PAGE> 21
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.
-20-
<PAGE> 22
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.
-21-
<PAGE> 23
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.
-22-
<PAGE> 24
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.
-23-
<PAGE> 25
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.
-24-
<PAGE> 26
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.
-25-
<PAGE> 27
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 offering is not contingent upon the consummation of the Toastmaster
Acquisition. 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.
-8-
<PAGE> 28
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.
31
<PAGE> 29
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.
32
<PAGE> 30
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.
33
<PAGE> 31
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 Notes; (b) the payment and recording of $4,088 of deferred
financing fees and expenses relating to the Financing and the Credit
Agreement; (c) the repayment of the $90,000 Tranche A Term Loan of
which $5,000 is classified as the current portion of long-term debt;
(d) the repayment of $20,000 under the Old 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 the Company'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.
34
<PAGE> 32
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 the Company 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, the Company 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
Old Revolving Credit Facility.............. 8,436 6.875% 580
</TABLE>
(2) the elimination of $5,647 of historical interest incurred on
indebtedness outstanding under the Company's prior 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.
35
<PAGE> 33
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
Old Revolving Credit Facility.................... 2,453 6.875% 42
</TABLE>
(2) the elimination of (i) $360 of historical interest incurred on
indebtedness outstanding under the Company's prior 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
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.
36
<PAGE> 34
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.
37
<PAGE> 35
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
SALTON/MAXIM HOUSEWARES, INC.
/s/ WILLIAM B. RUE
-------------------------------------
William B. Rue
Dated: January 12, 1999 President and Chief Operating Officer
-9-
<PAGE> 36
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger dated August 26, 1998 among
Salton/Maxim Housewares, Inc., Columbia Acquisition
Corp. and Toastmaster Inc. Incorporated by Reference
from the Company's Current Report on Form 8-K dated
August 26, 1998.
10.1 Amended and Restated Credit Agreement dated as of January
7, 1999 by and among Salton/Maxim Housewares, Inc., the
several banks and other financial institutions or
entities from time to time parties thereto, Lehman
Brothers Inc., as advisor, arranger and book runner,
Lehman Commercial Paper Inc., as syndication agent and
administrative agent, and Fleet National Bank, as
documentation agent.
-10-
<PAGE> 1
EXHIBIT 10.1
================================================================================
$125,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
among
SALTON/MAXIM HOUSEWARES, INC.
as Borrower,
The Several Lenders
from Time to Time Parties Hereto,
LEHMAN BROTHERS INC.,
as Arranger
LEHMAN COMMERCIAL PAPER INC.,
as Syndication Agent
LEHMAN COMMERCIAL PAPER INC.,
as Administrative Agent
and
FLEET NATIONAL BANK,
as Documentation Agent
Dated as of January 7, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
<S> <C>
SECTION 1. DEFINITIONS........................................................................................2
1.1 Defined Terms......................................................................................2
1.2 Other Definitional Provisions.....................................................................28
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS...................................................................28
2.1 Term Loan Commitments.............................................................................28
2.2 Procedure for Term Loan Borrowing.................................................................28
2.3 Repayment of Term Loans...........................................................................29
2.4 Revolving Credit Commitments......................................................................29
2.5 Procedure for Revolving Credit Borrowing..........................................................29
2.6 Repayment of Loans; Evidence of Debt..............................................................30
2.7 Commitment Fees, etc..............................................................................31
2.8 Termination or Reduction of Commitments...........................................................31
2.9 Optional Prepayments..............................................................................31
2.10 Mandatory Prepayments and Revolving Credit Commitment Reductions..................................32
2.11 Conversion and Continuation Options...............................................................34
2.12 Minimum Amounts and Maximum Number of Eurodollar Tranches.........................................35
2.13 Interest Rates and Payment Dates..................................................................35
2.14 Computation of Interest and Fees..................................................................36
2.15 Inability to Determine Interest Rate..............................................................36
2.16 Pro Rata Treatment and Payments...................................................................37
2.17 Requirements of Law...............................................................................38
2.18 Taxes.............................................................................................39
2.19 Indemnity.........................................................................................41
2.20 Illegality........................................................................................41
2.21 Change of Lending Office..........................................................................41
SECTION 3. LETTERS OF CREDIT.................................................................................42
3.1 L/C Commitment....................................................................................42
3.2 Procedure for Issuance of Letter of Credit........................................................42
3.3 Fees and Other Charges............................................................................43
3.4 L/C Participations................................................................................43
3.5 Reimbursement Obligation of the Borrower..........................................................44
3.6 Obligations Absolute..............................................................................45
3.7 Letter of Credit Payments.........................................................................46
3.8 Applications......................................................................................46
SECTION 4. REPRESENTATIONS AND WARRANTIES....................................................................46
4.1 Financial Condition...............................................................................46
4.2 No Change.........................................................................................48
4.3 Corporate Existence; Compliance with Law..........................................................48
</TABLE>
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<TABLE>
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4.4 Corporate Power; Authorization; Enforceable Obligations...........................................48
4.5 No Legal Bar......................................................................................49
4.6 No Material Litigation............................................................................49
4.7 No Default........................................................................................49
4.8 Ownership of Property; Liens......................................................................49
4.9 Intellectual Property.............................................................................49
4.10 Taxes.............................................................................................49
4.11 Federal Regulations...............................................................................50
4.12 Labor Matters.....................................................................................50
4.13 ERISA.............................................................................................50
4.14 Investment Company Act; Other Regulations.........................................................50
4.15 Subsidiaries......................................................................................51
4.16 Use of Proceeds...................................................................................51
4.17 Environmental Matters.............................................................................51
4.18 Accuracy of Information, etc......................................................................52
4.19 Security Documents................................................................................52
4.20 Solvency..........................................................................................52
4.21 Senior Indebtedness...............................................................................53
4.22 Year 2000 Matters.................................................................................53
SECTION 5. CONDITIONS PRECEDENT..............................................................................53
5.1 Conditions to Initial Extension of Credit.........................................................53
5.2 Conditions to Each Extension of Credit............................................................56
SECTION 6. AFFIRMATIVE COVENANTS.............................................................................57
6.1 Financial Statements..............................................................................57
6.2 Certificates; Other Information...................................................................58
6.3 Payment of Obligations............................................................................59
6.4 Conduct of Business and Maintenance of Existence, etc.............................................59
6.5 Maintenance of Property; Insurance................................................................60
6.6 Inspection of Property; Books and Records; Discussions............................................60
6.7 Notices...........................................................................................60
6.8 Environmental Laws................................................................................61
6.9 Additional Collateral, etc........................................................................61
6.10 Further Assurances................................................................................63
6.11 Year 2000 Matters.................................................................................63
SECTION 7. NEGATIVE COVENANTS................................................................................64
7.1 Financial Condition Covenants.....................................................................64
7.2 Limitation on Indebtedness........................................................................65
7.3 Limitation on Liens...............................................................................66
7.4 Limitation on Fundamental Changes.................................................................67
7.5 Limitation on Disposition of Property.............................................................67
7.6 Limitation on Restricted Payments.................................................................68
7.7 Limitation on Capital Expenditures................................................................68
</TABLE>
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<TABLE>
<S> <C>
7.8 Limitation on Investments.........................................................................68
7.9 Limitation on Optional Payments and Modifications of Debt Instruments, etc........................69
7.10 Limitation on Transactions with Affiliates........................................................69
7.11 Limitation on Sales and Leasebacks................................................................69
7.12 Limitation on Changes in Fiscal Periods...........................................................69
7.13 Limitation on Negative Pledge Clauses.............................................................69
7.14 Limitation on Restrictions on Subsidiary Distributions............................................70
7.15 Limitation on Lines of Business...................................................................70
SECTION 8. EVENTS OF DEFAULT.................................................................................70
SECTION 9. THE AGENTS........................................................................................73
9.1 Appointment.......................................................................................73
9.2 Delegation of Duties..............................................................................74
9.3 Exculpatory Provisions............................................................................74
9.4 Reliance by Administrative Agent..................................................................74
9.5 Notice of Default.................................................................................75
9.6 Non-Reliance on Agents and Other Lenders..........................................................75
9.7 Indemnification...................................................................................75
9.8 Agent in Its Individual Capacity..................................................................76
9.9 Successor Administrative Agent....................................................................76
9.10 Authorization to Release Liens....................................................................77
9.11 The Arranger......................................................................................77
SECTION 10. MISCELLANEOUS.....................................................................................77
10.1 Amendments and Waivers............................................................................77
10.2 Notices...........................................................................................78
10.3 No Waiver; Cumulative Remedies....................................................................79
10.4 Survival of Representations and Warranties........................................................79
10.5 Payment of Expenses...............................................................................79
10.6 Successors and Assigns; Participations and Assignments............................................80
10.7 Adjustments; Set-off..............................................................................82
10.8 Counterparts......................................................................................83
10.9 Severability......................................................................................83
10.10 Integration.......................................................................................83
10.11 GOVERNING LAW.....................................................................................83
10.12 Submission To Jurisdiction; Waivers...............................................................83
10.13 Acknowledgments...................................................................................84
10.14 Confidentiality...................................................................................84
10.15 Accounting Charges................................................................................85
10.16 Restricted Subsidiaries...........................................................................85
10.17 WAIVERS OF JURY TRIAL.............................................................................85
</TABLE>
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<PAGE> 5
ANNEXES:
A Pricing Grid
SCHEDULES:
1.1 Concentrated Accounts
3.1(d)-1 Existing LaSalle Letters of Credit
3.1(d)-2 Existing Fleet Letters of Credit
4.1(b) Material Guarantees of the Borrower
4.1(c) Material Guarantees of Toastmaster
4.4 Consents, Authorizations, Filings and Notices
4.6 Certain Litigation
4.9 Intellectual Property
4.10 Taxes
4.15 Subsidiaries
4.19(a) UCC Filing Jurisdictions
6.9(b) Real Property to be Disposed of or Mortgaged
7.2(d) Existing Indebtedness
7.3(f) Existing Liens
EXHIBITS:
A Form of Amended and Restated Guarantee and Collateral Agreement
B Form of Compliance Certificate
C-1 Form of Optional Prepayment Option Notice
C-2 Form of Mandatory Prepayment Option Notice
D Form of Closing Certificate
E Form of Borrowing Base Certificate
F Form of Exemption Certificate
G Form of Assignment and Acceptance
H Form of Legal Opinion of Sonnenschein Nath & Rosenthal
I-1 Form of Term Note
I-2 Form of Revolving Credit Note
J Form of Lender Addendum
K-1 Form of Term Loan Borrowing Notice
K-2 Form of Revolving Credit Loan Borrowing Notice
iv
<PAGE> 6
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of January 7, 1999,
among SALTON/MAXIM HOUSEWARES, INC., a Delaware corporation (the "Borrower"),
the several banks and other financial institutions or entities from time to time
parties to this Agreement (the "Lenders"), LEHMAN BROTHERS INC., as advisor,
arranger and book runner (in such capacity, the "Arranger"), LEHMAN COMMERCIAL
PAPER INC., as syndication agent (in such capacity, the "Syndication Agent"),
LEHMAN COMMERCIAL PAPER INC., as administrative agent (in such capacity, the
"Administrative Agent"), and FLEET NATIONAL BANK, as documentation agent (in
such capacity, the "Documentation Agent").
W I T N E S S E T H:
WHEREAS, the Borrower is a party to the Credit Agreement, dated as of
July 27, 1998 (the "Existing Credit Agreement"), with Lehman Brothers Inc., as
arranger, and Lehman Commercial Paper Inc., as syndication agent, administrative
agent and lender, pursuant to which loans were made to finance the repurchase by
the Borrower of certain common stock of the Borrower owned by Windmere-Durable
Holdings, Inc., and related costs and expenses and for working capital and
general corporate needs of the Borrower following such stock repurchase;
WHEREAS, the Borrower intends to (i) acquire (the "Acquisition") all of
the issued and outstanding common stock of Toastmaster Inc., a Missouri
corporation ("Toastmaster") and (ii) refinance (the "Refinancing"; together with
the Acquisition, the "Transactions") indebtedness of Toastmaster outstanding on
the date of the Acquisition;
WHEREAS, the Acquisition will be accomplished by means of a merger of
Toastmaster with Colombia Acquisition Corp., a Missouri corporation and a
wholly-owned Subsidiary of, the Borrower (the "Merger Sub") pursuant to the
Agreement and Plan of Merger, dated as of August 26, 1998 (the "Merger
Agreement"), by and among the Borrower, the Merger Sub and Toastmaster; and
WHEREAS, the parties to the Existing Credit Agreement have agreed to
amend and restate the Existing Credit Agreement as set forth below to, among
other things, (i) refinance loans outstanding under the Existing Credit
Agreement, (ii) finance the Transactions, (iii) pay certain fees and expenses
related to (x) the refinancing of loans outstanding under the Existing Credit
Agreement and (y) the Transactions and the financing thereof, and (iv) provide
funds for working capital and general corporate purposes of the Borrower in the
ordinary course of business;
NOW, THEREFORE, in consideration of the premises and the agreements
hereinafter set forth, the parties hereto hereby agree that on the Closing Date,
the Existing Credit Agreement will be amended and restated in its entirety as
follows:
<PAGE> 7
2
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed in
this Section 1.1 shall have the respective meanings set forth in this Section
1.1.
"Account Debtor": any Person who is or who may become obligated under,
with respect to, or on account of an Account.
"Accounts": all currently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to the Borrower
arising out of the sale of goods by the Borrower, irrespective of whether
earned by performance, and any and all credit insurance, guaranties, or
security therefor.
"Acquisition": as defined in the recitals to this Agreement.
"Adjustment Date": as defined in the Pricing Grid.
"Advance Rate": (i) with respect to Eligible Accounts, 80%; (ii) with
respect to Eligible Inventory, 60%.
"Affiliate": as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person
means the power, directly or indirectly, either to (a) vote 10% or more of
the securities having ordinary voting power for the election of directors
(or persons performing similar functions) of such Person or (b) direct or
cause the direction of the management and policies of such Person, whether
by contract or otherwise.
"Agents": the collective reference to the Syndication Agent and the
Administrative Agent.
"Aggregate Exposure": with respect to any Lender at any time, an amount
equal to (a) until the Closing Date, the aggregate amount of such Lender's
Commitments at such time and (b) thereafter, the sum of (i) the aggregate
then unpaid principal amount of such Lender's Term Loans and (ii) the amount
of such Lender's Revolving Credit Commitment then in effect or, if the
Revolving Credit Commitments have been terminated, the amount of such
Lender's Revolving Extensions of Credit then outstanding.
"Aggregate Exposure Percentage": with respect to any Lender at any
time, the ratio (expressed as a percentage) of such Lender's Aggregate
Exposure at such time to the Aggregate Exposure of all Lenders at such time.
"Aggregate Funded Exposure": at any time, the sum of (a) the aggregate
principal amount of Term Loans outstanding at such time plus (b) the
aggregate principal amount
<PAGE> 8
3
of Revolving Credit Loans outstanding at such time plus (c) the aggregate
undrawn and unreimbursed face amount of all Letters of Credit at such time.
"Agreement": this Amended and Restated Credit Agreement, as amended,
supplemented or otherwise modified from time to time.
"Applicable Margin": (a) with respect to the Term Loans, 3.25%, in the
case of such Loans which are Eurodollar Loans, and 2.25%, in the case of
such Loans which are Base Rate Loans, and (b) with respect to Revolving
Credit Loans, the rate per annum determined pursuant to the Pricing Grid.
"Application": an application, in such form as the Issuing Lender may
specify from time to time, requesting the Issuing Lender to open a Letter of
Credit.
"Asset Sale": any Disposition of Property or series of related
Dispositions of Property (excluding any such Disposition permitted by clause
(a), (b), (c), (d) or (e) of Section 7.5) which yields gross proceeds to the
Borrower or any of its Subsidiaries (valued at the initial principal amount
thereof in the case of non-cash proceeds consisting of notes or other debt
securities and valued at fair market value in the case of other non-cash
proceeds) in excess of $10,000.
"Assignee": as defined in Section 10.6(c).
"Assignor": as defined in Section 10.6(c).
"Available Revolving Credit Borrowing Base": at any time, the
difference of (a) the Borrowing Base, minus (b) the aggregate principal
amount of Term Loans then outstanding.
"Available Revolving Credit Commitment": as to any Revolving Credit
Lender at any time, an amount equal to the excess, if any, of (a) such
Lender's Revolving Credit Commitment then in effect over (b) such Lender's
Revolving Extensions of Credit then outstanding.
"Base Rate": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime
Rate in effect on such day, (b) the Base CD Rate in effect on such day plus
1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2
of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per
annum publicly announced from time to time by the Reference Lender as its
prime or base rate in effect at its principal office in New York City (the
Prime Rate not being intended to be the lowest rate of interest charged by
the Reference Lender in connection with extensions of credit to debtors);
"Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month
Secondary CD Rate and (ii) a fraction, the numerator of which is one and the
denominator of which is one minus the C/D Reserve Percentage and (b) the C/D
Assessment Rate; and "Three-Month Secondary CD Rate" shall mean, for any
day, the secondary market rate for three-month certificates of deposit
<PAGE> 9
4
reported as being in effect on such day (or, if such day shall not be a
Business Day, the next preceding Business Day) by the Board through the
public information telephone line of the Federal Reserve Bank of New York
(which rate will, under the current practices of the Board, be published in
Federal Reserve Statistical Release H.15(519) during the week following
such day), or, if such rate shall not be so reported on such day or such
next preceding Business Day, the average of the secondary market quotations
for three-month certificates of deposit of major money center banks in New
York City received at approximately 10:00 A.M., New York City time, on such
day (or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Reference Lender from three New York City negotiable
certificate of deposit dealers of recognized standing selected by it. Any
change in the Base Rate due to a change in the Prime Rate, the Three-Month
Secondary CD Rate or the Federal Funds Effective Rate shall be effective as
of the opening of business on the effective day of such change in the Prime
Rate, the Three- Month Secondary CD Rate or the Federal Funds Effective
Rate, respectively.
"Base Rate Loans": Loans for which the rate of interest is based upon
the Base Rate.
"Benefitted Lender": as defined in Section 10.7.
"Board": the Board of Governors of the Federal Reserve System of the
United States (or any successor).
"Borrowing Base": on any date of determination, the sum (without
duplication) of (a) (x) Eligible Accounts of the Borrower and the Restricted
Subsidiaries on such date times (y) the applicable Advance Rate, plus (b)
(x) Eligible Inventory of the Borrower and the Restricted Subsidiaries on
such date times (y) the applicable Advance Rate; provided, that at no time
shall Eligible Inventory constitute more than 50% of the Borrowing Base. The
Borrowing Base shall be determined by the Administrative Agent in its
reasonable judgment by reference to the most recent Borrowing Base
Certificate delivered to the Administrative Agent. The Administrative Agent
shall determine the Borrowing Base in effect with respect to the period
covered by such Borrowing Base Certificate, and the Borrowing Base so
determined shall remain in effect until the next determination thereof
pursuant to this sentence.
"Borrowing Base Certificate": a certificate duly executed by a
Responsible Officer, substantially in the form of Exhibit E.
"Borrowing Date": any Business Day specified by the Borrower as a date
on which the Borrower requests the relevant Lenders to make Loans hereunder.
"Business": as defined in Section 4.17.
"Business Day": (i) for all purposes other than as covered by clause
(ii) below, a day other than a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by law to close
and (ii) with respect to all notices and
<PAGE> 10
5
determinations in connection with, and payments of principal and interest
on, Eurodollar Loans, any day which is a Business Day described in clause
(i) and which is also a day for trading by and between banks in Dollar
deposits in the interbank eurodollar market.
"Capital Expenditures": for any period, with respect to any Person, the
aggregate of all expenditures by such Person and its Subsidiaries for the
acquisition or leasing (pursuant to a capital lease) of fixed or capital
assets or additions to equipment (including replacements, capitalized
repairs and improvements during such period) which should be capitalized
under GAAP on a consolidated balance sheet of such Person and its
Subsidiaries.
"Capital Lease Obligations": as to any Person, the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination
thereof, which obligations are required to be classified and accounted for
as capital leases on a balance sheet of such Person under GAAP, and, for the
purposes of this Agreement, the amount of such obligations at any time shall
be the capitalized amount thereof at such time determined in accordance with
GAAP.
"Capital Stock": any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and
all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants, rights or options to purchase any of the
foregoing.
"Cash Equivalents": (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition; (b)
certificates of deposit, time deposits, eurodollar time deposits or
overnight bank deposits having maturities of six months or less from the
date of acquisition issued by any Lender or by any commercial bank organized
under the laws of the United States of America or any state thereof having
combined capital and surplus of not less than $500,000,000; (c) commercial
paper of an issuer rated at least A-2 by Standard & Poor's Ratings Services
("S&P") or P-2 by Moody's Investors Service, Inc. ("Moody's"), or carrying
an equivalent rating by a nationally recognized rating agency, if both of
the two named rating agencies cease publishing ratings of commercial paper
issuers generally, and maturing within six months from the date of
acquisition; (d) repurchase obligations of any Lender or of any commercial
bank satisfying the requirements of clause (b) of this definition, having a
term of not more than 30 days with respect to securities issued or fully
guaranteed or insured by the United States government; (e) securities with
maturities of one year or less from the date of acquisition issued or fully
guaranteed by any state, commonwealth or territory of the United States, by
any political subdivision or taxing authority of any such state,
commonwealth or territory or by any foreign government, the securities of
which state, commonwealth, territory, political subdivision, taxing
authority or foreign government (as the case may be) are rated at least A by
S&P or A by Moody's; (f) securities with maturities of six months or less
from the date of acquisition backed by
<PAGE> 11
6
standby letters of credit issued by any Lender or any commercial bank
satisfying the requirements of clause (b) of this definition; or (g) shares
of money market mutual or similar funds which invest exclusively in assets
satisfying the requirements of clauses (a) through (f) of this definition.
"C/D Assessment Rate": for any day as applied to any Base Rate Loan,
the annual assessment rate in effect on such day which is payable by a
member of the Bank Insurance Fund maintained by the Federal Deposit
Insurance Corporation (the "FDIC") classified as well-capitalized and within
supervisory subgroup "B" (or a comparable successor assessment risk
classification) within the meaning of 12 C.F.R. ss. 327.4 (or any successor
provision) to the FDIC (or any successor) for the FDIC's (or such
successor's) insuring time deposits at offices of such institution in the
United States.
"C/D Reserve Percentage": for any day as applied to any Base Rate Loan,
that percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board, for determining the maximum reserve requirement for
a Depositary Institution (as defined in Regulation D of the Board as in
effect from time to time) in respect of new non-personal time deposits in
Dollars having a maturity of 30 days or more.
"Closing Date": the date on which the conditions precedent set forth in
Section 5.1 shall have been satisfied, which date shall occur on or before
January 30, 1999.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral": all Property of the Loan Parties, now owned or hereafter
acquired, upon which a Lien is purported to be created by any Security
Document.
"Commitment": as to any Lender, the sum of the Term Loan Commitment and
the Revolving Credit Commitment of such Lender.
"Commitment Fee Rate": the rate per annum determined pursuant to the
Pricing Grid.
"Commonly Controlled Entity": an entity, whether or not incorporated,
which is under common control with the Borrower within the meaning of
Section 4001 of ERISA or is part of a group which includes the Borrower and
which is treated as a single employer under Section 414 of the Code.
"Compliance Certificate": a certificate duly executed by a Responsible
Officer substantially in the form of Exhibit B.
"Concentrated Account": the Highly Concentrated Accounts and the
Accounts identified as Concentrated Accounts on Schedule 1.1.
<PAGE> 12
7
"Consolidated Current Assets": at any date, all amounts (other than
cash and Cash Equivalents) which would, in conformity with GAAP, be set
forth opposite the caption "total current assets" (or any like caption) on a
consolidated balance sheet of the Borrower and its Restricted Subsidiaries
at such date.
"Consolidated Current Liabilities": at any date, all amounts which
would, in conformity with GAAP, be set forth opposite the caption "total
current liabilities" (or any like caption) on a consolidated balance sheet
of the Borrower and its Restricted Subsidiaries at such date, but excluding
(a) the current portion of any Funded Debt of the Borrower and its
Restricted Subsidiaries and (b) without duplication of clause (a) above, all
Indebtedness consisting of Revolving Credit Loans to the extent otherwise
included therein.
"Consolidated EBITDA": for any period, Consolidated Net Income for such
period plus, without duplication and to the extent reflected as a charge in
the statement of such Consolidated Net Income for such period, the sum of
(a) income tax expense, (b) interest expense, amortization or writeoff of
debt discount and debt issuance costs and commissions, discounts and other
fees and charges associated with Indebtedness (including the Loans), (c)
depreciation and amortization expense, (d) amortization of intangibles
(including, but not limited to, goodwill) and organization costs, (e) any
extraordinary, unusual or non-recurring expenses or losses (including,
whether or not otherwise includable as a separate item in the statement of
such Consolidated Net Income for such period, losses on sales of assets
outside of the ordinary course of business), (f) the Merger Charges and (g)
any other non-cash charges, and minus, to the extent included in the
statement of such Consolidated Net Income for such period, the sum of (a)
interest income, (b) any extraordinary, unusual or non-recurring income or
gains (including, whether or not otherwise includable as a separate item in
the statement of such Consolidated Net Income for such period, gains on the
sales of assets outside of the ordinary course of business) and (c) any
other non-cash income, all as determined on a consolidated basis. For
purposes of calculating Consolidated EBITDA of the Borrower and its
Restricted Subsidiaries for any period which includes the Closing Date, the
Consolidated EBITDA of Toastmaster shall be included on a pro forma basis
for such period (assuming the acquisition of Toastmaster occurred on the
first day of such period), and for purposes of calculating Consolidated
EBITDA of the Borrower and its Restricted Subsidiaries for any period, (a)
the Consolidated EBITDA of any Person (other than a Person which becomes an
Unrestricted Subsidiary upon the acquisition thereof) acquired by the
Borrower or its Restricted Subsidiaries during such period shall be included
on a pro forma basis for such period (assuming the consummation of such
acquisition occurred on the first day of such period), if the consolidated
balance sheet of such acquired Person and its consolidated Subsidiaries as
at the end of the period preceding the acquisition of such Person and the
related consolidated statements of income and stockholders' equity and of
cash flows for the period in respect of which Consolidated EBITDA is to be
calculated (i) have been previously provided to the Administrative Agent and
the Lenders and (ii) either (A) have been reported on without a
qualification arising out of the scope of the audit by independent certified
public accountants of nationally recognized standing or (B) have been found
acceptable by the Administrative Agent and (b) the Consolidated
<PAGE> 13
8
EBITDA of any Person Disposed of by the Borrower and its Restricted
Subsidiaries during such period shall be excluded (assuming such Disposition
occurred on the first day of such period).
"Consolidated Fixed Charge Coverage Ratio": for any period, the ratio
of (a) Consolidated EBITDA for such period less the aggregate amount
actually paid by the Borrower and its Restricted Subsidiaries in cash during
such period on account of Capital Expenditures to (b) Consolidated Fixed
Charges for such period.
"Consolidated Fixed Charges": for any period, the sum (without
duplication) of (a) Consolidated Interest Expense for such period, (b) cash
income taxes paid or to be paid by the Borrower or any of its Restricted
Subsidiaries on a consolidated basis in respect of such period and (c)
scheduled payments made during such period on account of principal of
Indebtedness of the Borrower or any of its Restricted Subsidiaries
(including scheduled principal payments in respect of the Term Loans).
"Consolidated Interest Coverage Ratio": for any period, the ratio of
(a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense
for such period.
"Consolidated Interest Expense": for any period, total interest expense
(including that attributable to Capital Lease Obligations) of the Borrower
and its Restricted Subsidiaries for such period with respect to all
outstanding Indebtedness of the Borrower and its Restricted Subsidiaries
(including, without limitation, all commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers' acceptance
financing and net costs under Hedge Agreements in respect of interest rates
to the extent such net costs are allocable to such period in accordance with
GAAP).
"Consolidated Net Income": for any period, the consolidated net income
(or loss) of the Borrower and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP; provided that there shall be
excluded (a) the income (or deficit) of any Person accrued prior to the date
it becomes a Restricted Subsidiary of the Borrower or is merged into or
consolidated with the Borrower or any of its Restricted Subsidiaries, (b)
the income (or deficit) of any Person (other than a Restricted Subsidiary of
the Borrower) in which the Borrower or any of its Restricted Subsidiaries
has an ownership interest, except to the extent that any such income is
actually received by the Borrower or such Restricted Subsidiary in the form
of dividends or similar distributions and (c) the undistributed earnings of
any Restricted Subsidiary of the Borrower to the extent that the declaration
or payment of dividends or similar distributions by such Restricted
Subsidiary is not at the time permitted by the terms of any Contractual
Obligation (other than under any Loan Document) or Requirement of Law
applicable to such Restricted Subsidiary.
"Consolidated Senior Debt": all Consolidated Total Debt other than
Subordinated Debt.
<PAGE> 14
9
"Consolidated Total Debt": at any date, the aggregate principal amount
of all Funded Debt of the Borrower and its Restricted Subsidiaries at such
date, determined on a consolidated basis in accordance with GAAP.
"Consolidated Working Capital": at any date, the excess of Consolidated
Current Assets on such date over Consolidated Current Liabilities on such
date.
"Continuing Directors": the directors of the Borrower on the Closing
Date, after giving effect to the Transactions and the other transactions
contemplated hereby, and each other director, if, in each case, such other
director's nomination for election to the board of directors of the Borrower
is recommended by at least 66-2/3% of the then Continuing Directors.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
Property is bound.
"Convertible Preferred Stock": The Borrower's Series A Convertible
Preferred Stock issued pursuant to the Preferred Stock Purchase Agreement.
"Default": any of the events specified in Section 8, whether or not any
requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Disposition": with respect to any Property, any sale, lease, sale and
leaseback, assignment, conveyance, transfer or other disposition thereof;
the terms "Dispose" and "Disposed of" shall have correlative meanings.
"Dollars" and "$": dollars in lawful currency of the United States of
America.
"Domestic Subsidiary": any Subsidiary of the Borrower organized under
the laws of any jurisdiction within the United States of America.
"Eligible Accounts": those Accounts created by the Borrower and its
Subsidiaries in the ordinary course of business that arise out of the
Borrower's sale of goods or rendition of services, that strictly comply with
all of the Borrower's representations and warranties to the Administrative
Agent, and that are and at all times shall continue to be reasonably
acceptable to the Administrative Agent in all respects; provided, however,
that standards of eligibility may be fixed and revised from time to time by
the Administrative Agent in the Administrative Agent's reasonable credit
judgment. Eligible Accounts shall not include the following:
(a) (i) Accounts that the Account Debtor has failed to pay within (1)
one hundred twenty (120) days of invoice date for Accounts with selling
terms of thirty (30) days or (2) Accounts which the Account Debtor has
failed to pay within one hundred eighty (180) days of invoice date, or
within ninety days (90) days after the due date of the invoice, and (ii) all
Accounts owed by an Account Debtor that has failed to pay fifty
<PAGE> 15
10
percent (50%) or more of its Accounts owed to the Borrower within the
periods set forth in clauses (i) and (ii) as applicable;
(b) Accounts with respect to which the Account Debtor is an officer,
employee, Affiliate, or agent of the Borrower;
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other
terms by reason of which the payment by the Account debtor may be
conditional;
(d) Accounts with respect to which the Account Debtor is not a
resident of the United States or Canada, and which are not either (i)
covered by credit insurance in form and amount, and by an issuer,
satisfactory to the Administrative Agent, or (ii) supported by one or more
letters of credit that are assignable by their terms and have been delivered
to the Administrative Agent in an amount, of a tenor, and issued by a
financial institution, acceptable to the Administrative Agent;
(e) Accounts with respect to which the Account Debtor is the United
States or any department, agency, or instrumentality of the United States
except for Accounts not subject to the Armed Services Procurement
Regulations or any other government regulation either prohibiting the
assignment of Accounts or requiring special procedures for perfection of the
assignment of Accounts, unless, in each case, all actions required for
perfection have been taken;
(f) Accounts with respect to which the Borrower is or may become
liable to the Account Debtor for goods sold or services rendered by the
Account Debtor to the Borrower but excluding cooperative advertising between
the Borrower and an Account Debtor;
(g) Accounts with respect to an Account Debtor (other than
Concentrated Accounts) whose total obligations owing to the Borrower
exceed ten percent (10%) of all Eligible Accounts, to the extent the
obligations owing by such Account Debtor are in excess of such percentage;
Accounts with respect to a Concentrated Account whose total obligations
owing to the Borrower exceed twenty percent (20%) of all Eligible Accounts,
to the extent the obligations owing by such Concentrated Accounts are in
excess of such percentage, except that any one (1) of the following may be
true at any time: (A) total obligations owing to the Borrower with respect
to any two (2) Concentrated Account (other than Highly Concentrated
Accounts) may exceed twenty percent (20%) at any time in the aggregate but
shall not exceed thirty percent (30%) in the aggregate, or (B) total
obligations with respect to one (1) of the Highly Concentrated Accounts may
exceed twenty percent (20%) at any time but shall not and does not exceed
thirty percent (30%) at any time, or (C) Accounts with respect to any two
(2) of the Highly Concentrated Accounts may exceed twenty percent (20%) at
any time but shall not, aggregated together, exceed fifty percent (50%) at
any time;
<PAGE> 16
11
(h) Accounts with respect to which the Account Debtor disputes
liability or makes any material claim with respect thereto, or is subject to
any proceeding of the type described in Section 8(f), or becomes insolvent,
or goes out of business;
(i) That portion of Accounts which have been rebilled to Account
Debtors as a result of the failure of the Account Debtor to pay invoices
representing the Account in full;
(j) Accounts the collection of which the Administrative Agent, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(k) Accounts that are payable in other than United States Dollars;
and
(l) Accounts that represent progress payments or other advance
billings that are due prior to the completion of performance by the
Borrower of the subject contract for goods or services.
"Eligible Inventory": Inventory (net of reserves for slow moving
inventory in an amount acceptable to the Administrative Agent) consisting of
finished goods held for sale in the ordinary course of the Borrower's
business, that are located at the Borrower's premises or such other
locations as identified on Schedule 4.19(a) and replacement parts and
accessories inventory located at the Borrower's premises or such other
locations as identified on Schedule 4.19(a), or "In Transit Inventory,"
which is acceptable to the Administrative Agent in all respects, and
strictly complies with all of the Borrower's representations and warranties
to the Administrative Agent. Eligible Inventory shall not include obsolete
items, restrictive or custom items, work-in-process, components that are not
part of finished goods, Estimated Defects and Net Returns in transit outside
the United States, spare parts, packaging and shipping materials, supplies
used or consumed in the Borrower's business, Inventory at any location other
than those set forth on Schedule 4.19(a), Inventory subject to a security
interest or lien in favor of any third Person, bill and hold goods,
Inventory that is not subject to the Administrative Agent's perfected
security interests, defective goods, "seconds," and Inventory acquired on
consignment. Eligible Inventory shall be valued at the lower of the
Borrower's cost on a Landed Cost basis or market value. As of the date
hereof the amount acceptable to the Administrative Agent as a reserve for
slow moving inventory is 1.25% of the Borrower's Eligible Inventory.
"Estimated Defects": Net Returns being held by the Borrower pending
return to the manufacturer.
"Environmental Laws": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements of
Law (including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the
environment, as now or may at any time hereafter be in effect.
<PAGE> 17
12
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such
day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board or other Governmental
Authority having jurisdiction with respect thereto) dealing with reserve
requirements prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of the Board) maintained by a
member bank of the Federal Reserve System.
"Eurodollar Base Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, the rate per annum determined on the
basis of the rate for deposits in Dollars for a period equal to such
Interest Period commencing on the first day of such Interest Period
appearing on Page 3750 of the Dow Jones Markets screen as of 11:00 A.M.,
London time, two Business Days prior to the beginning of such Interest
Period. In the event that such rate does not appear on Page 3750 of the Dow
Jones Markets screen (or otherwise on such screen), the "Eurodollar Base
Rate" for purposes of this definition shall be determined by reference to
such other comparable publicly available service for displaying eurodollar
rates as may be selected by the Administrative Agent.
"Eurodollar Loans": Loans for which the rate of interest is based upon
the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th
of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar Loans the
then current Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such Loans shall
originally have been made on the same day).
"Event of Default": any of the events specified in Section 8, provided
that any requirement for the giving of notice, the lapse of time, or both,
has been satisfied.
"Excess Cash Flow": for any fiscal year of the Borrower, the excess, if
any, of (a) the sum, without duplication, of (i) Consolidated Net Income for
such fiscal year, (ii) an amount equal to the amount of all non-cash charges
(including depreciation and amortization) deducted in arriving at such
Consolidated Net Income, (iii) decreases in Consolidated Working Capital for
such fiscal year, (iv) an amount equal to the aggregate
<PAGE> 18
13
net non-cash loss on the Disposition of Property by the Borrower and its
Restricted Subsidiaries during such fiscal year (other than sales of
inventory in the ordinary course of business), to the extent deducted in
arriving at such Consolidated Net Income and (v) the net increase during
such fiscal year (if any) in deferred tax accounts of the Borrower less (b)
the sum, without duplication, of (i) an amount equal to the amount of all
non-cash credits included in arriving at such Consolidated Net Income, (ii)
the aggregate amount actually paid by the Borrower and its Restricted
Subsidiaries in cash during such fiscal year on account of Capital
Expenditures (excluding the principal amount of Indebtedness incurred in
connection with such expenditures and any such expenditures financed with
the proceeds of any Reinvestment Deferred Amount), (iii) the aggregate
amount of all prepayments of Revolving Credit Loans during such fiscal year
to the extent accompanying permanent optional reductions of the Revolving
Credit Commitments and all optional prepayments of the Term Loans and other
Funded Debt during such fiscal year, (iv) the aggregate amount of all
regularly scheduled principal payments of Funded Debt (including, without
limitation, the Term Loans) of the Borrower and its Restricted Subsidiaries
made during such fiscal year (other than in respect of any revolving credit
facility to the extent there is not an equivalent permanent reduction in
commitments thereunder), (v) increases in Consolidated Working Capital for
such fiscal year, (vi) an amount equal to the aggregate net non-cash gain on
the Disposition of Property by the Borrower and its Restricted Subsidiaries
during such fiscal year (other than sales of inventory in the ordinary
course of business), to the extent included in arriving at such Consolidated
Net Income, and (vii) the net decrease during such fiscal year (if any) in
deferred tax accounts of the Borrower.
"Excess Cash Flow Application Date": as defined in Section 2.10(c).
"Excluded Foreign Subsidiaries": any Foreign Subsidiary in respect of
which either (i) the pledge of all of the Capital Stock of such Subsidiary
as Collateral or (ii) the guaranteeing by such Subsidiary of the
Obligations, would, in the good faith judgment of the Borrower, result in
adverse tax consequences to the Borrower.
"Existing Credit Agreement": as defined in the recitals to this
Agreement.
"Existing Fleet Letters of Credit": as defined in Section 3.1(d).
"Existing LaSalle Letters of Credit": as defined in Section 3.1(d).
"Facility": each of (a) the Term Loan Commitments and the Term Loans
made thereunder (the "Term Loan Facility") and (b) the Revolving Credit
Commitments and the extensions of credit made thereunder (the "Revolving
Credit Facility").
"Federal Funds Effective Rate"; for any day, the weighted average of
the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published on
the next succeeding Business Day by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for the day of such transactions
<PAGE> 19
14
received by the Reference Lender from three federal funds brokers of
recognized standing selected by it.
"FEMA": the Federal Emergency Management Agency, or any similar
successor agency of the federal government.
"Foreign Subsidiary": any Subsidiary of the Borrower that is not a
Domestic Subsidiary.
"FQ1", "FQ2 ", "FQ3", and "FQ4": when used with a numerical year
designation, means the first, second, third or fourth fiscal quarters,
respectively, of such fiscal year of the Borrower. (e.g., FQ1 1999 means the
first fiscal quarter of the Borrower's 1999 fiscal year, which ends
September 26, 1999).
"Funded Debt": as to any Person, all Indebtedness of such Person that
matures more than one year from the date of its creation or matures within
one year from such date but is renewable or extendible, at the option of
such Person, to a date more than one year from such date or arises under a
revolving credit or similar agreement that obligates the lender or lenders
to extend credit during a period of more than one year from such date,
including, without limitation, all current maturities and current sinking
fund payments in respect of such Indebtedness whether or not required to be
paid within one year from the date of its creation and, in the case of the
Borrower, Indebtedness in respect of the Loans.
"Funding Office": the office specified from time to time by the
Administrative Agent as its funding office by notice to the Borrower and the
Lenders.
"GAAP": generally accepted accounting principles in the United States
of America as in effect from time to time, except that for purposes of
Section 7.1, GAAP shall be determined on the basis of such principles in
effect on the date hereof and consistent with those used in the preparation
of the most recent audited financial statements delivered pursuant to
Section 4.1(b).
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee and Collateral Agreement": the Amended and Restated
Guarantee and Collateral Agreement to be executed and delivered by the
Borrower and each Subsidiary Guarantor, substantially in the form of Exhibit
A, as the same may be amended, supplemented or otherwise modified from time
to time.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to
induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation,
<PAGE> 20
15
in either case guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends or other obligations (the "primary obligations") of any
other third Person (the "primary obligor") in any manner, whether directly
or indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such
primary obligation or any Property constituting direct or indirect security
therefor, (ii) to advance or supply funds (1) for the purchase or payment of
any such primary obligation or (2) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (iii) to purchase Property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless the owner of
any such primary obligation against loss in respect thereof; provided,
however, that the term Guarantee Obligation shall not include endorsements
of instruments for deposit or collection in the ordinary course of business.
The amount of any Guarantee Obligation of any guaranteeing person shall be
deemed to be the lower of (a) an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such guaranteeing
person may be liable pursuant to the terms of the instrument embodying such
Guarantee Obligation, unless such primary obligation and the maximum amount
for which such guaranteeing person may be liable are not stated or
determinable, in which case the amount of such Guarantee Obligation shall be
such guaranteeing person's maximum reasonably anticipated liability in
respect thereof as determined by the Borrower in good faith.
"Hazardous Materials": all or any of the following: (a) substances that
are defined or listed in, or otherwise classified pursuant to, any
applicable laws or regulations as "hazardous substances," "hazardous
materials," "hazardous wastes," "toxic substances," or any other formulation
intended to define, list, or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, or "EP toxicity"; (b) oil, petroleum, or petroleum
derived substances, natural gas, natural gas liquids, synthetic gas,
drilling fluids, produced waters, and other wastes associated with the
exploration, development, or production of crude oil, natural gas, or
geothermal resources; (c) any flammable substances or explosives or any
radioactive materials; and (d) asbestos in any form or electrical equipment
which contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty (50) parts per million.
"Hedge Agreements": all interest rate swaps, caps or collar agreements
or similar arrangements entered into by the Borrower providing for
protection against fluctuations in interest rates or currency exchange rates
or the exchange of nominal interest obligations, either generally or under
specific contingencies.
"Highly Concentrated Accounts": the accounts identified as such on
Schedule 1.1.
<PAGE> 21
16
"Indebtedness": of any Person at any date, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of Property or services (other than
current trade payables incurred in the ordinary course of such Person's
business), (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to Property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such Property), (e) all
Capital Lease Obligations of such Person, (f) all obligations of such
Person, contingent or otherwise, as an account party under acceptance,
letter of credit or similar facilities, (g) all obligations of such Person,
contingent or otherwise, to purchase, redeem, retire or otherwise acquire
for value any Capital Stock of such Person, (h) all Guarantee Obligations of
such Person in respect of obligations of the kind referred to in clauses (a)
through (g) above; (i) all obligations of the kind referred to in clauses
(a) through (h) above secured by (or for which the holder of such obligation
has an existing right, contingent or otherwise, to be secured by) any Lien
on Property (including, without limitation, accounts and contract rights)
owned by such Person, whether or not such Person has assumed or become
liable for the payment of such obligation, (j) for the purposes of Section
8(e) only, all obligations of such Person in respect of Hedge Agreements and
(k) the liquidation value of any mandatorily redeemable preferred Capital
Stock of such Person or its Subsidiaries held by any Person other than such
Person and its Wholly Owned Subsidiaries.
"Indemnified Liabilities": as defined in Section 10.5.
"Indemnitee": as defined in Section 10.5.
"Insolvency": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Intellectual Property": the collective reference to all rights,
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including,
without limitation, copyrights, copyright licenses, patents, patent
licenses, trademarks, trademark licenses, technology, know-how and
processes, and all rights to sue at law or in equity for any infringement or
other impairment thereof, including the right to receive all proceeds and
damages therefrom.
"Interest Payment Date": (a) as to any Base Rate Loan, the last day of
each March, June, September and December to occur while such Loan is
outstanding and the final maturity date of such Loan, (b) as to any
Eurodollar Loan having an Interest Period of three months or less, the last
day of such Interest Period, (c) as to any Eurodollar Loan having an
Interest Period longer than three months, each day which is three months, or
a whole multiple thereof, after the first day of such Interest Period and
the last day of such
<PAGE> 22
17
Interest Period and (d) as to any Loan (other than any Revolving Credit
Loan that is a Base Rate Loan), the date of any repayment or prepayment made
in respect thereof.
"Interest Period": as to any Eurodollar Loan, (a) initially, the period
commencing on the borrowing or conversion date, as the case may be, with
respect to such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrower in its notice of borrowing or notice
of conversion, as the case may be, given with respect thereto; and (b)
thereafter, each period commencing on the last day of the next preceding
Interest Period applicable to such Eurodollar Loan and ending one, two,
three or six months thereafter, as selected by the Borrower by irrevocable
notice to the Administrative Agent not less than three Business Days prior
to the last day of the then current Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest Periods
are subject to the following:
(a) if any Interest Period would otherwise end on a day that
is not a Business Day, such Interest Period shall be extended
to the next succeeding Business Day unless the result of such
extension would be to carry such Interest Period into another
calendar month in which event such Interest Period shall end
on the immediately preceding Business Day;
(b) any Interest Period that would otherwise extend beyond
the Scheduled Revolving Credit Termination Date or beyond the
date final payment is due on the Term Loans, as the case may
be, shall end on the Revolving Credit Termination Date or
such due date, as applicable;
(c) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Business
Day of a calendar month; and
(d) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during
an Interest Period for such Loan.
"In Transit Inventory": Eligible Inventory purchased by the Borrower
where the Borrower has legal title but the goods have not been received by
the Borrower at one of its locations and entered into its perpetual
inventory system.
"Inventory": all present and future inventory in which the Borrower has
any interest, including goods held for sale and all of the Borrower's
present and future raw materials (but excluding any Hazardous Materials),
work in process, finished goods, and packing and shipping materials,
wherever located, and any documents of title representing any of the above.
<PAGE> 23
18
"Investments": as defined in Section 7.8.
"Issuing Lender": (i) with respect to the Existing LaSalle Letters of
Credit, LaSalle National Bank, (ii) with respect to the Existing Fleet
Letters of Credit, Fleet National Bank and (iii) with respect to any Letters
of Credit issued hereunder after the Closing Date, any Revolving Credit
Lender selected by the Borrower with the consent of such Revolving Credit
Lender, in its capacity as issuer of any Letter of Credit.
"Landed Costs": the Borrower's "book cost" (on a "FIFO" basis in
accordance with GAAP) for Eligible Inventory purchased by the Borrower from
a Person as opposed to the actual amount paid by the Borrower to said Person
and the Borrower's book cost may include tax, freight and duty.
"L/C Commitment": $10,000,000.
"L/C Fee Payment Date": the last day of each March, June, September and
December and the last day of the Revolving Credit Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
aggregate then undrawn and unexpired amount of the then outstanding Letters
of Credit and (b) the aggregate amount of drawings under Letters of Credit
which have not then been reimbursed pursuant to Section 3.5.
"L/C Participants": the collective reference to all the Revolving
Credit Lenders other than the Issuing Lender.
"Lehman Entity": any of Lehman Commercial Paper Inc. or any of its
affiliates (including Syndicated Loan Funding Trust).
"Letter of Credit": as defined in Section 3.1(a).
"Lender Addendum": with respect to any Lender which becomes a party
hereto on the date hereof, a Lender Addendum, substantially in the form of
Exhibit J, to be executed and delivered by such Lender as provided in
subsection 10.18.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement
and any capital lease having substantially the same economic effect as any
of the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
"Loan Documents": this Agreement, the Security Documents and the Notes.
<PAGE> 24
19
"Loan Parties": the Borrower and each Subsidiary of the Borrower which
is a party to a Loan Document.
"Majority Facility Lenders": with respect to any Facility, the holders
of more than 50% of the aggregate unpaid principal amount of the Term Loans
or the Total Revolving Extensions of Credit, as the case may be, outstanding
under such Facility (or, in the case of the Revolving Credit Facility, prior
to any termination of the Revolving Credit Commitments, the holders of more
than 50% of the Total Revolving Credit Commitments).
"Majority Revolving Credit Facility Lenders": the Majority Facility
Lenders in respect of the Revolving Credit Facility.
"Margin Stock": as defined in Regulation U.
"Margin Stock Restriction": any restriction, contained in any agreement
or other arrangement between the Borrower and/or any of its Restricted
Subsidiaries, on the one hand, and any Agent or Lender or any affiliate
thereof, on the other hand, on the right or ability of the Borrower or any
Restricted Subsidiary to sell, pledge or otherwise Dispose of any Restricted
Margin Stock.
"Material Adverse Effect": a material adverse effect on (a) the
Transactions, (b) the business, assets, property or condition (financial or
otherwise) of the Borrower and its Subsidiaries taken as a whole or (c) the
validity or enforceability of this Agreement or any of the other Loan
Documents or the rights or remedies of the Agents or the Lenders hereunder
or thereunder.
"Materials of Environmental Concern": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.
"Merger Agreement": as defined in the recitals to this Agreement.
"Merger Charges": up to $6,000,000 in the aggregate of Merger-related
charges, including a $1,900,000 write-off of Toastmaster's barter
receivables, a $1,150,000 inventory restructuring change, a $1,600,000
write-off of plant, property and equipment of closed facilities, a $750,000
write-off of discontinued tooling and a $600,000 write-off of an Internal
Revenue Service refund.
"Mortgages": each of the mortgages and deeds of trust, if any, made by
any Loan Party in favor of, or for the benefit of, the Administrative Agent
for the benefit of the Lenders (which mortgages and/or deeds of trust shall
be in form and substance reasonably satisfactory to the Administrative
Agent), as the same may be amended, supplemented or otherwise modified from
time to time.
<PAGE> 25
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"Multiemployer Plan": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"Net Average Senior Debt": on any date, the average of the amount of
Consolidated Senior Debt outstanding (net of cash and Cash equivalents held
by the Borrower and its Restricted Subsidiaries) on the last day of each of
the twelve consecutive calender months ended prior to the date of such
determination (or, if fewer than twelve months have elapsed between the
Closing Date and the date of such determination, then on the Closing Date
and the last day of each such month).
"Net Average Senior Debt Ratio": as of the last day of any period of
four consecutive fiscal quarters, the ratio of (a) Net Average Senior Debt
on such day to (b) Consolidated EBITDA for such period.
"Net Average Total Debt": on any date, the average of the amount of
Consolidated Total Debt outstanding (net of cash and Cash Equivalents held
by the Borrower and its Restricted Subsidiaries) on the last day of each of
the twelve consecutive calendar months ended prior to the date of such
determination (or, if fewer than twelve months have elapsed between the
Closing Date and the date of such determination, then on the Closing Date
and the last day of each such month).
"Net Average Total Debt Ratio": as of the last day of any period of
four consecutive fiscal quarters, the ratio of (a) Net Average Total Debt on
such day to (b) Consolidated EBITDA for such period.
"Net Cash Proceeds": (a) in connection with any Asset Sale or any
Recovery Event, the proceeds thereof in the form of cash and Cash
Equivalents (including any such proceeds received by way of deferred payment
of principal pursuant to a note or installment receivable or purchase price
adjustment receivable or otherwise, but only as and when received) of such
Asset Sale or Recovery Event, net of attorneys' fees, accountants' fees,
investment banking fees, amounts required to be applied to the repayment of
Indebtedness secured by a Lien expressly permitted hereunder on any asset
which is the subject of such Asset Sale or Recovery Event (other than any
Lien pursuant to a Security Document) and other customary fees and expenses
actually incurred in connection therewith and net of taxes paid or
reasonably estimated to be payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements) and (b) in connection with any issuance or sale of equity
securities or debt securities or instruments or the incurrence of loans, the
cash proceeds received from such issuance or incurrence, net of attorneys'
fees, investment banking fees, accountants' fees, underwriting discounts and
commissions and other customary fees and expenses actually incurred in
connection therewith.
"Net Returns": inventory previously sold that has been returned to
warehouses designated and owned, leased or otherwise controlled by the
Borrower and its Subsidiaries for investigation and/or repair of claimed
defects.
<PAGE> 26
21
"Non-Excluded Taxes": as defined in Section 2.18(a).
"Non-U.S. Lender": as defined in Section 2.18(d).
"Notes": the collective reference to any promissory note evidencing
Loans.
"Obligations": the unpaid principal of and interest on (including,
without limitation, interest accruing after the maturity of the Loans and
Reimbursement Obligations and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether or not
a claim for post-filing or post-petition interest is allowed in such
proceeding) the Loans and all other obligations and liabilities of the
Borrower to the Administrative Agent or to any Lender (or, in the case of
Hedge Agreements, any affiliate of any Lender), whether direct or indirect,
absolute or contingent, due or to become due, or now existing or hereafter
incurred, which may arise under, out of, or in connection with, this
Agreement, any other Loan Document, the Letters of Credit, any Hedge
Agreement entered into with any Lender or any affiliate of any Lender or any
other document made, delivered or given in connection herewith or therewith,
whether on account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses (including, without limitation, all fees,
charges and disbursements of counsel to the Administrative Agent or to any
Lender that are required to be paid by the Borrower pursuant hereto) or
otherwise.
"Other Taxes": any and all present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or
enforcement of, or otherwise with respect to, this Agreement or any other
Loan Document.
"Participant": as defined in Section 10.6(b).
"Payment Office": the office specified from time to time by the
Administrative Agent as its payment office by notice to the Borrower and the
Lenders.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA (or any successor).
"Permitted Acquisition": any acquisition by the Borrower or any of
its Subsidiaries of all of the Capital Stock of, or all or substantially all
of the assets constituting a business unit of, any other Person so long as,
with respect to any such acquisition, the following conditions are
satisfied:
(i) no Default or Event of Default shall have occurred and
be continuing or would result from such acquisition;
(ii) after giving effect to such acquisition, the Borrower
shall be in pro forma compliance with the financial covenants set forth
in Section 7.1;
<PAGE> 27
22
(iii) the acquisition shall conform with the Borrower's stated
management strategy as in effect on the Closing Date, and the target of
such acquisition shall be in the same or a similar line of business as
the Borrower and its Subsidiaries;
(iv) the aggregate consideration for such acquisition shall
not exceed $20,000,000;
(v) the target of such acquisition either (a) shall have had
positive consolidated net income before interest, taxes, depreciation
and amortization, determined in accordance with GAAP ("EBITDA") for the
four consecutive fiscal quarters of such target most recently ended
prior to the date of such acquisition, or (b) shall have had positive
pro forma EBITDA for such period (giving effect to such cost savings as
can be documented in accordance with Regulation S-X under the
Securities Act of 1933, as amended); and
(vi) the Borrower shall have performed reasonable and
customary due diligence with respect to such acquisition and the target
thereof, including with respect to environmental matters.
"Permitted Investors": 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.
"Person": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
"Plan": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Preferred Stock Purchase Agreement": the Stock Purchase Agreement,
dated July 27, 1998, by and among the Borrower and the Purchasers named
therein, consisting of Centre Capital Investors II, L.P., certain of its
affiliates and certain investment vehicles or investors managed or advised
by such affiliates.
"Pricing Grid": the pricing grid attached hereto as Annex A.
"Pro Forma Balance Sheet": as defined in Section 4.1(a).
"Projections": as defined in Section 6.2(c).
"Properties": as defined in Section 4.17.
<PAGE> 28
23
"Property": any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or
intangible, including, without limitation, Capital Stock.
"Recovery Event": any settlement of or payment in respect of any
property or casualty insurance claim or any condemnation proceeding relating
to any asset of the Borrower or any of its Subsidiaries.
"Reference Lender": Bankers Trust Company.
"Register": as defined in Section 10.6(d).
"Regulation U": Regulation U of the Board as in effect from time to
time and any successor law, rule or regulation having similar effect to all
or a portion thereof.
"Reimbursement Obligation": the obligation of the Borrower to reimburse
the Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters
of Credit.
"Reinvestment Deferred Amount": with respect to any Reinvestment Event,
the aggregate Net Cash Proceeds received by the Borrower or any of its
Subsidiaries in connection therewith which are not applied to prepay the
Term Loans or reduce the Revolving Credit Commitments pursuant to Section
2.10 as a result of the delivery of a Reinvestment Notice.
"Reinvestment Event": any Asset Sale or Recovery Event in respect of
which the Borrower has delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by a Responsible
Officer stating that no Event of Default has occurred and is continuing and
that the Borrower (directly or indirectly through a Restricted Subsidiary)
intends and expects to use all or a specified portion of the Net Cash
Proceeds of an Asset Sale or Recovery Event to acquire assets useful in its
business.
"Reinvestment Prepayment Amount": with respect to any Reinvestment
Event, the Reinvestment Deferred Amount relating thereto less any amount
expended prior to the relevant Reinvestment Prepayment Date to acquire
assets useful in the Borrower's business.
"Reinvestment Prepayment Date": with respect to any Reinvestment Event,
the earlier of (a) the date occurring six months after such Reinvestment
Event and (b) the date on which the Borrower shall have determined not to,
or shall have otherwise ceased to, acquire assets useful in the Borrower's
business with all or any portion of the relevant Reinvestment Deferred
Amount.
"Reorganization": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of
ERISA.
<PAGE> 29
24
"Reportable Event": any of the events set forth in Section 4043(c) of
ERISA, other than those events as to which the thirty day notice period is
waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC
Reg. Section 4043.
"Required Lenders": at any time, the holders of more than 50% of (a)
until the Closing Date, the Commitments and (b) thereafter, the sum of (i)
the aggregate unpaid principal amount of the Term Loans then outstanding and
(ii) the Total Revolving Credit Commitments then in effect or, if the
Revolving Credit Commitments have been terminated, the Total Revolving
Extensions of Credit then outstanding.
"Required Prepayment Lenders": the Majority Facility Lenders in respect
of each Facility.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its Property or to which
such Person or any of its Property is subject.
"Responsible Officer": the chief executive officer, president or chief
financial officer of the Borrower, but in any event, with respect to
financial matters, the chief financial officer of the Borrower.
"Restricted Margin Stock": all Margin Stock owned by the Borrower and
its Restricted Subsidiaries to the extent that the market value thereof
constitutes more than 25% of the value of the assets of the Borrower and its
Subsidiaries which constitute Collateral and/or which are subject to the
restrictions of Sections 7.3, 7.4 or 7.5.
"Restricted Payments": as defined in Section 7.6.
"Restricted Subsidiary": each Subsidiary of the Borrower other than an
Unrestricted Subsidiary.
"Revolving Credit Commitment": as to any Lender, the obligation of such
Lender, if any, to make Revolving Credit Loans, in an aggregate principal
and/or face amount not to exceed the amount set forth under the heading
"Revolving Credit Commitment" opposite such Lender's name on Schedule 1 to
the Lender Addendum delivered by such Lender or, as the case may be, in
Schedule 1 to the Assignment and Acceptance pursuant to which such Lender
acquired such Commitment, as the same may be changed from time to time
pursuant to the terms hereof. The original amount of the Total Revolving
Credit Commitments is $80,000,000.
"Revolving Credit Commitment Period": the period from and including the
Closing Date to the Revolving Credit Termination Date.
<PAGE> 30
25
"Revolving Credit Lender": each Lender which has a Revolving Credit
Commitment or which is the holder of Revolving Credit Loans.
"Revolving Credit Loans": as defined in Section 2.4.
"Revolving Credit Percentage": as to any Revolving Credit Lender at any
time, the percentage which such Lender's Revolving Credit Commitment then
constitutes of the Total Revolving Credit Commitments (or, at any time after
the Revolving Credit Commitments shall have expired or terminated, the
percentage which the aggregate principal amount of such Lender's Revolving
Credit Loans then outstanding constitutes of the aggregate principal amount
of the Revolving Credit Loans then outstanding).
"Revolving Credit Termination Date": the earlier of (a) the Scheduled
Revolving Credit Termination Date and (b) the date on which the Term Loans
shall be paid in full.
"Revolving Extensions of Credit": as to any Revolving Credit Lender at
any time, an amount equal to the sum of (a) the aggregate principal amount
of all Revolving Credit Loans made by such Lender then outstanding and (b)
such Lender's Revolving Credit Percentage of the L/C Obligations then
outstanding.
"Salton Hong Kong": Salton Hong Kong Ltd., a Hong Kong company.
"Scheduled Revolving Credit Termination Date": January 7, 2004.
"Security Documents": the collective reference to the Guarantee and
Collateral Agreement, any Mortgages and all other security documents
hereafter delivered to the Administrative Agent granting a Lien on any
Property of any Person to secure the obligations and liabilities of any Loan
Party under any Loan Document.
"Seller Note": the $15,000,000 aggregate principal amount subordinated
note of the Borrower made to Windmere-Durable Holdings, Inc. in connection
with the Stock Agreement, dated as of May 6, 1998, among the Borrower,
Windmere-Durable Holdings, Inc., and others.
"Senior Subordinated Note Indenture": the Indenture, dated as of
December 16, 1998, between the Borrower and Norwest Bank Minnesota, National
Association, as trustee, pursuant to which the Senior Subordinated Notes
were issued.
"Senior Subordinated Notes": the 10-3/4% Senior Subordinated Notes due
2005 of the Borrower, in the aggregate principal amount of $125,000,000.
"Single Employer Plan": any Plan which is covered by Title IV of ERISA,
but which is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of any
date of determination, (a) the amount of the "present fair saleable value"
of the assets of such
<PAGE> 31
26
Person will, as of such date, exceed the amount of all "liabilities of such
Person, contingent or otherwise", as of such date, as such quoted terms are
determined in accordance with applicable federal and state laws governing
determinations of the insolvency of debtors, (b) the present fair saleable
value of the assets of such Person will, as of such date, be greater than
the amount that will be required to pay the liability of such Person on its
debts as such debts become absolute and matured, (c) such Person will not
have, as of such date, an unreasonably small amount of capital with which to
conduct its business, and (d) such Person will be able to pay its debts as
they mature. For purposes of this definition, (i) "debt" means liability on
a "claim", and (ii) "claim" means any (x) right to payment, whether or not
such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured or (y) right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment, whether or not
such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured or unmatured, disputed, undisputed, secured or unsecured.
"Specified Change of Control": a "Change of Control", as defined in the
Senior Subordinated Note Indenture.
"Standard Flood Hazard Determination Form": Form 81-93 or any successor
or replacement thereof developed by FEMA pursuant to Section 528 of the
National Flood Insurance Reform Act of 1994 (42 U.S.C. 1365(a)), for
determining whether a building or structure is located in an area identified
as an area having special flood hazard, whether flood insurance is required
and whether flood insurance is available under 42 U.S.C. 4001, et seq.
"Subordinated Debt": the Seller Note and the Senior Subordinated Notes.
"Subsidiary": as to any Person, a corporation, partnership, limited
liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such
other ownership interests having such power only by reason of the happening
of a contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the time
owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such Person.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries
of the Borrower.
"Subsidiary Guarantor": each Subsidiary of the Borrower other than any
Excluded Foreign Subsidiary.
"Term Loan": as defined in Section 2.1.
"Term Loan Commitment": as to any Lender, the obligation of such
Lender, if any, to make a Term Loan to the Borrower hereunder in a principal
amount not to exceed the amount set forth under the heading "Term Loan
Commitment" opposite such Lender's
<PAGE> 32
27
name on Schedule 1 to the Lender Addendum delivered by such Lender or, as
the case may be, in Schedule 1 to the Assignment and Acceptance pursuant to
which such Lender acquired such commitment. The original aggregae amount of
the Term Loan Commitments is $45,000,000.
"Term Loan Lender": each Lender which has a Term Loan Commitment or is
the holder of a Term Loan.
"Term Loan Percentage": as to any Term Loan Lender at any time, the
percentage which such Lender's Term Loan Commitment then constitutes of the
aggregate Term Loan Commitments (or, at any time after the Closing Date, the
percentage which the aggregate principal amount of such Lender's Term Loans
then outstanding constitutes of the aggregate principal amount of the Term
Loans then outstanding).
"Toastmaster": as defined in the recitals to this Agreement.
"Total Revolving Credit Commitments": at any time, the aggregate amount
of the Revolving Credit Commitments then in effect.
"Total Revolving Extensions of Credit": at any time, the aggregate
amount of the Revolving Extensions of Credit of the Revolving Credit Lenders
outstanding at such time.
"Transactions": as defined in the recitals to this Agreement.
"Transferee": as defined in Section 10.15.
"Type": as to any Loan, its nature as a Base Rate Loan or a Eurodollar
Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
Credits (current version), International Chamber of Commerce Publication No.
500, as the same may be amended from time to time.
"Unrestricted Margin Stock": all Margin Stock owned by the Borrower and
its Restricted Subsidiaries other than Restricted Margin Stock.
"Unrestricted Subsidiary": any Subsidiary of the Borrower which is
designated as an Unrestricted Subsidiary pursuant to Section 10.16.
"Wholly Owned Subsidiary": as to any Person, any other Person all of
the Capital Stock of which (other than directors' qualifying shares required
by law) is owned by such Person directly and/or through other Wholly Owned
Subsidiaries.
"Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that is a
Wholly Owned Subsidiary of the Borrower.
<PAGE> 33
28
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the other Loan Documents or any certificate or other document made
or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to the Borrower and its Subsidiaries not defined in
Section 1.1 and accounting terms partly defined in Section 1.1, to the extent
not defined, shall have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Term Loan Commitments. Subject to the terms and conditions
hereof, each Term Loan Lender severally agrees to make a term loan (a "Term
Loan") to the Borrower on the Closing Date in an amount not to exceed the lesser
of (i) the amount of the Term Loan Commitment of such Lender and (ii) such
Lender's Term Loan Percentage of the Borrowing Base then in effect. The Term
Loans may from time to time be Eurodollar Loans or Base Rate Loans, as
determined by the Borrower and notified to the Administrative Agent in
accordance with Sections 2.2 and 2.11.
2.2 Procedure for Term Loan Borrowing. The Borrower shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 10:00 A.M., New York City time, one Business Day
prior to the anticipated Closing Date) requesting that the Term Loan Lenders
make the Term Loans and specifying (a) the amount and Type of Term Loans to be
borrowed, (b) the requested Borrowing Date and (c) in the case of Eurodollar
Loans, the respective amounts of each such Type of Loan and the respective
lengths of the initial Interest Period therefor. The Term Loans made on the
Closing Date shall initially be Base Rate Loans, and may be converted to
Eurodollar Loans after the Closing Date pursuant to Section 2.11. Upon receipt
of such notice the Administrative Agent shall promptly notify each Term Loan
Lender thereof. Not later than 12:00 Noon, New York City time, on the Closing
Date each Term Loan Lender shall make available to the Administrative Agent at
the Funding Office an amount in immediately available funds equal to the Term
Loan to be made by such Lender. The Administrative Agent shall make available to
the Borrower the aggregate of the amounts made available to the Administrative
Agent by the Term Loan Lenders in immediately available funds.
<PAGE> 34
29
2.3 Repayment of Term Loans. The Term Loan of each Lender shall
mature in 24 consecutive quarterly installments, payable on the last Business
Day in each of the Borrower's fiscal quarters, commencing on March 26, 1999,
each of which shall be in an amount equal to such Lender's Term Loan Percentage
multiplied by the amount set forth below opposite such installment:
<TABLE>
<CAPTION>
Installment Principal Amount
----------- ----------------
<S> <C> <C>
1-20 $ 125,000
21-24 10,625,000
</TABLE>
2.4 Revolving Credit Commitments. (a) Subject to the terms and
conditions hereof, each Revolving Credit Lender severally agrees to make
revolving credit loans ("Revolving Credit Loans") to the Borrower from time to
time during the Revolving Credit Commitment Period in an aggregate principal
amount at any one time outstanding which, when added to such Lender's Revolving
Credit Percentage of the L/C Obligations then outstanding, does not exceed the
lesser of (i) the amount of such Lender's Revolving Credit Commitment and (ii)
such Lender's Revolving Commitment Percentage of the Available Revolving Credit
Borrowing Base then in effect. During the Revolving Credit Commitment Period the
Borrower may use the Revolving Credit Commitments by borrowing, prepaying the
Revolving Credit Loans in whole or in part, and reborrowing, all in accordance
with the terms and conditions hereof. The Revolving Credit Loans may from time
to time be Eurodollar Loans or Base Rate Loans, as determined by the Borrower
and notified to the Administrative Agent in accordance with Sections 2.5 and
2.11, provided that no Revolving Credit Loan shall be made as a Eurodollar Loan
after the day that is one month prior to the Revolving Credit Termination Date.
(b) The Borrower shall repay all outstanding Revolving Credit Loans
on the Revolving Credit Termination Date.
2.5 Procedure for Revolving Credit Borrowing. The Borrower may
borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Business Day, provided that the Borrower shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 12:00 Noon, New York City time, (a) three Business
Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or
(b) one Business Day prior to the requested Borrowing Date, in the case of Base
Rate Loans), specifying (i) the amount and Type of Revolving Credit Loans to be
borrowed, (ii) the requested Borrowing Date and (iii) in the case of Eurodollar
Loans, the respective amounts of each such Type of Loan and the respective
lengths of the initial Interest Period therefor. Any Revolving Credit Loans made
on the Closing Date shall initially be Base Rate Loans, and may be converted to
Eurodollar Loans after the Closing Date pursuant to Section 2.11. Each borrowing
under the Revolving Credit Commitments shall be in an amount equal to (x) in the
case of Base Rate Loans, $1,000,000 or a whole multiple thereof (or, if the then
aggregate Available Revolving Credit Commitments are less than $1,000,000, such
lesser amount) and (y) in the case of Eurodollar Loans, $5,000,000 or a whole
multiple of $1,000,000 in excess thereof. Upon receipt of any such notice from
the Borrower, the Administrative Agent shall promptly notify each Revolving
Credit Lender thereof. Each Revolving Credit Lender will
<PAGE> 35
30
make the amount of its pro rata share of each borrowing available to the
Administrative Agent for the account of the Borrower at the Funding Office prior
to 12:00 Noon, New York City time, on the Borrowing Date requested by the
Borrower in funds immediately available to the Administrative Agent. Such
borrowing will then be made available to the Borrower by the Administrative
Agent in like funds as received by the Administrative Agent.
2.6 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
the appropriate Revolving Credit Lender or Term Loan Lender, as the case may be,
(i) the then unpaid principal amount of each Revolving Credit Loan of such
Revolving Credit Lender on the Revolving Credit Termination Date (or such
earlier date on which the Loans become due and payable pursuant to Section 8)
and (ii) the principal amount of each Term Loan of such Term Loan Lender in
installments according to the amortization schedule set forth in Section 2.3 (or
on such earlier date on which the Loans become due and payable pursuant to
Section 8). The Borrower hereby further agrees to pay interest on the unpaid
principal amount of the Loans from time to time outstanding from the date hereof
until payment in full thereof at the rates per annum, and on the dates, set
forth in Section 2.13.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c) The Administrative Agent, on behalf of the Borrower, shall
maintain the Register pursuant to Section 10.6(d), and a subaccount therein for
each Lender, in which shall be recorded (i) the amount of each Loan made
hereunder and any Note evidencing such Loan, the Type thereof and each Interest
Period applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Lender hereunder
and (iii) both the amount of any sum received by the Administrative Agent
hereunder from the Borrower and each Lender's share thereof.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.6(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided, however, that the
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Loans made to
such Borrower by such Lender in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the Administrative
Agent by any Lender, the Borrower will execute and deliver to such Lender a
promissory note of the Borrower evidencing any Term Loans or Revolving Credit
Loans, as the case may be, of such Lender, substantially in the forms of Exhibit
I-1 or I-2, respectively, with appropriate insertions as to date and principal
amount.
<PAGE> 36
31
2.7 Commitment Fees, etc. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Revolving Credit Lender a
commitment fee for the period from and including the Closing Date to the last
day of the Revolving Credit Commitment Period, computed at the Commitment Fee
Rate on the average daily amount of the Available Revolving Credit Commitment of
such Lender during the period for which payment is made, payable quarterly in
arrears on the last day of each March, June, September and December and on the
Revolving Credit Termination Date, commencing on the first of such dates to
occur after the date hereof.
(b) The Borrower agrees to pay to the Syndication Agent the fees
in the amounts and on the dates previously agreed to in writing by the Borrower
and the Syndication Agent.
(c) The Borrower agrees to pay to the Administrative Agent the fees
in the amounts and on the dates from time to time agreed to in writing by the
Borrower and the Administrative Agent.
2.8 Termination or Reduction of Commitments. The Borrower shall have
the right, upon not less than three Business Days' notice to the Administrative
Agent, to terminate the Revolving Credit Commitments or, from time to time, to
reduce the amount of the Revolving Credit Commitments; provided that no such
termination or reduction of Revolving Credit Commitments shall be permitted if,
after giving effect thereto and to any prepayments of the Revolving Credit Loans
made on the effective date thereof, the Total Revolving Extensions of Credit
would exceed the Total Revolving Credit Commitments. Any such reduction shall be
in an amount equal to $1,000,000, or a whole multiple thereof, and shall reduce
permanently the Revolving Credit Commitments then in effect.
2.9 Optional Prepayments. (a) The Borrower may at any time and from
time to time prepay the Loans, in whole or in part, without premium or penalty,
upon irrevocable notice delivered to the Administrative Agent at least three
Business Days prior thereto in the case of Eurodollar Loans and at least one
Business Day prior thereto in the case of Base Rate Loans, which notice shall
specify the date and amount of prepayment and whether the prepayment is of
Eurodollar Loans or Base Rate Loans; provided, that if a Eurodollar Loan is
prepaid on any day other than the last day of the Interest Period applicable
thereto, the Borrower shall also pay anyamounts owing pursuant to Section 2.19.
Upon receipt of any such notice the Administrative Agent shall promptly notify
each relevant Lender thereof. If any such notice is given, the amount specified
in such notice shall be due and payable on the date specified therein, together
with (except in the case of Revolving Credit Loans which are Base Rate Loans)
accrued interest to such date on the amount prepaid. Partial prepayments of Term
Loans and Revolving Credit Loans shall be in an aggregate principal amount of
$1,000,000 or a whole multiple thereof.
(b) Notwithstanding anything to the contrary in Section 2.16,
with respect to the amount of any optional prepayment described in Section
2.9(a) that is allocated to Term Loans (such amounts, the "Term Loan Optional
Prepayment Amount"), at any time when Revolving Credit Loans remain outstanding,
the Borrower will, in lieu of applying such amount to the prepayment of Term
Loans as provided in paragraph (a) above, on the date specified in Section 2.9
for such prepayment, give the Administrative Agent telephonic notice (promptly
confirmed
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32
in writing) requesting that the Administrative Agent prepare and provide to each
Term Loan Lender a notice (each, an "Optional Prepayment Option Notice") as
described below. As promptly as practicable after receiving such notice from the
Borrower, the Administrative Agent will send to each Term Loan Lender an
Optional Prepayment Option Notice, which shall be in the form of Exhibit C-1,
and shall include an offer by the Borrower to prepay on the date (each an
"Optional Prepayment Date") that is 10 Business Days after the date of the
Optional Prepayment Option Notice, the Term Loans of such Lender by an amount
equal to the portion of the Term Loan Optional Prepayment Amount indicated in
such Lender's Optional Prepayment Option Notice as being applicable to such
Lender's Term Loans (which prepayment amount shall be allocated among the Term
Loan Lenders pro rata according to the outstanding principal amounts of the Term
Loans held by the Term Loan Lenders). On the Optional Prepayment Date, (i) the
Borrower shall pay to the Administrative Agent the aggregate amount necessary to
prepay that portion of the outstanding relevant Term Loans in respect of which
Term Loan Lenders have accepted prepayment (such Lenders, the "Optional
Prepayment Accepting Lenders"), and such amount shall be applied to reduce the
Term Loan Optional Prepayment Amounts with respect to each Optional Prepayment
Accepting Lender, (ii) the Borrower shall pay to the Administrative Agent an
amount equal to the portion of the Term Loan Optional Prepayment Amount not
accepted by the Optional Prepayment Accepting Lenders, and such amount shall be
applied to the prepayment of the Revolving Credit Loans.
(c) Any optional prepayment of the Term Loans pursuant to this
Section 2.9 made on or prior to the date which is (i) prior to the first
anniversary of the Closing Date shall be accompanied by a prepayment fee (for
the ratable account of the Term Loan Lenders receiving such prepayment) in the
amount equal to 2% of the aggregate principal amount so prepaid or (ii)
subsequent to the first anniversary of the Closing Date and prior to the third
anniversary of the Closing Date shall be accompanied by a prepayment fee (for
the ratable account of the Term Loan Lenders receiving such prepayment) in the
amount equal to 1% of the aggregate principal amount so prepaid.
2.10 Mandatory Prepayments and Revolving Credit Commitment Reductions.
Unless the Required Prepayment Lenders shall otherwise agree, if any
Indebtedness shall be incurred by the Borrower or any of its Restricted
Subsidiaries (excluding any Indebtedness incurred in accordance with Section 7.2
as in effect on the date of this Agreement), an amount equal to 100% of the Net
Cash Proceeds thereof shall be applied on the date of such incurrence toward the
prepayment of the Term Loans and the reduction of Revolving Credit
Commitments as set forth in Section 2.10(e).
(b) Unless the Required Prepayment Lenders shall otherwise agree, if
on any date the Borrower or any of its Restricted Subsidiaries shall
receive Net Cash Proceeds from any Asset Sale or Recovery Event then, unless a
Reinvestment Notice shall be delivered in respect thereof, such Net Cash
Proceeds shall be applied on such date toward the prepayment of the Term Loans
and the reduction of the Revolving Credit Commitments as set forth in Section
2.10(e); provided, that, notwithstanding the foregoing, (i) the aggregate Net
Cash Proceeds of Asset Sales and Recovery Events that may be excluded from the
foregoing requirement pursuant to a Reinvestment Notice shall not exceed
$2,000,000 in any fiscal year of the Borrower and (ii) on each Reinvestment
Prepayment Date, an amount equal to the Reinvestment Prepayment
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33
Amount with respect to the relevant Reinvestment Event shall be applied toward
the prepayment of the Term Loans and the reduction of the Revolving Credit
Commitments as set forth in Section 2.10(e).
(c) Unless the Required Prepayment Lenders shall otherwise agree, if,
for any fiscal year of the Borrower commencing with the fiscal year ending June
26, 1999, there shall be Excess Cash Flow, the Borrower shall, on the relevant
Excess Cash Flow Application Date, apply 75% of such Excess Cash Flow toward the
prepayment of the Term Loans (but not toward reduction of the Revolving Credit
Commitments) as set forth in Section 2.10(e). Each such prepayment shall be made
on a date (an "Excess Cash Flow Application Date") no later than five days after
the earlier of (i) the date on which the financial statements of the Borrower
referred to in Section 6.1(a), for the fiscal year with respect to which such
prepayment is made, are required to be delivered to the Lenders and (ii) the
date such financial statements are actually delivered.
(d) If, at any time, the Aggregate Funded Exposure exceeds the
Borrowing Base then in effect, the Borrower shall, without notice or demand,
immediately repay first, the Revolving Credit Loans and, second, the Term Loans,
in an aggregate principal amount equal to such excess, together with interest
accrued to the date of such payment or prepayment. To the extent that after
giving effect to any prepayment of the Revolving Credit Loans or Term Loans, as
the case may be, required by the preceding sentence, the Aggregate Funded
Exposure exceeds the Borrowing Base (because L/C Obligations constitute a
portion of the Aggregate Funded Exposure) the Borrower shall, without notice or
demand, immediately deposit in a cash collateral account with an Issuing Lender
identified by the Administrative Agent, having terms and conditions satisfactory
to the Administrative Agent, as collateral security for the liability of the
Issuing Lender (whether direct or contingent) under any Letters of Credit then
outstanding, an aggregate amount equal to the amount by which the Aggregate
Funded Exposure exceeds the Borrowing Base.
(e) Amounts to be applied in connection with Loan prepayments and
Revolving Credit Commitment reductions made pursuant to paragraphs (a), (b) and
(c) of this Section shall be applied first, to the prepayment of the Term Loans,
and, second, to reduce permanently the Revolving Credit Commitments; provided,
that the Excess Cash Flow amounts described in Section 2.10(c) shall not reduce
the Revolving Credit Commitments. Any such reduction of the Revolving Credit
Commitments shall be accompanied by prepayment of the Revolving Credit Loans to
the extent, if any, that the Total Revolving Extensions of Credit exceed the
amount of the Total Revolving Credit Commitments as so reduced, provided that if
the aggregate principal amount of Revolving Credit Loans then outstanding is
less than the amount of such excess (because L/C Obligations constitute a
portion thereof), the Borrower shall, to the extent of the balance of such
excess, replace outstanding Letters of Credit and/or deposit an amount in cash
and/or Cash Equivalents in a cash collateral account established with the
Administrative Agent for the benefit of the Lenders on terms and conditions
satisfactory to the Administrative Agent. The application of any prepayment
pursuant to this Section shall be made first to Base Rate Loans and second to
Eurodollar Loans. Each prepayment of the Loans under this Section (except in the
case of Revolving Credit Loans that are Base Rate Loans) shall be accompanied by
accrued interest to the date of such prepayment on the amount prepaid.
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34
(f) Notwithstanding anything to the contrary in Section 2.10(e) or
2.16, with respect to the amount of any mandatory prepayment described in
Section 2.10 that is allocated to Term Loans (such amounts, the "Term Loan
Mandatory Prepayment Amount"), at any time when Revolving Credit Loans remain
outstanding, the Borrower will, in lieu of applying such amount to the
prepayment of Term Loans as provided in paragraph (e) above, on the date
specified in Section 2.10 for such prepayment, give the Administrative Agent
telephonic notice (promptly confirmed in writing) requesting that the
Administrative Agent prepare and provide to each Lender a notice (each, a
"Mandatory Prepayment Option Notice") as described below. As promptly as
practicable after receiving such notice from the Borrower, the Administrative
Agent will send to each Term Loan Lender a Mandatory Prepayment Option Notice,
which shall be in the form of Exhibit C-2, and shall include an offer by the
Borrower to prepay on the date (each a "Mandatory Prepayment Date") that is 10
Business Days after the date of the Mandatory Prepayment Option Notice, the Term
Loans of such Lender by an amount equal to the portion of the Mandatory
Prepayment Amount indicated in such Lender's Mandatory Prepayment Option Notice
as being applicable to such Lender's Term Loans. On the Mandatory Prepayment
Date, (i) the Borrower shall pay to the Administrative Agent the aggregate
amount necessary to prepay that portion of the outstanding relevant Term Loans
in respect of which Term Loan Lenders have accepted prepayment as described
above (such Lenders, the "Mandatory Prepayment Accepting Lenders") and (ii) the
Borrower shall pay to the Administrative Agent an amount equal to the portion of
the Mandatory Prepayment Amount not accepted by the Mandatory Prepayment
Accepting Lenders, and such amount shall be applied to the prepayment of the
Revolving Credit Loans and, in the case of all mandatory prepayments other than
those made pursuant to Section 2.10(c), to the permanent reduction of the
Revolving Credit Commitments in the amount of such prepayment.
(g) Any mandatory prepayment of the Term Loans pursuant to paragraphs
(a) or (b) of this Section 2.10 made on or prior to the date which is (i) prior
to the first anniversary of the Closing Date shall be accompanied by a
prepayment fee (for the ratable account of the Term Loan Lenders receiving such
prepayment) in the amount equal to 2% of the aggregate principal amount so
prepaid or (ii) subsequent to the first anniversary of the Closing Date and
prior to the third anniversary of the Closing Date shall be accompanied by a
prepayment fee (for the ratable account of the Term Loan Lenders receiving such
prepayment) in the amount equal to 1% of the aggregate principal amount so
prepaid.
2.11 Conversion and Continuation Options. (a) The Borrower may elect
from time to time to convert Eurodollar Loans to Base Rate Loans by giving the
Administrative Agent at least two Business Days' prior irrevocable notice of
such election, provided that any such conversion of Eurodollar Loans may only be
made on the last day of an Interest Period with respect thereto. The Borrower
may elect from time to time to convert Base Rate Loans to Eurodollar Loans by
giving the Administrative Agent at least three Business Days' prior irrevocable
notice of such election (which notice shall specify the length of the initial
Interest Period therefor), provided that no Base Rate Loan under a particular
Facility may be converted into a Eurodollar Loan (i) when any Event of Default
has occurred and is continuing and the Administrative Agent or the Majority
Facility Lenders in respect of such Facility have determined in its or their
sole discretion not to permit such conversions or (ii) after the date that is
one month prior to the final scheduled termination or maturity date of such
Facility. Upon
<PAGE> 40
35
receipt of any such notice the Administrative Agent shall promptly notify each
relevant Lender thereof.
(b) Any Eurodollar Loan may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
irrevocable notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Loans, provided
that no Eurodollar Loan under a particular Facility may be continued as such (i)
when any Event of Default has occurred and is continuing and the Administrative
Agent has or the Majority Facility Lenders in respect of such Facility have
determined in its or their sole discretion not to permit such continuations or
(ii) after the date that is one month prior to the final scheduled termination
or maturity date of such Facility, and provided, further, that if the Borrower
shall fail to give any required notice as described above in this paragraph or
if such continuation is not permitted pursuant to the preceding proviso such
Loans shall be automatically converted to Base Rate Loans on the last day of
such then expiring Interest Period. Upon receipt of any such notice the
Administrative Agent shall promptly notify each relevant Lender thereof.
2.12 Minimum Amounts and Maximum Number of Eurodollar Tranches.
Notwithstanding anything to the contrary in this Agreement, all borrowings,
conversions, continuations and optional prepayments of Eurodollar Loans
hereunder and all selections of Interest Periods hereunder shall be in such
amounts and be made pursuant to such elections so that, (a) after giving effect
thereto, the aggregate principal amount of the Eurodollar Loans comprising each
Eurodollar Tranche shall be equal to $5,000,000 or a whole multiple of
$1,000,000 in excess thereof and (b) no more than ten Eurodollar Tranches shall
be outstanding at any one time.
2.13 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall
bear interest for each day during each Interest Period with respect thereto at a
rate per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.
(b) Each Base Rate Loan shall bear interest at a rate per annum
equal to the Base Rate plus the Applicable Margin.
(c) (i) If all or a portion of the principal amount of any Loan
or Reimbursement Obligation shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), all outstanding Loans and Reimbursement
Obligations (whether or not overdue) shall bear interest at a rate per annum
which is equal to (x) in the case of the Loans, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this Section plus 2%
or (y) in the case of Reimbursement Obligations, the rate applicable to Base
Rate Loans under the Revolving Credit Facility plus 2%, and (ii) if all or a
portion of any interest payable on any Loan or Reimbursement Obligation or any
commitment fee or other amount payable hereunder shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate per annum equal to the rate then applicable
to Base Rate Loans under the relevant Facility plus 2% (or, in the case of any
such other amounts that do not relate to a particular Facility, the rate then
applicable to Base Rate Loans under the Revolving
<PAGE> 41
36
Credit Facility plus 2%), in each case, with respect to clauses (i) and (ii)
above, from the date of such non-payment until such amount is paid in full (as
well after as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this
Section shall be payable from time to time on demand.
2.14 Computation of Interest and Fees. (a) Interest, fees and
commissions payable pursuant hereto shall be calculated on the basis of a
360-day year for the actual days elapsed, except that, with respect to Base Rate
Loans the rate of interest on which is calculated on the basis of the Prime
Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-,
as the case may be) day year for the actual days elapsed. The Administrative
Agent shall as soon as practicable notify the Borrower and the relevant Lenders
of each determination of a Eurodollar Rate. Any change in the interest rate on a
Loan resulting from a change in the Base Rate or the Eurocurrency Reserve
Requirements shall become effective as of the opening of business on the day on
which such change becomes effective. The Administrative Agent shall as soon as
practicable notify the Borrower and the relevant Lenders of the effective date
and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.13(a).
2.15 Inability to Determine Interest Rate. If prior to the first day
of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period, or
(b) the Administrative Agent shall have received notice from the
Majority Facility Lenders in respect of the relevant Facility that the
Eurodollar Rate determined or to be determined for such Interest Period will
not adequately and fairly reflect the cost to such Lenders (as conclusively
certified by such Lenders) of making or maintaining their affected Loans
during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the relevant Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans under the relevant Facility requested
to be made on the first day of such Interest Period shall be made as Base Rate
Loans, (y) any Loans under the relevant Facility that were to have been
converted on the first day of such Interest Period to Eurodollar Loans shall be
continued as Base Rate Loans and (z) any outstanding Eurodollar Loans under the
relevant Facility shall be converted, on the first day of such Interest Period,
to Base Rate Loans. Until such notice has
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37
been withdrawn by the Administrative Agent, no further Eurodollar Loans under
the relevant Facility shall be made or continued as such, nor shall the Borrower
have the right to convert Loans under the relevant Facility to Eurodollar Loans.
2.16 Pro Rata Treatment and Payments. (a) Each borrowing by the
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee and any reduction of the Commitments of the Lenders shall be
made pro rata according to the respective Term Loan Percentages or Revolving
Credit Percentages, as the case may be, of the relevant Lenders. Each payment
(other than prepayments) in respect of principal or interest in respect of the
Loans, each payment in respect of fees payable hereunder, and each payment in
respect of Reimbursement Obligations, shall be applied to the amounts of such
obligations owing to the Lenders pro rata according to the respective amounts
then due and owing to the Lenders.
(b) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Term Loans shall be made pro rata
according to the respective outstanding principal amounts of such Term Loans
then due and owing to the Term Loan Lenders. The amount of each principal
prepayment of the Term Loans shall be applied to reduce the then remaining
installments of the Term Loans pro rata based upon the then remaining principal
amount thereof. Amounts prepaid on account of the Term Loans may not be
reborrowed.
(c) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Revolving Credit Loans shall be made
pro rata according to the respective outstanding principal amounts of the
Revolving Credit Loans then held by the Revolving Credit Lenders.
(d) All payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff or counterclaim and shall be made prior to 12:00 Noon,
New York City time, on the due date thereof to the Administrative Agent, for the
account of the Lenders, at the Payment Office, in Dollars and in immediately
available funds. The Administrative Agent shall distribute such payments to the
Lenders promptly upon receipt in like funds as received. If any payment
hereunder (other than payments on the Eurodollar Loans) becomes due and payable
on a day other than a Business Day, such payment shall be extended to the next
succeeding Business Day. If any payment on a Eurodollar Loan becomes due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day unless the result of such extension
would be to extend such payment into another calendar month, in which event such
payment shall be made on the immediately preceding Business Day. In the case of
any extension of any payment of principal pursuant to the preceding two
sentences, interest thereon shall be payable at the then applicable rate during
such extension.
(e) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
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38
corresponding amount. If such amount is not made available to the Administrative
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Administrative Agent, on demand, such amount with interest thereon at a
rate equal to the daily average Federal Funds Effective Rate for the period
until such Lender makes such amount immediately available to the Administrative
Agent. A certificate of the Administrative Agent submitted to any Lender with
respect to any amounts owing under this paragraph shall be conclusive in the
absence of manifest error. If such Lender's share of such borrowing is not made
available to the Administrative Agent by such Lender within three Business Days
of such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
Base Rate Loans under the relevant Facility, within two Business Days of the
Administrative Agent's demand, from the Borrower.
(f) Unless the Administrative Agent shall have been notified in
writing by the Borrower prior to the date of any payment being made hereunder
that the Borrower will not make such payment to the Administrative Agent, the
Administrative Agent may assume that the Borrower is making such payment, and
the Administrative Agent may, but shall not be required to, in reliance upon
such assumption, make available to the Lenders their respective pro rata shares
of a corresponding amount. If such payment is not made to the Administrative
Agent by the Borrower within three Business Days of such required date, the
Administrative Agent shall be entitled to recover, on demand, from each Lender
to which any amount which was made available pursuant to the preceding sentence,
such amount with interest thereon at the rate per annum equal to the daily
average Federal Funds Effective Rate. Nothing herein shall be deemed to limit
the rights of the Administrative Agent or any Lender against the Borrower.
2.17 Requirements of Law. (a) If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender or the Issuing Lender with any request or directive (whether or
not having the force of law) from any central bank or other Governmental
Authority made subsequent to the date hereof:
(i) shall subject any Lender or Issuing Lender to any tax of any kind
whatsoever with respect to this Agreement, any Letter of Credit, any
Application or any Eurodollar Loan made by it, or change the basis of
taxation of payments to such Lender or Issuing Lender in respect thereof
(except for Non-Excluded Taxes covered by Section 2.18 and changes in the
rate of tax on the overall net income of such Lender or Issuing Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans,
letters of credit or other extensions of credit by, or any other acquisition
of funds by, any office of such Lender or Issuing Lender which is not
otherwise included in the determination of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender or Issuing Lender any other
condition;
and the result of any of the foregoing is to increase the cost to such Lender or
Issuing Lender, by an amount which such Lender or Issuing Lender deems to be
material, of making, converting
<PAGE> 44
39
into, continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender or
Issuing Lender, upon its demand, any additional amounts necessary to compensate
such Lender for such increased cost or reduced amount receivable. If any Lender
or Issuing Lender becomes entitled to claim any additional amounts pursuant to
this Section, it shall promptly notify the Borrower (with a copy to the
Administrative Agent) of the event by reason of which it has become so entitled.
(b) If any Lender or Issuing Lender shall have determined that the
adoption of or any change in any Requirement of Law regarding capital adequacy
or in the interpretation or application thereof or compliance by such Lender or
Issuing Lender or any corporation controlling such Lender or Issuing Lender with
any request or directive regarding capital adequacy (whether or not having the
force of law) from any Governmental Authority made subsequent to the date hereof
shall have the effect of reducing the rate of return on such Lender's or Issuing
Lender's or such corporation's capital as a consequence of its obligations
hereunder or under or in respect of any Letter of Credit to a level below that
which such Lender or Issuing Lender or such corporation could have achieved but
for such adoption, change or compliance (taking into consideration such Lender's
or Issuing Lender's or such corporation's policies with respect to capital
adequacy) by an amount deemed by such Lender or Issuing Lender to be material,
then from time to time, after submission by such Lender to the Borrower (with a
copy to the Administrative Agent) of a written request therefor, the Borrower
shall pay to such Lender or Issuing Lender such additional amount or amounts as
will compensate such Lender or Issuing Lender for such reduction.
(c) A certificate as to any additional amounts payable pursuant to
this Section submitted by any Lender or Issuing Lender to the Borrower (with a
copy to the Administrative Agent) shall be conclusive in the absence of manifest
error. The obligations of the Borrower pursuant to this Section shall survive
the termination of this Agreement and the payment of the Loans and all other
amounts payable hereunder.
2.18 Taxes. (a) All payments made by the Borrower under this
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on any Agent or any Lender as a result of a present or
former connection between such Agent or such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
such Agent or such Lender having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement or any
other Loan Document). If any such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions or withholdings ("Non-Excluded Taxes") or Other Taxes
are required to be withheld from any amounts payable to any Agent or any Lender
hereunder, the amounts so payable to such Agent or such Lender shall be
increased to the extent necessary to yield to such Agent or such Lender (after
payment of all Non-Excluded Taxes and Other Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts specified in this
Agreement,
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40
provided, however, that the Borrower shall not be required to increase any such
amounts payable to any Lender with respect to any Non-Excluded Taxes (i) that
are attributable to such Lender's failure to comply with the requirements of
paragraph (d) or (e) of this Section or (ii) that are United States withholding
taxes imposed on amounts payable to such Lender at the time the Lender becomes a
party to this Agreement, except to the extent that such Lender's assignor (if
any) was entitled, at the time of assignment, to receive additional amounts from
the Borrower with respect to such Non-Excluded Taxes pursuant to Section
2.18(a).
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the
Borrower, as promptly as possible thereafter the Borrower shall send to the
Administrative Agent for the account of the relevant Agent or Lender, as the
case may be, a certified copy of an original official receipt received by the
Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded
Taxes or Other Taxes when due to the appropriate taxing authority or fails to
remit to the Agents the required receipts or other required documentary
evidence, the Borrower shall indemnify the Administrative Agent and the Lenders
for any incremental taxes, interest or penalties that may become payable by any
Agent or any Lender as a result of any such failure. The agreements in this
Section 2.18 shall survive the termination of this Agreement and the payment of
the Loans and all other amounts payable hereunder.
(d) Each Lender (or Transferee) that is not a citizen or resident of
the United States of America, a corporation, partnership or other entity created
or organized in or under the laws of the United States of America (or any
jurisdiction thereof), or any estate or trust that is subject to federal income
taxation regardless of the source of its income (a "Non-U.S. Lender") shall
deliver to the Borrower and the Administrative Agent (or, in the case of a
Participant, to the Lender from which the related participation shall have been
purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form
4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest" a statement substantially in the form of
Exhibit F and a Form W-8, or any subsequent versions thereof or successors
thereto properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or a reduced rate of, U.S. federal withholding tax on
all payments by the Borrower under this Agreement and the other Loan Documents.
Such forms shall be delivered by each Non-U.S. Lender on or before the date it
becomes a party to this Agreement (or, in the case of any Participant, on or
before the date such Participant purchases the related participation). In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it
determines that it is no longer in a position to provide any previously
delivered certificate to the Borrower (or any other form of certification
adopted by the U.S. taxing authorities for such purpose). Notwithstanding any
other provision of this paragraph, a Non-U.S. Lender shall not be required to
deliver any form pursuant to this paragraph that such Non-U.S. Lender is not
legally able to deliver.
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(e) A Lender that is entitled to an exemption from or reduction of
non-U.S. withholding tax under the law of the jurisdiction in which the Borrower
is located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
Administrative Agent), at the time or times prescribed by applicable law or
reasonably requested by the Borrower, such properly completed and executed
documentation prescribed by applicable law as will permit such payments to be
made without withholding or at a reduced rate, provided that such Lender is
legally entitled to complete, execute and deliver such documentation and in such
Lender's reasonable judgment such completion, execution or submission would not
materially prejudice the legal position of such Lender.
2.19 Indemnity. The Borrower agrees to indemnify each Lender and to
hold each Lender harmless from any loss or expense which such Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of, conversion into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment after the
Borrower has given a notice thereof in accordance with the provisions of this
Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which
is not the last day of an Interest Period with respect thereto. Such
indemnification may include an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding, however, the Applicable Margin included therein, if any)
over (ii) the amount of interest (as reasonably determined by such Lender) which
would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank eurodollar
market. A certificate as to any amounts payable pursuant to this Section
submitted to the Borrower by any Lender shall be conclusive in the absence of
manifest error. This covenant shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
2.20 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert Base Rate Loans to Eurodollar Loans shall forthwith be canceled and (b)
such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be
converted automatically to Base Rate Loans on the respective last days of the
then current Interest Periods with respect to such Loans or within such earlier
period as required by law. If any such conversion of a Eurodollar Loan occurs on
a day which is not the last day of the then current Interest Period with respect
thereto, the Borrower shall pay to such Lender such amounts, if any, as may be
required pursuant to Section 2.19.
2.21 Change of Lending Office. Each Lender agrees that, upon the
occurrence of any event giving rise to the operation of Section 2.17, 2.18(a) or
2.20 with respect to such
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Lender, it will, if requested by the Borrower, use reasonable efforts (subject
to overall policy considerations of such Lender) to designate another lending
office for any Loans affected by such event with the object of avoiding the
consequences of such event; provided, that such designation is made on terms
that, in the sole judgment of such Lender, cause such Lender and its lending
office(s) to suffer no economic, legal or regulatory disadvantage, and provided,
further, that nothing in this Section shall affect or postpone any of the
obligations of any Borrower or the rights of any Lender pursuant to Section
2.17, 2.18(a) or 2.20.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions hereof,
the Issuing Lender, in reliance on the agreements of the other Revolving Credit
Lenders set forth in Section 3.4(a), agrees to issue letters of credit ("Letters
of Credit") for the account of the Borrower on any Business Day during the
Revolving Credit Commitment Period in such form as may be approved from time to
time by the Issuing Lender; provided that the Issuing Lender shall have no
obligation to issue any Letter of Credit if, after giving effect to such
issuance, (i) the Aggregate Funded Exposure would exceed the Borrowing Base then
in effect, (ii) the L/C Obligations would exceed the L/C Commitment or (iii) the
aggregate amount of the Available Revolving Credit Commitments would be less
than zero. Each Letter of Credit shall (i) be denominated in Dollars and (ii)
expire no later than the earlier of (x) the first anniversary of its date of
issuance and (y) the date which is five Business Days prior to the Scheduled
Revolving Credit Termination Date, provided that any Letter of Credit with a
one-year term may provide for the renewal thereof for additional one-year
periods (which shall in no event extend beyond the date referred to in clause
(y) above).
(b) Each Letter of Credit shall be subject to the Uniform Customs
and, to the extent not inconsistent therewith, the laws of the State of New
York.
(c) The Issuing Lender shall not at any time be obligated to issue
any Letter of Credit hereunder if such issuance would conflict with, or cause
the Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
(d) Each of the letters of credit identified on Schedule 3.1(d)-1
hereto (each, an "Existing LaSalle Letter of Credit") shall be deemed to be a
Letter of Credit hereunder for all purposes and LaSalle National Bank shall be
deemed to be the Issuing Lender in respect of each such Letter of Credit. Each
of the letters of credit identified on Schedule 3.1(d)-2 hereto (each an
"Existing Fleet Letter of Credit") shall be deemed to be a Letter of Credit
hereunder for all purposes and Fleet National Bank shall be deemed to be the
Issuing Lender in respect of each such Letter of Credit.
3.2 Procedure for Issuance of Letter of Credit. The Borrower may
from time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender and the Administrative Agent at its address for
notices specified herein an Application
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therefor, completed to the satisfaction of the Issuing Lender, and such other
certificates, documents and other papers and information as the Issuing Lender
may request. The Administrative Agent shall provide the Issuing Lender with a
notice as to whether the Borrower has satisfied the conditions precedent
hereunder to the issuance of a Letter of Credit and a calculation of
availability under Section 3.1 as a condition to the Issuing Lender's obligation
to issue a Letter of Credit hereunder. Upon receipt of any Application, the
Issuing Lender will process such Application and the certificates, documents and
other papers and information delivered to it in connection therewith in
accordance with its customary procedures and shall promptly issue the Letter of
Credit requested thereby (but in no event shall the Issuing Lender be required
to issue any Letter of Credit earlier than three Business Days after its receipt
of the Application therefor and all such other certificates, documents and other
papers and information relating thereto) by issuing the original of such Letter
of Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof. The
Issuing Lender shall promptly furnish to the Administrative Agent, which shall
in turn promptly furnish to the Lenders, notice of the issuance of each Letter
of Credit (including the amount thereof).
3.3 Fees and Other Charges. (a) The Borrower will pay to the
Administrative Agent a fee on all outstanding Letters of Credit at a per annum
rate equal to the Applicable Margin then in effect with respect to Eurodollar
Loans under the Revolving Credit Facility, shared ratably among the Revolving
Credit Lenders and payable quarterly in arrears on each L/C Fee Payment Date
after the issuance date. In addition, the Borrower shall pay to the Issuing
Lender for its own account a fronting fee, in an amount agreed upon by the
Borrower and the Issuing Bank, payable quarterly in arrears on each L/C Fee
Payment Date after the Issuance Date.
(b) In addition to the foregoing fees, the Borrower shall pay or
reimburse the Issuing Lender for such normal and customary costs and expenses
(as agreed upon by the Borrower and the Issuing Lender) as are incurred or
charged by the Issuing Lender in issuing, negotiating, effecting payment under,
amending or otherwise administering any Letter of Credit.
3.4 L/C Participations. (a) The Issuing Lender irrevocably agrees to
grant and hereby grants to each L/C Participant, and, to induce the Issuing
Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably
agrees to accept and purchase and hereby accepts and purchases from the Issuing
Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Credit Percentage in the Issuing Lender's obligations
and rights under each Letter of Credit issued hereunder and the amount of each
draft paid by the Issuing Lender thereunder. Each L/C Participant
unconditionally and irrevocably agrees with the Issuing Lender that, if a draft
is paid under any Letter of Credit for which the Issuing Lender is not
reimbursed in full by the Borrower in accordance with the terms of this
Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at
the Issuing Lender's address for notices specified herein an amount equal to
such L/C Participant's Revolving Credit Percentage (a calculation of which shall
be provided by the Administrative Agent) of the amount of such draft, or any
part thereof, which is not so reimbursed. Any demand by the Issuing Lender may
be made through the Administrative Agent.
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(b) If any amount required to be paid by any L/C Participant to the Issuing
Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion of any
payment made by the Issuing Lender under any Letter of Credit is paid to the
Issuing Lender within three Business Days after the date such payment is due,
such L/C Participant shall pay to the Issuing Lender on demand an amount equal
to the product of such amount, times the daily average Federal Funds Effective
Rate during the period from and including the date such payment is required to
the date on which such payment is immediately available to the Issuing Lender,
times a fraction the numerator of which is the number of days that elapse during
such period and the denominator of which is 360. If any such amount required to
be paid by any L/C Participant pursuant to Section 3.4(a) is not made available
to the Issuing Lender by such L/C Participant within three Business Days after
the date such payment is due, the Issuing Lender shall be entitled to recover
from such L/C Participant, on demand, such amount with interest thereon
calculated from such due date at the rate per annum applicable to Base Rate
Loans under the Revolving Credit Facility. A certificate of the Issuing Lender
submitted to any L/C Participant with respect to any amounts owing under this
Section shall be conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has made payment under
any Letter of Credit and has received from any L/C Participant its pro rata
share of such payment in accordance with Section 3.4(a), the Issuing Lender
receives any payment related to such Letter of Credit (whether directly from the
Borrower or otherwise, including proceeds of collateral applied thereto by the
Issuing Lender), or any payment of interest on account thereof, the Issuing
Lender will distribute to such L/C Participant its pro rata share thereof;
provided, however, that in the event that any such payment received by the
Issuing Lender shall be required to be returned by the Issuing Lender, such L/C
Participant shall return to the Issuing Lender the portion thereof previously
distributed by the Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrower. (a) The Borrower agrees to
reimburse the Issuing Lender on each date on which the Issuing Lender notifies
the Borrower of the date and amount of a draft presented under any Letter of
Credit and paid by the Issuing Lender for the amount of (a) such draft so paid
and (b) any taxes, fees, charges or other costs or expenses incurred by the
Issuing Lender in connection with such payment. Each such payment shall be made
to the Issuing Lender at its address for notices specified herein in lawful
money of the United States of America and in immediately available funds.
Interest shall be payable on any and all amounts remaining unpaid by the
Borrower under this Section from the date such amounts become payable (whether
at stated maturity, by acceleration or otherwise) until payment in full at the
rate set forth in (i) until the second Business Day following the date of the
applicable drawing, Section 2.13(b) and (ii) thereafter, Section 2.13(c). Each
drawing under any Letter of Credit shall (unless an event of the type described
in clause (i) or (ii) of Section 8(f) shall have occurred and be continuing with
respect to the Borrower, in which case the procedures specified in Section 3.4
for funding by L/C Participants shall apply) constitute a request by the
Borrower to the Administrative Agent for a borrowing pursuant to Section 2.5 of
Base Rate Loans in the amount of such drawing. The Borrowing Date with respect
to such borrowing shall be the date of such drawing.
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(b) The obligation of the Borrower to reimburse the Issuing Lender for
drawings honored under the Letters of Credit issued by it and to repay any
Revolving Credit Loans made by L/C Participants pursuant to Section 3.5 and the
obligations of L/C Participants under Section 3.4 shall be unconditional and
irrevocable and shall be paid strictly in accordance with the terms hereof under
all circumstances including any of the following circumstances: (i) any lack of
validity or enforceability of any Letter of Credit; (ii) the existence of any
claim, set-off, defense or other right which the Borrower or any L/C Participant
may have at any time against a beneficiary or any transferee of any Letter of
Credit (or any Persons for whom any such transferee may be acting), the Issuing
Lender, any L/C Participant or any other Person or, in the case of a L/C
Participant, against the Borrower, whether in connection herewith, the
transactions contemplated herein or any unrelated transaction (including any
underlying transaction between the Borrower or one of its Subsidiaries and the
beneficiary for which any Letter of Credit was procured); (iii) any draft or
other document presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect; provided that such draft or other
document appeared on its face to comply with the requirements of the Letter of
Credit under which it was presented; (iv) payment by Issuing Lender under any
Letter of Credit against presentation of a draft or other document which does
not substantially comply with the terms of such Letter of Credit, provided that
such draft or other document appeared on its face to comply with the
requirements of the Letter of Credit under which it was presented; (v) any
adverse change in the business, operations, properties, assets, condition
(financial or otherwise) or prospects of Borrower or any of its Subsidiaries;
(vi) any breach hereof or any other Credit Document by any party thereto; (vii)
any other circumstance or happening whatsoever, whether or not similar to any of
the foregoing; provided that such draft or other document appeared on its face
to comply with the requirements of the Letter of Credit under which it was
presented; or (viii) the fact that an Event of Default or a Default shall have
occurred and be continuing; provided, in each case described in the foregoing
clause (i) through (vii), that payment by the Issuing Lender under the
applicable Letter of Credit shall not have constituted gross negligence or
willful misconduct of the Issuing Lender under the circumstances in question (as
determined by a final judgment of court of competent jurisdiction).
(c) In addition to amounts payable as provided herein, the Borrower hereby
agrees to protect, indemnify, pay and save harmless the Issuing Lender from and
against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable fees, expenses and disbursements of
counsel and allocated costs of internal counsel) which the Issuing Lender may
incur or be subject to as a consequence, direct or indirect, of (i) the issuance
of any Letter of Credit by the Issuing Lender, other than as a result of (1) the
gross negligence or willful misconduct of the Issuing Lender as determined by a
final judgment of a court of competent jurisdiction, or (2) the wrongful
dishonor by the Issuing Lender of a proper demand for payment made under any
Letter of Credit issued by it, or (ii) the failure of the Issuing Lender to
honor a drawing under any such Letter of Credit as a result of any governmental
act.
3.6 Obligations Absolute. The Borrower's obligations under this Section 3
shall be absolute and unconditional under any and all circumstances and
irrespective of any setoff, counterclaim or defense to payment which the
Borrower may have or have had against the
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Issuing Lender, any beneficiary of a Letter of Credit or any other Person. The
Borrower also agrees with the Issuing Lender that the Issuing Lender shall not
be responsible for, and the Borrower's Reimbursement Obligations under Section
3.5 shall not be affected by, among other things, the validity or genuineness of
documents or of any endorsements thereon, even though such documents shall in
fact prove to be invalid, fraudulent or forged, or any dispute between or among
the Borrower and any beneficiary of any Letter of Credit or any other party to
which such Letter of Credit may be transferred or any claims whatsoever of the
Borrower against any beneficiary of such Letter of Credit or any such
transferee. The Issuing Lender shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit, except for
errors or omissions found by a final and nonappealable decision of a court of
competent jurisdiction to have resulted from the gross negligence or willful
misconduct of the Issuing Lender. The Borrower agrees that any action taken or
omitted by the Issuing Lender under or in connection with any Letter of Credit
or the related drafts or documents, if done in the absence of gross negligence
or willful misconduct and in accordance with the standards or care specified in
the Uniform Commercial Code of the State of New York and/or the Uniform Customs,
shall be binding on the Borrower and shall not result in any liability of the
Issuing Lender to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented for payment
under any Letter of Credit, the Issuing Lender shall promptly notify the
Borrower of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrower in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment appear on their face to be in accordance with
the terms and conditions of such Letter of Credit in conformity with such Letter
of Credit.
3.8 Applications. To the extent that any provision of any Application
related to any Letter of Credit is inconsistent with the provisions of this
Section 3, the provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Agents and the Lenders to enter into this Agreement and to
make the Loans and issue or participate in the Letters of Credit, the Borrower
hereby represents and warrants to each Agent and each Lender (references to
Subsidiaries of the Borrower in Section 4.3 through Section 4.22 below being
deemed to include Subsidiaries of Toastmaster from and after the Closing Date)
that:
4.1 Financial Condition. (a) The unaudited pro forma consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at September 26, 1998
as set forth in the Offering Memorandum, dated December 11, 1998 (the "Offering
Memorandum") with respect to the Senior Subordinated Notes (including the notes
thereto) (the "Pro Forma Balance Sheet"), copies of which have heretofore been
furnished to each Lender, has been prepared
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giving effect (as if such events had occurred on such date) to (i) the
Transactions, (ii) the Loans to be made on the Closing Date and the use of
proceeds thereof and (iii) the payment of fees and expenses in connection with
the foregoing. The Pro Forma Balance Sheet has been prepared based on the best
information available to the Borrower as of the date of delivery thereof, and
presents fairly on a pro forma basis the estimated financial position of the
Borrower and its consolidated Subsidiaries as at September 26, 1998, assuming
that the events specified in the preceding sentence had actually occurred at
such date.
(b) The audited consolidated balance sheets of the Borrower as at June 28,
1996 and, June 28, 1997, and June 27, 1998 and the related consolidated
statements of income and of cash flows for the fiscal years ended on such dates,
reported on by and accompanied by an unqualified report from Deloitte & Touche,
present fairly the consolidated financial condition of
the Borrower as at such dates, and the consolidated results of its operations
and its consolidated cash flows for the respective fiscal years then ended. The
unaudited consolidated balance sheet of the Borrower as at September 26, 1998,
and the related unaudited consolidated statements of income and cash flows for
the three-month period ended on such date, present fairly the consolidated
financial condition of the Borrower as at such date, and the consolidated
results of its operations and its consolidated cash flows for the three-month
period then ended (subject to normal year-end audit adjustments). All such
financial statements, including the related schedules and notes thereto, have
been prepared in accordance with GAAP applied consistently throughout the
periods involved (except as approved by the aforementioned firm of accountants
and disclosed therein). Except as set forth on Schedule 4.1(b), the Borrower and
its Subsidiaries do not have any material Guarantee Obligations, contingent
liabilities and liabilities for taxes, or any long-term leases or unusual
forward or long-term commitments, including, without limitation, any interest
rate or foreign currency swap or exchange transaction or other obligation in
respect of derivatives, which are not reflected in the most recent financial
statements referred to in this paragraph. During the period from June 27, 1998
to and including the date hereof there has been no Disposition by the Borrower
of any material part of its business or Property.
(c) The audited consolidated balance sheet of Toastmaster as at December 31,
1997, and the related consolidated statements of income and of cash flows for
the fiscal year ended on such date, reported on by and accompanied by an
unqualified report from KPMG Peat Marwick LLP presents fairly the consolidated
financial condition of Toastmaster as at such date, and the consolidated results
of its operations and its consolidated cash flows for the fiscal year then
ended. The unaudited consolidated balance sheets of Toastmaster as at March 31,
1998, June 30, 1998, September 30, 1998, October 31, 1998 and November 30, 1998
and the related unaudited consolidated statements of income and cash flows for
the periods ended on such dates, present fairly the consolidated financial
condition of Toastmaster as at such dates, and the consolidated results of its
operations and its consolidated cash flows for the periods then ended (subject
to normal year-end audit adjustments). All such financial statements, including
the related schedules and notes thereto, have been prepared in accordance with
GAAP applied consistently throughout the periods involved (except as approved by
the aforementioned firm of accountants and disclosed therein). Except as set
forth on Schedule 4.1(c), Toastmaster and its Subsidiaries do not have any
material Guarantee Obligations, contingent liabilities and liabilities for
taxes, or any long-term leases or unusual forward or long-term commitments,
including, without limitation, any interest rate or foreign currency swap or
exchange transaction or other
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obligation in respect of derivatives, which are not reflected in the most recent
financial statements referred to in this paragraph. Notwithstanding the
foregoing, the representations and warranties set forth in this paragraph (c)
shall be deemed qualified to the extent that such representations and warranties
are made to the best knowledge of the Borrower; provided, that such
representations and warranties shall not be deemed to be so qualified for
purposes of Section 8(b).
4.2 No Change. (a) With respect to the Borrower and its Subsidiaries, since
June 27, 1998 there has been no development or event which has had or could
reasonably be expected to have a Material Adverse Effect.
(b) With respect to Toastmaster, since December 31, 1997 there has been no
development or event which has had or could reasonably be expected to have a
Material Adverse Effect (it being understood that the results of Toastmaster for
the period ending November 30, 1998 will reflect, on a year-to-date basis, a net
operating loss before taxes of approximately $5,000,000).
4.3 Corporate Existence; Compliance with Law. Each of the Borrower and its
Restricted Subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (b) has the
corporate power and authority, and the legal right, to own and operate its
Property, to lease the Property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of Property or the conduct of its business
requires such qualification and (d) is in compliance with all Requirements of
Law except to the extent that the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations. Each Loan Party
has the corporate power and authority, and the legal right, to make, deliver and
perform the Loan Documents to which it is a party and, in the case of the
Borrower, to borrow hereunder. Each Loan Party has taken all necessary corporate
action to authorize the execution, delivery and performance of the Loan
Documents to which it is a party and, in the case of the Borrower, to authorize
the borrowings on the terms and conditions of this Agreement. No consent or
authorization of, filing with, notice to or other act by or in respect of, any
Governmental Authority or any other Person is required in connection with the
Transactions or the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of this Agreement or any of the Loan
Documents, except (i) consents, authorizations, filings and notices described in
Schedule 4.4, which consents, authorizations, filings and notices have been
obtained or made and are in full force and effect and (ii) the filings referred
to in Section 4.19. Each Loan Document has been duly executed and delivered on
behalf of each Loan Party thereto. This Agreement constitutes, and each other
Loan Document upon execution will constitute, a legal, valid and binding
obligation of each Loan Party party thereto, enforceable against each such Loan
Party in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).
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4.5 No Legal Bar. The execution, delivery and performance of this Agreement
and the other Loan Documents, the issuance of Letters of Credit, the borrowings
hereunder and the use of the proceeds thereof will not violate any Requirement
of Law or any Contractual Obligation of the Borrower or any of its Subsidiaries
and will not result in, or require, the creation or imposition of any Lien on
any of their respective properties or revenues pursuant to any Requirement of
Law or any such Contractual Obligation (other than the Liens created by the
Security Documents). No Requirement of Law or Contractual Obligation applicable
to the Borrower or any of its Subsidiaries could reasonably be expected to have
a Material Adverse Effect.
4.6 No Material Litigation. Except as described in Schedule 4.6, no
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Borrower,
threatened by or against the Borrower or any of its Subsidiaries or against any
of their respective properties or revenues (a) with respect to any of the Loan
Documents or any of the transactions contemplated hereby or thereby, or (b)
which could reasonably be expected to have a Material Adverse Effect.
4.7 No Default. Neither the Borrower nor any of its Subsidiaries is in
default under or with respect to any of its Contractual Obligations in any
respect which could reasonably be expected to have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing. On the Closing Date,
no Default or Event of Default (as defined in the Existing Credit Agreement)
shall be continuing under the Existing Credit Agreement.
4.8 Ownership of Property; Liens. Each of the Borrower and its Restricted
Subsidiaries has title in fee simple to, or a valid leasehold interest in, all
its real property, and good title to, or a valid leasehold interest in, all its
other Property, and none of such Property is subject to any Lien except as
permitted by Section 7.3. Schedule 6.9(b) lists all parcels of real property
owned in fee by the Borrower or any Subsidiary (together with improvements
thereon).
4.9 Intellectual Property. Except as set forth on Schedule 4.9, the Borrower
and each of its Restricted Subsidiaries owns, or is licensed to use, all
Intellectual Property necessary for the conduct of its business as currently
conducted, no material claim has been asserted and is pending by any Person
challenging or questioning the use of any Intellectual Property or the validity
or effectiveness of any Intellectual Property, nor does the Borrower know of any
valid basis for any such claim, and the use of Intellectual Property by the
Borrower and its Restricted Subsidiaries does not infringe on the rights of any
Person in any material respect.
4.10 Taxes. Except as set forth on Schedule 4.10, each of the Borrower and
each of its Restricted Subsidiaries has filed or caused to be filed all Federal,
state and other material tax returns which are required to be filed and has paid
all taxes shown to be due and payable on said returns or on any assessments made
against it or any of its Property and all other taxes, fees or other charges
imposed on it or any of its Property by any Governmental Authority (other than
any the amount or validity of which are currently being contested in good faith
by appropriate proceedings and with respect to which reserves in conformity with
GAAP have been provided on the books of the Borrower or its Restricted
Subsidiaries, as the case may be); no tax
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50
Lien has been filed, and, to the knowledge of the Borrower, no claim is being
asserted, with respect to any such tax, fee or other charge.
4.11 Federal Regulations. No part of the proceeds of any Loans will be used
for any purpose which violates the provisions of the Regulations of the Board.
If requested by any Lender or the Administrative Agent, the Borrower will
furnish to the Administrative Agent and each Lender a statement to the foregoing
effect in conformity with the requirements of Form FR U-1 or FR G-3, as
applicable referred to in Regulation U.
4.12 Labor Matters. There are no strikes or other labor disputes against the
Borrower or any of its Restricted Subsidiaries pending or, to the knowledge of
the Borrower, threatened that (individually or in the aggregate) could
reasonably be expected to have a Material Adverse Effect. Hours worked by and
payment made to employees of the Borrower and its Subsidiaries have not been in
violation of the Fair Labor Standards Act or any other applicable Requirement of
Law dealing with such matters that (individually or in the aggregate) could
reasonably be expected to have a Material Adverse Effect. All payments due from
the Borrower or any of its Restricted Subsidiaries on account of employee health
and welfare insurance that (individually or in the aggregate) could reasonably
be expected to have a Material Adverse Effect if not paid have been paid or
accrued as a liability on the books of the Borrower or the relevant Restricted
Subsidiary.
4.13 ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no Lien
in favor of the PBGC or a Plan has arisen, during such five-year period. The
present value of all accrued benefits under each Single Employer Plan (based on
those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by a material amount. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan
which has resulted or could reasonably be expected to result in a material
liability under ERISA, and neither the Borrower nor any Commonly Controlled
Entity would become subject to any material liability under ERISA if the
Borrower or any such Commonly Controlled Entity were to withdraw completely from
all Multiemployer Plans as of the valuation date most closely preceding the date
on which this representation is made or deemed made. No such Multiemployer Plan
is in Reorganization or Insolvent.
4.14 Investment Company Act; Other Regulations. No Loan Party is an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) which limits its ability to incur Indebtedness.
<PAGE> 56
51
4.15 Subsidiaries. The Subsidiaries listed on Schedule 4.15 constitute all
the Subsidiaries of the Borrower at the date hereof. Schedule 4.15 lists all
Subsidiaries of Toastmaster on the Closing Date. The aggregate book value of all
assets of the Subsidiaries of Toastmaster does not exceed $5,000,000.
4.16 Use of Proceeds. The proceeds of the Term Loans shall be used to
finance a portion of the cost of the Acquisition, to pay related fees and
expenses and for general corporate purposes. The proceeds of the Revolving
Credit Loans and the Letters of Credit, shall be used to finance working capital
needs, including inventory, and for general corporate purposes, including any
Permitted Acquisition made in the ordinary course of business in respect of
which the consideration does not exceed $1,000,000.
4.17 Environmental Matters. Except to the extent that the failure of the
following statements, either individually or in the aggregate, to be correct
could not reasonably be expected to have a Material Adverse Effect;
(a) The facilities and properties owned, leased or operated by the Borrower
or any of its Subsidiaries (the "Properties") do not contain, and have not
previously contained, any Materials of Environmental Concern in amounts or
concentrations or under circumstances which (i) constitute or constituted a
violation of, or (ii) could give rise to liability under, any Environmental Law.
(b) The Properties and all operations at the Properties are in material
compliance, and have in the last five years been in material compliance, with
all applicable Environmental Laws, and there is no contamination at, under or
about the Properties or violation of any Environmental Law with respect to the
Properties or the business operated by the Borrower or any of its Subsidiaries
(the "Business") which could materially interfere with the continued operation
of the Properties or materially impair the fair saleable value thereof. Neither
the Borrower nor any of its Subsidiaries has assumed any liability of any other
Person under Environmental Laws.
(c) Neither the Borrower nor any of its Subsidiaries has received or is
aware of any notice of violation, alleged violation, non-compliance, liability
or potential liability regarding environmental matters or compliance with
Environmental Laws with regard to any of the Properties or the Business, nor
does the Borrower have knowledge or reason to believe that any such notice will
be received or is being threatened.
(d) Materials of Environmental Concern have not been transported or disposed
of from the Properties in violation of, or in a manner or to a location which
could give rise to liability under, any Environmental Law, nor have any
Materials of Environmental Concern been generated, treated, stored or disposed
of at, on or under any of the Properties in violation of, or in a manner that
could give rise to liability under, any applicable Environmental Law.
(e) No judicial proceeding or governmental or administrative action is
pending or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any Subsidiary is or will be named as
a party with respect to the Properties or the
<PAGE> 57
52
Business, nor are there any consent decrees or other decrees, consent orders,
administrative orders or other orders, or other administrative or judicial
requirements outstanding under any Environmental Law with respect to the
Properties or the Business.
(f) There has been no reTlease or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related to
the operations of the Borrower or any Subsidiary in connection with the
Properties or otherwise in connection with the Business, in violation of or in
amounts or in a manner that could give rise to liability under Environmental
Laws.
4.18 Accuracy of Information, etc. No statement or information contained in
this Agreement, any other Loan Document, or any other document, certificate or
statement that has been or will be prepared by or under the direction of any
Loan Party and made available to the Administrative Agent or the Lenders or any
of them, for use in connection with the transactions contemplated by this
Agreement or the other Loan Documents, contained as of the date such statement,
information, document or certificate was so furnished, any untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements contained herein or therein not misleading. The projections and pro
forma financial information contained in the materials referenced above are
based upon good faith estimates and assumptions believed by management of the
Borrower to be reasonable at the time made, it being recognized by the Lenders
that such financial information as it relates to future events is not to be
viewed as fact and that actual results during the period or periods covered by
such financial information may differ from the projected results set forth
therein by a material amount. As of the date hereof, the representations and
warranties contained in the Merger Agreement are true and correct in all
material respects. There is no fact known to any Loan Party that could
reasonably be expected to have a Material Adverse Effect that has not been
expressly disclosed herein, in the other Loan Documents, or in any other
documents, certificates and statements furnished to the Agents and the Lenders
for use in connection with the transactions contemplated hereby and by the other
Loan Documents.
4.19 Security Documents. The Guarantee and Collateral Agreement is effective
to create in favor of the Administrative Agent, for the benefit of the Lenders,
a legal, valid and enforceable security interest in the Collateral described
therein and proceeds thereof. In the case of the Pledged Stock described in the
Guarantee and Collateral Agreement, when stock certificates representing such
Pledged Stock are delivered to the Administrative Agent, and in the case of the
other Collateral described in the Guarantee and Collateral Agreement, when
financing statements in appropriate form are filed in the offices specified on
Schedule 4.19(a), the Guarantee and Collateral Agreement shall constitute a
fully perfected Lien on, and security interest in, all right, title and interest
of the Loan Parties in such Collateral and the proceeds thereof, as security for
the Obligations (as defined in the Guarantee and Collateral Agreement), in each
case prior and superior in right to any other Person.
4.20 Solvency. Each Loan Party is, and after giving effect to the
Transactions and the incurrence of all Indebtedness and obligations being
incurred in connection herewith and therewith will be and will continue to be,
Solvent.
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53
4.21 Senior Indebtedness. The Obligations will constitute "Senior Debt" of
the Borrower and its Subsidiaries, as such term is defined in the Seller Note
and the Senior Subordinated Note Indenture.
4.22 Year 2000 Matters. Any reprogramming required to permit the proper
functioning (but only to the extent that such proper functioning would otherwise
be impaired by the occurrence of the year 2000) in and following the year 2000
of computer systems and other equipment containing embedded microchips, in
either case owned or operated by the Borrower or any of its Subsidiaries or used
or relied upon in the conduct of their business (including any such systems and
other equipment supplied by others or with which the computer systems of the
Borrower or any of its Subsidiaries interface), and the testing of all such
systems and other equipment as so reprogrammed, will be completed by March 31,
1999. The costs to the Borrower and its Subsidiaries that have not been incurred
as of the date hereof for such reprogramming and testing and for the other
reasonably foreseeable consequences to them of any improper functioning of other
computer systems and equipment containing embedded microchips due to the
occurrence of the year 2000 could not reasonably be expected to result in a
Default or Event of Default or to have a Material Adverse Effect. Except for any
reprogramming referred to above, the computer systems of the Borrower and its
Subsidiaries are and, with ordinary course upgrading and maintenance, will
continue for the term of this Agreement to be, sufficient for the conduct of
their business as currently conducted.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The occurrence of the Closing
Date, and the agreement of each Lender to make the initial extension of credit
requested to be made by on the Closing Date, are subject to the satisfaction,
prior to or concurrently with the making of such extension of credit on the
Closing Date, of the following conditions precedent (it being understood that
such conditions may be satisfied simultaneously with the extensions of credit
made on the Closing Date):
(a) Loan Documents. The Administrative Agent shall have received (i)
this Agreement, executed and delivered by a duly authorized officer of the
Borrower, (ii) the Guarantee and Collateral Agreement, executed and
delivered by a duly authorized officer of the Borrower and each Subsidiary
Guarantor and (iii) for the account of each relevant Lender, Notes
conforming to the requirements hereof and executed and delivered by a duly
authorized officer of the Borrower.
(b) Merger, Refinancing, etc. The following transactions shall have
been consummated, in each case on terms and conditions reasonably
satisfactory to the Lenders:
(i) the Acquisition shall have been consummated pursuant to the
terms of the Merger Agreement without waiver, amendment, supplement or other
modification of the Merger Agreement, unless approved by the Syndication
Agent;
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54
(ii) the Borrower shall have received at least $125,000,000 gross
proceeds in cash from the issuance of the Senior Subordinated Notes; and
(iii) the capital structure of the Borrower and its Subsidiaries
after giving effect to the Transactions shall be consistent with the capital
structure of the Borrower and its Subsidiaries as reflected in the Pro Forma
Balance Sheet.
(c) No Other Changes. There shall have been no changes to the capital
structure of the Borrower and its Subsidiaries since September 30, 1998
other than the transactions described in Section 5.1(b) and the borrowing of
the Loans to be borrowed on the Closing Date and the use of the proceeds
thereof.
(d) Existing Credit Agreement. The Administrative Agent shall have
received satisfactory evidence that all amounts, including principal,
interest, fees, reimbursement obligations, and other obligations, owing
under the Existing Credit Agreement have been repaid in full or are being
repaid in full with the proceeds of the initial Loans and the proceeds of
the Senior Subordinated Notes on the Closing Date.
(e) Pro Forma Balance Sheet; Financial Statements. The Lenders shall
have received (i) the Pro Forma Balance Sheet, (ii) audited consolidated
financial statements of the Borrower for the 1997 and 1998 fiscal years,
(iii) satisfactory unaudited interim consolidated financial statements of
the Borrower for each fiscal quarterly period ended subsequent to the date
of the latest applicable financial statements delivered pursuant to clause
(ii) of this paragraph as to which such financial statements are available,
and such financial statements shall not, in the reasonable judgment of the
Lenders, reflect any material adverse change in the consolidated financial
condition of the Borrower and its consolidated Subsidiaries as reflected in
the financial statements or projections delivered by the Borrower to the
Syndication Agent prior to the date hereof, (iv) audited consolidated
financial statements of Toastmaster for the 1997 fiscal year, and (v)
satisfactory unaudited interim consolidated financial statements of
Toastmaster for each quarterly period ended subsequent to the date of the
latest applicable financial statements delivered pursuant to clause (v) of
this paragraph as to which such financial statements are available, as well
as unaudited monthly financial statements for the months of October and
November, 1998, and such financial statements shall not, in the reasonable
judgment of the Lenders, reflect any material adverse change in the
consolidated financial condition of Toastmaster as reflected in the
financial statements or projections delivered by the Borrower to the
Syndication Agent prior to the date hereof.
(f) Approvals. All governmental and third party approvals necessary, or
in the discretion of the Syndication Agent, advisable in connection with the
Transactions, the continuing operations of the Borrower and its Subsidiaries
and the transactions contemplated hereby shall have been obtained and be in
full force and effect.
(g) Related Agreements. The Administrative Agent shall have received
(in a form reasonably satisfactory to the Syndication Agent), with a copy
for each Lender, true and correct copies, certified as to authenticity by
the Borrower, of the Merger Agreement,
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55
the Seller Note, the Senior Subordinated Note Indenture, the Certificate of
Designation in respect of the Convertible Preferred Stock, and such other
documents or instruments as may be reasonably requested by the Syndication
Agent, including, without limitation, a copy of any other debt instrument,
security agreement or other material contract to which the Loan Parties may
be a party.
(h) Fees. The Lenders, Syndication Agent and the Administrative Agent
shall have received all fees required to be paid, and all expenses for which
invoices have been presented, on or before the Closing Date. All such
amounts will be paid with proceeds of Loans made on the Closing Date and
will be reflected in the funding instructions given by the Borrower to the
Administrative Agent on or before the Closing Date.
(i) Business Plan. The Lenders shall have received a satisfactory
business plan of the Borrower for fiscal years 1999-2005.
(j) Lien Searches. The Administrative Agent shall have received the
results of a recent lien search in each of the jurisdictions where assets of
the Loan Parties and Toastmaster and its Subsidiaries are located, and such
search shall reveal no liens on any of the assets of the Borrower or its
Subsidiaries, or Toastmaster or its Subsidiaries, except for liens permitted
by Section 7.3 and liens to be terminated pursuant to documentation
satisfactory to the Syndication Agent.
(k) Environmental Affairs. The Syndication Agent shall be satisfied
with the environmental affairs of the Borrower and its Subsidiaries and
Toastmaster and its Subsidiaries.
(l) Closing Certificate. The Administrative Agent shall have received,
with a counterpart for each Lender, a certificate of each Loan Party, dated
the Closing Date, substantially in the form of Exhibit D, with appropriate
insertions and attachments.
(m) Borrowing Base Certificate. The Administrative Agent shall have
received, a Borrowing Base Certificate, dated the Closing Date,
substantially in the form of Exhibit D, with appropriate insertions and
attachments.
(n) Legal Opinion. The Administrative Agent shall have received the
following executed legal opinion of Sonnenschein Nath & Rosenthal, counsel
to the Borrower and its Subsidiaries, substantially in the form of Exhibit
H. Such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
(o) Pledged Stock; Stock Power; Pledged Notes. The Administrative Agent
shall have received (i) the certificates representing the shares of Capital
Stock pledged pursuant to the Guarantee and Collateral Agreement, together
with an undated stock power for each such certificate executed in blank by a
duly authorized officer of the pledgor thereof and (ii) each promissory note
pledged to the Administrative Agent for the benefit of the Lenders pursuant
to the Guarantee and Collateral Agreement endorsed
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56
(without recourse) in blank (or accompanied by an executed transfer form in
blank satisfactory to the Syndication Agent) by the pledgor thereof.
(p) Filings, Registrations and Recordings. Each document (including,
without limitation, any Uniform Commercial Code financing statement)
required by the Security Documents or under law or reasonably requested by
the Administrative Agent to be filed, registered or recorded in order to
create in favor of the Administrative Agent, for the benefit of the Lenders,
a perfected Lien on the Collateral described therein, prior and superior in
right to any other Person (other than with respect to Liens expressly
permitted by Section 7.3), shall be in proper form for filing, registration
or recordation.
(q) Insurance. The Administrative Agent shall have received insurance
certificates satisfying the requirements of Section 5.3 of the Guarantee and
Collateral Agreement.
(r) Regulations of Board. The Lenders shall be satisfied that the
Transactions and the financing contemplated hereby will not violate
Regulations T, U or X of the Board of Governors of the Federal Reserve
System.
5.2 Conditions to Each Extension of Credit. The agreement of each
Lender to make any extension of credit requested to be made by it on any date
(including, without limitation, its initial extension of credit) is subject to
the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by any Loan Party in or pursuant to the Loan Documents shall
be true and correct in all material respects on and as of such date as if
made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred and
be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
(c) Regulations of Board; Forms FR G-3 and FR U-1. If such Loan is a
Purpose Credit (as defined in Regulation U), each Lender shall be satisfied
that the Regulations of the Board shall not be violated. Each Lender shall
have received a duly completed and executed Form FR U-1 or FR G-3, as
applicable, of the Board, demonstrating such compliance.
(d) Borrowing Notice. The Administrative Agent shall have received a
Borrowing Notice, duly executed by the Borrower, substantially in the form
of Exhibit K.
(e) Borrowing Base Certificate. The Administrative Agent shall have
received a Borrowing Base Certificate, certified by a Responsible Officer of
the Borrower as reasonable estimates prepared in good faith, setting forth
the amount of Eligible Accounts and Eligible Inventory of the Borrower and
the Subsidiary Guarantors, in each case, as of
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57
the last day of the previous week, attached to which shall be detailed
information, including an aging schedule of Accounts.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Letter of Credit remains outstanding or any Loan or other amount is
owing to any Lender or any Agent hereunder, the Borrower shall and shall cause
each of its Restricted Subsidiaries to:
6.1 Financial Statements. Furnish to each Agent and each Lender:
(a) as soon as available, but in any event within 90 days after the end
of each fiscal year of the Borrower, a copy of the audited consolidated
(and, in respect of any such period in which there is an Unrestricted
Subsidiary, unaudited consolidating) balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such year and the related audited
consolidated (and, in respect of any such period in which there is an
Unrestricted Subsidiary, unaudited consolidating) statements of income and
of cash flows for such year, setting forth in each case in comparative form
the figures for the previous year, reported on without a "going concern" or
like qualification or exception, or qualification arising out of the scope
of the audit, by Deloitte & Touche or other independent certified public
accountants of nationally recognized standing;
(b) as soon as available, but in any event not later than 45 days after
the end of each of the first three quarterly periods of each fiscal year of
the Borrower, the unaudited consolidated (and, in respect of any such period
in which there is an Unrestricted Subsidiary, unaudited consolidating)
balance sheet of the Borrower and its consolidated Subsidiaries as at the
end of such quarter and the related unaudited consolidated (and, in respect
of any such period in which there is an Unrestricted Subsidiary, unaudited
consolidating) statements of income and of cash flows for such quarter and
the portion of the fiscal year through the end of such quarter, setting
forth in each case in comparative form the figures for the previous year,
certified by a Responsible Officer as being fairly stated in all material
respects (subject to normal year-end audit adjustments); and
(c) as soon as available, but in any event not later than 45 days after
the end of each month occurring during each fiscal year of the Borrower
(other than the third, sixth, ninth and twelfth such month), the unaudited
consolidated (and, in respect of any such period in which there is an
Unrestricted Subsidiary, unaudited consolidating) balance sheets of the
Borrower and its Subsidiaries as at the end of such month and the related
unaudited consolidated (and, in respect of any such period in which there is
an Unrestricted Subsidiary, unaudited consolidating) statements of income
and of cash flows for such month and the portion of the fiscal year through
the end of such month, setting
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58
forth in each case in comparative form the figures for the previous year,
certified by a Responsible Officer as being fairly stated in all material
respects (subject to normal year-end audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
6.2 Certificates; Other Information. Furnish to each Agent and each
Lender, or, in the case of clause (f), to the relevant Lender:
(a) concurrently with the delivery of the audited financial statements
referred to in Section 6.1(a), a certificate of the independent certified
public accountants reporting on such audited financial statements stating
that in making the examination necessary therefor no knowledge was obtained
of any Default or Event of Default arising from a violation of any of the
financial ratio covenants or other financial covenants set forth in Section
7, except as specified in such certificate;
(b) concurrently with the delivery of any financial statements pursuant
to Section 6.1, (i) a certificate of a Responsible Officer stating that, to
the best of each such Responsible Officer's knowledge, each Loan Party
during such period has observed or performed all of its covenants and other
agreements, and satisfied every condition, contained in this Agreement and
the other Loan Documents to which it is a party to be observed, performed or
satisfied by it, and that such Responsible Officer has obtained no knowledge
of any Default or Event of Default except as specified in such certificate
and (ii) in the case of quarterly or annual financial statements, (x) a
Compliance Certificate containing all information necessary for determining
compliance by the Borrower and its Restricted Subsidiaries with the
provisions of this Agreement referred to therein as of the last day of the
fiscal quarter or fiscal year of the Borrower, as the case may be, and (y)
to the extent not previously disclosed to the Administrative Agent, a
listing of any county or state within the United States where any Loan Party
keeps inventory or equipment and of any material Intellectual Property
acquired by any Loan Party since the date of the most recent list delivered
pursuant to this clause (y) (or, in the case of the first such list so
delivered, since the Closing Date);
(c) as soon as available, and in any event no later than 45 days after
the end of each fiscal year of the Borrower, a detailed consolidated budget
for the following fiscal year (including a projected consolidated balance
sheet of the Borrower and its Restricted Subsidiaries as of the end of the
following fiscal year, and the related consolidated statements of projected
cash flow, projected changes in financial position and projected income),
and, as soon as available, significant revisions, if any, of such budget and
projections with respect to such fiscal year (collectively, the
"Projections"), which Projections shall in each case be accompanied by a
certificate of a Responsible Officer stating that such Projections are based
on reasonable estimates, information and
<PAGE> 64
assumptions and that such Responsible Officer has no reason to believe that
such Projections are incorrect or misleading in any material respect;
(d) within 45 days after the end of each fiscal quarter of the
Borrower, a narrative discussion and analysis of the financial condition and
results of operations of the Borrower and its Restricted Subsidiaries for
such fiscal quarter and for the period from the beginning of the then
current fiscal year to the end of such fiscal quarter, as compared to the
portion of the Projections covering such periods and to the comparable
periods of the previous year;
(e) within five days after the same are sent, copies of all financial
statements and reports which the Borrower sends to the holders of any class
of its debt securities or public equity securities and, within five days
after the same are filed, copies of all financial statements and reports
which the Borrower may make to, or file with, the Securities and Exchange
Commission or any successor or analogous Governmental Authority; and
(f) on the last Business Day of each month, a Borrowing Base
Certificate, certified by a Responsible Officer of the Borrower as
reasonable estimates prepared in good faith, setting forth (i) the amount of
Eligible Accounts and Eligible Inventory of the Borrower and the Subsidiary
Guarantors and (ii) the aggregate amount of cash or Cash Equivalents
maintained by the Borrower and the other Loan Parties in their main
operating accounts, in each case, as of the last day of the previous week,
attached to which shall be detailed information, including an aging schedule
of Accounts;
(g) promptly, such additional financial and other information as any
Lender may from time to time reasonably request including such information
necessary to demonstrate any Loan Party's compliance with Section 6.11.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrower or its Restricted Subsidiaries, as the case may be.
6.4 Conduct of Business and Maintenance of Existence, etc. (a) (i)
Preserve, renew and keep in full force and effect its corporate existence and
(ii) take all reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of its business, except,
in each case, as otherwise permitted by Section 7.4 and except, in the case of
clause (ii) above, to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect; and (b) comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
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6.5 Maintenance of Property; Insurance. Keep all Property useful and
necessary in its business in good working order and condition, ordinary wear and
tear excepted and (b) maintain with financially sound and reputable insurance
companies insurance on all its Property in at least such amounts and against at
least such risks (but including in any event public liability, product liability
and business interruption) as are usually insured against in the same general
area by companies engaged in the same or a similar business.
6.6 Inspection of Property; Books and Records; Discussions. (a) Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities and (b) permit
representatives of any Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any reasonable
time and as often as may reasonably be desired and to discuss the business,
operations, properties and financial and other condition of the Borrower and its
Subsidiaries with officers and employees of the Borrower and its Subsidiaries
and with its independent certified public accountants; provided that the Lenders
shall make reasonable efforts to coordinate with each other any visits and
discussions hereunder so as not to overly burden the Borrower.
6.7 Notices. Promptly give notice to the Administrative Agent and each
Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or (ii) litigation,
investigation or proceeding which may exist at any time between the Borrower
or any of its Subsidiaries and any Governmental Authority, which in either
case, if not cured or if adversely determined, as the case may be, could
reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any of its
Subsidiaries in a material manner in which the amount involved is $1,000,000
or more and not covered by insurance or in which injunctive or similar
relief is sought;
(d) the following events, as soon as possible and in any event within
30 days after the Borrower knows or has reason to know thereof: (i) the
occurrence of any Reportable Event with respect to any Plan, a failure to
make any required contribution to a Plan, the creation of any Lien in favor
of the PBGC or a Plan or any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan or (ii) the
institution of proceedings or the taking of any other action by the PBGC or
the Borrower or any Commonly Controlled Entity or any Multiemployer Plan
with respect to the withdrawal from, or the termination, Reorganization or
Insolvency of, any Plan; and
(e) any development or event which has had or could reasonably be
expected to have a Material Adverse Effect.
<PAGE> 66
61
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower or the relevant Subsidiary proposes to take
with respect thereto.
6.8 Environmental Laws. (a) Comply in all material respects with, and
ensure compliance in all material respects by all tenants and subtenants, if
any, with, all applicable Environmental Laws, and obtain and comply in all
material respects with and maintain, and ensure that all tenants and subtenants
obtain and comply in all material respects with and maintain, any and all
licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws.
6.9 Additional Collateral, etc. (a) With respect to any Property
acquired after the Closing Date by the Borrower or any of its Restricted
Subsidiaries (other than (x) any Property described in paragraph (b), (c) or (d)
below and (y) any Property subject to a Lien expressly permitted by Section
7.3(g)) as to which the Administrative Agent, for the benefit of the Lenders,
does not have a perfected Lien, promptly (i) execute and deliver to the
Administrative Agent such amendments to the Guarantee and Collateral Agreement
or such other documents as the Administrative Agent deems necessary or advisable
to grant to the Administrative Agent, for the benefit of the Lenders, a security
interest in such Property and (ii) take all actions necessary or advisable to
grant to the Administrative Agent, for the benefit of the Lenders, a perfected
first priority security interest in such Property, including without limitation,
the filing of Uniform Commercial Code financing statements in such jurisdictions
as may be required by the Guarantee and Collateral Agreement or by law or as may
be requested by the Administrative Agent.
(b) With respect to each parcel of real property listed in Schedule
6.9(b), the Borrower will within 90 days after the Closing Date, designate by
written notice to the Administrative Agent whether (i) it expects to dispose of
such parcel within 90 days after the Closing Date (each parcel so designated, a
"Property to be Sold"), or (ii) it expects to retain such parcel (each parcel so
designated, a "Retained Property"). With respect to:
(A) any fee interest in any real property having a value (together
with improvements thereof) of at least $1,000,000 acquired after the Closing
Date by the Borrower or any of its Restricted Subsidiaries (other than any such
real property subject to a Lien expressly permitted by Section 7.3(g)),
(B) any Property to be Sold which is not disposed of within 180
days after the Closing Date, and
(C) any Retained Property,
<PAGE> 67
62
then, prompty after the acquisition thereof (in the case of properties described
in the foregoing clause (A)), within 180 days after the Closing Date (in the
case of properties described in the foregoing clause (B)), and within 120 days
after the Closing Date (in the case of Retained Properties), the Borrower will
(i) execute and deliver a first priority Mortgage in favor of the Administrative
Agent, for the benefit of the Lenders, covering such real property, (ii) if
requested by the Administrative Agent, provide the Lenders with (x) title and
extended coverage insurance covering such real property in an amount at least
equal to the purchase price of such real estate (or such other amount as shall
be reasonably specified by the Administrative Agent) as well as a current ALTA
survey thereof, together with a surveyor's certificate and (y) any consents or
estoppels reasonably deemed necessary or advisable by the Administrative Agent
in connection with such mortgage or deed of trust, each of the foregoing in form
and substance reasonably satisfactory to the Administrative Agent (iii) a
Standard Flood Hazard Determination Form issued or certified by a Person
satisfactory to Administrative Agent for such real property that is located on
real estate covered by a Mortgage and (iv) if requested by the Administrative
Agent, deliver to the Administrative Agent (A) legal opinions relating to the
matters described above, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Administrative Agent and (B) a
satisfactory environmental audit with respect to such property. Further, in the
event such Standard Flood Hazard Determination Form evidences that the subject
structure or improvement is located in a special flood hazard, as defined by
FEMA, the Borrower shall deliver to the Administrative Agent and the Lenders
evidence of appropriate flood insurance in amounts and under such conditions as
identified in Section 6.2(b). At its own cost and expense, the Borrower shall
obtain and maintain during the term of this Agreement minimum flood insurance as
required by FEMA or any other government agency or when required by federal,
state or local law, statute, regulation or ordinance and as may be required by
the Agent and the Lenders.
(c) With respect to any new Subsidiary (other than an Excluded Foreign
Subsidiary) created or acquired after the Closing Date (which, for the purposes
of this paragraph, shall include any existing Subsidiary that ceases to be an
Excluded Foreign Subsidiary), by the Borrower or any of its Restricted
Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement as the Administrative Agent
deems necessary or advisable to grant to the Administrative Agent, for the
benefit of the Lenders, a perfected first priority security interest in the
Capital Stock of such new Subsidiary which is owned by the Borrower or any of
its Restricted Subsidiaries, (ii) deliver to the Administrative Agent the
certificates representing such Capital Stock, together with undated stock
powers, in blank, executed and delivered by a duly authorized officer of the
Borrower or such Subsidiary, as the case may be, (iii) cause such new
Subsidiary, if it is a Restricted Subsidiary, (A) to become a party to the
Guarantee and Collateral Agreement and (B) to take such actions necessary or
advisable to grant to the Administrative Agent for the benefit of the Lenders a
perfected first priority security interest in the Collateral described in the
Guarantee and Collateral Agreement with respect to such new Subsidiary,
including, without limitation, the filing of Uniform Commercial Code financing
statements in such jurisdictions as may be required by the Guarantee and
Collateral Agreement or by law or as may be requested by the Administrative
Agent, and (iv) if requested by the Administrative Agent, deliver to the
Administrative Agent legal opinions relating to the matters described above,
which opinions
<PAGE> 68
63
shall be in form and substance, and from counsel, reasonably satisfactory to the
Administrative Agent.
(d) With respect to any new Excluded Foreign Subsidiary created or
acquired after the Closing Date by the Borrower or any of its Restricted
Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement as the Administrative Agent
deems necessary or advisable in order to grant to the Administrative Agent, for
the benefit of the Lenders, a perfected first priority security interest in the
Capital Stock of such new Subsidiary which is owned by the Borrower or any of
its Subsidiaries (provided that in no event shall more than 65% of the total
outstanding Capital Stock of any such new Subsidiary be required to be so
pledged), (ii) deliver to the Administrative Agent the certificates representing
such Capital Stock, together with undated stock powers, in blank, executed and
delivered by a duly authorized officer of the Borrower or such Restricted
Subsidiary, as the case may be, and take such other action as may be necessary
or, in the opinion of the Administrative Agent, desirable to perfect the Lien of
the Administrative Agent thereon, and (iii) if requested by the Administrative
Agent, deliver to the Administrative Agent legal opinions relating to the
matters described above, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Administrative Agent.
(e) Notwithstanding the provisions of Section 5.1(j), (o) and (p), to
the extent such provisions relate to Subsidiaries of Toastmaster incorporated
under the laws of Mexico or the United States Virgin Islands, the Borrower shall
take the applicable actions described in the foregoing paragraphs (c) and (d) of
this Section with respect to such Subsidiaries within 30 days after the Closing
Date.
6.10 Further Assurances. (a) In the case of the Borrower, from time to
time execute and deliver, or cause to be executed and delivered, such additional
instruments, certificates or documents, and take all such actions, as the
Administrative Agent may reasonably request, for the purposes of implementing or
effectuating the provisions of this Agreement and the other Loan Documents, or
of more fully perfecting or renewing the rights of the Administrative Agent and
the Lenders with respect to the Collateral (or with respect to any additions
thereto or replacements or proceeds thereof or with respect to any other
property or assets hereafter acquired by the Borrower which may be deemed to be
part of the Collateral) pursuant hereto or thereto. Upon the exercise by the
Administrative Agent or any Lender of any power, right, privilege or remedy
pursuant to this Agreement or the other Loan Documents which requires any
consent, approval, recording, qualification or authorization of any Governmental
Authority, the Borrower will execute and deliver, or will cause the execution
and delivery of, all applications, certifications, instruments and other
documents and papers that the Administrative Agent or such Lender may be
required to obtain from the Borrower or any of its Subsidiaries for such
governmental consent, approval, recording, qualification or authorization.
6.11 Year 2000 Matters. Undertake the testing and reprogramming
described in the first sentence of Section 4.22, and complete such testing and
reprogramming by March 31, 1999, so that the representations and warranties made
pursuant to such Section 4.22 are true and correct in all material respects on
and as of March 31, 1999 as if made on such date.
<PAGE> 69
64
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Letter of Credit remains outstanding or any Loan or other amount is
owing to any Lender or any Agent hereunder, the Borrower shall not, and shall
not permit any of its Restricted Subsidiaries to, directly or indirectly:
7.1 Financial Condition Covenants.
(a) Net Average Total Debt Ratio. Permit the Net Average Total Debt Ratio
as at the last day of any period of four consecutive fiscal quarters
of the Borrower ending with any fiscal quarter set forth below to
exceed the ratio set forth opposite such fiscal quarter:
<TABLE>
<CAPTION>
FISCAL QUARTER RATIO
<S> <C>
FQ3 1999 through FQ2 2000 4.00:1.00
FQ3 2000 through FQ2 2001 3.75:1.00
FQ3 2001 through FQ2 2002 3.50:1.00
FQ3 2002 through FQ2 2004 3.25:1.00
</TABLE>
(b) Net Average Senior Debt Ratio. Permit the Net Average Senior Debt
Ratio as at the last day of any period of four consecutive fiscal
quarters of the Borrower ending with any fiscal quarter set forth
below to exceed the ratio set forth opposite such fiscal quarter:
<TABLE>
<CAPTION>
FISCAL QUARTER RATIO
<S> <C>
FQ3 1999 through FQ4 2000 2.00:1.00
FQ1 2001 through FQ4 2002 1.75:1.00
FQ1 2003 through FQ2 2004 1.50:1.00
</TABLE>
(c) Consolidated Interest Coverage Ratio. Permit the Consolidated Interest
Coverage Ratio for any period of four consecutive fiscal quarters of
the Borrower ending with any fiscal quarter set forth below to be less
than the ratio set forth opposite such fiscal quarter; provided, that
for the purposes of determining the Consolidated Interest Coverage
Ratio for FQ3 1999, FQ4 1999 and FQ1 2000, Consolidated Interest
Expense for the relevant period shall be deemed to equal Consolidated
Interest Expense for such fiscal quarter (and, in the case of the
latter two such determinations, each previous fiscal quarter
commencing after the Closing Date) multiplied by 4, 2 and 4/3,
respectively.
<TABLE>
<CAPTION>
FISCAL QUARTER RATIO
<S> <C>
FQ3 1999 through FQ2 2000 2.00:1.00
FQ3 2000 through FQ2 2001 2.25:1.00
</TABLE>
<PAGE> 70
65
FQ3 2001 through FQ2 2004 2.50:1.00
(d) Consolidated Fixed Charge Coverage Ratio. Permit the Consolidated
Fixed Charge Coverage Ratio for any period of four consecutive fiscal
quarters of the Borrower ending with any fiscal quarter set forth
below to be less than the ratio set forth opposite such fiscal
quarter; provided, that for the purposes of determining the
Consolidated Fixed Charge Coverage Ratio for FQ3 1999, FQ4 1999 and
FQ1 2000, Consolidated Fixed Charges for the relevant period shall be
deemed to equal Consolidated Fixed Charges for such fiscal quarter
(and, in the case of the latter two such determinations, each previous
fiscal quarter commencing after the Closing Date) multiplied by 4, 2
and 4/3, respectively.:
<TABLE>
<CAPTION>
FISCAL QUARTER RATIO
<S> <C>
FQ3 1999 1.10:1.00
FQ4 1999 1.15:1.00
FQ1 2000 through FQ4 2000 1.20:1.00
FQ1 2001 through FQ2 2004 1.30:1.00
</TABLE>
7.2 Limitation on Indebtedness. Create, incur, assume or suffer to exist
any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
(b) Indebtedness of the Borrower to any Subsidiary and of any Wholly Owned
Subsidiary Guarantor to the Borrower or any other Subsidiary; provided
that any such Indebtedness of the Borrower or any Subsidiary Guarantor
to any Subsidiary which is not a Subsidiary Guarantor shall be
subordinated, in a manner satisfactory to the Administrative Agent, to
the Obligations and any other obligations of the Borrower or such
Subsidiary Guarantor hereunder and under the other Loan Documents;
(c) Indebtedness (including, without limitation, Capital Lease
Obligations) secured by Liens permitted by Section 7.3(g) in an
aggregate principal amount not to exceed $5,000,000 at any one time
outstanding;
(d) Indebtedness outstanding on the date hereof and listed on Schedule
7.2(d) and any refinancings, refundings, renewals or extensions
thereof (without any increase in the principal amount thereof or any
shortening of the maturity of any principal amount thereof);
(e) Guarantee Obligations made in the ordinary course of business by the
Borrower or any of its Restricted Subsidiaries of obligations of the
Borrower or any Subsidiary Guarantor;
(f) (i) Indebtedness of the Borrower in respect of the Senior Subordinated
Notes and (ii) Guarantee Obligations of any Subsidiary Guarantor in
respect of such
<PAGE> 71
66
Indebtedness; provided that such Guarantee Obligations are
subordinated to the same extent as the obligations of the Borrower in
respect of the Senior Subordinated Notes; and
(g) Indebtedness of the Borrower in respect of the Seller Note.
7.3 Limitation on Liens. Create, incur, assume or suffer to exist any Lien
upon any of its Property (other than any Restricted Margin Stock), whether now
owned or hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good faith
by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the Borrower or its
Restricted Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 30 days or which are being
contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate,
are not substantial in amount and which do not in any case materially
detract from the value of the Property subject thereto or materially
interfere with the ordinary conduct of the business of the Borrower or
any of its Restricted Subsidiaries;
(f) Liens in existence on the date hereof listed on Schedule 7.3(f),
securing Indebtedness permitted by Section 7.2(d), provided that no
such Lien is spread to cover any additional Property after the Closing
Date and that the amount of Indebtedness secured thereby is not
increased;
(g) Liens securing Indebtedness of the Borrower or any other Restricted
Subsidiary incurred pursuant to Section 7.2(c) to finance the
acquisition of fixed or capital assets, provided that (i) such Liens
shall be created substantially simultaneously with the acquisition of
such fixed or capital assets, (ii) such Liens do not at any time
encumber any Property other than the Property financed by such
Indebtedness and (iii) the purchase price of such Property does not
exceed 125% of the amount of Indebtedness secured thereby.
(h) Liens created pursuant to the Security Documents;
<PAGE> 72
67
(i) Liens created by precautionary filings of financing statements in
respect of equipment leased by the Borrower or its Restricted
Subsidiaries in the ordinary course of business; and
(j) any interest or title of a lessor under any lease entered into by the
Borrower or any other Restricted Subsidiary in the ordinary course of
its business and covering only the assets so leased.
7.4 Limitation on Fundamental Changes. Enter into any merger (other than
the Merger), consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution), or Dispose of all or
substantially all of its Property or business, except that:
(a) any Restricted Subsidiary may be merged or consolidated with or into
the Borrower (provided that the Borrower shall be the continuing or
surviving corporation) or with or into any Subsidiary Guarantor
(provided that the Subsidiary Guarantor shall be the continuing or
surviving corporation); and
(b) any Restricted Subsidiary may Dispose of any or all of its assets
(upon voluntary liquidation or otherwise) to the Borrower or any
Subsidiary Guarantor.
7.5 Limitation on Disposition of Property. Dispose of any of its Property
(including, without limitation, receivables and leasehold interests, but
excluding Restricted Margin Stock), whether now owned or hereafter acquired, or,
in the case of any Subsidiary, issue or sell any shares of such Restricted
Subsidiary's Capital Stock to any Person, except:
(a) the Disposition of obsolete or worn out property in the ordinary
course of business;
(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by Section 7.4(b);
(d) the sale or issuance of any Subsidiary's Capital Stock to the Borrower
or any Subsidiary Guarantor;
(e) the Disposition of other assets having a fair market value not to
exceed $500,000 in the aggregate during the term of this Agreement;
(f) any Asset Sale or Recovery Event, provided that the requirements of
Section 2.10(b) are complied with in connection therewith; and
(g) the sale or discount without recourse of accounts receivable arising
in the ordinary course of business of the Borrower or its Subsidiaries
in connection with the compromise or collection thereof in respect of
obligors the Borrower reasonably believes is not likely to pay all of
substantially all of its obligation; provided that the Borrower and
<PAGE> 73
68
its Subsidiaries shall not sell or discount accounts receivable with
an original stated amount of more than $5,000,000 in any fiscal year.
7.6 Limitation on Restricted Payments. Declare or pay any dividend (other
than dividends payable solely in common stock of the Person making such
dividend) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any Capital Stock of the Borrower or any
Subsidiary, whether now or hereafter outstanding, or make any other distribution
in respect thereof, either directly or indirectly, whether in cash or property
or in obligations of the Borrower or any Subsidiary (collectively, "Restricted
Payments"), except that any Subsidiary may make Restricted Payments to the
Borrower or any Subsidiary Guarantor.
7.7 Limitation on Capital Expenditures. Make or commit to make any Capital
Expenditure, except (a) Capital Expenditures of the Borrower and its Restricted
Subsidiaries in the ordinary course of business not exceeding in any fiscal year
the lesser of (i) $14,000,000 and (ii) 2.00% of the amount of net sales of the
Borrower and its Restricted Subsidiaries for such fiscal year, determined in
accordance with GAAP and (b) Capital Expenditures made with the proceeds of any
Reinvestment Deferred Amount.
7.8 Limitation on Investments. Make any advance, loan, extension of credit
(by way of guaranty or otherwise) or capital contribution to, or purchase any
Capital Stock, bonds, notes, debentures or other debt securities of, or any
assets constituting an ongoing business from, or make any other investment in,
any other Person (all of the foregoing, "Investments"), except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Investments arising in connection with the incurrence of Indebtedness
permitted by Section 7.2(b) and (e);
(d) loans and advances to employees of the Borrower or any Restricted
Subsidiaries of the Borrower in the ordinary course of business
(including, without limitation, for travel, entertainment and
relocation expenses) in an aggregate amount for the Borrower and
Restricted Subsidiaries of the Borrower not to exceed $100,000 at any
one time outstanding;
(e) the Transactions;
(f) Investments in assets useful in the Borrower's business made by the
Borrower or any of its Restricted Subsidiaries with the proceeds of
any Reinvestment Deferred Amount;
(g) Permitted Acquisitions; and
<PAGE> 74
69
(h) Investments (other than those relating to the incurrence of
Indebtedness permitted by Section 7.8(c)) by the Borrower or any of
its Restricted Subsidiaries in the Borrower or any Person that, prior
to such investment, is a Subsidiary Guarantor.
7.9 Limitation on Optional Payments and Modifications of Debt Instruments,
etc. (a) Make or offer to make any optional or voluntary payment, prepayment,
repurchase or redemption of, or otherwise voluntarily or optionally defease, the
Senior Subordinated Notes or the Seller Note, (b) amend, modify or otherwise
change, or consent or agree to any amendment, modification, waiver or other
change to, any of the terms of the Senior Subordinated Notes or the Seller Note
(other than any such amendment, modification, waiver or other change which (i)
would extend the maturity or reduce the amount of any payment of principal
thereof, reduce the rate or extend the date for payment of interest thereon or
relax any covenant or other restriction applicable to the Borrower or any of its
Subsidiaries and (ii) does not involve the payment of a consent fee), (c)
designate any Indebtedness (other than the Obligations) as "Designated Senior
Indebtedness" (or any equivalent designation) for the purposes of the Senior
Subordinated Note Indenture or (d) amend its certificate of incorporation in any
manner determined by the Administrative Agent to be adverse to the Lenders.
7.10 Limitation on Transactions with Affiliates. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of Property, the rendering of any service or the payment of any
management, advisory or similar fees, with any Affiliate (other than the
Borrower or any Subsidiary Guarantor) unless such transaction is (a) otherwise
permitted under this Agreement, (b) in the ordinary course of business of the
Borrower or such Restricted Subsidiary, as the case may be, and (c) upon fair
and reasonable terms no less favorable to the Borrower or such Restricted
Subsidiary, as the case may be, than it would obtain in a comparable arm's
length transaction with a Person which is not an Affiliate; provided, that the
Borrower may pay customary director's fees to members of its Board of Directors.
7.11 Limitation on Sales and Leasebacks. Enter into any arrangement with
any Person providing for the leasing by the Borrower or any Restricted
Subsidiary of real or personal property which has been or is to be sold or
transferred by the Borrower or such Restricted Subsidiary to such Person or to
any other Person to whom funds have been or are to be advanced by such Person on
the security of such property or rental obligations of the Borrower or such
Restricted Subsidiary.
7.12 Limitation on Changes in Fiscal Periods. Permit the fiscal year of the
Borrower to end on a day other than the Saturday closest to June 30 or change
the Borrower's method of determining fiscal quarters.
7.13 Limitation on Negative Pledge Clauses. Enter into or suffer to exist
or become effective any agreement which prohibits or limits the ability of the
Borrower or any of its Restricted Subsidiaries to create, incur, assume or
suffer to exist any Lien upon any of its Property or revenues, whether now owned
or hereafter acquired, to secure the Obligations or, in the case of any
guarantor, its obligations under the Guarantee and Collateral Agreement, other
than (a) this Agreement and the other Loan Documents and (b) any agreements
governing any
<PAGE> 75
70
purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in
which case, any prohibition or limitation shall only be effective against the
assets financed thereby).
7.14 Limitation on Restrictions on Subsidiary Distributions. Enter into or
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary to (a) make Restricted Payments in
respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness
owed to, the Borrower or any other Restricted Subsidiary, (b) make Investments
in the Borrower or any other Restricted Subsidiary or (c) transfer any of its
assets to the Borrower or any other Restricted Subsidiary, except for such
encumbrances or restrictions existing under or by reason of (i) any restrictions
existing under the Loan Documents and (ii) any restrictions with respect to a
Restricted Subsidiary imposed pursuant to an agreement which has been entered
into in connection with the Disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary.
7.15 Limitation on Lines of Business. Enter into any business, either
directly or through any Restricted Subsidiary, except for those businesses in
which the Borrower and its Restricted Subsidiaries are engaged on the date of
this Agreement or which are reasonably related thereto.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof;
or the Borrower shall fail to pay any interest on any Loan or
Reimbursement Obligation, or any other amount payable hereunder or
under any other Loan Document, within five days after any such
interest or other amount becomes due in accordance with the terms
hereof; or
(b) Any representation or warranty made or deemed made by any Loan Party
herein or in any other Loan Document or which is contained in any
certificate, document or financial or other statement furnished by it
at any time under or in connection with this Agreement or any such
other Loan Document shall prove to have been inaccurate in any
material respect on or as of the date made or deemed made; or
(c) (i) Any Loan Party shall default in the observance or performance of
any agreement contained in clause (i) or (ii) of Section 6.4(a) (with
respect to the Borrower only), Section 6.7(a), Section 7 or Section 5
of the Guarantee and Collateral Agreement or (ii) an "Event of
Default" under and as defined in any Mortgage shall have occurred and
be continuing; or
(d) Any Loan Party shall default in the observance or performance of any
other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (c) of this
Section), and such default shall continue unremedied for a period of
30 days; or
<PAGE> 76
71
(e) The Borrower or any of its Restricted Subsidiaries shall (i) default
in making any payment of any principal of any Indebtedness (including,
without limitation, any Guarantee Obligation, but excluding the Loans)
on the scheduled or original due date with respect thereto; or (ii)
default in making any payment of any interest on any such Indebtedness
beyond the period of grace, if any, provided in the instrument or
agreement under which such Indebtedness was created; or (iii) default
in the observance or performance of any other agreement or condition
(other than a Margin Stock Restriction) relating to any such
Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or beneficiary of such
Indebtedness (or a trustee or agent on behalf of such holder or
beneficiary) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity or (in the
case of any such Indebtedness constituting a Guarantee Obligation) to
become payable; provided, that a default, event or condition described
in clause (i), (ii) or (iii) of this paragraph (e) shall not at any
time constitute an Event of Default unless, at such time, one or more
defaults, events or conditions of the type described in clauses (i),
(ii) and (iii) of this paragraph (e) shall have occurred and be
continuing with respect to Indebtedness the outstanding principal
amount of which exceeds in the aggregate $1,000,000; or
(f) (i) The Borrower or any of its Restricted Subsidiaries shall commence
any case, proceeding or other action (A) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate
it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (B) seeking appointment of
a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or the
Borrower or any of its Restricted Subsidiaries shall make a general
assignment for the benefit of its creditors; or (ii) there shall be
commenced against the Borrower or any of its Restricted Subsidiaries
any case, proceeding or other action of a nature referred to in clause
(i) above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) there shall
be commenced against the Borrower or any of its Restricted
Subsidiaries any case, proceeding or other action seeking issuance of
a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets which results in the
entry of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof; or (iv) the Borrower or any of its Restricted
Subsidiaries shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any
of its Restricted Subsidiaries shall generally not, or shall be unable
to, or shall admit in writing its inability to, pay its debts as they
become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving
any Plan, (ii) any
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"accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan or any
Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event
shall occur with respect to, or proceedings shall commence to have a
trustee appointed, or a trustee shall be appointed, to administer or
to terminate, any Single Employer Plan, which Reportable Event or
commencement of proceedings or appointment of a trustee is, in the
reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any
Single Employer Plan shall terminate for purposes of Title IV of
ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or in
the reasonable opinion of the Required Lenders is likely to, incur any
liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi) any other event or
condition shall occur or exist with respect to a Plan; and in each
case in clauses (i) through (vi) above, such event or condition,
together with all other such events or conditions, if any, could, in
the sole judgment of the Required Lenders, reasonably be expected to
have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the Borrower
or any of its Restricted Subsidiaries involving in the aggregate a
liability (not paid or fully covered by insurance as to which the
relevant insurance company has acknowledged coverage) of $1,000,000 or
more, and all such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within 30 days from the
entry thereof; or
(i) Any of the Security Documents shall cease, for any reason (other than
the fault of the Agents or the Lenders), to be in full force and
effect, or any Loan Party or any Affiliate of any Loan Party shall so
assert, or any Lien created by any of the Security Documents shall
cease, for any reason (other than the fault of the Agents or the
Lenders), to be enforceable and of the same effect and priority
purported to be created thereby; or
(j) The guarantee contained in Section 2 of the Guarantee and Collateral
Agreement shall cease, for any reason, to be in full force and effect
or any Loan Party or any Affiliate of any Loan Party shall so assert;
or
(k) (i) Any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), excluding the Permitted Investors and members of
executive management of the Borrower, shall become, or obtain rights
(whether by means or warrants, options or otherwise) to become, the
"beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the
Exchange Act), directly or indirectly, of more than 30% of the
outstanding common stock of the Borrower; (ii) the board of directors
of the Borrower shall cease to consist of a majority of Continuing
Directors; or (iii) a Specified Change of Control shall occur; or
(l) (i) The Seller Note shall cease, for any reason, to be validly
subordinated to the Obligations or (ii) the Senior Subordinated Notes
or any guarantees thereof shall
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73
cease, for any reason, to be validly subordinated to the Obligations
or the obligations of the Subsidiary Guarantors under the Guarantee
and Collateral Agreement, as the case may be, as provided in the
Senior Subordinated Note Indenture, or any Loan Party, any Affiliate
of any Loan Party, the trustee in respect of the Senior Subordinated
Notes;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) shall immediately become due and payable, and (B) if such event is
any other Event of Default, either or both of the following actions may be
taken: (i) with the consent of the Majority Revolving Credit Facility Lenders,
the Administrative Agent may, or upon the request of the Majority Revolving
Credit Facility Lenders, the Administrative Agent shall, by notice to the
Borrower declare the Revolving Credit Commitments to be terminated forthwith,
whereupon the Revolving Credit Commitments shall immediately terminate, and (ii)
with the consent of the Required Lenders, the Administrative Agent may, or upon
the request of the Required Lenders, the Administrative Agent shall, by notice
to the Borrower, declare the Loans hereunder (with accrued interest thereon) and
all other amounts owing under this Agreement and the other Loan Documents
(including, without limitation, all amounts of L/C Obligations, whether or not
the beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required thereunder) to be due and payable forthwith, whereupon
the same shall immediately become due and payable. With respect to all Letters
of Credit with respect to which presentment for honor shall not have occurred at
the time of an acceleration pursuant to this paragraph, the Borrower shall at
such time deposit in a cash collateral account opened by the Issuing Lender an
amount equal to the aggregate then undrawn and unexpired amount of such Letters
of Credit. Amounts held in such cash collateral account shall be applied by the
Issuing Lender to the payment of drafts drawn under such Letters of Credit, and
the unused portion thereof after all such Letters of Credit shall have expired
or been fully drawn upon, if any, shall be applied to repay other obligations of
the Borrower hereunder and under the other Loan Documents. After all such
Letters of Credit shall have expired or been fully drawn upon, all Reimbursement
Obligations shall have been satisfied and all other obligations of the Borrower
hereunder and under the other Loan Documents shall have been paid in full, the
balance, if any, in such cash collateral account shall be returned to the
Borrower (or such other Person as may be lawfully entitled thereto).
SECTION THE AGENTS
9.1 Appointment. Each Lender hereby irrevocably designates and appoints the
Agents as the agents of such Lender under this Agreement and the other Loan
Documents, and each such Lender irrevocably authorizes each Agent, in such
capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the such Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
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74
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, no Agent shall have any duties or responsibilities,
except those expressly set forth herein, or any fiduciary relationship with any
Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against any Agent.
9.2 Delegation of Duties. Each Agent may execute any of its duties under
this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. No Agent shall be responsible for the
negligence or misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
9.3 Exculpatory Provisions. Neither any Agent nor any of their respective
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement or any other Loan Document
(except to the extent that any of the foregoing are found by a final and
nonappealable decision of a court of competent jurisdiction to have resulted
from its or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by any Loan Party or any officer thereof
contained in this Agreement or any other Loan Document or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Agents under or in connection with, this Agreement or any other Loan
Document or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or any other Loan Document or for any failure
of any Loan Party a party thereto to perform its obligations hereunder or
thereunder. The Agents shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Loan Party.
9.4 Reliance by Administrative Agent. Each Agent shall be entitled to rely,
and shall be fully protected in relying, upon any instrument, writing,
resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower or the Loan Parties), independent
accountants and other experts selected by the Administrative Agent. The Agents
may deem and treat the payee of any Note as the owner thereof for all purposes
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with the Administrative Agent. Each Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Required Lenders (or, if so specified by this Agreement, all Lenders) as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. Each Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement and the other Loan Documents in accordance with a request of the
Required Lenders (or, if so specified by this Agreement, all Lenders), and such
request and any action taken or
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75
failure to act pursuant thereto shall be binding upon all the Lenders and all
future holders of the Loans.
9.5 Notice of Default. No Agent shall be deemed to have knowledge or notice
of the occurrence of any Default or Event of Default hereunder unless such Agent
has received notice from a Lender or the Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". In the event that the Administrative Agent receives such a
notice, the Administrative Agent shall give notice thereof to the Lenders and
the Issuing Lender or Issuing Lenders. The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders (or, if so specified by this Agreement, all
Lenders); provided that unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
9.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly
acknowledges that neither the Agents nor any of their respective officers,
directors, employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by any Agent hereinafter
taken, including any review of the affairs of a Loan Party or any affiliate of a
Loan Party, shall be deemed to constitute any representation or warranty by any
Agent to any Lender. Each Lender represents to the Agents that it has,
independently and without reliance upon any Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Loan Parties and their
affiliates and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon any Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties and their affiliates. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, no Agent shall have any duty or responsibility
to provide any Lender with any credit or other information concerning the
business, operations, property, condition (financial or otherwise), prospects or
creditworthiness of any Loan Party or any affiliate of a Loan Party which may
come into the possession of such Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.
9.7 Indemnification. The Lenders agree to indemnify each Agent in its
capacity as such and each Issuing Lender in its capacity as such (to the extent
not reimbursed by the Borrower and without limiting the obligation of the
Borrower to do so), ratably according to their respective Aggregate Exposure
Percentages in effect on the date on which indemnification is sought under this
Section (or, if indemnification is sought after the date upon which the
Commitments shall have terminated and the Loans shall have been paid in full,
ratably in accordance with such Aggregate Exposure Percentages, or Revolving
Credit Commitments in the
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case of each Issuing Lender, immediately prior to such date), from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever which
may at any time (including, without limitation, at any time following the
payment of the Loans) be imposed on, incurred by or asserted against such Agent
in any way relating to or arising out of, the Commitments, this Agreement, any
of the other Loan Documents or any documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by such Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements which are found by a final
and nonappealable decision of a court of competent jurisdiction to have resulted
from such Agent's gross negligence or willful misconduct. The agreements in this
Section 9.7 shall survive the payment of the Loans and all other amounts payable
hereunder.
9.8 Agent in Its Individual Capacity. Each Agent and its affiliates may
make loans to, accept deposits from and generally engage in any kind of business
with any Loan Party as though such Agent was not an Agent. With respect to its
Loans made or renewed by it and with respect to any Letter of Credit issued or
participated in by it, each Agent shall have the same rights and powers under
this Agreement and the other Loan Documents as any Lender and may exercise the
same as though it were not an Agent, and the terms "Lender" and "Lenders" shall
include each Agent in its individual capacity.
9.9 Successor Administrative Agent. The Administrative Agent may resign as
Administrative Agent upon 10 days' notice to the Lenders and the Borrower. If
the Administrative Agent shall resign as Administrative Agent under this
Agreement and the other Loan Documents, then the Required Lenders shall appoint
from among the Lenders a successor agent for the Lenders, which successor agent
shall (unless an Event of Default under Section 8(a) or Section 8(f) with
respect to the Borrower shall have occurred and be continuing) be subject to
approval by the Borrower (which approval shall not be unreasonably withheld or
delayed), whereupon such successor agent shall succeed to the rights, powers and
duties of the Administrative Agent, and the term "Administrative Agent" shall
mean such successor agent effective upon such appointment and approval, and the
former Administrative Agent's rights, powers and duties as Administrative Agent
shall be terminated, without any other or further act or deed on the part of
such former Administrative Agent or any of the parties to this Agreement or any
holders of the Loans. If no successor agent has accepted appointment as
Administrative Agent by the date that is 10 days following a retiring
Administrative Agent's notice of resignation, the retiring Administrative
Agent's resignation shall nevertheless thereupon become effective, and the
Lenders shall assume and perform all of the duties of the Administrative Agent
hereunder until such time, if any, as the Required Lenders appoint a successor
agent as provided for above. The Syndication Agent may, at any time, by notice
to the Lenders and the Administrative Agent, resign as Syndication Agent
hereunder, whereupon the duties, rights, obligations and responsibilities
hereunder shall automatically be assumed by, and inure to the benefit of, the
Administrative Agent, without any further act by the Syndication Agent, the
Administrative Agent or any Lender. After any retiring Agent's resignation as
Agent, the provisions of this Section 9 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement and the other Loan Documents.
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9.10 Authorization to Release Liens. The Administrative Agent is hereby
irrevocably authorized by each of the Lenders to release any Lien covering any
Property of the Borrower or any of its Subsidiaries that is the subject of a
Disposition which is permitted by this Agreement or which has been consented to
in accordance with Section 10.1.
9.11 The Arranger. The Arranger, in its capacity as such, shall have no
duties or responsibilities, and shall incur no liability, under this Agreement
and the other Loan Documents.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Required Lenders and each Loan Party party to the relevant Loan Document may, or
(with the written consent of the Required Lenders) the Agents and each Loan
Party party to the relevant Loan Document may, from time to time, (a) enter into
written amendments, supplements or modifications hereto and to the other Loan
Documents for the purpose of adding any provisions to this Agreement or the
other Loan Documents or changing in any manner the rights of the Lenders or of
the Loan Parties hereunder or thereunder or (b) waive, on such terms and
conditions as the Required Lenders, or the Agents, as the case may be, may
specify in such instrument, any of the requirements of this Agreement or the
other Loan Documents or any Default or Event of Default and its consequences;
provided, however, that no such waiver and no such amendment, supplement or
modification shall (i) forgive the principal amount or extend the final
scheduled date of maturity of any Loan, extend the scheduled date of any
amortization payment in respect of any Term Loan, reduce the stated rate or
amount of any interest or fee payable hereunder or extend the scheduled date of
any payment thereof, or increase the amount or extend the expiration date of any
Commitment of any Lender, in each case without the consent of each Lender
directly affected thereby; (ii) amend, modify or waive any provision of this
Section or reduce any percentage specified in the definition of Required Lenders
or Required Prepayment Lenders, consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement and the other
Loan Documents, release all or substantially all of the Collateral or release
all or substantially all of the Subsidiary Guarantors from their obligations
under the Guarantee and Collateral Agreement, in each case without the consent
of all Lenders; (iii) amend, modify or waive any condition precedent to any
extension of credit under the Revolving Credit Facility set forth in Section 5.2
(including, without limitation, in connection with any waiver of an existing
Default or Event of Default) without the consent of the Majority Revolving
Credit Facility Lenders; (iv) reduce the percentage specified in the definition
of Majority Facility Lenders with respect to any Facility without the written
consent of all Lenders under such Facility; (v) amend, modify or waive any
provision of Section 9 without the consent of the Agents; (vi) amend, modify or
waive any provision of Section 2.16(a), (b) or (c) without the consent of each
Lender directly affected thereby; (vii) amend, modify or waive any provision of
Section 3, Section 9.6 (or any other term hereof affecting the obligations or
rights of any Issuing Lender), without the consent of such Issuing Lender,
(viii) change any Advance Rate without the written consent of Lenders whose
Aggregate Exposure Percentages constitute at least 662/3% or (ix) amend, modify
or waive any
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provision of Section 2.9 or 2.10 without the consent of the Required Prepayment
Lenders. Any such waiver and any such amendment, supplement or modification
shall apply equally to each of the Lenders and shall be binding upon the Loan
Parties, the Lenders, the Agents and all future holders of the Loans. In the
case of any waiver, the Loan Parties, the Lenders and the Agents shall be
restored to their former position and rights hereunder and under the other Loan
Documents, and any Default or Event of Default waived shall be deemed to be
cured and not continuing; but no such waiver shall extend to any subsequent or
other Default or Event of Default, or impair any right consequent thereon. Any
such waiver, amendment, supplement or modification shall be effected by a
written instrument signed by the parties required to sign pursuant to the
foregoing provisions of this Section; provided, that delivery of an executed
signature page of any such instrument by facsimile transmission shall be
effective as delivery of a manually executed counterpart thereof.
10.2 Notices. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by telecopy), and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given or made when delivered, or ten Business Days after being deposited in the
mail, postage prepaid, or, in the case of telecopy notice, when received,
addressed (a) in the case of the Borrower and the Administrative Agent, as
follows and (b) in the case of any Lender, as set forth on Schedule 1 to the
Lender Addendum delivered by such Lender, or, in the case of a Lender which
becomes a party to this Agreement pursuant to an Assignment and Acceptance, in
such Assignment and Acceptance; or (c) in the case of any party, to such other
address as such party may hereafter notify to the other parties hereto:
The Borrower: Salton/Maxim Housewares, Inc.
550 Business Center Drive
Mt. Prospect, Ill. 60056
Attention: William Rue
Telecopy: (847) 803-8080
Telephone: (947) 803-4600 x220
The Syndication Agent: Lehman Commercial Paper Inc.
3 World Financial Center
New York, New York 10285
Attention: Michael O'Brien
Telecopy: (212) 526-7691
Telephone: (212) 526-0437
The Administrative Agent Lehman Commercial Paper Inc.
3 World Financial Center
New York, New York 10285
Attention: Michael O'Brien
Telecopy: (212) 526-7691
Telephone: (212) 526-0437
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provided that any notice, request or demand to or upon the any Agent or any
Lender shall not be effective until received.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the any Agent or any Lender, any right, remedy, power
or privilege hereunder or under the other Loan Documents shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties. All representations and
warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans and other extensions of credit hereunder.
10.5 Payment of Expenses. The Borrower agrees (a) to pay or reimburse the
Agents and the Arranger for all their reasonable out-of-pocket costs and
expenses incurred in connection with the development, preparation and execution
of, and any amendment, supplement or modification to, this Agreement and the
other Loan Documents and any other documents prepared in connection herewith or
therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including, without limitation, the reasonable
fees and disbursements of counsel to the Administrative Agent, (b) to pay or
reimburse each Lender, the Issuing Lender, the Agents and the Arranger for all
its costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the other Loan Documents and
any such other documents, including, without limitation, the fees and
disbursements of counsel (including the allocated fees and expenses of in-house
counsel) to each Lender and of counsel to the Agents, the Issuing Lender, and
the Arranger, (c) to pay, indemnify, and hold each Lender, the Issuing Lender,
and the Agents harmless from, any and all recording and filing fees and any and
all liabilities with respect to, or resulting from any delay in paying, stamp,
excise and other taxes, if any, which may be payable or determined to be payable
in connection with the execution and delivery of, or consummation or
administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the other Loan Documents and any such other documents, and (d)
to pay, indemnify, and hold each Lender, the Agents, the Issuing Lender and the
Arranger and their respective officers, directors, employees, affiliates, agents
and controlling persons (each, an "Indemnitee") harmless from and against any
and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of this Agreement, the other Loan Documents and any such other
documents, including, without limitation, any of the foregoing relating to the
use of proceeds of the Loans or the violation of, noncompliance with or
liability under, any Environmental Law applicable to the operations of the
Borrower any of its Subsidiaries or any of the Properties (all the foregoing in
this clause (d), collectively, the "Indemnified Liabilities"), provided, that
the Borrower shall have no obligation hereunder to any Indemnitee with respect
to Indemnified Liabilities to the extent such Indemnified Liabilities are found
by a final and
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nonappealable decision of a court of competent jurisdiction to have resulted
from the gross negligence or willful misconduct of such Indemnitee. Without
limiting the foregoing, and to the extent permitted by applicable law, the
Borrower agrees not to assert and to cause its Subsidiaries not to assert, and
hereby waives and agrees to cause its Subsidiaries so to waive, all rights for
contribution or any other rights of recovery with respect to all claims,
demands, penalties, fines, liabilities, settlements, damages, costs and expenses
of whatever kind or nature, under or related to Environmental Laws, that any of
them might have by statute or otherwise against any indemnitee. The agreements
in this Section shall survive repayment of the Loans and all other amounts
payable hereunder.
10.6 Successors and Assigns; Participations and Assignments. (a) This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Agents, all future holders of the Loans and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Agents and each Lender.
(b) Any Lender may, without the consent of the Borrower, in accordance
with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "Participant") participating
interests in any Loan owing to such Lender, any Commitment of such
Lender or any other interest of such Lender hereunder and under the
other Loan Documents. In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's obligations
under this Agreement to the other parties to this Agreement shall
remain unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any such
Loan for all purposes under this Agreement and the other Loan
Documents, and the Borrower and the Agents shall continue to deal
solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement and the other Loan
Documents. In no event shall any Participant under any such
participation have any right to approve any amendment or waiver of any
provision of any Loan Document, or any consent to any departure by any
Loan Party therefrom, except to the extent that such amendment, waiver
or consent would reduce the principal of, or interest on, the Loans or
any fees payable hereunder, or postpone the date of the final maturity
of the Loans, in each case to the extent subject to such
participation. The Borrower agrees that if amounts outstanding under
this Agreement and the Loans are due or unpaid, or shall have been
declared or shall have become due and payable upon the occurrence of
an Event of Default, each Participant shall, to the maximum extent
permitted by applicable law, be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this
Agreement to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under this Agreement,
provided that, in purchasing such participating interest, such
Participant shall be deemed to have agreed to share with the Lenders
the proceeds thereof as provided in Section 10.7(a) as fully as if it
were a Lender hereunder. The Borrower also agrees that each
Participant shall be entitled to the benefits of Sections 2.17, 2.18
and 2.19 with respect to its participation in the Commitments and the
Loans outstanding from time to time as if it was a Lender; provided
that, in the case of Section 2.18, such Participant shall have
complied with the requirements of said Section and provided, further,
that no Participant shall be entitled to receive any greater amount
pursuant to any such Section than the transferor Lender would have
been entitled to receive in respect of the
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amount of the participation transferred by such transferor Lender to
such Participant had no such transfer occurred.
(c) Any Lender (an "Assignor") may, in accordance with applicable law, at
any time and from time to time assign to any Lender or any affiliate
thereof or, with the consent of the Borrower, the Issuing Lender (in
the case of assignments of Revolving Credit Commitments only) and the
Agents (which, in each case, shall not be unreasonably withheld or
delayed) (provided (x) that no such consent of the Borrower or any
Agent need be obtained by Lehman Commercial Paper Inc. for a period of
180 days following the Closing Date and (y) the consent of the
Borrower need not be obtained with respect to any assignment of funded
Term Loans), to an additional bank, financial institution or other
entity (an "Assignee") all or any part of its rights and obligations
under this Agreement pursuant to an Assignment and Acceptance,
substantially in the form of Exhibit G, executed by such Assignee and
such Assignor (and, where the consent of the Borrower, the Agents or
the Issuing Lender is required pursuant to the foregoing provisions,
by the Borrower and such other Persons) and delivered to the
Administrative Agent for its acceptance and recording in the Register;
provided that no such assignment to an Assignee (other than any Lender
or any affiliate thereof) shall be in an aggregate principal amount of
less than $5,000,000 and result in the Assignor having aggregate
Commitments of less than $5,000,000 (other than in the case of an
assignment of all of a Lender's interests under this Agreement), in
each case unless otherwise agreed by the Borrower, the Syndication
Agent and the Administrative Agent. Any such assignment need not be
ratable as among the Facilities. Upon such execution, delivery,
acceptance and recording, from and after the effective date determined
pursuant to such Assignment and Acceptance, (x) the Assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender
hereunder with a Commitment and/or Loans as set forth therein, and (y)
the Assignor thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering
all of an Assignor's rights and obligations under this Agreement, such
Assignor shall cease to be a party hereto). Notwithstanding any
provision of this Section, the consent of the Borrower shall not be
required for any assignment which occurs at any time when any Event of
Default shall have occurred and be continuing.
(d) The Administrative Agent shall maintain at its address referred to in
Section 10.2 a copy of each Assignment and Acceptance delivered to it
and a register (the "Register") for the recordation of the names and
addresses of the Lenders and the Commitment of, and principal amount
of the Loans owing to, each Lender from time to time. The entries in
the Register shall be conclusive, in the absence of manifest error,
and the Borrower, the Administrative Agent and the Lenders shall treat
each Person whose name is recorded in the Register as the owner of the
Loans and any Notes evidencing such Loans recorded therein for all
purposes of this Agreement. Any assignment of any Loan, whether or not
evidenced by a Note, shall be effective only upon appropriate entries
with respect thereto being made in the Register (and each Note shall
expressly so provide). Any assignment or transfer of all or part of a
Loan evidenced by a Note shall be registered on the Register only upon
surrender for registration of assignment or transfer of the Note
evidencing such Loan, accompanied by a duly executed Assignment and
Acceptance; thereupon one or more new Notes in the same aggregate
principal amount shall be issued to the designated Assignee, and the
old Notes shall be returned by the Administrative Agent to the
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Borrower marked "canceled". The Register shall be available for
inspection by the Borrower or any Lender (with respect to entries
relating to such Lender's Loans) at any reasonable time and from time
to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assignor and an Assignee (and, in any case where the consent of any
other Person is required by Section 10.6(c), by each such other
Person) together with payment to the Administrative Agent of a
registration and processing fee of $3,500 (except that no such
registration and processing fee shall be payable (y) in connection
with an assignment by or to a Lehman Entity or (z) in the case of an
Assignee which is already a Lender or is an affiliate of a Lender or a
Person under common management with a Lender), the Administrative
Agent shall (i) promptly accept such Assignment and Acceptance and
(ii) on the effective date determined pursuant thereto record the
information contained therein in the Register and give notice of such
acceptance and recordation to the Lenders and the Borrower. On or
prior to such effective date, the Borrower, at its own expense, upon
request, shall execute and deliver to the Administrative Agent (in
exchange for the Revolving Credit Note and/or applicable Term Note, as
the case may be, of the assigning Lender) a new Revolving Credit Note
and/or applicable Term Notes, as the case may be, to the order of such
Assignee in an amount equal to the Revolving Credit Commitment and/or
applicable Term Loans, as the case may be, assumed or acquired by it
pursuant to such Assignment and Acceptance and, if the Assignor has
retained a Revolving Credit Commitment and/or Term Loans, as the case
may be, upon request, a new Revolving Credit Note and/or Term Note, as
the case may be, to the order of the Assignor in an amount equal to
the Revolving Credit Commitment and/or applicable Term Loans, as the
case may be, retained by it hereunder. Such new Note or Notes shall be
dated the Closing Date and shall otherwise be in the form of the Note
or Notes replaced thereby.
(f) For avoidance of doubt, the parties to this Agreement acknowledge that
the provisions of this Section concerning assignments of Loans and
Notes relate only to absolute assignments and that such provisions do
not prohibit assignments creating security interests, including,
without limitation, any pledge or assignment by a Lender of any Loan
or Note to any Federal Reserve Bank in accordance with applicable law.
10.7 Adjustments; Set-off. (a) Except to the extent that this Agreement
provides for payments to be allocated to a particular Lender or to the Lenders
under a particular Facility, if any Lender (a "Benefitted Lender") shall at any
time receive any payment of all or part of the Obligations owing to it, or
receive any collateral in respect thereof (whether voluntarily or involuntarily,
by set-off, pursuant to events or proceedings of the nature referred to in
Section 8(f), or otherwise), in a greater proportion than any such payment to or
collateral received by any other Lender, if any, in respect of such other
Lender's Obligations, such Benefitted Lender shall purchase for cash from the
other Lenders a participating interest in such portion of each such other
Lender's Obligations, or shall provide such other Lenders with the benefits of
any such collateral, as shall be necessary to cause such Benefitted Lender to
share the excess payment or benefits of such collateral ratably with each of the
Lenders; provided, however, that if all or any portion of such excess payment or
benefits is thereafter recovered from such Benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest.
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(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender and the Issuing Lender shall have the right, without
prior notice to the Borrower, any such notice being expressly waived
by the Borrower to the extent permitted by applicable law, upon any
amount becoming due and payable by the Borrower hereunder (whether at
the stated maturity, by acceleration or otherwise), to set off and
appropriate and apply against such amount any and all deposits
(general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such
Lender or any branch or agency thereof to or for the credit or the
account of the Borrower, as the case may be. Each Lender agrees
promptly to notify the Borrower and the Administrative Agent after
any such setoff and application made by such Lender, provided that
the failure to give such notice shall not affect the validity of such
setoff and application.
10.8 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. Delivery of an executed signature page of this Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Borrower and the Administrative Agent.
10.9 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents represent
the agreement of the Borrower, the Administrative Agent and the Lenders with
respect to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Administrative Agent or any Lender relative
to subject matter hereof not expressly set forth or referred to herein or in the
other Loan Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. The Borrower hereby irrevocably
and unconditionally:
(a) submits for itself and its Property in any legal action or proceeding
relating to this Agreement and the other Loan Documents to which it is
a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the courts of
the State of New York, the courts of the United States of America for
the Southern District of New York, and appellate courts from any
thereof;
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(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to the
Borrower, as the case may be at its address set forth in Section 10.2
or at such other address of which the Administrative Agent shall have
been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction; and waives, to the maximum extent
not prohibited by law, any right it may have to claim or recover in
any legal action or proceeding referred to in this Section any
special, exemplary, punitive or consequential damages.
10.13 Acknowledgments. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower arising out of or in
connection with this Agreement or any of the other Loan Documents, and
the relationship between Administrative Agent and Lenders, on one
hand, and the Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents or
otherwise exists by virtue of the transactions contemplated hereby
among the Lenders or among the Borrower and the Lenders.
10.14 Confidentiality. Each of the Agents and the Lenders agrees to keep
confidential all non-public information provided to it by any Loan Party
pursuant to this Agreement that is designated by such Loan Party as
confidential; provided that nothing herein shall prevent any Agent or any Lender
from disclosing any such information (a) to the Administrative Agent, any other
Lender or any affiliate of any Lender, (b) to any Participant or Assignee (each,
a "Transferee") or prospective Transferee which agrees to comply with the
provisions of this Section, (c) any of its employees, directors, agents,
attorneys, accountants and other professional advisors, (d) upon the request or
demand of any Governmental Authority having jurisdiction over it, (e) in
response to any order of any court or other Governmental Authority or as may
otherwise be required pursuant to any Requirement of Law, (f) if requested or
required to do so in connection with any litigation or similar proceeding, (g)
which has been publicly disclosed other than in breach of this Section, (h) to
the National Association of
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85
Insurance Commissioners or any similar organization or any nationally recognized
rating agency that requires access to information about a Lender's investment
portfolio in connection with ratings issued with respect to such Lender or (i)
in connection with the exercise of any remedy hereunder or under any other Loan
Document.
10.15 Accounting Charges. In the event that any "Accounting Change" (as
defined below) shall occur and such change results in a change in the method of
calculation of financial covenants, standards or terms in this Agreement, then
the Borrower, the Syndication Agent and the Administrative Agent agree to enter
into negotiations in order to amend such provisions of this Agreement so as to
equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating the Borrower's financial condition shall be the same
after such Accounting Changes as if such Accounting Changes had not been made.
Until such time as such an amendment shall have been executed and delivered by
the Borrower, the Syndication Agent, the Administrative Agent and the Required
Lenders, all financial covenants, standards and terms in this Agreement shall
continue to be calculated or construed as if such Accounting Changes had not
occurred. "Accounting Changes" refers to changes in accounting principles
required by the promulgation of any rule, regulation, pronouncement or opinion
by the Financial Accounting Standards Board of the American Institute of
Certified Public Accountants or, if applicable, the Securities and Exchange
Commission (or successors thereto or agencies with similar functions).
10.16 Restricted Subsidiaries. On the Closing Date, all Subsidiaries shall
be Restricted Subsidiaries. The Borrower may, at any time, designate Salton Hong
Kong as an Unrestricted Subsidiary if, after giving pro forma effect to such
designation (as if such designation had occurred on the first day of each
relevant fiscal period for purposes of calculating compliance with financial
covenants in Section 7), (i) the Borrower would have been in pro forma
compliance with the covenants in this Agreement if such designation had occurred
on the first day of four consecutive fiscal quarters most recently ended and
(ii) no Default or Event of Default shall be in existence.
10.17 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS AND THE LENDERS
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
10.18 Delivery of Lender Addenda. Each initial Lender shall become a party
to this Agreement by delivering to the Administrative Agent, the Syndication
Agent and the Borrower a Lender Addendum duly executed by such Lender, the
Borrower, the Administrative Agent and the Syndication Agent. Each Lender
Addendum is deemed incorporated herein by this reference.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
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SALTON/MAXIM HOUSEWARES, INC.
By:________________________________
Name:
Title:
LEHMAN BROTHERS INC., as Arranger
By:________________________________
Name:
Title:
LEHMAN COMMERCIAL PAPER INC., as
Syndication Agent, as Administrative Agent and
as a Lender
By:________________________________
Name:
Title:
FLEET NATIONAL BANK, as an Issuing
Lender
By:_______________________________
Name:
Title:
LASALLE NATIONAL BANK, as an Issuing
Lender
By:_______________________________
Name:
Title:
