<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1996
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SHOP VAC CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
NEW JERSEY 3589 13-5609081
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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2323 REACH ROAD
WILLIAMSPORT, PENNSYLVANIA 17701
(717) 326-0502
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
W. EARL STOGNER
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
SHOP VAC CORPORATION
2323 REACH ROAD
WILLIAMSPORT, PENNSYLVANIA 17701
(717) 326-0502
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
Copies to:
KIRK A. DAVENPORT, ESQ.
LATHAM & WATKINS
885 THIRD AVENUE
SUITE 1000
NEW YORK, NEW YORK 10022
(212) 906-1200
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective
date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED
OFFERING PROPOSED
TITLE OF EACH PRICE AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED NOTE(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
10 5/8% Senior Secured Notes
due 2003.................................... $100,000,000 100% $100,000,000 $30,303.03
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
SHOP VAC CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(a) AND ITEM 501(b) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF THE INFORMATION
REQUIRED BY PART I OF FORM S-4
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<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page; Cross Reference
Sheet; Inside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front Cover Page; Outside Back Cover
Page
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............ Prospectus Summary; Risk Factors; Selected
Consolidated Financial Data
4. Terms of the Transaction................... The Exchange Offer; Certain Federal Income
Tax Considerations; Description of
Exchange Notes
5. Pro Forma Financial Information............ Prospectus Summary; Selected Consolidated
Financial Data
6. Material Contacts with the Company Being
Acquired................................. Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters....................... Not Applicable
8. Interests of Named Experts and Counsel..... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
10. Information with Respect to S-3
Registrants.............................. Not Applicable
11. Incorporation of Certain Information by
Reference................................ Not Applicable
12. Information with Respect to S-2 or S-3
Registrants.............................. Not Applicable
13. Incorporation of Certain Information by
Reference................................ Not Applicable
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants........ Prospectus Summary; Capitalization;
McCulloch Disposition; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Relationships And Related Transactions;
Principal Stockholders; Description of
Certain Indebtedness; Description of
Exchange Notes; Book Entry; Delivery and
Form; Plan of Distribution; Legal
Matters; Experts; Available Information;
Consolidated Financial Statements
15. Information with Respect to S-3
Companies................................ Not Applicable
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<PAGE> 3
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<C> <S> <C>
16. Information with Respect to S-2 or S-3
Companies................................ Not Applicable
17. Information with Respect to Companies Other
Than S-2 or S-3 Companies................ Not Applicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited....... Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer..................... Management; The Exchange Offer; Certain
Relationships And Related Transactions
</TABLE>
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 20, 1996
PROSPECTUS
OFFER TO EXCHANGE
10 5/8% SENIOR SECURED NOTES DUE 2003
FOR ALL OUTSTANDING 10 5/8% SENIOR SECURED NOTES DUE 2003
OF
SHOP VAC CORPORATION
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M, NEW YORK CITY TIME ON
, 1997 UNLESS EXTENDED.
Shop Vac Corporation, a New Jersey corporation ("Shop Vac" or the
"Company"), hereby offers (the "Exchange Offer"), upon the terms and subject to
the conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount
of its 10 5/8% Senior Secured Notes due 2003 (the "Exchange Notes"), which
exchange has been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a registration statement of which this Prospectus
is a part (the "Registration Statement"), for each $1,000 principal amount of
its outstanding 10 5/8% Senior Secured Notes due 2003 (the "Private Notes"), of
which $100,000,000 in aggregate principal amount are outstanding as of the date
hereof. The form and terms of the Exchange Notes are the same as the form and
terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act, and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) Holders of the Exchange
Notes will not be entitled to certain rights of Holders of the Private Notes
under the Registration Rights Agreement (as defined), which rights will
terminate upon the consummation of the Exchange Offer. The Exchange Notes will
evidence the same debt as the Private Notes (which they replace) and will be
entitled to the benefits of an indenture dated as of October 1, 1996 governing
the Private Notes and the Exchange Notes (the "Indenture"). The Private Notes
and the Exchange Notes are sometimes referred to herein collectively as the
"Notes." See "The Exchange Offer" and "Description of Exchange Notes."
The Notes will rank pari passu in right of payment with all existing and
future senior Indebtedness of the Company, including the New Revolving Credit
Facility (as defined), and will rank senior in right of payment to future
subordinated Indebtedness of the Company. The Notes are secured by a first
priority pledge of all of the outstanding capital stock of the Company (the
"Millers' Stock"). The New Revolving Credit Facility will be secured by a pledge
of the inventories and accounts receivable of the Company and Felchar
Manufacturing Corporation, the Company's domestic motor manufacturing subsidiary
("Felchar"). See "Description of Certain Indebtedness." As of September 30,
1996, after giving pro forma effect to the Private Offering and the application
of the net proceeds therefrom, the aggregate principal amount of senior
Indebtedness of the Company and its subsidiaries would have been approximately
$113.6 million, $100.0 million of which would have been represented by the
Notes. In addition, the Notes would have been structurally subordinated to
approximately $6.4 million of Indebtedness and approximately $39.2 million of
other liabilities (including trade payables) of the Company's subsidiaries.
The Exchange Notes will bear interest at the same rate and on the same
terms as the Private Notes. Consequently, the Exchange Notes will bear interest
at the rate of 10 5/8% per annum and the interest thereon will be payable
semi-annually in arrears on March 1 and September 1 of each year, commencing
March 1, 1997. The Exchange Notes will bear interest from and including the date
of issuance of the Private Notes (October 1, 1996). Holders whose Private Notes
are accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the Private Notes.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is November 20, 1996
<PAGE> 5
The Exchange Notes will be redeemable at the option of the Company, in
whole or in part, on or after September 1, 2000, at the redemption prices set
forth herein, plus accrued and unpaid interest thereon, if any, to the date of
redemption. If less than all of the Exchange Notes are to be redeemed at any
time, selection of Exchange Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Exchange Notes are listed or, if the Exchange Notes are not
so listed, on a pro rata basis, by lot or by such method as the Trustee shall
deem fair and appropriate; provided that no Exchange Notes of $1,000 or less
shall be redeemed in part. Upon the occurrence of a Change of Control (as
defined), Holders of the Exchange Notes will have the right to require the
Company to repurchase their Exchange Notes, in whole or in part, at a purchase
price equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of
repurchase. The New Revolving Credit Facility contains prohibitions of certain
events that constitute a Change of Control. In addition, the exercise by the
Holders of Exchange Notes of their right to require the Company to repurchase
the Exchange Notes or of their rights under the Pledge Agreement could cause a
default under the New Revolving Credit Facility. The Company's ability to pay
cash to the Holders of Exchange Notes upon a repurchase may be limited by the
Company's then existing financial resources. See "Description of
Notes -- Repurchase at the Option of Holders -- Change of Control."
The Company will accept for exchange any and all validly tendered Private
Notes not withdrawn prior to 5:00 p.m., New York City time, on , 1997,
unless the Exchange Offering is extended by the Company in its sole discretion
(the "Expiration Date"). Tenders of Private Notes may be withdrawn at any time
prior to the Expiration Date. Private Notes may be tendered only in integral
multiples of $1,000. The Exchange Offer is subject to certain customary
conditions. See "The Exchange Offer -- Conditions."
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Private Notes may be offered for resale, resold
and otherwise transferred by a Holder thereof (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act; provided that the Holder is acquiring
the Exchange Notes in the ordinary course of its business and is not
participating, and had no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Private Notes
wishing to accept the Exchange Offer must represent to the Company, as required
by the Registration Rights Agreement, that such conditions have been met. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Private Notes, where such Private Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Company believes that none of the registered Holders of the Private
Notes is an affiliate (as such term is defined in Rule 405 under the Securities
Act) of the Company.
Prior to the Exchange Offer, there has been no public market for the Notes.
The Exchange Notes will not be listed on any securities exchange, but the
Private Notes are eligible for trading in the National Association of Securities
Dealers, Inc.'s Private Offerings, Resales and Trading through Automatic
Linkages (PORTAL) market. There can be no assurance that an active market for
the Notes will develop. To the extent that a market for the Notes does develop,
the market value of the Notes will depend on market conditions (such as yields
on alternative investments), general economic conditions, the Company's
financial condition and certain other factors. Such conditions might cause the
Notes, to the extent that they are traded, to trade at a significant discount
from face value. See "Risk Factors -- Absence of Public Market; Restrictions on
Transfer."
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Private Notes where such
Private Notes were acquired by
<PAGE> 6
such broker-dealer as a result of market-making activities or other trading
activities. The Company has indicated its intention to make this Prospectus (as
it may be amended or supplemented) available to any broker-dealer for use in
connection with any such resale for a period of 180 days after the Expiration
Date. See "The Exchange Offer -- Resale of the Exchange Notes" and "Plan of
Distribution."
The Company will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection with
this Exchange Offer. See "The Exchange Offer -- Resale of the Exchange Notes."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
SEE "RISK FACTORS," BEGINNING ON PAGE 12, FOR A DISCUSSION OF CERTAIN
FACTORS THAT INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND
AN INVESTMENT IN THE EXCHANGE NOTES.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS OFFERING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS IN
CONNECTION THEREWITH. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one or more fully registered global notes that
will be deposited with, or on behalf of, the Depository Trust Company ("DTC" or
the "Depositary") and registered in its name or in the name of Cede & Co., as
its nominee. Beneficial interests in the global note representing the Exchange
Notes will be shown on, and transfers thereof will be effected only through,
records maintained by the Depositary and its participants. After the initial
issuance of such global note, Exchange Notes in certificated form will be issued
in exchange for the global note only in accordance with the terms and conditions
set forth in the Indenture. See "The Exchange Offer -- Book-Entry Transfer" and
"Book Entry; Delivery and Form."
------------------------
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed financial and other information contained
elsewhere herein. Prospective investors are urged to read this Prospectus in its
entirety. Unless otherwise indicated, all references herein to the "Company"
include information relating to the Shop Vac business only and do not include
the McCulloch business.
THE COMPANY
OVERVIEW
Shop Vac is the leading worldwide manufacturer and marketer of consumer and
industrial wet/dry vacuum cleaners and accessories. The Company has maintained
its leadership position in North America since it introduced the wet/dry vacuum
to the consumer market under the Shop-Vac(@) brand name in the late 1960s. The
Company estimates that its products account for over half of the domestic
consumer wet/dry vacuum market, with at least twice the market share of its
closest competitor. The Company also markets its wet/dry vacuums internationally
in over 70 countries under the Aqua-Vac(@) and Goblin(@) brand names. The
Aqua-Vac(@) line of wet/dry vacuums is a leading brand in Western Europe. Shop
Vac has maintained its leading worldwide market position by promoting strong
brand awareness and product quality, building and maintaining close
relationships with its customers and, in North America, utilizing cost-effective
vertically integrated manufacturing processes. For the nine months ended
September 30, 1996, the Company had net sales and EBITDA (as defined) of $151.3
million and $14.0 million, respectively.
The Company manufactures and markets a comprehensive line of wet/dry
vacuums in various combinations of tank size, motor horsepower and attachment
accessories, which are designed for consumer, industrial/commercial and
professional needs. Features include motors ranging from 1.0 to 5.0 peak
horsepower, tank sizes ranging from one to 55 gallons, detachable hand-held
blowers and a variety of accessories such as extension wands, brushes and
nozzles. The Company designs most of its products for the consumer market, which
accounted for approximately 90% of the Company's net sales in 1995. The Company
also manufactures and markets a full line of floor care products, including
conventional dry vacuums, carpet cleaners and steam cleaners, to selected
international markets.
Shop Vac's product design, operations, sales and marketing are managed in
two groups: (i) North America, which is comprised of the United States, Canada,
Latin America and Australia, and (ii) Europe, which is comprised of Europe and
the remaining countries in which the Company does business. The Company sells
its products in North America through its own direct sales force primarily
through national and regional mass merchandisers, home centers, hardware chains,
warehouse clubs and industrial distributors. The Company's major North American
customers include Ace Hardware Corporation ("Ace Hardware"), Builder's Square, a
division of Kmart Corporation ("Kmart"), Canadian Tire Corporation ("Canadian
Tire"), The Home Depot ("Home Depot"), Kmart, Wal-Mart Stores, Inc. ("Wal-Mart")
and W.W. Grainger, Inc. ("W.W. Grainger"). The Company has been recognized for
its quality products and service during the last five years with "Vendor of the
Year" awards from a number of major retailers, including Builders Square,
Canadian Tire, Kmart and WalMart. The Company markets its products
internationally primarily through home centers and electrical appliance chains,
as well as through catalogs. Shop Vac's customers in Europe include home
centers, such as Castorama, S.A. ("Castorama") in France; electrical appliance
chains, such as DSG Retail Limited ("Curry's") in the United Kingdom; catalog
showrooms, such as Argos Distributors Limited ("Argos") in the United Kingdom;
mail order catalogs, such as Otto Versand G.m.b.H & Co. ("Otto") in Germany; and
hypermarkets, such as Carrefour S.N.C. ("Carrefour") in France.
1
<PAGE> 8
DISCONTINUED MCCULLOCH OPERATIONS
In 1990, the Company acquired the McCulloch chainsaw and lawn and garden
business (the "McCulloch Acquisition") in order to take advantage of Shop Vac's
manufacturing expertise and distribution network, as well as complementary
product selling seasons. At that time, the Company initiated a strategy to
capitalize on McCulloch's strengths, focusing on sales growth through product
diversification and the expansion of international operations. Following the
McCulloch Acquisition, the Company made a substantial investment in expanding
McCulloch's product lines, including redesigning McCulloch's gasoline and
electric chain saw lines, as well as introducing electric trimmers and leaf
blowers into the market. During this period, a significant portion of the
Company's cash flow and management resources were diverted to McCulloch. Despite
this investment, subsequent operating results of McCulloch were below
expectations largely due to intense competition within McCulloch's industry and
greater than expected working capital needs. Consequently, in 1995 the Company's
Board of Directors undertook a strategic plan to focus on the Company's core
wet/dry vacuum business, to reduce debt and to establish a capital structure
that would provide Shop Vac with the financial and operating flexibility to
maximize its core business opportunities. Accordingly, on November 1, 1995,
McCulloch was sold, and, for financial reporting purposes, the McCulloch
business has been classified as a discontinued operation. In addition, a charge
was taken in the last quarter of 1995 to reflect a loss on the sale of
McCulloch. See "McCulloch Disposition," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 11 to the consolidated financial statements of the Company
and its subsidiaries included elsewhere herein.
COMPETITIVE STRENGTHS
Management believes that the Company enjoys the following competitive
advantages:
Strong Brand Name Recognition. The Shop-Vac(@) brand name has been
synonymous in North America with the wet/dry vacuum since the Company introduced
the wet/dry vacuum cleaner to the consumer market in the late 1960s. Independent
market research indicates that awareness of the Shop-Vac(@) brand name among
potential wet/dry vacuum purchasers in the United States has averaged
approximately 90% since 1987. The Company's international brands, Aqua-Vac(@)
and Goblin(@) also have strong brand name recognition in their respective
markets. The Company has built and maintained its well-recognized brand name by
manufacturing and selling high quality, powerful products at competitive prices.
Market Leadership. The Shop-Vac(@) brand image has helped the Company
achieve and maintain the leading position in its major markets. The Company
estimates that its products currently account for more than half of the $275
million domestic consumer wet/dry vacuum industry, with more than twice the
market share of its largest domestic competitor. In addition, the Aqua-Vac(@)
brand of wet/dry vacuums is a leading brand in Western Europe. See "Risk
Factors -- Competition" and "Business -- Competition."
Established Customer Relationships and Extensive Distribution Network. The
Company has been the primary supplier of wet/dry vacuums to its top ten
customers in the United States and Canada for an average of over 17 years. In
addition, the Company's products currently account for virtually all of the
wet/dry vacuum business of seven of its top ten customers in the United States
and Canada, and many retailers carry the Company's products at all of their
locations. Although the European market is more fragmented than in the United
States and Canada, the Company benefits from its well-established relationships
with major retailers in various Western European countries. The Company
estimates that its products are distributed through over 25,000 retail outlets
in North America and over 5,000 retail outlets in Europe.
Distinct Product Position. In North America, the Company's wet/dry
products are positioned by retailers as utility vacuums and, therefore, are sold
through hardware, rather than floor care, departments. As a result, in North
America Shop Vac's wet/dry products do not compete with conventional vacuums for
retailer shelf space. In addition, the Company enjoys diversified distribution
through hardware chains and home centers, as well as through mass merchants. As
a hardware product, Shop Vac has benefited from the trend towards
"do-it-yourself" work by homeowners and the growth of national home center
chains. A similar trend is developing in Europe which the Company believes will
enhance its sales in Europe in light of the Company's relationships with
European home center chains.
2
<PAGE> 9
Brand Loyalty. Management estimates that approximately half of the
Company's domestic sales in 1995 were to customers who owned or had previously
owned a Shop-Vac(@). The Company estimates that it has an installed base of
approximately 18.0 million wet/dry vacuum units in North America and
approximately 3.5 million units in Europe, with these Shop-Vac(@) and
Aqua-Vac(@) owners being likely to purchase new or replacement Shop-Vac(@) and
Aqua-Vac(@) vacuums in the future. In addition, the Company's installed base
results in Shop-Vac(@) and Aqua-Vac(@) owners purchasing replacement parts,
filters and other related products, which accounted for approximately 10% of net
sales in 1995.
Low Cost Producer. The Company has over 25 years of experience in
developing, manufacturing and continually enhancing its line of wet/dry vacuum
cleaners and related products. To maximize profitability, the Company is
vertically integrated in North America. By controlling all major aspects of the
manufacturing process through its integrated facilities in North America, the
Company is able to control product quality and reduce lead times and delivery
costs. In addition, as a vertically integrated manufacturer, the Company is able
to design new products and enhance existing products in order to facilitate a
simplified manufacturing process, thereby reducing costs. Since the European
market is more fragmented, the Company outsources the majority of its components
in Europe, which allows for the added flexibility that is necessary to offer
smaller and more diverse product offerings for sale in various countries.
Family Management and Ownership. The Company is owned and operated by
Jonathan and Matthew Miller, the sons of the Company's founder. Jonathan Miller,
the Chairman of the Board and Chief Executive Officer of the Company and the
President of the North American Group, has worked at the Company or its
predecessor, Craftool Company, since 1970. Matthew Miller, the President of the
European Group, has worked at the Company since 1975. The Miller family
collectively owns all of the capital stock of the Company (the "Millers'
Stock"), which has been pledged as collateral for the Notes. See "Risk
Factors -- Control by Principal Stockholders; Dependence on Key Personnel,"
"Principal Stockholders," and "Description of Exchange Notes -- Security."
BUSINESS STRATEGY
The Company's business strategy consists of the following key elements:
Emphasize Improved Profitability and Cash Flow. Following the decision to
sell McCulloch, the Company focused on its core operations and initiated a
series of operational improvements targeted at reducing expenses and increasing
cash flow. These improvements include consolidation of certain manufacturing
operations, administrative personnel reductions, improved inventory control and
implementation of manufacturing innovations and automation. For example, in
1995, the Company began using an automated liquid coloring system instead of a
manual mixing process and converted certain plastic parts from thermal plastic
to a lower cost thermoset material. In 1996, the Company consolidated its
plastic molding facility formerly in Norwich, New York into its Canton,
Pennsylvania operations and has initiated consolidation of a small manufacturing
facility in France into its European manufacturing operations in Ireland. The
benefits of these programs and the impact of certain other factors are evident
in the Company's recent operating results, including gross margin improvement
from 23.0% to 25.1% and a reduction in selling, general and administrative
expenses as a percentage of net sales from 16.7% to 15.8% for the nine months
ended September 30, 1995 and 1996, in each case, respectively. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
Maintain Leading Market Position. The Company intends to continue to
capitalize on the strengths of its brands and maintain its worldwide market
leadership position. In this capacity, the Company will continue to maintain
close relationships with its customers and manufacture quality products which
lead to high levels of customer satisfaction.
Expand International Sales. The Company intends to continue to leverage
the Shop-Vac(@) and Aqua-Vac(@)brand names to achieve global distribution of
products and product line extensions. The Company intends to increase its
advertising and promotional activity to broaden international awareness of its
products. As part of this strategy, the Company is seeking to develop
independent distribution channels in countries where it currently does not have
a major presence. In addition, from time to time, the Company coordinates
3
<PAGE> 10
with its major customers' expansion into new markets. For example, while Shop
Vac's products have been sold in Mexico in the past, the Company intends to
expand its presence in Mexico and the rest of Latin America alongside Wal-Mart,
its longtime customer. See "Risk Factors -- Foreign Operations."
Emphasize Product Innovation. The Company seeks to expand the wet/dry
vacuum cleaner product category by introducing new products under the
Shop-Vac(@) and Aqua-Vac(@) brand names and continually upgrading existing
products in response to consumer preferences, changing market dynamics and
technological advancements. For example, in 1994, the Company successfully
introduced into the North American market the Shop-Vac 1x1(@), a smaller
light-weight hand-held wet/dry vacuum intended for use in the home. In addition,
in 1995, the Company began to offer the QSP(@)(Quiet Super Power) line of
wet/dry vacuums which offer easier handling and quieter operations without
sacrificing motor power. The QSP(@) is the only "quiet" wet/dry vacuum in the
market, and consumer response has been very favorable. In Europe, the Synchro(@)
line of vacuums ("Synchro(@)") was introduced in 1991. The Synchro(@) includes
an adaptor that enables power tools, such as electric saws and sanders equipped
with dust extraction outlets, to be connected directly to the vacuum. In 1995,
the new "quiet" operating wet/dry vacuum and carpet shampooer, the Aqua Vac(@)
Multipro(@) (the "Multipro(@)"), was introduced in Europe.
FINANCING
The Company undertook the Private Offering in order to refinance
substantially all of its existing indebtedness. On October 1, 1996, the Company
and Felchar, as borrowers, entered into a Credit Agreement with First Union
National Bank of North Carolina (the "New Revolving Credit Facility") which
provides for revolving credit borrowings of up to $25 million in aggregate
principal amount, at any one time outstanding, subject to certain borrowing base
requirements. As of October 31, 1996, no amounts were outstanding under the New
Revolving Credit Facility and approximately $23.0 million was available based
upon the Company's Borrowing Base (as defined). The New Revolving Credit
Facility is secured by the inventory and accounts receivable of the Company and
Felchar. See "Description of Certain Indebtedness -- New Revolving Credit
Facility" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
The Company is a New Jersey corporation that has its principal executive
offices at 2323 Reach Road, Williamsport, Pennsylvania, 17701, telephone: (717)
326-0502.
4
<PAGE> 11
THE EXCHANGE OFFER
THE EXCHANGE OFFER.............. The Company is offering to exchange $1,000
principal amount of Exchange Notes for each
$1,000 principal amount of Private Notes that
are properly tendered and accepted. The
Company will issue Exchange Notes on or
promptly after the Expiration Date. There is
$100,000,000 aggregate principal amount of
Private Notes outstanding. See "The Exchange
Offer -- Purpose of the Exchange Offer."
Based on an interpretation by the staff of
the Commission set forth in no-action letters
issued to third parties, the Company believes
that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Private
Notes may be offered for resale, resold and
otherwise transferred by a Holder thereof
(other than (i) a broker-dealer who purchases
such Exchange Notes directly from the Company
to resell pursuant to Rule 144A or any other
available exemption under the Securities Act
or (ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under
the Securities Act), without compliance with
the registration and prospectus delivery
provisions of the Securities Act; provided
that the Holder is acquiring Exchange Notes
in the ordinary course of its business and is
not participating, and had no arrangement or
understanding with any person to participate,
in the distribution of the Exchange Notes.
Each broker-dealer that receives Exchange
Notes for its own account in exchange for
Private Notes, where such Private Notes were
acquired by such broker-dealer as a result of
market-making activities or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with any
resale of such Exchange Notes. See "The
Exchange Offer -- Resale of the Exchange
Notes."
REGISTRATION RIGHTS AGREEMENT... The Private Notes were sold by the Company on
October 1, 1996 to Lehman Brothers Inc. and
First Union Capital Markets Corp.
(collectively, the "Initial Purchasers")
pursuant to a Purchase Agreement, dated
September 25, 1996, by and among the Company
and the Initial Purchasers (the "Purchase
Agreement"). Pursuant to the Purchase
Agreement, the Company and the Initial
Purchasers entered into a Registration Rights
Agreement, dated as of October 1, 1996 (the
"Registration Rights Agreement"), which
grants the Holders of the Private Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy such
rights, which will terminate upon the
consummation of the Exchange Offer. See "The
Exchange Offer -- Termination of Certain
Rights."
EXPIRATION DATE................. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1997,
unless the Exchange Offer is extended by the
Company in its sole discretion, in which case
the term "Expiration Date" shall mean the
latest date and time to which the Exchange
Offer is extended. See "The Exchange Offer --
Expiration Date; Extensions; Amendments."
5
<PAGE> 12
ACCRUED INTEREST ON THE EXCHANGE
NOTES AND THE PRIVATE NOTES..... The Exchange Notes will bear interest from
and including the date of issuance of the
Private Notes (October 1, 1996). Holders
whose Private Notes are accepted for exchange
will be deemed to have waived the right to
receive any interest accrued on the Private
Notes. See "The Exchange Offer -- Interest on
the Exchange Notes."
CONDITIONS TO THE EXCHANGE
OFFER........................... The Exchange Offer is subject to certain
customary conditions that may be waived by
the Company. The Exchange Offer is not
conditioned upon any minimum aggregate
principal amount of Private Notes being
tendered for exchange. See "The Exchange
Offer -- Conditions."
PROCEDURES FOR TENDERING
PRIVATE NOTES................. Each Holder of Private Notes wishing to
accept the Exchange Offer must complete, sign
and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
such Private Notes and any other required
documentation to Marine Midland Bank, as
exchange agent (the "Exchange Agent"), at the
address set forth herein. By executing the
Letter of Transmittal, the Holder will
represent to and agree with the Company that,
among other things, (i) the Exchange Notes to
be acquired by such Holder of Private Notes
in connection with the Exchange Offer are
being acquired by such Holder in the ordinary
course of its business, (ii) if such Holder
is not a broker-dealer, such Holder is not
currently participating in, does not intend
to participate in, and has no arrangement or
understanding with any person to participate
in a distribution of the Exchange Notes,
(iii) if such Holder is a broker-dealer
registered under the Exchange Act or is
participating in the Exchange Offer for the
purposes of distributing the Exchange Notes,
such Holder will comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with a secondary
resale transaction of the Exchange Notes
acquired by such person and cannot rely on
the position of the staff of the Commission
set forth in no-action letters (see "The
Exchange Offer -- Resale of Exchange Notes"),
(iv) such Holder understands that a secondary
resale transaction described in clause (iii)
above and any resales of Exchange Notes
obtained by such Holder in exchange for
Private Notes acquired by such Holder
directly from the Company should be covered
by an effective registration statement
containing the selling securityholder
information required by Item 507 or Item 508,
as applicable, of Regulation S-K of the
Commission and (v) such Holder is not an
"affiliate," as defined in Rule 405 under the
Securities Act, of the Company. If the Holder
is a broker-dealer that will receive Exchange
Notes for its own account in exchange for
Private Notes that were acquired as a result
of market-making activities or other trading
activities, such Holder will be required to
acknowledge in the Letter of Transmittal that
such Holder will deliver a prospectus in con-
6
<PAGE> 13
nection with any resale of such Exchange
Notes; however, by so acknowledging and by
delivering a prospectus, such Holder will not
be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. See "The Exchange Offer --
Procedures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL
OWNERS........................ Any beneficial owner whose Private Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender such Private
Notes in the Exchange Offer should contact
such registered Holder promptly and instruct
such registered Holder to tender on such
beneficial owner's behalf. If such beneficial
owner wishes to tender on such owner's own
behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering such owner's Private Notes, either
make appropriate arrangements to register
ownership of the Private Notes in such
owner's name or obtain a properly completed
bond power from the registered Holder. The
transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the Expiration Date. See
"The Exchange Offer -- Procedures for
Tendering."
GUARANTEED DELIVERY
PROCEDURES...................... Holders of Private Notes who wish to tender
their Private Notes and whose Private Notes
are not immediately available or who cannot
deliver their Private Notes, the Letter of
Transmittal or any other documentation
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date
must tender their Private Notes according to
the guaranteed delivery procedures set forth
under "The Exchange Offer -- Guaranteed
Delivery Procedures."
ACCEPTANCE OF THE PRIVATE NOTES
AND DELIVERY OF THE EXCHANGE
NOTES......................... Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Company
will accept for exchange any and all Private
Notes that are properly tendered in the
Exchange Offer prior to the Expiration Date.
The Exchange Notes issued pursuant to the
Exchange Offer will be delivered on the
earliest practicable date following the
Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
WITHDRAWAL RIGHTS............... Tenders of Private Notes may be withdrawn at
any time prior to the Expiration Date. See
"The Exchange Offer -- Withdrawal of
Tenders."
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS................ For a discussion of certain material federal
income tax considerations relating to the
exchange of the Exchange Notes for the
Private Notes, see "Certain Federal Income
Tax Considerations."
EXCHANGE AGENT.................. Marine Midland Bank is serving as the
Exchange Agent in connection with the
Exchange Offer.
7
<PAGE> 14
THE EXCHANGE NOTES
The Exchange Offer applies to $100,000,000 aggregate principal amount of
the Private Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) Holders of the Exchange
Notes will not be entitled to certain rights of Holders of the Private Notes
under the Registration Rights Agreement, which rights will terminate upon
consummation of the Exchange Offer. The Exchange Notes will evidence the same
debt as the Private Notes (which they replace) and will be issued under, and be
entitled to the benefits of, the Indenture. For further information and for
definitions of certain capitalized terms used below, see "Description of
Exchange Notes."
SECURITIES OFFERED.............. $100,000,000 aggregate principal amount of
10 5/8% Senior Secured Notes due 2003.
ISSUER.......................... Shop Vac Corporation.
INTEREST........................ The Exchange Notes will bear interest at the
rate of 10 5/8% per annum, and such interest
will be payable semi-annually in arrears on
March 1 and September 1, commencing on March
1, 1997, to Holders of record at the close of
business on the immediately preceding
February 15 and August 15. See "Description
of Exchange Notes -- Principal, Maturity and
Interest."
INTEREST PAYMENT DATES.......... March 1 and September 1, commencing March 1,
1997.
MATURITY DATE................... September 1, 2003.
OPTIONAL REDEMPTION............. The Notes will be redeemable, in whole or in
part, at the option of the Company at any
time on or after September 1, 2000, at the
redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated
Damages (as defined), if any, to the date of
redemption. See "Description of Exchange
Notes -- Optional Redemption."
CHANGE OF CONTROL............... In the event of a Change of Control (as
defined), the Holders of the Notes will have
the right to require the Company to purchase
their Notes at a price equal to 101% of the
principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if
any, to the date of purchase. See
"Description of Exchange Notes -- Repurchase
at the Option of Holders -- Change of
Control."
RANKING......................... The Exchange Notes will rank pari passu in
right of payment with all existing and future
senior Indebtedness of the Company and senior
in right of payment to all future
subordinated Indebtedness of the Company. As
of September 30, 1996, after giving pro forma
effect to the Private Offering and the
application of the net proceeds therefrom,
the aggregate principal amount of outstanding
senior Indebtedness of the Company and its
subsidiaries would have been approximately
$113.6 million, $100.0 million of which would
have been represented by the Notes. In
addition, the Notes would have been
structurally subordinated to approximately
$6.4 million of Indebtedness and
approximately $39.2 million of other
liabilities (including trade
8
<PAGE> 15
payables) of the Company's subsidiaries. See
"Description of Exchange Notes -- General."
SECURITY........................ The Notes are secured by a first priority
pledge of the Millers' Stock. The New
Revolving Credit Facility is secured by a
pledge of the inventories and accounts
receivable of the Company and Felchar. See
"Description of Exchange Notes -- Security"
and "Description of Certain
Indebtedness -- New Revolving Credit
Facility."
CERTAIN COVENANTS............... The Indenture contains certain covenants
that, among other things, limit the ability
of the Company and its subsidiaries to incur
additional Indebtedness and issue preferred
stock, pay dividends or make other
distributions, repurchase Equity Interests or
subordinated Indebtedness, create certain
liens, enter into certain transactions with
affiliates, sell assets of the Company or its
subsidiaries, issue or sell Equity Interests
of the Company's subsidiaries or enter into
certain mergers and consolidations. In
addition, under certain circumstances, the
Company will be required to offer to purchase
the Exchange Notes at a price equal to 100%
of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages,
if any, to the date of purchase, with the
proceeds of certain asset sales. See
"Description of Exchange Notes -- Certain
Covenants."
RISK FACTORS
See "Risk Factors" on pages 12 through 18 hereof, for a discussion of
certain factors that should be considered in connection with the Exchange Offer
and an investment in the Exchange Notes.
9
<PAGE> 16
SUMMARY FINANCIAL DATA
The following table sets forth selected historical consolidated financial
information of the Company as of and for the periods indicated below. The
summary consolidated financial data, excluding pro forma data, as of and for the
years ended December 31, 1993, 1994, and 1995 were derived from the audited
consolidated financial statements of the Company included elsewhere herein. The
summary financial data for the nine months ended September 30, 1995 and
September 30, 1996 have been derived from unaudited interim consolidated
financial statements of the Company and are not necessarily indicative of the
results to be expected for the full fiscal year. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of the Company, together with the related notes thereto, included
elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------- ---------------------
1993 1994 1995 1995 1996
-------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING DATA:
Net sales................................................ $224,726 $250,843 $ 231,323 $165,135 $151,308
Cost of sales............................................ 162,710 182,694 179,416 127,229 113,394
-------- -------- --------- -------- --------
Gross profit........................................... 62,016 68,149 51,907 37,906 37,914
Selling, general and administrative expense.............. 38,421 41,867 35,637 27,442 23,851
Restructuring charges.................................... -- -- -- -- 5,996
-------- -------- --------- -------- --------
Income from operations................................. 23,595 26,282 16,270 10,464 8,067
Interest expense......................................... 7,210 8,826 11,629 8,966 7,175
Non-operating expense (income), net...................... (870) 9 459 299 396
-------- -------- --------- -------- --------
Income from continuing operations before income taxes 17,255 17,447 4,182 1,199 496
and cumulative effect of changes in accounting
principles...........................................
Income taxes............................................. 5,130 4,964 1,425 1,006 1,172
-------- -------- --------- -------- --------
Income (loss) from continuing operations before 12,125 12,483 2,757 193 (676)
cumulative effect of changes in accounting
principles...........................................
-------- -------- --------- -------- --------
Discontinued operations:
Loss from operations of discontinued business, net..... (4,148) (4,525) (10,639) (6,397) --
Loss on disposal of discontinued business, net......... -- -- (120,296)(1) -- --
-------- -------- --------- -------- --------
Loss on discontinued operations........................ (4,148) (4,525) (130,935)(1) (6,397) --
-------- -------- --------- -------- --------
Income (loss) before cumulative effect of changes in 7,977 7,958 (128,178) (6,204) (676)
accounting principles..................................
Cumulative effect of changes in accounting principles, (1,049) -- -- -- --
net....................................................
-------- -------- --------- -------- --------
Net income (loss)........................................ $ 6,928 $ 7,958 $(128,178) $ (6,204) $ (676)
======== ======== ========= ======== ========
Ratio of earnings to fixed charges(2).................... 3.3x 2.9x 1.4x 1.1x 1.1x
Pro forma ratio of earnings to fixed charges(2).......... 1.2x .8x
OTHER DATA:
EBITDA (3)............................................... $ 27,873 $ 31,336 $ 22,402 $ 15,050 $ 14,030
Depreciation and amortization............................ 4,278 5,054 6,132 4,586 5,963(7)
Capital expenditures, net................................ 7,656 7,838 8,042 7,614 155
Pro forma ratio of EBITDA to cash interest expense(4).... 1.9x 1.6x
Pro forma ratio of total debt to EBITDA.................. 5.2x 6.1x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30, 1996
------------------------------------- ------------------------------
1993 1994 1995 ACTUAL AS ADJUSTED(5)
-------- -------- --------- --------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets (6)............................. $106,978 $131,067 $ 116,451 $ 137,635 $ 148,569
Total debt................................... 78,669 94,304 95,650 100,506 113,640
Stockholders' equity (deficit)............... 72,539 82,906 (41,601) (42,111) (44,515)
</TABLE>
- ---------------
(1) Reflects a charge taken with respect to the sale of McCulloch. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "McCulloch Disposition."
(2) Pro forma income (loss) from continuing operations before income taxes was
$2.8 million and $(2.0) million for the year ended December 31, 1995 and the
nine months ended September 30, 1996, respectively, and includes the effect
of the Exchange Offer as if it had been consummated on January 1, 1995. For
the purpose of calculating the ratio of earnings to fixed charges, earnings
represent income (loss) from continuing operations before income taxes plus
fixed charges. Fixed charges consist of interest expense on all
10
<PAGE> 17
indebtedness plus the interest portion of rental expense on non-cancelable
leases and amortization of debt issuance costs and debt discount. For the
nine months ended September 30, 1996, earnings were insufficient to cover
pro forma charges by approximately $2.0 million.
(3) EBITDA represents pretax income from continuing operations, plus
depreciation and amortization, and does not include non-operating expense
(income), net, which represents non-cash charges to earnings associated with
foreign currency translations. EBITDA is presented because such data are
used by certain investors to determine the Company's ability to meet its
debt service requirements. EBITDA is not intended to represent cash flow, as
determined in accordance with generally accepted accounting principles
("GAAP"), nor has it been presented as an alternative to operating income or
net income as an indicator of operating performance and should not be
considered as a substitute for measures of performance prepared in
accordance with GAAP.
(4) Pro forma cash interest expense represents total pro forma interest expense
of $12.8 million and $9.5 million for the year ended December 31, 1995 and
the nine months ended September 30, 1996, respectively, and excludes the sum
of amortized debt issuance costs and discounts on sales of receivables of
$900,000 and $600,000 for those periods, respectively.
(5) After giving effect to the Private Offering and the use of the estimated net
proceeds therefrom as if the Private Offering had been consummated on
September 30, 1996.
(6) Excludes $53.1 million, $67.1 million, $19.0 million and $21.3 million of
net current assets associated with McCulloch as of December 31, 1993, 1994
and 1995 and September 30, 1996, respectively, and $47.6 million and $54.4
million of net non-current assets associated with McCulloch as of December
31, 1993 and 1994, respectively. Net non-current assets associated with
McCulloch as of December 31, 1995 and September 30, 1996 were nil. See
"McCulloch Disposition" and Note 11 to the consolidated financial statements
of the Company and its subsidiaries included elsewhere herein.
(7) Includes $1.0 million of charges included in the September 30, 1996
restructuring charge.
11
<PAGE> 18
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider all of the information contained
in this Prospectus and, in particular, should evaluate the following risk
factors. Certain statements in this Prospectus that are not historical fact
constitute "forward-looking statements." Such forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual results of the Company to be materially different from results expressed
or implied by such forward-looking statements. Such risks, uncertainties and
other factors include, but are not limited to, the following:
FAILURE TO EXCHANGE PRIVATE NOTES
The Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly completed
and duly executed Letter of Transmittal and all other required documentation.
Therefore, Holders of Private Notes desiring to tender such Private Notes in
exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. Neither the Exchange Agent nor the Company is under any duty to give
notification of defects or irregularities with respect to tenders of Private
Notes for exchange. Private Notes that are not tendered or are tendered but not
accepted will, following consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof. In addition, any
Holder of Private Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own accounts in exchange for Private Notes, where such
Private Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. To
the extent that Private Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Private Notes
could be adversely affected due to the limited amount, or "float," of the
Private Notes that are expected to remain outstanding following the Exchange
Offer. Generally, a lower "float" of a security could result in less demand to
purchase such security and could, therefore, result in lower prices for such
security. For the same reason, to the extent that a large amount of Private
Notes are not tendered or are tendered and not accepted in the Exchange Offer,
the trading market for the Exchange Notes could be adversely affected. See "Plan
of Distribution" and "The Exchange Offer."
SUBSTANTIAL LEVERAGE; RECENT DEFAULTS
The Company is, and will continue to be after the issuance of the Exchange
Notes offered hereby, highly leveraged. As of September 30, 1996, after giving
pro forma effect to the Private Offering and the use of proceeds therefrom, the
Company would have had, on a consolidated basis, indebtedness of $113.6 million
and a stockholders' deficit of $44.5 million. After giving pro forma effect to
the Private Offering and the use of proceeds therefrom as if such transaction
had occurred on January 1, 1995, for the year ended December 31, 1995 and for
the nine months ended September 30, 1996, the Company's ratio of earnings to
fixed charges would have been 1.2 to 1 and .8 to 1, respectively.
The degree to which the Company will be leveraged following the Exchange
Offer could have important consequences to Holders of the Notes, including, but
not limited to, the following (i) a substantial portion of the Company's cash
flow from operations will be required to be dedicated to the Company's interest
expense obligations and may not be available to the Company for its operations,
working capital, capital expenditures or other purposes and (ii) the Company's
ability to obtain financing in the future for such purposes may be limited. The
Company believes that, based on current levels of operations and anticipated
improvements in operating results, cash flow from operations together with
revolving credit borrowings will be sufficient to conduct its business after the
issuance of the Exchange Notes and to meet its near-term debt service
obligations and working capital needs. However, there can be no assurance that
future cash flow of the Company will be sufficient to meet the Company's
obligations and commitments or that anticipated improvements in operating
results will be achieved. In the event the Company is unable to meet its
obligations with respect to its existing indebtedness, it may be required to
refinance or restructure all or a portion of such
12
<PAGE> 19
indebtedness, sell material assets or operations or seek to raise additional
debt or equity capital. There can be no assurance that the Company would be able
to effect any such refinancing or restructuring or sell assets or obtain any
such additional capital on satisfactory terms or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Prior to the Company's repayment of the Old Revolving Credit Facility and
the Old Senior Notes with a portion of the proceeds from the Private Offering,
the Company had been in breach of various financial covenants contained in the
agreements governing the Old Revolving Credit Facility and the Old Senior Notes.
Consequently, the Holders of the Old Senior Notes and the lender under the Old
Revolving Credit Facility had the right at any time after such breach to
accelerate the Company's obligations and to require the Company to repay all of
the principal and accrued and unpaid interest due thereon, as well as any
penalties with respect to such acceleration. In addition, the Company failed to
make an aggregate principal payment of $6.7 million to the Holders of the Old
Senior Notes that was due on April 30, 1996. Prior to April 30, 1996, the
Company commenced discussions with the Holders of the Old Senior Notes and the
lender under the Old Revolving Credit Facility with a view to amending the terms
of its outstanding debt agreements. On August 28, 1996, the Company entered into
the Amendment Agreements (referred to herein, individually, as an "Amendment
Agreement" and, collectively, the "Amendment Agreements") with the Holders of
the Old Senior Notes and the lender under the Old Revolving Credit Facility
which suspended the relevant financial covenants and payment dates with respect
to payments due or past due under either the Old Senior Notes or the Old
Revolving Credit Facility to provide that no principal payments will become due
until October 31, 1996. Both the Old Revolving Credit Facility and the Old
Senior Notes have been repaid in full with a portion of the proceeds of the
Private Offering, and the Company is in full compliance with the terms of the
agreements governing all of its outstanding indebtedness. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of Certain
Indebtedness."
RELIANCE ON CERTAIN CUSTOMERS
During 1995 and the nine months ended September 30, 1996, the Company's
aggregate net sales to its ten largest customers were 49% and 56%, respectively,
of its total net sales. Wal-Mart accounted for approximately 13% and 10% of the
Company's aggregate net sales for 1995 and the nine-month period ended September
30, 1996, respectively. Two of the Company's ten largest customers, Wal-Mart and
Sam's Club, are affiliated with each other; combined net sales to these two
entities represented approximately 14% and 12% of the Company's net sales in
1995 and the first nine months of 1996, respectively. Although Europe is a
fragmented market, in some countries certain merchandisers account for a
substantial portion of the Company's sales in such countries. For example, the
Company's sales through Argos and GUS accounted for 38% and 17%, respectively,
of the Company's sales in the United Kingdom for the nine-month period ended
September 30, 1996, and the Company's sales through Castorama and Carrefour
accounted for 33% and 11%, respectively, of the Company's sales in France,
respectively, for the nine-month period ended September 30, 1996. The Company
believes that its dependence on sales to a limited number of major retail
customers will increase as mass merchandisers continue to dominate the
consolidating retail industry. The Company does not have long-term contracts
with any of its customers. A decrease in business from any of its major
customers could have a material adverse effect on the Company's results of
operations and financial condition which in turn could adversely affect the
Company's ability to meet its principal and interest obligations on the Notes.
In addition, the timing of purchases by these major customers could cause
quarterly fluctuations in the Company's results of operations. See
"Business -- Sales and Marketing," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 9 to the Consolidated
Financial Statements of the Company and Its Subsidiaries included elsewhere
herein.
FOREIGN OPERATIONS
The Company has significant operations outside the United States and
Canada, located principally in Western Europe. During the year ended December
31, 1995 and the nine months ended September 30, 1996, the Company generated
revenues from sales outside the United States and Canada of $83.3 million and
$57.4
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million, respectively, representing approximately 36% and 38%, respectively, of
the Company's total net sales during such periods. In addition, the Company's
products sold in Europe are manufactured outside of the United States. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
The Company incurred aggregate charges of approximately $6.0 million in the
third quarter of 1996 in connection with the consolidation of certain of its
foreign operations. Although the Company expects that the termination of these
distribution operations will negatively impact sales in the near-term, the
Company expects to continue sales to its major customers in these markets on a
direct basis. There can be no assurance, however, that the Company's direct
sales efforts will be successful in recapturing any lost volume in the near-term
or at all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
The value of the Company's foreign sales and earnings varies with currency
exchange rate fluctuations. Changes in currency exchange rates have in the past
affected the Company's results of operations and could in the future have an
adverse effect on the Company's results of operations, which in turn could
adversely affect the Company's ability to meet its interest and principal
obligations under its indebtedness, including the Notes. Furthermore,
international manufacturing and sales are subject to other inherent risks
including labor unrest, political instability, restrictions on transfer of
funds, export duties and quotas, domestic and foreign customs and tariffs,
current and changing regulatory environments, difficulty in obtaining
distribution and support, and potentially adverse tax consequences. There can be
no assurance that these factors will not have a material adverse effect on the
Company's financial condition and results of operations, or its ability to
increase or maintain its international sales.
In general, United States federal and foreign tax laws provide that income
of foreign subsidiaries is subject to tax only in the local jurisdiction and is
not subject to United States federal income tax unless, and only to the extent,
that such income is distributed as a dividend to the United States parent
company. In general, the Company does not intend to cause its foreign
subsidiaries to pay dividends to the Company and expects that the net income of
such subsidiaries will be retained abroad in most circumstances. Consequently,
the Company may not be able to utilize the cash flow generated by its foreign
operations to service its domestic indebtedness.
COMPETITION
Competition in the wet/dry vacuum market is, and will continue to be,
intense. Some of the Company's current and potential competitors are larger and
have greater financial and marketing resources than the Company. Intensified
competition could force the Company to decrease its prices and, as a
consequence, reduce its margins. In North America, since 1993, the Hoover
Company ("Hoover"), The Eureka Company ("Eureka") and Royal Manufacturing
Company ("Royal") have introduced limited lines of consumer wet/dry vacuum
products. Upon the entrance of these new competitors into the market, the
Company made a strategic decision to reduce product prices slightly, and, as a
result, Shop Vac experienced a modest decline in gross margin upon
implementation of the new pricing structure in the first quarter of 1993. There
can be no assurance that in the future heightened or additional competition will
not have a material adverse effect on the Company's financial condition and
results of operations. In Europe, Karcher, Alfred, G.m.b.H. & Co. ("Karcher"), a
large and well-financed manufacturer, is a leading competitor with the Company's
wet/dry vacuum, conventional vacuum and steam cleaner products. There can be no
assurance that existing competitors will not substantially increase their
resources devoted to the development and marketing of products that are
competitive with those of the Company, nor can there be any assurance that
additional competitors with substantial resources will not seek to enter the
wet/dry vacuum market and compete directly with the Company. See
"Business -- Competition."
MCCULLOCH DISPOSITION AND RELATED OBLIGATIONS
As a result of the McCulloch disposition, the Company has certain
continuing indemnity obligations including, but not limited to, indemnification
of the purchaser of McCulloch with respect to certain potential
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environmental, lease, product and workers' compensation liabilities. See
"-- Environmental" and "McCulloch Disposition."
ENVIRONMENTAL
The Company is subject to constantly changing federal, state, local and
foreign laws and regulations that govern activities or operations that may have
adverse environmental effects such as discharges to air and water and handling
and disposal practices for solid and hazardous wastes. These laws and
regulations generally impose liability for the costs of cleaning up damage
resulting from past spills, improper disposals or other releases of hazardous
materials. The Company believes that it currently conducts its operations and in
the past has operated its business in substantial compliance with applicable
environmental laws and regulations. However, there can be no assurance that
future environmental laws or regulations, or reinterpretations of existing laws
and regulations, or conditions existing as of the date hereof of which the
Company's management is currently unaware, will not subject the Company to
substantial expense or otherwise have a material adverse impact on its
operations.
The Company has agreed to indemnify the purchaser of McCulloch against all
environmental liabilities with respect to all circumstances existing prior to
the closing of the McCulloch disposition, subject to certain thresholds with
respect to known chromium contamination at the McCulloch facility at Lake Havasu
City, Arizona. Since the closing of the McCulloch disposition, McCulloch has
discovered two distinct incidences of contamination at the Lake Havasu City
facility in addition to the chromium contamination: (i) low concentrations of
trichloroethylene in groundwater and (ii) gasoline-related substances (i.e.,
benzene, toluene, ethylbenzene and xylene) down-gradient of the site where two
underground gasoline storage tanks were removed in 1992. The sites are currently
under investigation by McCulloch and the Arizona Department of Environmental
Quality ("ADEQ"), and additional groundwater sampling has been proposed.
Although the Company has a reserve to satisfy current and potential
environmental claims, there can be no assurance that such reserve will be
sufficient to cover all charges with respect to the Company's environmental
indemnity obligations or that the Company will have adequate resources to
satisfy McCulloch's claims under the environmental indemnity. See
"Business -- Environmental," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Environmental" and "McCulloch
Disposition."
EFFECTIVE RANKING
The Notes will rank pari passu with the Company's other senior obligations,
including the Company's trade payables, and payment of the Company's obligations
under the Notes is secured by the Millers' Stock, which has been pledged by the
Millers. However, the Company's obligations under the New Revolving Credit
Facility is secured by first priority liens on the inventory and accounts
receivable of the Company and Felchar. Under certain circumstances, certain
other indebtedness of the Company and its subsidiaries may be secured by liens
on other assets of the Company and such subsidiaries. If the Company becomes
insolvent or is liquidated or if any of its secured indebtedness is accelerated,
the holders of such secured indebtedness would be entitled to payment in full
out of the assets securing such indebtedness prior to any payment to the Holders
of Notes. If the lender under the New Revolving Credit Facility or the holders
of any other secured indebtedness were to foreclose on the collateral securing
the Company's obligations to them, it is possible that after satisfaction of all
such other secured indebtedness in full, the value of the security granted to
the Holders of the Notes and their portion, if any, of the Company's assets not
pledged to any other creditor would be insufficient to satisfy fully the claims
of the Holders of Notes. See "Description of Certain Indebtedness -- New
Revolving Credit Facility" and "Description of the Exchange Notes."
The Company's stockholders will have no obligations under the Notes, the
Indenture or the Pledge Agreement. The Holders of the Notes shall have no
recourse to the income or assets of any of the Company's stockholders, except
with respect to the Millers' Stock. See "Description of Exchange
Notes -- Security."
In addition, the Company conducts a portion of its operations, including
substantially all of its foreign operations, through subsidiaries. To the extent
that any such subsidiary incurs indebtedness and becomes insolvent or is
liquidated, secured and unsecured creditors of such subsidiary would be entitled
to payment
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from the proceeds of such subsidiary's assets before the Company and its
creditors would derive any value from such subsidiary's assets. As of September
30, 1996, after giving effect to the Private Offering and the New Revolving
Credit Facility, the Company's subsidiaries would have had approximately $6.4
million of indebtedness and approximately $39.2 million of other liabilities
(including trade payables) outstanding. The Company's subsidiaries may incur
additional indebtedness in the future, subject to the restrictions imposed by
the New Revolving Credit Facility and the Indenture. See "Description of Certain
Indebtedness -- New Revolving Credit Facility" and "Description of Exchange
Notes."
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control (as
defined), the Company will be required to make an offer to purchase all of the
Notes then outstanding at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase. If a Change of Control were to occur, the
Company might not have the financial resources to repay all of its obligations
under the New Revolving Credit Facility, the Notes and other indebtedness that
might become payable upon the occurrence of such Change of Control. See
"Description of Exchange Notes" and "Description of Certain Indebtedness -- New
Revolving Credit Facility."
COST OF RAW MATERIALS
Raw materials purchased comprised approximately 56% of the Company's annual
cost of sales in 1995. There can be no assurance that increases in raw materials
costs will be recovered through price increases. Copper, polypropylene resins
and corrugated paper are the Company's primary raw materials, and the prices of
such materials fluctuate significantly. Although the Company is studying the
potential benefits of hedging the cost of some of its raw materials with the use
of commodities futures contracts, the Company has not historically done so and
may not engage in hedging transactions. As a result, there can be no assurance
that the Company's gross margins will not be adversely affected by increases in
raw materials costs in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Raw Materials."
CONTROL BY PRINCIPAL STOCKHOLDERS; DEPENDENCE ON KEY PERSONNEL
Jonathan Miller and Matthew Miller together beneficially own 100% of the
outstanding voting securities of the Company. As a result, they have the ability
to control the Company's management, policies and financing decisions and to
elect all of the members of the Company's Board of Directors. In addition, the
Company's success will depend, in large part, on the efforts, abilities and
experience of Jonathan Miller, Matthew Miller and W. Earl Stogner. The loss of
the services of such individuals could have a material adverse effect on the
Company's financial condition and results of operations. See "Management" and
"Principal Stockholders."
LACK OF PRODUCT DIVERSITY
The Company's business is focused on the production and marketing of a line
of wet/dry vacuum cleaners. In the year ended December 31, 1995 and the first
nine months of 1996, respectively, the Company generated 88% and 91% of net
sales and 93% and 97% of gross profits from sales of wet/dry vacuum cleaners and
related accessories. Because the Company is largely dependent on a single
product line, the Company is vulnerable to changing consumer preferences and
product innovations which would result in decreased sales or market share.
DEPENDENCE ON MANUFACTURING FACILITIES
The Company's business strategy and efforts to control cost depend, in
part, on the vertical integration of the Company's manufacturing, assembly and
distribution of its products. The Company currently owns and operates (i) a
motor manufacturing facility in Binghamton, New York (the "Motor Factory") which
manufactures substantially all of the motors used in the assembly of the
Company's wet/dry vacuum products
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for the domestic market and (ii) a plastic molding facility in Canton,
Pennsylvania (the "Plastic Factory") which manufactures substantially all of the
plastic components for the Company's domestic wet/dry vacuum products. Although
the Company insures both facilities, if either the Motor Factory or the Plastic
Factory were destroyed or otherwise rendered unusable for an extended period of
time, the Company would have to purchase components from independent vendors.
The prices charged by independent vendors may vary and are likely to be higher
than the costs the Company currently incurs to manufacture those components. In
addition, the quality of components available from independent vendors varies
and may be inferior to the quality of the components currently manufactured by
the Company, and there can be no assurance that such replacement components
would be available on a timely basis or at all. Consequently, the loss of either
the Motor Factory or the Plastic Factory could have a material adverse effect on
the Company's financial condition and results of operations. See
"Business -- Manufacturing."
LEGAL PROCEEDINGS
The Company is involved in various lawsuits from time to time in the
ordinary course of business. See "Business -- Legal Proceedings."
FRAUDULENT TRANSFER CONSIDERATIONS
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, if the
Company, at the time it issued the Private Notes, (a) incurred such indebtedness
with the intent to hinder, delay or defraud creditors, or (b)(i) received less
than reasonably equivalent value or fair consideration and (ii)(A) was insolvent
at the time of such incurrence, (B) was rendered insolvent by reason of such
incurrence (and the application of the proceeds thereof), (C) was engaged or was
about to engage in a business or transaction for which the assets remaining with
the Company constituted unreasonably small capital to carry on its business, or
(D) intended to incur, or believed that it would incur, debts beyond its ability
to pay such debts as they mature, then, in each such case, a court of competent
jurisdiction could avoid, in whole or in part, the Notes or, in the alternative,
subordinate the Notes to existing and future indebtedness of the Company. The
measure of insolvency for purposes of the foregoing would likely vary depending
upon the law applied in such case. Generally, however, the Company would be
considered insolvent if the sum of its debts, including contingent liabilities,
was greater than all of its assets at a fair valuation, or if the present fair
saleable value of its assets was less than the amount that would be required to
pay the probable liabilities on its existing debts, including contingent
liabilities, as such debts become absolute and matured. Management of the
Company believes that, for purposes of the United States Bankruptcy Code and
state fraudulent transfer or conveyance laws, the Private Notes were issued
without the intent to hinder, delay or defraud creditors and for proper purposes
and in good faith, and that the Company will receive reasonably equivalent value
or fair consideration therefor, and that after the issuance of the Private Notes
and the application of the net proceeds therefrom, the Company is solvent, will
have sufficient capital for carrying on its business and will be able to pay its
debts as they mature. However, there can be no assurance that a court passing on
such issues would agree with the determination of the Company's management.
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
As of the date of this Prospectus, there are 11 registered Holders of the
Private Notes. The Company believes that, as of the date of this Prospectus,
none of such Holders is an affiliate (as such term is defined in Rule 405 under
the Securities Act) of the Company. Prior to the Private Offering there had been
no market for the Notes, and there can be no assurance that such a market will
develop or, if such a market develops, as to the liquidity of such market. The
Exchange Notes will not be listed on any securities exchange, but the Private
Notes are eligible for trading in the National Association of Securities
Dealers, Inc.'s Private Offerings, Resales and Trading through Automatic
Linkages ("PORTAL") market. The Exchange Notes are new securities for which
there is currently no market. The Initial Purchasers have advised the Company
that it intends to make a market in the Exchange Notes, as well as the Private
Notes, as permitted by applicable laws and regulations; however, the Initial
Purchasers are not obligated to do so, and may discontinue any such
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market making activities at any time without notice. In addition, such market
making activity may be limited during the Exchange Offer and the pendency of the
Shelf Registration Statement (as defined in the Registration Rights Agreement).
Therefore, there can be no assurance that an active market for the Notes will
develop. If a trading market develops for the Exchange Notes future trading
prices of such securities will depend on many factors, including, among other
things, prevailing interest rates, the market for similar securities, the
performance of the Company and other factors. In addition, based on such
factors, the Notes may trade at a discount from their initial offering price.
See "The Exchange Offer" and "Plan of Distribution."
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by the Company on October 1, 1996 (the "Closing
Date") to the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently sold the Private Notes to (i) "qualified institutional
buyers" ("QIBs"), as defined in Rule 144A under the Securities Act ("Rule
144A"), in reliance on Rule 144A and (ii) a limited number of institutional
"accredited investors" ("Accredited Institutions"), as defined in Rule
501(a)(1),(2), (3) or (7) under the Securities Act. As a condition to the sale
of the Private Notes, the Company and the Initial Purchasers entered into the
Registration Rights Agreement on October 1, 1996. Pursuant to the Registration
Rights Agreement, the Company agreed that, unless the Exchange Offer is not
permitted by applicable law or Commission policy, it would (i) file with the
Commission a Registration Statement under the Securities Act with respect to the
Exchange Notes within 60 days after the Closing Date, (ii) use its best efforts
to cause such Registration Statement to become effective under the Securities
Act within 120 days after the Closing Date and (iii) commence the Exchange Offer
and use its best efforts to issue, on or prior to 30 days after the date on
which the Registration Statement was declared effective by the Commission,
Exchange Notes in exchange for all Private Notes tendered prior thereto in the
Exchange Offer. A copy of the Registration Rights Agreement has been filed as an
exhibit to the Registration Statement. The Registration Statement is intended to
satisfy certain of the Company's obligations under the Registration Rights
Agreement and the Purchase Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a Holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) any
such Holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) who exchanges Private Notes for Exchange Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement with any person to participate, in a
distribution of the Exchange Notes, will be allowed to resell Exchange Notes to
the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any Holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in the distribution of the Exchange Notes or is a broker-dealer,
such Holder cannot rely on the position of the staff of the Commission
enumerated in certain no-action letters issued to third parties and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction, unless an exemption from registration
is otherwise available. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Private Notes, where such Private Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Private Notes where such Private Notes
were acquired by such broker-dealer as a result of market-making or other
trading activities. Pursuant to the Registration Rights Agreement, the Company
has agreed to make this Prospectus, as it may be amended or supplemented from
time to time, available to broker-dealers for use in connection with any resale
for a period of 180 days after the Expiration Date. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Private
Notes validly tendered and not withdrawn prior to the Expiration Date. The
Company will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000
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principal amount of outstanding Private Notes surrendered pursuant to the
Exchange Offer. Private Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) Holders of the Exchange Notes will not
be entitled to any of the rights of Holders of Private Notes under the
Registration Rights Agreement, which rights will terminate upon the consummation
of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as
the Private Notes (which they replace) and will be issued under, and be entitled
to the benefits of, the Indenture, which also authorized the issuance of the
Private Notes, such that both series of Notes will be treated as a single class
of debt securities under the Indenture.
As of the date of this Prospectus, $100,000,000 in aggregate principal
amount of the Private Notes are outstanding. Only a registered Holder of the
Private Notes (or such Holder's legal representative or attorney-in-fact) as
reflected on the records of the Trustee under the Indenture may participate in
the Exchange Offer. There will be no fixed record date for determining
registered Holders of the Private Notes entitled to participate in the Exchange
Offer.
Holders of the Private Notes do not have any appraisal or dissenters'
rights under the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Private Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Company.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) mail to the
registered Holders an announcement thereof and (iii) issue a press release or
other public announcement which shall include disclosure of the approximate
number of Private Notes deposited to date, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "-- Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such delay,
extension or termination to the Exchange Agent. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof to the registered Holders. If the Exchange
Offer is amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be
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distributed to the registered Holders, and the Company will extend the Exchange
Offer for a period of five to ten business days, depending upon the significance
of the amendment and the manner of disclosure to the registered Holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 10 5/8% per annum.
Interest on the Exchange Notes will be payable semi-annually in arrears on each
March 1 and September 1, commencing March 1, 1997. Holders of Exchange Notes
will receive interest on March 1, 1997 from the date of initial issuance of the
Exchange Notes, plus an amount equal to the accrued interest on the Private
Notes from the date of initial delivery to the date of exchange thereof for
Exchange Notes. Holders of Private Notes that are accepted for exchange will be
deemed to have waived the right to receive any interest accrued on the Private
Notes.
PROCEDURES FOR TENDERING
Only a registered Holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a Holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of Transmittal,
and mail or otherwise deliver such Letter of Transmittal or such facsimile to
the Exchange Agent at the address set forth below under "-- Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Private Notes must be received by the Exchange Agent along with the Letter
of Transmittal, (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Private Notes, if such procedure is
available, into the Exchange Agent's account at the Depositary pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the Holder must comply with
the guaranteed delivery procedures described below.
The tender by a Holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such Holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered Holder
promptly and instruct such registered Holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such owner's name or
obtain a properly completed bond power from the registered Holder. The transfer
of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes tendered
pursuant thereto are tendered (i) by a registered Holder who has not completed
the box titled "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be made by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
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the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of
the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Private Notes listed therein, such Private Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered Holder as such registered Holder's name appears on such Private
Notes.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Private
Notes not properly tendered or any Private Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Private Notes. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Private Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify Holders of defects or irregularities with respect to tenders
of Private Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Private Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived.
While the Company has no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to permit
resales of any Private Notes that are not tendered pursuant to the Exchange
Offer, the Company reserves the right in its sole discretion to purchase or make
offers for any Private Notes that remain outstanding subsequent to the
Expiration Date or, as set forth below under "-- Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Private
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offer.
By tendering, each Holder of Private Notes will represent to the Company
that, among other things, (i) Exchange Notes to be acquired by such Holder of
Private Notes in connection with the Exchange Offer are being acquired by such
Holder in the ordinary course of business of such Holder, (ii) such Holder has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iii) such Holder acknowledges and agrees
that any person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purposes of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on the
position of the staff of the Commission set forth in certain no-action letters,
(iv) such Holder understands that a secondary resale transaction described in
clause (iii) above and any resales of Exchange Notes obtained by such Holder in
exchange for Private Notes acquired by such Holder directly from the Company
should be covered by an effective registration statement containing the selling
securityholder information required by Item 507 or Item 508, as applicable, of
Regulation S-K of the Commission and (v) such Holder is not an "affiliate," as
defined in Rule 405 under the Securities Act, of the Company. If the Holder is a
broker-dealer that will receive Exchange Notes for such Holder's own account in
exchange for Private Notes that were acquired as a result of market-making
activities or other trading activities, such Holder will be required to
acknowledge in the Letter of Transmittal that such Holder will deliver a
prospectus in connection with any
22
<PAGE> 29
resale of such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, such Holder will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are withdrawn
or are submitted for a greater principal amount than the Holders desire to
exchange, such unaccepted, withdrawn or non-exchanged Private Notes will be
returned without expense to the tendering Holder thereof (or, in the case of
Private Notes tendered by book-entry transfer into the Exchange Agent's account
at the Depositary pursuant to the book-entry transfer procedures described
below, such Private Notes will be credited to an account maintained with the
Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer within
two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make
book-entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in accordance
with the Depositary's procedures for transfer. However, although delivery of
Private Notes may be effected through book-entry transfer at the Depositary, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address set forth below under
"-- Exchange Agent" on or prior to the Expiration Date or pursuant to the
guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the Holder, the certificate number(s) of such Private Notes and
the principal amount of Private Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal
(or a facsimile thereof), together with the certificate(s) representing the
Private Notes in proper form for transfer or a Book-Entry Confirmation, as
the case may be, and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Private
Notes in proper form for transfer and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five New
York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to 5:00 P.M. on the Expiration Date.
23
<PAGE> 30
To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Private Notes) and (iii) be signed by the Holder in the same
manner as the original signature on the Letter of Transmittal by which such
Private Notes were tendered (including any required signature guarantees). All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company in its sole discretion, whose
determination shall be final and binding on all parties. Any Private Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Private Notes so withdrawn are validly retendered. Properly withdrawn
Private Notes may be retendered by following one of the procedures described
above under "The Exchange Offer -- Procedures for Tendering" at any time prior
to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates applicable
law, rules or regulations or an applicable interpretation of the staff of the
Commission.
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Private
Notes and return all tendered Private Notes to the tendering Holders, (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of Holders to
withdraw such Private Notes (see "-- Withdrawal of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Private Notes that have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered Holders of the Private Notes, and the Company will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered Holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of Holders of the Private Notes eligible to participate in the Exchange
Offer will terminate upon consummation of the Exchange Offer except with respect
to the Company's continuing obligations (i) to indemnify such Holders (including
any broker-dealers) and certain parties related to such Holders against certain
liabilities (including liabilities under the Securities Act), (ii) to provide,
upon the request of any Holder of a transfer-restricted Private Note, the
information required by Rule 144A(d)(4) under the Securities Act in order to
permit resales of such Private Notes pursuant to Rule 144A, (iii) to use its
best efforts to keep the Registration Statement effective to the extent
necessary to ensure that it is available for resales of transfer-restricted
Private Notes by broker-dealers for a period of up to 120 days from the
Expiration Date and (iv) to provide copies of the latest version of the
Prospectus to broker-dealers upon their request for a period of up to 180 days
after the Expiration Date.
LIQUIDATED DAMAGES
In the event of a Registration Default (as defined in the Registration
Rights Agreement), the Company will pay Liquidated Damages to each Holder of
Transfer Restricted Securities (as defined below), with respect to the first
90-day period immediately following the occurrence of such Registration Default
in an amount equal to $0.05 per week per $1,000 principal amount of Private
Notes constituting Transfer Restricted Securities held by such Holder. Transfer
Restricted Securities shall mean each Private Note until (i) the date on which
such Private Note has been exchanged for an Exchange Note in the Exchange Offer,
(ii) following
24
<PAGE> 31
the exchange by a broker-dealer in the Exchange Offer of such Private Note for
one or more Exchange Notes, the date on which such Exchange Notes are sold to a
purchaser who receives from such broker-dealer on or prior to the date of such
sale a copy of this Prospectus, (iii) the date on which such Private Note has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement (as defined in the Registration
Rights Agreement) or (iv) the date on which such Private Note is distributed to
the public pursuant to Rule 144(k) under the Securities Act. The amount of
Liquidated Damages will increase by an additional $0.05 per week per $1,000
principal amount of Private Notes constituting Transfer Restricted Securities
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of Liquidated Damages of $0.50 per week
per $1,000 principal amount of Private Notes constituting Transfer Restricted
Securities. Following the cure of all Registration Defaults, the accrual of all
Liquidated Damages will cease. The filing and effectiveness of the Registration
Statement of which this Prospectus is a part and the consummation of the
Exchange Offer will eliminate all rights of the Holders of Private Notes
eligible to participate in the Exchange Offer to receive damages that would have
been payable if such actions had not occurred.
Holders of Transfer Restricted Securities will be required to make certain
representations to the Company (as described in the Registration Rights
Agreement) in order to participate in the Exchange Offer and will be required to
deliver information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within the
time periods set forth in the Registration Rights Agreement in order to have
their Transfer Restricted Securities included in the Shelf Registration
Agreement and benefit from the provisions regarding Liquidated Damages set forth
above.
EXCHANGE AGENT
Marine Midland Bank has been appointed as Exchange Agent of the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand Delivery:
Marine Midland Bank Marine Midland Bank
140 Broadway -- A Level 140 Broadway -- A Level
Corporate Trust Operations Corporate Trust Operations
New York, New York 10005-1180 New York, New York 10005-1180
By Overnight Delivery: By Facsimile:
Marine Midland Bank (212) 658-2292
140 Broadway -- A Level
Corporate Trust Operations Confirm by Telephone:
New York, New York 10005-1180
(212) 658-5931
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
25
<PAGE> 32
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$100,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Private Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering Holder.
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Private
Notes may be resold only (i) to a person whom the seller reasonably believes is
a QIB in a transaction meeting the requirements of Rule 144A, (ii) in a
transaction meeting the requirements of Rule 144 under the Securities Act, (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (v) to the Company
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The net
proceeds from the Private Offering, which were approximately $95.6 million after
deducting discounts, commissions and estimated fees and expenses incurred in
connection therewith, were applied to repay certain indebtedness of the Company
and its subsidiaries which included: (a) approximately $57.0 million outstanding
under the Old Revolving Credit Facility and (b) approximately $30.0 million of
outstanding 10.83% Old Senior Notes due 2001 and approximately $2.5 million of
related prepayment fees and expenses. The remainder is being used for general
corporate purposes. For a description of the indebtedness repaid with the
proceeds of the Private Offering, see "Description of Certain Indebtedness."
26
<PAGE> 33
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1996, and on an as adjusted basis to give effect to
the Private and Exchange Offering and the use of the estimated net proceeds
therefrom as if such transactions had occurred on September 30, 1996. The
information contained in this table should be read in conjunction with the
consolidated financial statements of the Company, together with the related
notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total debt (including current maturities):
Old Revolving Credit Facility............................. $ 56,874 $ --
Old Senior Notes.......................................... 29,992 --
New Revolving Credit Facility(1).......................... -- --
10 5/8% Senior Secured Notes due 2003..................... -- 100,000
Bank lines, substantially foreign......................... 5,076 5,076
Capital lease obligations................................. 8,564 8,564
-------- --------
Total debt........................................ 100,506 113,640
Stockholders' equity (deficit)(2)........................... (42,111) (44,515)
-------- --------
Total capitalization.............................. $ 58,395 $ 69,125
======== ========
</TABLE>
- ---------------
(1) The New Revolving Credit Facility provides for a $25 million secured line of
credit which bears interest at the lender's prime rate plus 0.75% or LIBOR
plus 2.0% and matures September 30, 1999. As of October 31, 1996, the
Company had no outstanding borrowings under the New Revolving Credit
Facility and approximately $23.0 million available based upon the Company's
Borrowing Base (as defined). See "Description of Certain Indebtedness."
(2) Stockholders' equity (deficit), as adjusted, reflects a $2.5 million
prepayment penalty (approximately $2.4 million on an after-tax basis) to the
Holders of the Old Senior Notes.
27
<PAGE> 34
MCCULLOCH DISPOSITION
In 1990, the Company acquired the McCulloch chainsaw and lawn and garden
business in order to take advantage of Shop Vac's manufacturing expertise and
distribution network, as well as complementary product selling seasons. At that
time, the Company initiated a strategy to capitalize on McCulloch's strengths,
focusing on sales growth through product diversification and the expansion of
international operations. Following the McCulloch Acquisition, the Company made
a substantial investment in expanding McCulloch's product lines, including
redesigning McCulloch's gasoline and electric chain saw lines, as well as
introducing electric trimmers and leaf blowers into the market. During this
period, a significant portion of the Company's cash flow and management
resources were diverted to McCulloch. Despite this investment, subsequent
operating results of McCulloch were below expectations largely due to intense
competition within McCulloch's industry and greater than expected working
capital needs. Consequently, in 1995 the Company's Board of Directors undertook
a strategic plan to focus on the Company's core wet/dry vacuum business, to
reduce debt and to establish a capital structure that would provide Shop Vac
with the financial and operating flexibility to maximize its core business
opportunities. Accordingly, on November 1, 1995, McCulloch was sold, and for
financial reporting purposes the McCulloch business has been classified as a
discontinued operation. In connection with the McCulloch disposition, the
Company entered into a distribution agreement pursuant to which the Company
agreed to distribute McCulloch products in certain countries in Western Europe.
The Company has notified McCulloch of its intent to terminate the distribution
agreement effective not later than December 31, 1996. All prior year financial
statements have been restated to exclude McCulloch results from continuing
operations in accordance with Accounting Principles Board Opinion No. 30, and a
charge was taken in the last quarter of 1995 to reflect the loss of $120.3
million on the sale of McCulloch. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 11 to the consolidated financial statements of the Company
and its subsidiaries included elsewhere herein.
Pursuant to the terms of the agreement governing the McCulloch disposition,
the Company is obligated to indemnify the purchaser for claims arising with
respect to the following issues, among others, (i) environmental claims, (ii)
workers' compensation and product liability claims which relate to any action,
omission, occurrence or circumstance arising prior to the McCulloch disposition
(other than those reflected on the books of McCulloch as of July 31, 1995) and
(iii) a computer equipment lease currently in dispute. With respect to
environmental claims, the Company has agreed to indemnify the purchaser of
McCulloch against all environmental liabilities with respect to all
circumstances existing prior to the closing of the McCulloch disposition,
subject to certain thresholds with respect to known chromium contamination at
the McCulloch facility at Lake Havasu City, Arizona. Since the closing of the
McCulloch disposition, McCulloch has discovered two distinct incidences of
contamination at the Lake Havasu City facility in addition to the chromium
contamination: (i) low concentrations of trichloroethylene in groundwater and
(ii) gasoline-related substances (i.e., benzene, toluene, ethylbenzene and
xylene) down-gradient of the site where two underground gasoline storage tanks
were removed in 1992. The sites are currently under investigation by McCulloch
and the ADEQ and additional groundwater sampling has been proposed. Although the
Company has a reserve to satisfy current and potential environmental claims,
there can be no assurance that such reserve will be sufficient to cover all
charges with respect to the Company's environmental indemnity obligations or
that the Company will have adequate resources to satisfy McCulloch's claims
under the environmental indemnity or other indemnity provisions. See "Risk
Factors -- Environmental," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Environmental" and
"Business -- Environmental."
28
<PAGE> 35
SELECTED CONSOLIDATED FINANCIAL DATA
The historical selected consolidated financial data, excluding pro forma
data, presented below for, and as of the end of, the years ended December 31,
1993 through December 31, 1995 have been derived from the consolidated financial
statements of the Company and its subsidiaries, which financial statements have
been audited by KPMG Peat Marwick LLP, independent certified public accountants.
The historical financial data presented below for, and as of the end of, the
years ended December 31, 1991 and 1992 have been derived from the financial
records of the Company and its subsidiaries for those years. Data has been
restated (where appropriate) to exclude McCulloch results from continuing
operations in a manner which, in the opinion of the Company, is in accordance
with Accounting Principles Board Opinion No. 30 and fairly presents the results
for such periods. The selected consolidated operating data and other data
presented below for the nine-month periods ended September 30, 1995 and 1996,
and the consolidated balance sheet data presented below as of September 30, 1996
have been derived from the unaudited consolidated financial statements of the
Company and its subsidiaries included elsewhere herein. In the opinion of
management, the unaudited consolidated financial statements for the interim
periods include all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the results for such periods. The results
of operations for the nine months ended September 30, 1996 are not necessarily
indicative of the results to be expected for the full fiscal year. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements of the Company, together with the related notes thereto,
included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING DATA:
Net sales........................................... $202,930 $217,471 $224,726 $250,843 $ 231,323 $165,135 $151,308
Cost of sales....................................... 141,833 155,350 162,710 182,694 179,416 127,229 113,394
-------- -------- -------- -------- --------- -------- --------
Gross profit...................................... 61,097 62,121 62,016 68,149 51,907 37,906 37,914
Selling, general and administrative expense......... 41,015 34,985 38,421 41,867 35,637 27,442 23,851
Restructuring charges............................... -- -- -- -- -- -- 5,996
-------- -------- -------- -------- --------- -------- --------
Income from operations............................ 20,082 27,136 23,595 26,282 16,270 10,464 8,067
Interest expense.................................... 8,174 8,142 7,210 8,826 11,629 8,966 7,175
Non-operating expense (income), net................. 28 532 (870) 9 459 299 396
-------- -------- -------- -------- --------- -------- --------
Income from continuing operations before income
taxes and cumulative effect of changes in
accounting principles........................... 11,880 18,462 17,255 17,447 4,182 1,199 496
Income taxes........................................ 5,424 5,553 5,130 4,964 1,425 1,006 1,172
-------- -------- -------- -------- --------- -------- --------
Income (loss) from continuing operations before
cumulative effect of changes in accounting
principles...................................... 6,456 12,909 12,125 12,483 2,757 193 (676)
-------- -------- -------- -------- --------- -------- --------
Discontinued operations:
Loss from operations of discontinued business,
net............................................. (760) (4,421) (4,148) (4,525) (10,639) (6,397) --
Loss on disposal of discontinued business, net.... -- -- -- -- (120,296)(1) -- --
-------- -------- -------- -------- --------- -------- --------
Loss on discontinued operations..................... (760) (4,421) (4,148) (4,525) (130,935)(1) (6,397) --
-------- -------- -------- -------- --------- -------- --------
Income (loss) before cumulative effect of changes in
accounting principles............................. 5,696 8,488 7,977 7,958 (128,178) $ (6,204) $ (676)
Cumulative effect of changes in accounting
principles, net................................... -- -- (1,049) -- -- -- --
-------- -------- -------- -------- --------- -------- --------
Net income (loss)................................... $ 5,696 $ 8,488 $ 6,928 $ 7,958 (128,178) $ (6,204) $ (676)
======== ======== ======== ======== ========= ======== ========
Ratio of earnings to fixed charges(2)............... 2.4x 3.2x 3.3x 2.9x 1.4x 1.1x 1.1x
Pro forma ratio of earnings to fixed charges(2)..... 1.2x .8x
OTHER DATA:
EBITDA(3)........................................... $ 26,560 $ 32,731 $ 27,873 $ 31,336 $ 22,402 $ 15,050 $ 14,030
Depreciation and amortization....................... 6,478 5,595 4,278 5,054 6,132 4,586 5,963(7)
Capital expenditures, net........................... 1,344 1,221 7,656 7,838 8,042 7,614 155
Pro forma ratio of EBITDA to cash interest
expense(4)........................................ 1.9x 1.6x
Pro forma ratio of total debt to EBITDA............. 5.2x 6.1x
</TABLE>
29
<PAGE> 36
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1996
---------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 ACTUAL AS ADJUSTED(5)
-------- -------- -------- -------- -------- -------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets(6)................................ $113,656 $105,509 $106,978 $131,067 $116,451 $137,635 $148,569
Total debt..................................... 91,757 72,423 78,669 94,304 95,650 100,506 113,640
Stockholders' equity (deficit)................. 64,503 69,122 72,539 82,906 (41,601) (42,111) (44,515)
</TABLE>
- ---------------
(1) Reflects a charge taken with respect to the sale of McCulloch. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "McCulloch Disposition."
(2) Pro forma income (loss) from continuing operations before income taxes was
$2.8 million and $(2.0) million for the year ended December 31, 1995 and the
nine months ended September 30, 1996, respectively, and includes the effect
of the Exchange Offer as if it had been consummated on January 1, 1995. For
the purpose of calculating the ratio of earnings to fixed charges, earnings
represent income (loss) from continuing operations before income taxes plus
fixed charges. Fixed charges consist of interest expense on all indebtedness
plus the interest portion of rental expense on non-cancelable leases and
amortization of debt issuance costs and debt discount. For the nine months
ended September 30, 1996, earnings were insufficient to cover pro forma
fixed charges by approximately $2.0 million.
(3) EBITDA represents pretax income from continuing operations, plus
depreciation and amortization and does not include non-operating expense
(income), net, which represents non-cash charges to earnings associated with
foreign currency translations. EBITDA is presented because such data is used
by certain investors to determine the Company's ability to meet its debt
service requirements. EBITDA is not intended to represent cash flow, as
determined in accordance with GAAP, nor has it been presented as an
alternative to operating income or net income as an indicator of operating
performance and should not be considered as a substitute for measures of
performance prepared in accordance with GAAP.
(4) Pro forma cash interest expense represents total pro forma interest expense
of $12.8 million and $9.5 million for the year ended December 31, 1995 and
the nine months ended September 30, 1996, respectively, and excludes the sum
of amortized debt issuance costs and discounts on sales of receivables of
$900,000 and $600,000 for those periods, respectively.
(5) After giving effect to the Private Offering and the use of the estimated net
proceeds therefrom as if the Private Offering had been consummated on
September 30, 1996.
(6) Excludes $36.7 million, $36.5 million, $53.1 million, $67.1 million, $19.0
million and $21.3 million of net current assets associated with McCulloch as
of December 31, 1991, 1992, 1993, 1994 and 1995 and September 30, 1996,
respectively, and $44.3 million, $45.8 million, $47.6 million and $54.4
million of net non-current assets associated with McCulloch as of December
31, 1991, 1992, 1993 and 1994, respectively. Net non-current assets
associated with McCulloch as of December 31, 1995 and September 30, 1996
were nil. See "McCulloch Disposition" and Note 11 to the consolidated
financial statements of the Company and its subsidiaries included elsewhere
herein.
(7) Includes $1.0 million of charges included in the September 30, 1996
restructuring charge.
30
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" as well as the consolidated financial
statements of the Company and the notes thereto contained elsewhere in this
Prospectus.
OVERVIEW
The Company derives its revenues primarily from its core business, the
manufacture and sale of wet/dry vacuums. Shop Vac's product design, operations,
sales and marketing are managed in two groups: (i) North America, which is
comprised of the United States, Canada, Latin America and Australia, and (ii)
Europe, which is comprised of Europe and the remaining countries in which the
Company does business. The Company has been the North American wet/dry vacuum
market leader since it introduced the wet/dry vacuum to the consumer market in
the late 1960s. The Company's European operations also manufacture and sell
wet/dry vacuums, as well as a full line of conventional vacuums, carpet cleaners
and steam cleaners, in Europe and internationally.
Historically, there have been relatively few participants in the domestic
consumer wet/dry vacuum industry, and prior to 1993, Sears Roebuck and Company
("Sears") and The Genie Company ("Genie") were the Company's only significant
competitors. Since 1993, Hoover, Eureka and Royal have introduced limited lines
of consumer wet/dry vacuum products. The Company has not lost a single major
customer as a result of these new entrants, which, singly and in the aggregate,
have not had a material impact on the Company's market share. However, upon the
entrance of these new competitors into the market the Company made a strategic
decision to reduce certain product prices slightly, and, as a result, the
Company experienced a modest decline in gross margins upon the implementation of
the new pricing structure in the first quarter of 1993. See
"Business -- Competition" and "Risk Factors -- Competition."
On November 1, 1995, the Company sold McCulloch, and for financial
reporting purposes the McCulloch business was classified as a discontinued
operation. In connection with the McCulloch disposition, the Company entered
into a distribution agreement pursuant to which the Company agreed to distribute
McCulloch products in certain countries in Western Europe. The Company has
notified McCulloch of its intent to terminate the distribution agreement
effective not later than December 31, 1996. All prior year financial statements
have been restated to exclude McCulloch results from continuing operations in
accordance with Accounting Principles Board Opinion No. 30. See "-- Liquidity
and Capital Resources" and "McCulloch Disposition."
RECENT OPERATING IMPROVEMENTS
Following the decision in April 1995 to sell McCulloch, the Company focused
on operating improvements targeted at reducing expenses and increasing cash
flow. These improvements include (i) consolidation of certain manufacturing
operations and implementation of other manufacturing efficiencies, (ii)
improvement of inventory control and (iii) reduction of manufacturing, selling
and administrative personnel, as discussed below.
M Recent manufacturing and engineering improvements and cost-saving
measures undertaken by the Company include:
- Implementation in June 1995 of an automated liquid color system, thereby
eliminating a costly manual mixing process (estimated annualized cost
savings: $600,000);
- Implementation in the summer of 1995 of production changes which
improved yields, including reduction of manufacturing set-up costs and
reduction of scrap costs (estimated annualized cost savings: $725,000);
- Conversion in December 1995 of plastic molding material from thermal
plastic to a lower cost thermoset material (estimated annualized cost
savings: $800,000); and
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<PAGE> 38
- Consolidation in February 1996 of the plastic molding operations
formerly housed in its Norwich, New York facility into the Canton,
Pennsylvania facility and the temporary conversion of the Norwich
facility to a warehouse pending its sale (estimated annualized cost
savings: $800,000).
M In January 1995, control of all domestic inventories was assigned to a
single person who was made responsible for reducing inventory levels,
which was a substantial factor contributing to a $11.9 million reduction
in domestic inventory levels from September 1995 to September 1996.
M In April 1996, the Company implemented a reduction in its European
overhead, selling and administrative personnel (estimated annualized cost
savings: $2.9 million).
The benefits of these programs are reflected in the Company's operating
results from the dates of their implementation. The estimated annualized cost
savings set forth above are based on 1995 production levels, and the actual
savings will vary based on future production levels and other factors. There can
be no assurance that all of such estimated cost savings will be realized in the
near-term or at all.
In addition to the foregoing operating improvements, the Company intends to
terminate the manufacture of steam cleaners at its facility in Salindres, France
in order to consolidate all of its European manufacturing activities into its
facility in Tralee, County Kerry, Ireland. The Company expects the cumulative
annual cost savings resulting from this consolidation to offset the closedown
charge within two years and does not expect to incur substantial additional
fixed costs as a result of this consolidation. There can be no assurance that
such estimated cost savings will be realized in the next two years or at all.
The Company also intends to terminate its distribution operations in Austria,
Germany, Hungary, the Netherlands and Spain in favor of selling directly to
customers in these markets. See "-- Liquidity and Capital Resources."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items in the Company's consolidated
statement of earnings:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------- -----------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................ 72.4 72.8 77.6 77.0 74.9
----- ----- ----- ----- -----
Gross profit............................ 27.6 27.2 22.4 23.0 25.1
Selling, general and administrative
expense.................................... 17.1 16.7 15.4 16.7 15.8
Restructuring charges........................ -- -- -- -- 4.0
----- ----- ----- ----- -----
Operating income........................ 10.5 10.5 7.0 6.3 5.3
Interest expense............................. 3.2 3.5 5.0 5.4 4.7
Non-operating expense (income), net.......... (0.4) -- 0.2 0.2 0.3
----- ----- ----- ----- -----
Income (loss) from continuing operations
before income taxes and cumulative
effect of changes in accounting
principles............................ 7.7 7.0 1.8 0.7 0.3
Income taxes (benefit)....................... 2.3 2.0 0.6 0.6 0.7
----- ----- ----- ----- -----
Income (loss) from continuing operations
before cumulative effect of change in
accounting principles................. 5.4 5.0 1.2 0.1 (0.4)
===== ===== ===== ===== =====
</TABLE>
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995
Net sales in the nine months ended September 30, 1996 totaled $151.3
million, a decrease of approximately $13.8 million or 8.4%, compared to net
sales of $165.1 million in the nine months ended September 30, 1995. This
decrease is attributable primarily to (i) three major domestic retailers'
general reduction of their respective wet/dry vacuum inventory balances in
conjunction with overall programs to
32
<PAGE> 39
reduce inventory levels and reduced QSP sales in the third quarter of 1996
compared to 1995 due to the introduction of the QSP which resulted in increased
third quarter 1995 sales to fill base inventory requirements ($9.8 million) and
(ii) lower sales volume in Europe ($4.0 million), which reflects a reduction in
the volume of steam cleaner sales due to negative publicity about steam cleaning
generally ($2.7 million) and the strengthening U.S. dollar in 1996 ($1.3
million).
Gross profit in the nine months ended September 30, 1996 totaled $37.9
million, no change when compared to gross profit in the nine months ended
September 30, 1995, despite the decline in net sales described above. Gross
profit as a percentage of net sales increased from 23.0% in the nine months
ended September 30, 1995 to 25.1% in the nine months ended September 30, 1996.
This increase in gross profit as a percentage of net sales resulted from (i) a
reduction in the cost of raw materials ($1.2 million), (ii) a lesser impact in
the 1996 period of the inventory reduction at its major domestic customers
compared to the 1995 period ($1.0 million), (iii) the manufacturing cost savings
implemented in late 1995 ($1.0 million) and (iv) the charges incurred in 1995
relating to the replacement of wet/dry vacuums in Australia as a result of
defective motor components purchased from an independent vendor (from whom the
Company no longer purchases any components) and incorporated in the Company's
products sold in Australia ($300,000). These improvements were offset by a
decline in gross profit as a result of the decrease in net sales when compared
to the prior year ($3.5 million).
SG&A expense decreased to $23.8 million in the nine months ended September
30, 1996 from $27.4 million in the nine months ended September 30, 1995, a
decrease of approximately $3.6 million or 13.1%. SG&A expense as a percentage of
net sales decreased from 16.7% in the nine months ended September 30, 1995 to
15.8% in the nine months ended September 30, 1996. This decrease in SG&A expense
was primarily attributable to reductions to European sales and administrative
personnel and related expenses ($1.9 million), reductions in executive
compensation ($400,000), and reductions in domestic and foreign advertising and
product promotions corresponding to the reduced sales ($600,000 and $700,000
respectively).
Before the restructuring charge described below, operating income increased
to $14.1 million in the nine months ended September 30, 1996 from $10.5 million
in the nine months ended September 30, 1995, an increase of approximately $3.6
million or 34.4%. Operating income before restructuring as a percentage of net
sales increased to 9.3% in the nine months ended September 30, 1996 from 6.3% in
the nine months ended September 30, 1995.
An operating charge for restructuring European operations was incurred in
the third quarter of 1996 for $6.0 million. A $2.3 million charge resulted from
the anticipated cost of severance, lease payments, and related shutdown expenses
of the Salindres, France facility that currently manufactures steam cleaners.
These operations will be consolidated with the current floor care manufacturing
facilities in Tralee, Ireland later this year. Further, a $3.7 million charge
was recognized for severance, lease payments, and related shutdown expenses of
the distribution operations in Austria, Germany, Hungary, the Netherlands, and
Spain. The Company will ship products to its major European customers directly
from its manufacturing facility in Ireland.
Operating income after restructuring decreased to $8.1 million in the nine
months ended September 30, 1996 from $10.5 million in the nine months ended
September 30, 1995, a decrease of approximately $2.4 million or 22.9%. Operating
income as a percentage of net sales decreased to 5.3% in the nine months ended
September 30, 1996 from 6.3% in the nine months ended September 30, 1995.
Interest expense was $7.2 million in the nine months ended September 30,
1996, a decrease of $1.8 million or approximately 20.0%, compared to $9.0
million in the nine months ended September 30, 1995. Interest expense as a
percentage of net sales decreased from 5.4% in the nine months ended September
30, 1995 to 4.7% in the nine months ended September 30, 1996. This decrease was
related to a decrease in borrowings in the first nine months of 1996 due to (i)
the McCulloch disposition, which eliminated the need to finance McCulloch's
working capital, and (ii) the application of the McCulloch sale proceeds to
reduce existing outstanding debt.
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<PAGE> 40
Fiscal Year Ended December 31, 1995 Compared to Fiscal Year Ended December 31,
1994
Net sales in 1995 totaled $231.3 million, a decrease of approximately $19.5
million or 7.8%, compared to net sales of $250.8 million in 1994. This decrease
was primarily related to (i) a decrease in sales of the Company's steam cleaners
in France and Germany from $31.9 million to $16.0 million following negative
press reports in 1994 about the safety of steam cleaning products, which was
partially offset by a general increase in sales of European floor care products
($9.0 million), and (ii) a $12.6 million decrease in North American sales of
wet/dry vacuums due, in part, to (a) a decrease in net sales to warehouse clubs
which typically rotate product offerings in order to appeal to a captive
customer base ($3.9 million), (b) reductions in net sales to retailers which
experienced financial difficulties in 1995 ($3.8 million), (c) a decrease in
inventory levels maintained by two major customers in conjunction with an
overall program to reduce inventory levels ($3.0 million), and (d) mild winter
weather as well as other general factors ($1.9 million).
Gross profit in 1995 totaled $51.9 million, a decrease of approximately
$16.2 million or 23.8%, compared to gross profit of $68.1 million in 1994. Gross
profit as a percentage of net sales decreased from 27.2% in 1994 to 22.4% in
1995. This decrease in gross profit as a percentage of net sales was primarily
related to (i) the decline in European sales of steam cleaners described above
($4.8 million) and the absence of a corresponding reduction in fixed
manufacturing overhead ($2.0 million), (ii) an increase in raw materials cost
that was only partially offset by a corresponding price increase instituted by
the Company ($3.7 million), (iii) the decline in North American sales described
above ($3.3 million) and (iv) fixed overhead costs incurred during a temporary
domestic manufacturing slowdown implemented by management in response to lower
sales volume in the first six months of 1995 ($3.2 million). In addition, the
Company recorded a $1.0 million charge due to the return of products sold in
Australia as a result of defective motor components described above. These
decreases were partially offset by increased gross profit of $1.8 million on
European sales of wet/dry vacuums.
SG&A expense decreased to $35.6 million in 1995 from $41.9 million in 1994,
a decrease of approximately $6.2 million or 14.9%. SG&A expense as a percentage
of net sales decreased from 16.7% for 1994 to 15.4% for 1995. This decrease was
primarily attributable to (i) reductions in executive compensation ($1.1
million), reductions in domestic administrative personnel ($500,000) and
reductions in European sales and administrative personnel ($1.2 million)
implemented in the second quarter of 1995, (ii) reductions of various domestic
corporate overhead costs ($1.4 million), (iii) lower domestic media advertising
in 1995 than in 1994, which had been increased in 1994 in anticipation of the
launch of the Company's new QSP(@) product line ($1.0 million), (iv) other
reductions in domestic selling expenses ($500,000) and (v) reductions in
European advertising and selling expenses ($500,000).
Operating income decreased to $16.3 million in 1995 from $26.3 million in
1994, a decrease of approximately $10.0 million or 38.1%. Operating income as a
percentage of net sales decreased to 7.0% in 1995 from 10.5% in 1994. This
decrease was a result of the factors discussed above.
Interest expense was $11.6 million in 1995, an increase of approximately
$2.8 million or 31.8%, compared to $8.8 million in 1994. Interest expense as a
percentage of net sales increased from 3.5% in 1994 to 5.0% in 1995. This
increase was primarily related to additional borrowings under the Old Revolving
Credit Facility, as well as increased interest rates in 1995.
Fiscal Year Ended December 31, 1994 Compared to Fiscal Year Ended December 31,
1993
Net sales totaled $250.8 million in 1994, an increase of approximately
$26.1 million or 11.6%, compared to net sales of $224.7 million in 1993. This
increase was primarily due to (i) the successful introduction of the Shop-Vac
1x1(@) in April 1994 ($17.2 million) and (ii) increased sales of the Company's
other wet/dry vacuum products in North America ($6.6 million) and in Europe
($2.3 million).
Gross profit in 1994 totaled $68.1 million, an increase of approximately
$6.1 million or 9.9%, compared to gross profit of $62.0 million in 1993.
However, gross profit as a percentage of net sales decreased from 27.6% for 1993
to 27.2% in 1994. The increase in gross profit from 1993 to 1994 was
attributable to higher sales volume. The decrease in gross profit as a
percentage of net sales was attributable to a slight decline in gross margin,
reflecting a shift in product mix after the introduction of the Shop-Vac 1x1(@),
which bears a lower gross margin than the Company's larger wet/dry vacuum
products.
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<PAGE> 41
SG&A expense increased to $41.9 million in 1994 from $38.4 million in 1993,
an increase of approximately $3.4 million or 9.0%. SG&A expense as a percentage
of net sales decreased from 17.1% in 1993 to 16.7% in 1994. The increase in SG&A
expense was attributable to (i) increased cooperative advertising and product
promotion expenses in North America ($1.3 million) and Europe ($1.1 million) and
(ii) unusually high media advertising expenditures incurred in the fourth
quarter of 1994 in anticipation of the introduction of the Company's new QSP(@)
product line in April 1995 ($1.0 million).
Operating income increased to $26.3 million in 1994 from $23.6 million in
1993, an increase of approximately $2.7 million or 11.4%. This increase in
operating income was a result of the factors described above.
Interest expense increased to $8.8 million in 1994, an increase of
approximately $1.6 million or 22.4% from $7.2 million in 1993. Interest expense
as a percentage of net sales increased slightly from 3.2% in 1993 to 3.5% in
1994. The increase in interest expense was primarily attributable to additional
borrowings under the Old Revolving Credit Facility in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of cash are cash flow from operations and
borrowings under its revolving credit facilities. The Company anticipates that
its principal uses of cash will be to provide working capital, finance capital
expenditures and meet debt service requirements.
Net cash provided (used) by operating activities was $6.6 million, $3.7
million, $(18.9 million) and ($4.4 million) in 1993, 1994, 1995 and the first
nine months of 1996, respectively, which includes net cash (used) in connection
with the discontinued McCulloch operations of $(11.4 million), $(7.1 million),
$(9.3 million) and $(3.2 million) in 1993, 1994, 1995 and the first nine months
of 1996, respectively. Net cash used for operating activities in 1995 of $18.9
million represents a use of cash borrowed under the Old Revolving Credit
Facility and foreign lines of credit to reduce accounts payable and accrued
expenses.
The Company's capital expenditures in 1993, 1994, 1995 and the first nine
months of 1996, excluding capital expenditures incurred with respect to the
discontinued McCulloch operations, were approximately $7.7 million, $7.8
million, $8.0 million and $200,000, respectively. The Company's remaining
capital expenditure requirements for 1996 are budgeted to be approximately $1.8
million. Capital expenditures for 1997 and 1998 are budgeted to be $3.0 million
and $3.5 million, respectively. The decline in the Company's capital expenditure
budget for 1996 and later years reflects a decline in anticipated capital
requirements as a consequence of major capital improvements made by the Company
in 1993, 1994 and 1995. The Company's capital expenditures incurred with respect
to the discontinued McCulloch operations in 1993, 1994, 1995 and the first nine
months of 1996 were approximately $7.2 million, $12.6 million, $2.9 million and
nil, respectively.
On May 25, 1995, the Old Revolving Credit Facility and the Old Senior Notes
were amended to permit the Company to incur $20.0 million of additional
borrowings under the Old Revolving Credit Facility for seasonal working capital
needs, of which approximately $16 million was borrowed during July 1995 and all
but $3.4 million was repaid as of October 31, 1995. However, in exchange for
such accommodation, the Company agreed to reduce its aggregate outstanding debt
by $60 million by not later than December 31, 1995.
On November 1, 1995, the Company sold McCulloch in exchange for aggregate
net proceeds of $30 million, and a charge of $120.3 million was taken in the
last quarter of 1995 to reflect the Company's loss on the sale of McCulloch,
including a $19.6 million charge for certain obligations arising as a result of
the sale of McCulloch and the closure of the McCulloch operations in Europe.
Anticipated cash costs of approximately $16.6 million to be paid over the
next five years, approximately two-thirds of which are anticipated to be paid by
December 31, 1997, relate to the Company's indemnification obligations to the
purchaser of McCulloch, the closure of McCulloch operations in Europe and the
United States, severance obligations, warehouse closings and lease terminations,
among other items. Through September 30, 1996 approximately $1.9 million of cash
had been paid with respect to those items. In connection with the McCulloch
disposition, the Company entered into a distribution agreement pursuant to which
the Company agreed to distribute McCulloch products in certain countries in
Western Europe. The
35
<PAGE> 42
Company has notified McCulloch of its intent to terminate the distribution
agreement effective not later than December 31, 1996. The Company expects that a
limited portion of the costs associated with the closure of McCulloch's European
distribution operations will be offset by the estimated net proceeds generated
from the liquidation of McCulloch-related assets of approximately $8.6 million.
There can be no assurance, however, as to the actual amount, or timing of the
receipt, of proceeds to be received with respect to the liquidation of such
inventory and accounts receivable. See "McCulloch Disposition" and Note 11 to
the consolidated financial statements of the Company and its subsidiaries
included elsewhere herein.
The Company applied the $30 million of aggregate net proceeds from the sale
of McCulloch (i) to repay the remaining $3.4 million outstanding under the $20
million loan, (ii) to retire an $8.0 million term loan, (iii) to repay $8.3
million borrowed under the Old Revolving Credit Facility, (iv) to retire $9.2
million of the Old Senior Notes and (v) to pay a $1.1 million prepayment penalty
with respect to the Old Senior Notes. The Company, the lender under the Old
Revolving Credit Facility and the Holders of the Old Senior Notes agreed to
modify the terms of certain financial covenants through January 1, 1996 to
permit the Company to reconfigure its capital structure following the sale of
McCulloch. Prior to the Company's repayment of the Old Revolving Credit Facility
and the Old Senior Notes with a portion of the proceeds from the Private
Offering, the Company had been in breach of various financial covenants of both
the Old Senior Notes and the Old Revolving Credit Facility. In addition, the
Company failed to make a $6.7 million required principal payment in April 1996
to the Holders of the Old Senior Notes, and that payment default caused a
cross-default under the Old Revolving Credit Facility. See "Risk
Factors -- Substantial Leverage; Recent Defaults" and "Description of Certain
Indebtedness."
On August 28, 1996 the Company entered into the Amendment Agreements,
whereby (i) the Old Revolving Credit Facility was increased to $62.5 million and
(ii) the requirements to comply with financial covenants and make principal
payments were suspended through October 31, 1996 under each of the Old Revolving
Credit Facility and the Old Senior Notes. Both the Old Revolving Credit Facility
and the Old Senior Secured Notes were repaid in full with a portion of the
proceeds of the Private Offering. The Company currently is in full compliance
with the terms of all of its financings.
The Company intends to terminate the manufacture of steam cleaners at its
facility in Salindres, France in order to consolidate all of its European
manufacturing activities into its facility in Tralee, County Kerry, Ireland. In
connection with the foregoing consolidation, the Company incurred a charge in
the third quarter of 1996 of approximately $2.3 million to cover severance,
lease payments, shut-down and related expenses, of which approximately $1.5
million will be cash expenditures incurred over the next twelve months. See
"Risk Factors -- Foreign Operations."
The Company also intends to terminate its distribution operations in
Austria, Germany, Hungary, the Netherlands and Spain in favor of selling
directly to customers in these markets. In connection with such termination, the
Company incurred a charge in the third quarter of 1996 of approximately $3.7
million to cover severance, lease payments, shut-down and related expenses, of
which approximately $2.0 million will be cash expenditures incurred over the
next twelve months. Although the Company expects that the termination of these
distribution operations will negatively impact sales in the near-term, the
Company expects to continue sales to its major customers in these markets on a
direct basis. See "Risk Factors -- Foreign Operations."
In connection with the Private Offering, the Company entered into the New
Revolving Credit Facility. The New Revolving Credit Facility permits borrowings
in an amount not to exceed the lesser of $25 million or a borrowing base as set
forth in the New Revolving Credit Facility. Amounts outstanding under the New
Revolving Credit Facility will bear interest at either (i) 0.75% plus the higher
of (a) the federal funds rate plus 0.50% per annum and (b) the agent's prime
commercial lending rate or (ii) LIBOR plus 2%, determined at the Company's
option, and are secured by a first priority lien on the accounts receivable and
inventory of the Company and Felchar. As of October 31, 1996, the Company had
approximately $23.0 million of unborrowed availability under the New Revolving
Credit Facility. In addition, in connection with the Private Offering, the
Company entered into employment agreements with certain executives that provide
for incentive compensation. See "Description of Certain Indebtedness -- New
Revolving Credit Facility" and "Management -- Other Arrangements."
36
<PAGE> 43
The Company is, and will continue to be after the issuance of the Exchange
Notes offered hereby, highly leveraged and borrowings under the New Revolving
Credit Facility will increase the Company's debt service requirements. The
Company believes that, based on current levels of operations and anticipated
improvements in operating results, cash flow from operations and borrowings
under the New Revolving Credit Facility will be sufficient to conduct its
business and to meet its near-term debt service obligations, working capital
needs, capital expenditures and the cash charges described above. However, there
can be no assurance that future cash flow of the Company will be sufficient to
meet the Company's obligations and commitments or that anticipated improvements
in operating results will be achieved. In the event the Company is unable to
meet its obligations with respect to such indebtedness, it may be required to
refinance or restructure all or a portion of such indebtedness, sell material
assets or operations or seek to raise additional debt or equity capital. There
can be no assurance that the Company would be able to effect any such
refinancing or restructuring or sell assets or obtain any such additional
capital on satisfactory terms or at all. See "Risk Factors -- Substantial
Leverage; Recent Defaults."
TAX LOSS CARRYFORWARD
The Company has an estimated tax loss carryforward for income tax purposes
of $48.7 million at December 31, 1995 and September 30, 1996. That tax loss
carryforward is available to reduce federal income taxes, if any, through 2010
and to reduce state income taxes over various carryforward periods. Based on the
Company's historical and current pretax earnings, management believes that the
recorded deferred tax assets, net of valuation allowance, will be realized.
FOREIGN OPERATIONS
The Company has significant operations outside the United States and
Canada, located principally in Western Europe. During the year ended December
31, 1995 and the nine months ended September 30, 1996, the Company generated
revenues from sales outside of the United States and Canada of $83.3 million and
$57.4 million, respectively, representing approximately 36% and 38% of the
Company's total revenues during such periods. See "Risk Factors -- Foreign
Operations" and Note 8 to the consolidated financial statements of the Company
and its subsidiaries included elsewhere herein.
When appropriate, the Company enters into foreign exchange contracts to
hedge its foreign exchange exposure. The objective of the hedging program is to
manage the risk of adverse cash flow due to fluctuations in foreign currencies.
At December 31, 1995 and September 30, 1996, the Company had approximately $36.2
million and $12.9 million in foreign exchange forward contracts outstanding,
respectively. See Note 1 to the consolidated financial statements of the Company
and its subsidiaries included elsewhere herein.
ENVIRONMENTAL
As a result of inspections by the ADEQ, the Company became aware of
chromium contamination beneath McCulloch's plating operations in Lake Havasu
City, Arizona. See "Business -- Environmental" and "Risk
Factors -- Environmental." In January 1995, McCulloch entered into a consent
order with the ADEQ pursuant to which McCulloch has begun to remediate the site.
In connection with the McCulloch disposition, the Company agreed to indemnify
the purchaser for environmental liabilities with respect to all circumstances
existing prior to the closing of the McCulloch disposition, other than (i) the
first $1.25 million and (ii) 50% of the second $1.25 million of environmental
liabilities stemming from chromium contamination beneath McCulloch's plating
operations in Lake Havasu City, Arizona. Since the closing of the McCulloch
disposition, McCulloch has discovered two distinct incidences of contamination
at the Lake Havasu City facility in addition to the chromium contamination: (i)
low concentrations of trichloroethylene in groundwater and (ii) gasoline-related
substances (i.e., benzene, toluene, ethylbenzene and xylene) down-gradient of
the site where two underground gasoline storage tanks were removed in 1992. The
sites are currently under investigation by McCulloch and the ADEQ, and
additional groundwater sampling has been proposed. Although the Company has a
reserve to satisfy current and potential environmental claims, there can be no
assurance that such reserve will be sufficient to cover all charges with respect
to the Company's environmental indemnity obligations or that the Company will
have adequate resources to satisfy McCulloch's claims under the environmental
indemnity. See "Risk Factors -- Environmental" and "McCulloch Disposition."
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<PAGE> 44
RAW MATERIALS
The Company's operating profit margins are sensitive to the price of raw
materials, particularly copper, plastic resin and corrugated boxes. From January
1, 1994 through September 30, 1995, the Company experienced a 23% increase in
the price of copper, a 26% increase in the price of plastic resin and a 33%
increase in the price of corrugated paper, and the Company instituted a price
increase to offset these higher costs partially. At September 30, 1996, the
prices of these raw materials had moderated such that they were comparable to
prices existing at January 1, 1994. The Company does not believe that future raw
material price increases in excess of price increases that may be obtained from
customers will have a materially adverse effect on its operations taken as a
whole. See, however, "Risk Factors -- Cost of Raw Materials." Although
historically the Company has not hedged the prices of its raw materials,
management is in the early stages of evaluating the benefits of hedging some of
its raw materials purchases with the use of futures contracts. See
"Business -- Raw Materials and Suppliers."
SEASONALITY
Because the Company's business is largely dependent on the retail industry,
seasonality and cyclical trends in the retail industry can affect the Company's
results of operations. The Company typically generates the largest percentage of
its annual revenues in September, October and November in connection with the
Christmas season. Correspondingly, working capital needs usually peak during
August, September and October as the Company increases production in
anticipation of increased sales. The Company's sales as a percentage of total
annual sales in the three-month periods ended November 30, 1993, 1994 and 1995
were 29%, 32% and 30%, respectively.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of" ("SFAS No. 121")
in March 1995. SFAS No. 121 is mandatory with respect to fiscal years beginning
after December 15, 1995; however, the Company does not expect that complying
with SFAS No. 121 will have a significant effect on the Company's consolidated
financial statements. In addition, FASB has issued SFAS No. 123, "Accounting for
Stock-Based Compensation," and SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," neither of
which are expected to have a significant effect on the Company's consolidated
financial statements. The AICPA has issued Statement of Position 96-1,
"Environmental Remediation Liabilities" which is required to be adopted for the
fiscal year ending December 31, 1997 and is not expected to have a significant
effect on the Company's consolidated financial statements.
38
<PAGE> 45
BUSINESS
OVERVIEW
Shop Vac is the leading worldwide manufacturer and marketer of consumer and
industrial wet/dry vacuum cleaners and accessories. The Company estimates that
its products account for over half of the domestic consumer wet/dry vacuum
market, with at least twice the market share of its closest competitor. The
Company also markets its wet/dry vacuums internationally in over 70 countries
under the Aqua-Vac(@) and Goblin(@) brand names. The Aqua-Vac(@) line of wet/dry
vacuums is a leading brand in Western Europe. Shop Vac has maintained its
leading worldwide market position by promoting strong brand awareness and
product quality, building and maintaining close relationships with its customers
and, in North America, utilizing cost-effective vertically integrated
manufacturing processes.
In 1956, Martin Miller, the founder of the Company, pioneered the original
concept of a shop vacuum. The Company has maintained its leadership position in
North America since the Company introduced the wet/dry vacuum to the consumer
market under the Shop-Vac(@) brand name in the late 1960s. In the early 1970s,
Mr. Miller's sons, Jonathan and Matthew, the current presidents of the Company's
North American and European divisions, respectively, joined the Company and
began to expand operations both domestically and internationally. In the early
1980s, in order to increase production efficiency and to minimize costs, the
Company made strategic decisions to expand the manufacturing capability of its
domestic operations by establishing operations to produce motors and plastic
parts for the Company's products and creating a dedicated in-house sales force.
The Company also expanded its international operations, particularly in Europe,
in order to take advantage of the growing European demand for its products and
to pursue distribution in developing markets in Africa, the Middle East and
Asia.
The Company produces a comprehensive line of wet/dry vacuums in various
combinations of tank size, motor horsepower and accessories, which are designed
for consumer, industrial/commercial and professional needs. Features include
motors ranging from 1.0 to 5.0 peak horsepower, tank sizes ranging from one to
55 gallons, detachable hand-held blowers and a variety of accessories such as
extension wands, brushes and nozzles. The Company designs most of its products
for the consumer market, which accounted for approximately 90% of the Company's
net sales in 1995. The Company introduced into the North American market its new
corded, portable wet/dry vacuum, the Shop-Vac 1x1(@), in April 1994, and the
QSP(@) (Quiet Super Power) line of wet/dry vacuums, offering easier handling and
a quieter operation without sacrificing motor power, in April 1995. In Europe,
the Company also manufactures and markets a full line of floor care products in
addition to its wet/dry vacuums, including conventional vacuums, carpet cleaners
and steam cleaners to selected markets. In 1991, the Synchro(@) line of vacuums
was introduced in Europe. The Synchro(@) includes an adaptor that enables power
tools, such as electric saws and sanders equipped with dust extraction outlets,
to be connected directly to the vacuum. In 1995, the Multipro(@), a new "quiet"
operating wet/dry vacuum and carpet shampooer, was introduced in Europe. As a
result of the introduction of these new products and other factors, the Company
has maintained and strengthened its leading market position.
Shop Vac's product design, operations, sales and marketing are managed in
two groups: (i) North America, which is comprised of the United States, Canada,
Latin America and Australia, and (ii) Europe, which is comprised of Europe and
the remaining countries in which the Company does business. The Company sells
its products in North America through its own direct sales force primarily
through national and regional mass merchandisers, home centers, hardware chains,
warehouse clubs and industrial distributors. The Company's major North American
customers include Ace Hardware, Canadian Tire, W.W. Grainger, Home Depot, Kmart
and Wal-Mart. The Company sells its products in the more fragmented European
market primarily through home centers and electrical appliance chains, as well
as through catalogs. Shop Vac's customers in Europe include home centers, such
as Homebase Limited ("Homebase") in the United Kingdom, Castorama in France and
Baus Handelsges A.G. ("Bauhaus") in Germany; electrical appliance chains, such
as Curry's in the United Kingdom and ETS Darty et Fils ("Darty") in France;
catalog showrooms, such as Argos in the United Kingdom; mail order catalogs,
such as GUS Home Shopping Limited ("GUS") in the United Kingdom, S.A. La Redoute
France ("La Redoute") in France and Otto in
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<PAGE> 46
Germany; and hypermarkets, such as Carrefour in France and MGE Einkauf G.m.b.H.
(the "Metro Group") in Germany.
COMPETITIVE STRENGTHS
Management believes that the Company enjoys the following competitive
advantages:
Strong Brand Name Recognition. The Shop-Vac(@) brand name has been
synonymous in North America with the wet/dry vacuum since the Company introduced
the wet/dry vacuum cleaner to the consumer market in the late 1960s. Independent
market research indicates that awareness of the Shop-Vac(@) brand name among
potential wet/dry vacuum purchasers in the United States has averaged
approximately 90% since 1987. The Company's international brands, Aqua-Vac(@)
and Goblin(@) also have strong brand name recognition in their respective
markets. The Company has built and maintained its well-recognized brand name by
manufacturing and selling high quality, powerful products at competitive prices.
Market Leadership. The Shop-Vac(@) brand image has helped the Company
achieve and maintain the leading position in its major markets. The Company
estimates that its products currently account for more than half of the $275
million domestic consumer wet/dry vacuum industry, with more than twice the
market share of its largest domestic competitor. In addition, the Aqua-Vac(@)
brand of wet/dry vacuums is a leading brand in Western Europe. See "Risk
Factors -- Competition" and " -- Competition."
Established Customer Relationships and Extensive Distribution Network. The
Company has been the primary supplier of wet/dry vacuums to its top ten
customers in the United States and Canada for an average of over 17 years. In
addition, the Company's products currently account for virtually all of the
wet/dry vacuum business of seven of its top ten customers in the United States
and Canada, and many retailers carry the Company's products at all of their
locations. Although the European market is more fragmented than in the United
States and Canada, the Company benefits from its well-established relationships
with major retailers in various Western European countries. The Company
estimates that its products are distributed through over 25,000 retail outlets
in North America and over 5,000 retail outlets in Europe.
Distinct Product Position. In North America, the Company's wet/dry
products are positioned by retailers as utility vacuums and, therefore, are sold
through hardware, rather than floor care, departments. As a result, in North
America Shop-Vac(@)'s wet/dry products do not compete with conventional vacuums
for retailer shelf space. In addition, the Company enjoys diversified
distribution through hardware chains and home centers, as well as through mass
merchants. As a hardware product, Shop Vac has benefited from the trend towards
"do-it-yourself" work by homeowners and the growth of national home center
chains. A similar trend is developing in Europe which the Company believes will
enhance its sales in Europe in light of the Company's relationships with
European home center chains.
Brand Loyalty. Management estimates that approximately half of the
Company's domestic sales in 1995 were to customers who, at that time, owned or
had previously owned a Shop-Vac(@). The Company estimates that it has an
installed base of approximately 18.0 million wet/dry vacuum units in North
America and approximately 3.5 million units in Europe, with these Shop-Vac(@)
and Aqua-Vac(@) owners being likely to purchase new or replacement Shop-Vac(@)
and Aqua-Vac(@) vacuums in the future. In addition, the Company's installed base
results in Shop-Vac(@) and Aqua-Vac(@) owners purchasing replacement parts,
filters and other related products, which accounted for approximately 10% of net
sales in 1995.
Low Cost Producer. The Company has over 25 years of experience in
developing, manufacturing and continually enhancing its line of wet/dry vacuum
cleaners and related products. To maximize profitability, the Company is
vertically integrated in North America. By controlling all major aspects of the
manufacturing process through its integrated facilities in North America, the
Company is able to control product quality and reduce lead times and delivery
costs. In addition, as a vertically integrated manufacturer, the Company is able
to design new products and enhance existing products in order to facilitate a
simplified manufacturing process, thereby reducing costs. Since the European
market is more fragmented, the Company outsources the majority of its
components, which allows for the added flexibility that is necessary to offer
smaller and more diverse product offerings for sale in various countries.
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<PAGE> 47
Family Management and Ownership. The Company is owned and operated by
Jonathan and Matthew Miller, the sons of the Company's founder. Jonathan Miller,
the Chairman of the Board and Chief Executive Officer of the Company and the
President of the North American Group, has worked at the Company or its
predecessor, Craftool Company, since 1970. Matthew Miller, the President of the
European Group, has worked at the Company since 1975. The Miller family
collectively owns all of the capital stock of the Company, which has been
pledged as collateral for the Notes. See "Risk Factors -- Control by Principal
Stockholders; Dependence on Key Personnel," "Principal Stockholders," and
"Description of Exchange Notes -- Security."
BUSINESS STRATEGY
The Company's business strategy consists of the following key elements:
Emphasize Improved Profitability and Cash Flow. Following the decision to
sell McCulloch, the Company focused on its core operations and initiated a
series of operational improvements targeted at reducing expenses and increasing
cash flow. These improvements include consolidation of certain manufacturing
operations, administrative personnel reductions, improved inventory control and
implementation of manufacturing innovations and automation. For example, in
1995, the Company began using an automated liquid coloring system instead of a
manual mixing process and converted certain plastic parts from thermal plastic
to a lower cost thermoset material. In 1996, the Company consolidated its
plastic molding facility formerly in Norwich, New York into its Canton,
Pennsylvania operations and has initiated consolidation of a small manufacturing
facility in France into its European manufacturing operations in Ireland. The
benefits of these programs and the impact of certain other factors are evident
in the Company's recent operating results, including gross margin improvement
from 23.0% to 25.1% and a reduction in selling, general and administrative
expenses as a percentage of net sales from 16.7% to 15.8% for the nine months
ended September 30, 1995 and 1996, in each case, respectively. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
Maintain Leading Market Position. The Company intends to continue to
capitalize on the strengths of its brands and maintain its worldwide market
leadership position. In this capacity, the Company will continue to maintain
close relationships with its customers and manufacture quality products which
lead to high levels of customer satisfaction.
Expand International Sales. The Company intends to continue to leverage
the Shop-Vac(@) and Aqua-Vac(@)brand names to achieve global distribution of
products and product line extensions. The Company intends to increase its
advertising and promotional activity to broaden international awareness of its
products. As part of this strategy, the Company is seeking to develop
independent distribution channels in countries where it currently does not have
a major presence. In addition, from time to time, the Company coordinates with
its major customers' expansion into new markets. For example, while Shop Vac's
products have been sold in Mexico in the past, the Company intends to expand its
presence in Mexico and the rest of Latin America alongside Wal-Mart, its
longtime customer. See "Risk Factors -- Foreign Operations."
Emphasize Product Innovation. The Company seeks to expand the wet/dry
vacuum cleaner product category by introducing new products under the
Shop-Vac(@) and Aqua-Vac(@) brand names and continually upgrading existing
products in response to consumer preferences, changing market dynamics and
technological advancements. For example, in 1994, the Company successfully
introduced into the North American market the Shop-Vac 1x1(@), a smaller
light-weight hand-held wet/dry vacuum intended for use in the home. In addition,
in 1995, the Company began to offer the QSP(@)(Quiet Super Power) line of
wet/dry vacuums which offer easier handling and quieter operations without
sacrificing motor power. The QSP(@) is the only "quiet" wet/dry vacuum in the
market, and consumer response has been very favorable. In Europe, the Synchro(@)
line of vacuums was introduced in 1991. The Synchro(@) includes an adaptor that
enables power tools, such as electric saws and sanders equipped with dust
extraction outlets, to be connected directly to the vacuum. In 1995, the new
"quiet" operating wet/dry vacuum and carpet shampooer, the Multipro(@), was
introduced in Europe.
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<PAGE> 48
INDUSTRY OVERVIEW
The consumer wet/dry vacuum cleaner was introduced by the Company
commercially in the late 1960s. A wet/dry vacuum differs from a conventional
household vacuum primarily because (i) the wet/dry vacuum is specially designed
to allow debris entering the vacuum to bypass the motor, enabling the wet/dry
vacuum to intake water and heavy debris such as glass and nails; (ii) the
wet/dry vacuum utilizes a strong, concentrated suction to clean, as opposed to
an upright vacuum, which relies on a "beater bar" to agitate debris; and (iii)
the wet/dry vacuum does not require many of the expensive parts (such as a
beater bar, sophisticated wheels and canister cord rewinds) of a conventional
vacuum, thus significantly lowering manufacturing costs and enabling the wet/dry
product to retail at a substantially lower price.
North America
In North America, the consumer wet/dry vacuum is positioned as a utility
vacuum and is sold through hardware, rather than floor care departments. As a
result, the wet/dry product does not compete for retailer shelf space with
conventional vacuum cleaners. Generally viewed as a secondary household vacuum,
the wet/dry product is able to perform heavier cleaning functions in areas such
as the basement, garage and workshop that the standard vacuum cannot attempt.
Primary users of the consumer wet/dry vacuum are homeowners, many of whom
undertake "do-it-yourself" projects in their garages or workshops. According to
industry data, approximately half of the wet/dry vacuums sold in the United
States in 1995 were sold to first time purchasers. Based on informal marketing
surveys and the Company's experience, management believes that repeat customers
generally display a substantial amount of brand loyalty, typically purchasing
additional wet/dry products from the same manufacturer.
The Company estimates that the total market in the United States and Canada
for consumer wet/dry vacuum cleaners accounted for approximately $275.0 million
in annual sales in 1995. Consumer wet/dry vacuums are typically distributed and
sold through mass merchandise retailers, such as Kmart, Target Stores ("Target")
and Wal-Mart; home centers, such as Builder's Square, Hechinger Stores Company
("Hechinger") and Home Depot; warehouse clubs, such as Price Costco and Sam's
Club; hardware stores, such as Ace Hardware, Cotter & Company ("True Value
Hardware") and ServiStar Corporation ("ServiStar"). Over the last decade, the
expansion of mass merchandisers and home centers has contributed to the
consolidation of the retail industry. The proliferation of mass merchants and
home centers throughout the United States and, to a lesser extent,
internationally has led to a substantial increase in certain consumer purchases,
such as the wet/dry vacuum, at such locations and a decrease in such purchases
at less well-recognized and less accessible catalog showrooms and warehouse
clubs.
International
In Europe and the Middle East, the Company has positioned its products in
response to the fragmentation of that market and differing consumer expectations
and demands. Generally, consumers in Europe own only one vacuum because of space
limitations, as well as a lack of garages and basements. Consequently, in
European markets, the Company emphasizes the practical utility of its products
by offering additional features and accessories. As the European Community
continues to exert its influence over cross-border trading in Europe, the
fragmentation of that market should decrease. Historically, sales in Europe have
been conducted through local distributorships that adapted to local requirements
and consumer expectations. As fragmentation decreases and the need for local
distributors diminishes accordingly, manufacturers of consumer products are more
likely to sell directly to retailers to bypass costly middlemen and enhance
their competitive positions throughout Europe. See "-- Products" and "-- Sales
and Marketing."
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<PAGE> 49
PRODUCTS
North America
In North America, the Company offers the industry's broadest line of
consumer and industrial wet/dry vacuums, manufacturing 46 consumer models and
approximately 49 industrial models, in addition to a full line of accessories.
The table below sets forth an overview of the Company's wet/dry vacuum products
offered in North America, as well as the primary distribution channels, target
markets and product categories:
<TABLE>
<CAPTION>
PRIMARY
SIZE/POWER MODEL(S) DISTRIBUTION CHANNEL TARGET MARKET
- -------------------- ---------- ------------------------ ----------------
<S> <C> <C> <C>
1 Gallon Hand-held Mass Merchants Consumer
1.0 Horsepower Home Centers
Hardware Chains
Industrial Distributors
5-25 Gallon Original Mass Merchants Consumer
1.25-5.0 Horsepower QSP(@) Home Centers
Hardware Chains
Industrial Distributors
Warehouse Clubs
10-16 Gallon Original Home Centers Contractor
3.0-5.0 Horsepower Industrial Distributors
5-55 Gallon Original Industrial Distributors Industrial
1.7-3.5 Horsepower
</TABLE>
Consumer Line. The Company's consumer line of wet/dry products accounts
for the majority of its sales, totalling approximately 86% of 1995 net sales in
the United States (including wet/dry accessories). The consumer line consists of
46 models, differing primarily in size, motor power and included accessories,
which are marketed at suggested manufacturers' retail prices of between $29.99
and $129.99. The storage capacity of the Company's consumer vacuums ranges from
one gallon to 25 gallons, motor power varies from 1.0 to 5.0 peak horsepower,
and various accessories include filters, brushes and hoses. Certain of Shop
Vac's products include detachable motors that can be used as leaf blowers in
conjunction with a nozzle accessory. The hand-held blower allows easy clean-up
of leaves, grass and other light debris from sidewalks, pool areas, decks and
patios.
Industrial/Commercial Line. The industrial line, comprised of 49 models
and marketed primarily to heavier users such as factories, warehouses and
hospitals, features more powerful, longer-lasting motors and larger capacity
tanks (ranging from five to 55 gallons) made of plastic, metal or stainless
steel. The units are equipped with heavy-duty carts for easy mobility and
additional accessories and filtration devices. The Company's industrial wet/dry
vacuums are manufactured for daily use and have a longer average useful life
than the Company's consumer products. The industrial line, which includes
products manufactured for W.W. Grainger under the Dayton brand name, accounted
for approximately 11% of the Company's net sales in the United States in 1995.
Contractor Line. The contractor line of wet/dry vacuums, marketed
primarily to small industrial businesses, independent contractors and
experienced woodworkers, offers larger capacity metal or stainless steel tanks,
more powerful motors and better filtration than the consumer line, and comes
equipped with heavy-duty carts to facilitate mobility. This line of products is
primarily sold in home centers such as Home Depot and warehouse clubs such as
Sam's Club and Price Costco. The contractor line accounted for approximately 3%
of the Company's net sales in the United States in 1995.
Private Label. The Company produces wet/dry products for other
manufacturers or retailers under such entity's brand label. Customers include
Makita U.S.A., Inc., Milwaukee Electric Tool Corporation and Sioux Tool, Inc.
The Company also sells vacuum components to other manufacturers such as Parts
Company of America and Tennant Co. Private label sales accounted for
approximately 1% of the Company's net sales in the United States in 1995.
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<PAGE> 50
Accessories. The Company offers the industry's widest range of wet/dry
vacuum accessories, manufacturing 125 stock keeping units ("SKUs") aimed at
increasing the versatility of its products. Accessories include replacement
parts such as filters and hoses and additional tools such as brushes, wands,
nozzles and crevice tools which can be used in conjunction with the basic unit.
Customers may purchase accessories from retail locations or order them directly
from the Company. Accessory sales represented approximately 10% of the Company's
net sales in the United States in 1995.
Industrial Sweepers. The Company produces a line of three motorized
"walk-behind" sweepers for W.W. Grainger, and manufactures a manual push sweeper
for sale under the Shop-Vac(@) brand name and for certain private labels. These
sweepers are primarily used to clean aisles in factories and warehouses.
Europe and International
The Company conducts most of its European operations under the trade names
of Aqua-Vac(@) and Goblin(@). Goblin(@) is an established British conventional
vacuum brand name that the Company purchased in 1984. The table below sets forth
an overview of the Company's product offerings in Europe, as well as the primary
distribution channels and target markets:
<TABLE>
<CAPTION>
PRIMARY
PRODUCT SIZE/POWER MODELS DISTRIBUTION CHANNEL TARGET MARKET
- --------------------- ---------------- ----------------- ---------------------------- --------------
<S> <C> <C> <C> <C>
Wet/Dry 15-30 liter Original Home Centers Consumer
Vacuum Cleaners 900-1100 watts Electrical Appliance Chains Do-It-Yourself
Catalog Showrooms
Mail Order Catalogs
Hypermarkets
18-30 liter Quiet Operations Home Centers Domestic
1200-1400 watts Electrical Appliance Chains Vacuum Users
Step-up
Do-It-Yourself
20-60 liter Industrial Home Centers Contractors
1200-1400 watts Synchro(@) Industrial Outlets
Catalog Showrooms
20-30 liter Carpet Electrical Appliance Chains Consumer
1000-1100 watts Shampooer Commercial
Steam Cleaners 0.5-4.0 Steamatic(@) Home Centers Consumer
bar pressure Mondial(@) Electrical Appliance Chains Do-It-Yourself
Catalog Showrooms
Mail Order Catalogs
Hypermarkets
Domestic Vacuum 4 liter Uprights Electrical Appliance Chains Consumer
Cleaners dust capacity Catalog Showrooms
(Sold in the United 450-475 watts Mail Order Catalogs
Kingdom, Germany and Hypermarkets
Austria)
3-5 liter Cylinders Electrical Appliance Chains Consumer
dust capacity (Canisters) Catalog Showrooms
1000-1400 watts Mail Order Catalogs
Hypermarkets
Rechargeable/ Handheld Electrical Appliance Chains Consumer
corded Catalog Showrooms
150-250 watts Mail Order Catalogs
Hypermarkets
</TABLE>
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<PAGE> 51
Wet/Dry Vacuum. In Europe, the Company produces and distributes a variety
of wet/dry vacuums under the AquaVac(@) brand name to the consumer and
industrial/commercial markets. The Company's wet/dry vacuums sold
internationally generally contain noise dampening features similar to those in
the QSP(@).
Conventional Vacuum Lines. The Company also offers a variety of
conventional and canister vacuums under the Aqua-Vac(@) and Goblin(@) brand
names, differing primarily in size, power and enhancements such as filtration,
cord rewinds and internal tool storage.
Steam Cleaners and Carpet Cleaners. The Company also manufactures and
markets a full line of steam cleaners, which clean items and areas such as
carpets, upholstery, furniture and floor surfaces using powerful steam
generators rather than detergents, solvents or abrasive cleaners. Features
include varying steam power, precise control of steam output and a wide range of
accessories such as additional nozzles and irons. The Company also offers two
types of carpet cleaners: a "3-in-1" integrated cleaner with pure dry and
wet/dry capacity as well as an internal reservoir and separate pump motor to
facilitate carpet shampooing; and an attachment for a wet/dry vacuum that
enables the product to perform light carpet cleaning.
Other Product Lines. The Company sells hand-held vacuums, both corded and
rechargeable, which are purchased by the Company from independent sources.
Continuous Product Innovation
From time to time, the Company enhances its product lines and adds
innovative features to respond to customer feedback, which adds to the Company's
loyal customer base, appeals to additional market segments and expands the
wet/dry vacuum market.
In 1991, the Company introduced the Synchro(@) line of vacuums in Europe.
The Synchro(@) was designed for the do-it-yourself market and professional
tradesmen. It includes an adapter that enables power tools, such as electric
saws and sanders that have dust extraction outlets, to be connected to the
vacuum. Power tools are plugged into a socket on the Synchro(@) instead of a
wall socket, and the Synchro(@) unit is activated by the trigger on the attached
power tool.
In April 1994, the Company introduced the Shop-Vac 1x1(@) portable wet/dry
vacuum product, which is targeted at the portable vacuum market. The Shop-Vac
1x1(@), which has a capacity of one gallon and runs on a 1.0 peak horsepower
motor, is currently the only corded portable wet/dry vacuum in the market. Most
of the Company's major retail customers offer the Shop-Vac 1x1(@) for sale.
Consumer response to the Shop-Vac 1x1(@) has been very favorable. During 1995
and the first nine months of 1996, Shop-Vac 1x1(@) sales accounted for 15% and
10% of total North American sales, respectively.
In April 1995, the Company introduced its new line of QSP(@) (Quiet Super
Power) wet/dry vacuums. The QSP(@) is the only "quiet" wet/dry vacuum in the
market and was designed in response to customer demand for a quieter product.
Products in the QSP(@) line offer a variety of enhancements to the Company's
original wet/dry vacuum, including noise dampening insulation; more powerful
motors in its largest capacity models; top and side handles for ease of
maneuvering; more stable tanks; tool storage attachments; and a more modern
design profile, and are generally slightly higher priced than the Company's
original line. The Company has coordinated closely with its major retail
customers to introduce wet/dry vacuums in the QSP(@) line. Consumer response to
the QSP(@) product has been very favorable. In connection with the launch of the
QSP(@) product line in April 1995, the Company has also updated its original
model to include some of the design features of the QSP(@). During 1995 and the
first nine months of 1996, QSP(@) sales represented 23% and 28% of total North
American sales, respectively.
In 1995, the Company also introduced the Multipro(@), a new "quiet"
operating wet/dry vacuum and carpet shampooer, in Europe. By incorporating noise
dampening technology into a versatile new product, the Company is offering a
product tailored to the European market which focuses on practical utility
combined with added features and accessories.
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<PAGE> 52
SALES AND MARKETING
General
As of September 30, 1996, the Company had 20 sales and marketing employees
in North America and 56 sales and marketing employees servicing Europe and other
international markets, all of whom concentrated exclusively on the promotion and
sale of the Company's products and the development and execution of marketing
strategies.
Shop Vac's sales and marketing is enhanced by the Company's strong
historical ties with its major U.S. customers, all of whom are serviced by the
Company's in-house sales force. These employees work with the national accounts
to plan inventory purchases, promotional activities and programs to increase
demand for Shop Vac products. Private label customers are serviced similarly.
All other customers are serviced by 11 field sales employees covering the United
States. Hardware wholesale accounts are also called on by the field sales
personnel, and hardware sales activity is coordinated by the Company's Director
of Hardware Industry Sales to ensure uniformity.
In Europe, sales and marketing have historically been conducted through
local distribution companies in each of the United Kingdom, France, Germany,
Austria, Hungary and the Netherlands. As fragmentation of the European market
decreases, the Company is consolidating its distribution operations and
expanding its direct sales to retailers, thereby reducing its distribution costs
and enhancing Shop Vac's competitive position. The Company will continue to
service its longstanding customers and is strengthening its ties to them through
a variety of methods, including maintaining a high level of product quality,
rapid delivery, superior after-sale service and selected private label
production. In addition, the Company is also pursuing opportunities in other
markets where its brand names and reputation are less well known, such as
Poland, Russia, Turkey and the Far East through its export sales force.
North America
Consumer Products. Shop Vac sells its products in the United States,
Canada, Mexico and Australia/New Zealand (considered to be part of the Company's
North American operations for administrative purposes) through a direct sales
force of approximately 20 people. This sales force focuses on distribution of
the Company's products to the end consumer through mass merchandisers, such as
Kmart, Target and Wal-Mart; home centers, such as Builder's Square, Hechinger
and Home Depot; hardware chains, such as Ace Hardware, ServiStar and True Value
Hardware; and warehouse clubs, such as B.J.'s Wholesale Club, Price Costco and
Sam's Club. The Company estimates that its product is carried in over 9,000 mass
merchant locations, over 8,000 hardware stores, over 2,000 home centers
nationwide and approximately 6,000 retail outlets in Canada.
Through its large retail customer base, the Company has achieved extensive
penetration in the wet/dry vacuum market. The Company accounts for virtually all
of the wet/dry vacuum business of seven of its top ten customers, and many
retailers carry the Company's products at all of their locations. The Company
has sustained strong relationships with many of its distributors for a number of
years, doing business with Kmart and W.W. Grainger since 1969, True Value
Hardware since 1970, Ace Hardware since 1977 and Wal-Mart since 1978. The
Company has been recognized for its quality products and service during the last
five years with "Vendor of the Year" awards from a number of major retailers,
including Builder's Square, Canadian Tire, Kmart and Wal-Mart.
In order to support its sales efforts and its well-recognized brand name,
the Company engages an outside advertising agency for creative direction,
production of various television commercials and media placement. The Company
also participates in various co-operative advertising programs with its
retailers to create flyers, newspaper advertisements, radio spots, catalogs,
television commercials, billboards, store handouts and coupons. The Company
actively promotes its product through activities such as arranging "end caps" in
retail stores, offering bonus packages for particular items or events, offering
discounts to correspond with store openings, organizing trade show displays and
creating rebate programs. The Company also conducts "product
46
<PAGE> 53
knowledge" sessions with retail store personnel and produces videos, guides and
point-of-purchase materials to educate retailers and consumers as to the
features of the Company's products.
Mass Merchandisers. The Company has benefited from the recent explosion in
the growth of mass merchandisers, such as Kmart, Target and Wal-Mart, through
which the Company sells a significant portion of its consumer products.
Typically, these retailers work with the Company to develop selling programs for
all of their stores which include five to six SKUs of the wet/dry product and a
variety of accessories. The proliferation of mass merchants throughout the
United States and, to a lesser extent, internationally has led to a substantial
increase in certain consumer purchases, such as the wet/dry vacuum, at such
locations. The Company believes that this trend will continue to contribute to
its success as mass merchants continue to expand their operations and distribute
Shop Vac products to a broader customer base through their extensive networks of
well-recognized retail locations. Due to the well-recognized Shop-Vac(@) brand
name, the Company's products often serve as focal points in mass merchants'
in-store displays and advertising circulars.
Home Centers/Hardware Trade. The Company actively markets its products to
home centers and hardware chains such as Ace Hardware, Builder's Square,
Canadian Tire, Home Depot and ServiStar. Hardware retailers often sell packages
containing a wet/dry vacuum and additional tools designed to attract the more
specialized purchaser. Home center stores tend to carry the Company's larger
vacuums to service their customer base.
Warehouse Clubs. The Company markets selected models through warehouse
clubs which are membership only retail outlets. These retailers include B.J.'s.
Wholesale Club, Sam's Club and Price Costco.
Industrial/Commercial Products. The Company markets its
industrial/commercial line of vacuums primarily for use in factories, hospitals,
warehouses and other similar facilities with heavier cleaning needs. These
products are typically sold through industrial distributors, such as W.W.
Grainger and McMaster-Carr Supply Company, and industrial toolhouses. The
Company estimates that its commercial products are carried in over 1,000
industrial supply locations nationwide. The Company sells a majority of its
industrial/commercial products, manufactured with the "Dayton" brand name, to
W.W. Grainger, which in turn markets the wet/dry products through a nationwide
network of distributors and by catalog.
Service. The Company operates service centers at its distribution
facilities and provides additional warranty and nonwarranty service to its
customers through an extensive network of 450 servicing dealers throughout North
America. The Company includes a two-year full warranty with each of its consumer
vacuums and a similar one-year warranty with each of its industrial/commercial
and contractor vacuums.
Distribution. Most of the Shop Vac products sold in the United States are
shipped from the Company's distribution center in Williamsport, Pennsylvania.
The Company distributes to its western United States customers through a leased
distribution facility in Cerritos, California. The Company ships most of its
customers' orders by independent common carrier, although several of the
Company's major customers, including Wal-Mart, pick up their shipments utilizing
their own fleet of trucks. The centralization of its distribution process
enables the Company to process and fill orders rapidly. The Company also has
distribution centers in Burlington, Ontario; Melbourne, Australia; and Auckland,
New Zealand.
The Company services approximately 50 customers, including Home Depot,
Kmart, Wal-Mart, and W.W. Grainger through the use of Electronic Data
Interchange ("EDI"). EDI transmissions of orders and invoices enable the Company
to provide its time-sensitive customers with rapid, efficient service.
International
Europe. The Company markets its products in Europe primarily through home
centers, electrical appliance retail chains, mail order/catalog showrooms and
hypermarkets, which are similar to superstores in
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<PAGE> 54
the United States. Industrial products are sold through industrial mail order
catalogs or hardware stores. The Company's major customers in the United
Kingdom, France and Germany include:
<TABLE>
<CAPTION>
PRINCIPAL CUSTOMERS
------------------------------------------
SALES OUTLET UNITED KINGDOM FRANCE GERMANY
---------------------------------------------- -------------- ----------- ------------
<S> <C> <C> <C>
Home Centers.................................. Homebase Castorama Bauhaus
Electrical Appliance Chains................... Curry's Darty --
Catalog Showrooms............................. Argos -- --
Mail Order Catalogs........................... GUS La Redoute Otto
Hypermarkets.................................. -- Carrefour Metro Group
</TABLE>
As the European Community continues to exert its influence over
cross-border trading in Europe, the Company expects that the fragmentation in
that market should decrease. Although the Company has historically sold its
products in Europe through local distributorships, as market fragmentation
decreases in Europe, the Company intends to shift its focus to selling directly
to retailers, thereby reducing distribution costs.
United Kingdom. Historically, the Company has been the leading supplier of
wet/dry vacuums in the United Kingdom and enjoyed a market share in 1995 of
approximately 90% and as a major player in the conventional vacuum cleaner
market enjoyed a market share in 1995 of approximately 13%. The Company's
strategy is to focus on its distribution of products through home centers,
electrical appliance chains, catalog showrooms and mail order catalogs.
Germany, Austria, Hungary and the Netherlands. In 1995, the Company had
approximately 33% and approximately 11% of the wet/dry vacuum and steam cleaner
markets in Germany, respectively, while in Austria, the Company had
approximately 22% and approximately 17% of the wet/dry vacuum and steam cleaner
markets, respectively. In both Germany and Hungary, the Company estimates that
it was the second leading supplier of wet/dry vacuums in those markets. The
Company's strategy in Western Europe is to focus on direct sales relationships
with its major customers, rather than depending upon distributors and other
middlemen and intends to close its distribution operations in these countries.
See "Risk Factors -- Foreign Operations" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
France. Generally, the Company sells its wet/dry vacuums and steam
cleaners in the French market through home centers, electrical appliance chains,
mail order catalogs and hypermarkets. Home centers seek to attract customers by
discounting non-food products, while hypermarkets depend on a profit from all
products. Wet/dry vacuums are sold under the Aqua-Vac(@) brand name through
do-it-yourself specialists and under the Goblin(@) brand name through electrical
appliance specialists and hypermarkets. Steam cleaners are sold under
Aqua-Vac(@) and Powersteam(@) brand names through do-it-yourself specialists and
under the Goblin(@) and Steamatic(@) brand names through electrical appliance
specialists and hypermarkets.
Service. Responsiveness and service are important considerations among
European vacuum purchasers and are among the Company's competitive strengths in
that market. The Company currently supports a network of over 300 service agents
in Europe and each subsidiary employs a number of dedicated customer service
representatives. Several of the Company's service agents regularly travel
throughout Europe. The Company enjoys a favorable reputation with respect to the
provision of service in Europe, and has received a high service rating from a
British consumer magazine.
Latin America. The Company exports its wet/dry products to South America
and Central America from its Williamsport facility. Such exports represented
approximately 1% of its 1995 net sales. In order to increase its market share in
that region, Shop Vac has recently engaged an independent distributor in
Guadalajara, Mexico to promote and market the Company's products and is pursuing
similar opportunities elsewhere in Latin America. In addition, the Company has
recently entered the Mexican market alongside Wal-Mart, its long-time customer,
and intends to continue a strategy of coordinating international expansion with
its major customers. The Company also supports service centers in Latin America
to service products distributed through the local retail outlets of certain mass
merchandisers, such as Wal-Mart and Kmart, which purchase such products from the
Company in the United States for sale in Latin America. The Company
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<PAGE> 55
believes that its exports will continue to increase as a result of further
exposure to these markets through the proliferation of such mass merchants.
MANUFACTURING
North America
The Company manufactures virtually all of the components of its wet/dry
vacuums sold throughout North America except for metal screws, switches and
packaging cartons. The Company's vertical integration enables it to manufacture
its products rapidly, with fewer concerns regarding supplier delays, and thus
better service its customers' needs by responding promptly to sales orders.
Generally, the Company is able to ship product within 24 hours of a customer's
order, although ordinarily the time between order and shipment ranges from five
to seven days.
The Company's corporate headquarters in Williamsport, Pennsylvania includes
a manufacturing facility at which the Company produces a substantial portion of
the plastic tanks for its consumer products, hoses, caster feet and all of the
components for its industrial metal tank line and reusable dry filters. The
Company manufactures additional plastic components, wheels and ball floats at
its facility in Canton, Pennsylvania. The Company manufactures most of the
motors used in its products at Felchar's Binghamton, New York facility, which is
currently operating at approximately 60% of capacity. The Company plans to
utilize the excess capacity, which reflects, in part, the McCulloch disposition,
by shipping the motors to Shop Vac's European assembly facilities (which
currently purchase motors from unrelated vendors) and/or selling motors to third
parties.
In Williamsport the Company assembles most of the products it sells in the
North American market under both the Shop-Vac(@) brand name and for private
labels, except for the Shop-Vac 1x1(@), which is assembled at the Company's
Canton, Pennsylvania location. The Company distributes its products throughout
the west coast from its facility in Cerritos, California and in Canada through a
distribution center in Burlington, Ontario.
International
The Company manufactures and assembles most of the products that it
distributes throughout Europe at its Tralee, County Kerry, Ireland facility. At
this facility, the Company manufactures hoses and assembles its wet/dry vacuums,
conventional vacuums and carpet cleaners. In addition, the Company intends to
transfer the production of its steam cleaners from its plant in Salindres,
France, which Shop Vac intends to cease operating, to its facility in Ireland in
December 1996. The Company purchases most of the plastic components and all of
the motors used in the manufacture of its European products from local sources.
The Company also purchases a small number of canister vacuums and its hand-held
vacuums from outside sources. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
COMPETITION
The worldwide market for wet/dry products is competitive, and is based on
brand name, price, quality and consumer advertising. The Company has enjoyed the
largest share of the worldwide market for consumer and industrial wet/dry
vacuums and related accessories since the Company introduced the wet/dry vacuum
to the consumer market in the late 1960s. The Company believes that its strong
brand name recognition, competitive pricing (resulting from a vertically
integrated manufacturing process), breadth of product line, comprehensive
marketing program, long-term relationships with major retail chains and
well-established distribution network provide it with a strong competitive
position. However, some of the Company's competitors are larger and have greater
financial resources than the Company, and there can be no assurance that such
competitors will not substantially increase their resources devoted to the
development and marketing of products competitive with those of the Company.
North America
Historically, there have been relatively few participants in the United
States consumer wet/dry vacuum industry, and prior to 1993, Sears and Genie were
the Company's only significant competitors. Sears has the
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<PAGE> 56
second largest share of the consumer wet/dry vacuum market, with an estimated
market share of less than half that of the Company in each of the last five
years. Sears offers a full line of wet/dry vacuums under the "Craftsman" brand
name. The Company believes that Sears' ability to grow market share is limited
because Sears markets its product only through its own retail stores and its
mail order catalog. Thus, the Company competes for the remaining retailers'
shelf space only with Genie, which produces a full line of consumer wet/dry
vacuums, and, to a limited extent, the new entrants into the industry described
below.
Since 1993, Hoover, Eureka and Royal have introduced limited lines of
consumer wet/dry vacuum products. The Company has not lost a single major
customer as a result of these new entrants, which, singly and in the aggregate,
have not had a material impact on the Company's market share. Although these
companies have strong brand name recognition in the conventional vacuum market,
wet/dry product tests to date, as well as the Company's sustained market share,
indicate that such recognition does not translate into the wet/dry market, which
is sold as hardware as opposed to floor care and targets a different consumer.
However, upon the entrance of these new competitors into the market, the Company
made a strategic decision to reduce product prices slightly, and, as a result,
the Company experienced a modest decline in gross margin upon implementation of
the new pricing structure in the first quarter of 1993. See "Risk Factors --
Competition" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview."
International
Competition in the conventional and wet/dry vacuum markets differs in each
European country, although the market for floor care products is generally more
competitive than that for wet/dry products throughout Europe. The Company's
significant competitors include Electrolux Holdings Limited and Hoover, which
offer both conventional and wet/dry vacuums in several European markets, as well
as Rowenta, Royal and Vax Limited in the United Kingdom; and Karcher, Tornado
S.A. and Polti France S.A. in France; and Karcher, Robert Thomas and Einhell,
Hans, A.G. in Germany and Austria. However, most of the Company's competitors
sell their products primarily through electrical appliance outlets and mail
order catalogs, and the Company enjoys a significant percentage of the retail
shelf space for conventional and wet/dry vacuums in the growing home center
retail distribution channel throughout Europe. Competition in Europe is based
more significantly on product enhancement than in the United States, as a result
of the European consumer's general willingness to purchase products perceived as
having additional features.
RAW MATERIALS AND SUPPLIERS
Raw materials purchased represented approximately 56% of the Company's cost
of sales in 1995. The primary raw materials purchased by the Company are resins
for the outside casing of the product, copper for motor production and
corrugated packaging material. Shop Vac has multiple suppliers for each of its
primary raw materials, with many of whom the Company has long-standing trading
relationships. No single supplier accounts for a material amount of the
Company's total raw material purchases. In addition, the Company's agreements
with its largest suppliers guarantee raw material availability and outline
discounts and rebates but do not establish pricing. Moreover, the prices of
certain of the Company's primary raw materials, such as copper, are subject to
fluctuations in the commodities markets, which fluctuations can be substantial
at times. Although historically the Company has not hedged the price of its raw
material commodities, management is in the early stages of evaluating the
benefits of hedging some of its raw materials purchases with the use of futures
contracts. See "Risk Factors -- Cost of Raw Materials."
ENVIRONMENTAL
The Company's operations are subject to constantly changing federal, state,
local and foreign regulations that impose limitations on the discharge of
pollutants into the environment and establish standards for the handling,
generation, emission, release, discharge, treatment, storage and disposal of
certain materials, substances and wastes. The Company believes that its
operations are in compliance in all material respects with the terms of all
applicable environmental laws and regulations as currently interpreted. See,
however, "Risk Factors -- Environmental," "McCulloch Disposition" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Environmental."
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<PAGE> 57
PATENTS AND TRADEMARKS
The Company owns and controls patents, trademarks, trade secrets, trade
names, copyrights and technology know-how, that are of material importance to
its business. The Company's trademarks are registered in the United States and
in a number of foreign countries. The Company also has more than 345 patents and
pending patents worldwide. The Company intends to renew and maintain in a timely
manner those trademarks and patents that are renewable and maintainable and are
deemed important to the business of the Company.
The Company believes that its trademark position is adequately protected.
The Company also believes that its marks are generally well recognized by
consumers of its products and are associated with a high level of quality and
value. Because the Company believes that it is a product innovator, it is the
Company's policy to apply for design and utility patents on those products which
management believes may be of significance to the Company. However, management
believes that the Company's success depends predominantly on its skills in
marketing, distribution and manufacturing rather than on the patented features
of its products.
FACILITIES
The Company owns or leases the following manufacturing, warehouse,
distribution and assembly facilities around the world:
<TABLE>
<CAPTION>
SQUARE OWN/
LOCATION FEET TYPE OF FACILITY LEASE
- --------------------------------------------------- ------- ---------------------------- ------
<S> <C> <C> <C>
UNITED STATES:
Williamsport, Pennsylvania..................... 247,000 Headquarters, manufacturing Own
and assembly
Williamsport, Pennsylvania..................... 103,000 Warehouse Lease
Williamsport, Pennsylvania..................... 50,000 Distribution Lease
Williamsport, Pennsylvania..................... 19,000 Assembly Lease
Canton, Pennsylvania........................... 94,000 Manufacturing Own
Binghamton, New York........................... 102,500 Manufacturing Own
Binghamton, New York........................... 67,500 Manufacturing Own
Norwich, New York.............................. 33,000 Warehouse Own
Cerritos, California........................... 30,850 Distribution Lease
INTERNATIONAL:
* Amsterdam, Netherlands......................... 1,400 Distribution office Lease
Auckland, New Zealand.......................... 3,200 Distribution Lease
* Bochum, Germany................................ 22,935 Distribution Lease
* Budapest, Hungary.............................. 3,000 Distribution Lease
Burlington, Ontario............................ 79,000 Distribution Own
Evry, France................................... 18,623 Distribution Lease
* Madrid, Spain.................................. 22,750 Distribution Lease
Melbourne, Australia........................... 17,500 Distribution/Assembly Lease
* Salindres, France.............................. 27,000 Manufacturing Own
* Salindres, France.............................. 11,700 Warehouse Lease
Tralee, County Kerry, Ireland.................. 85,000 Manufacturing Own
* Vienna, Austria................................ 6,700 Distribution Lease
Normanton, United Kingdom...................... 60,000 Offices/Distribution Lease
</TABLE>
- ---------------
* To be closed. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
The Company has entered into an option agreement with an independent real
estate developer which entitles the developer to purchase the Company's former
manufacturing facility in Norwich, New York for
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<PAGE> 58
$675,000. The option agreement expires on December 19, 1996 and is renewable
through June 19, 1998. The facility is currently used by the Company as a
warehouse, and the Company believes that upon a sale of the facility, the
Company will be able to obtain alternative warehouse space as necessary at
reasonable cost.
EMPLOYEES
The Company employed approximately 2,400 persons world-wide as of September
30, 1996. Of these, 1,988 were hourly and 412 were salaried. The hourly work
force is comprised of predominantly unskilled workers, with some semi-skilled
and skilled job classifications. Each of the Company's facilities recruits
hourly personnel from its respective labor market and the Company believes that
the labor market for each facility is favorable. None of the Company's employees
are represented by any labor union, except in Ireland and Australia (in
accordance with local custom), and management believes that the Company's
employee relations are good. Certain of the Company's employees were represented
by the United Auto Workers Union until 1993, when the employees voted to
decertify the union.
LEGAL PROCEEDINGS
McCulloch leased computer hardware and software from American Technologies
Credit, Inc. ("ATC"), and the Company guaranteed that lease. The terms of the
lease have been the subject of litigation. In connection with the McCulloch
disposition, the Company has agreed to indemnify McCulloch for any liability it
may have with respect to the lease. On August 23, 1996, the court granted
judgment on the pleadings in favor of the Company with respect to two of ATC's
causes of action. Subsequently, the Company and ATC have agreed to a settlement
whereby the Company will pay $325,000 in full satisfaction of all claims by ATC.
The Company and Goblin France, the Company's French subsidiary, are each
engaged in litigation with Recorget, a European manufacturer of steam cleaner
components and accessories. Recorget obtained a FF 1.7 million (approximately
$300,000) judgment against Goblin France in 1988, which Goblin France is
currently appealing. Recorget has also sued the Company in 1995 alleging breach
of a distribution agreement and is seeking over FF 36.0 million (approximately
$7.2 million) in damages. Although management firmly believes that Recorget's
claims against the Company are groundless and that the Company will ultimately
prevail, there can be no assurance that the disputes between Recorget and the
Company will not be resolved in favor of Recorget, which could have a material
adverse effect on the Company's financial condition and results of operations.
In addition to the foregoing, the Company is involved in various lawsuits
arising in the normal course of business. In management's opinion, the ultimate
outcome of these lawsuits will not have a material adverse effect on the
Company's financial condition and results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE AND OTHER SIGNIFICANT OFFICERS
The directors and executive and significant other officers of the Company,
their respective ages as of September 30, 1996 and their respective current
positions with the Company are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- -------------------------------------------------
<S> <C> <C>
Jonathan Miller.................. 48 Chairman of the Board, Chief Executive Officer
and President, North American Group
Matthew Miller................... 43 Vice Chairman of the Board and President,
European Group
W. Earl Stogner.................. 56 Executive Vice President & Chief Financial
Officer and Director
Conor Stack...................... 49 Managing Director, European Manufacturing
Larry Tempesco................... 44 Vice President, Sales and Marketing
Michael R. Deschamps............. 40 Vice President, Manufacturing
Thomas Tuohy..................... 51 Vice President, Inventory Planning and Control
Roger D. Arrington............... 45 Vice President, Corporate Analysis
Mark E. Baer..................... 36 Vice President, Electrical Engineering
Joseph W. Crawford............... 52 Vice President and Treasurer
John Lilly....................... 50 Vice President, Information Services
</TABLE>
- ---------------
Jonathan Miller joined Craftool Company in 1970 as Vice President. Upon
Craftool's merger with the Company, Mr. Miller served as Vice President of
Manufacturing and Engineering until 1981, at which time he was appointed
President of the Shop Vac North American Group. In 1992, Mr. Miller was elected
Chairman of the Board of Directors of the Company. Mr. Miller is the son of
Martin Miller, the founder of the Company, and is the brother of Matthew Miller.
Mr. Miller holds a degree in economics from Rutgers University.
Matthew Miller joined the Company in 1975 as director of sales and
marketing. In 1981, he was appointed to his current position of President of the
Shop Vac European Group. Mr. Miller is the son of Martin Miller, the founder of
the Company and the brother of Jonathan Miller. Mr. Miller holds an
undergraduate degree from Dickinson College and a masters degree from Oxford
University.
W. Earl Stogner joined the Company in 1989 as Vice President and Chief
Financial Officer and was promoted to Executive Vice President and appointed to
the Board of Directors in 1990. Prior to joining the Company, Mr. Stogner served
as Vice President -- Administration and Control for Chicago Pacific Corp. from
1986 to 1989 and as Vice President -- Finance of Pennsylvania House (a division
of General Mills, Inc.) from 1972 to 1986. Mr. Stogner holds a degree in
business administration and accounting from King's College.
Conor Stack joined the European Group of the Company in 1979 as Financial
Controller of Goblin Ireland, the Company's European manufacturing facility. In
1980, Mr. Stack was promoted to Managing Director, the position he currently
holds. Prior to joining the Company, Mr. Stack was Financial Controller for
Kerry Precision Ball Company from 1975 to 1980. Prior to that, Mr. Stack was an
audit manager with Griffin Lynch & Co., Chartered Accountants. Mr. Stack is a
Chartered Accountant and received a degree in business commerce from University
College in Cork, Ireland.
Larry Tempesco joined the Company in 1977 as Production Control Manager and
was promoted to Assistant Marketing Manager in 1984, Director of Marketing in
1990, Vice President of Marketing in 1994 and Vice President of Sales and
Marketing in 1996. Prior to joining the Company, Mr. Tempesco held a variety of
management positions with Brodart Industries. Mr. Tempesco holds a degree from
Bloomsburg University.
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<PAGE> 60
Michael R. Deschamps joined the Company in 1993 as Director of the Plastics
Division. He was promoted in 1995 to Vice President, Plastics Group and, in
1996, to Vice President, Manufacturing. Prior to joining the Company, Mr.
Deschamps held a variety of management positions including Manager of
Fabrication and Assembly Operations at Smith Corona Corporation from 1986 to
1993, and as Director of Product Development and Sales & Marketing at Ithaca Gun
Company. Mr. Deschamps holds a B.S. in mechanical engineering from Cornell
University.
Thomas Tuohy joined the Company in 1994 as Director of Operations and in
1995 was promoted to Vice President of Inventory Planning and Control. Prior to
joining the Company, Mr. Tuohy served in a variety of management and information
systems positions, including Director of Materials at Smith Corona Corporation
from 1969 to 1994. Mr. Tuohy holds a degree in business administration from
Syracuse University.
Roger D. Arrington joined the Company in 1989 as a Financial Analyst and
was promoted to Vice President of Corporate Analysis in 1990. Prior to joining
the Company, Mr. Arrington served in a variety of accounting functions for
Bethlehem Steel Corporation, rising to Controller of the Company's wire rope
division. Mr. Arrington holds a degree in business administration and accounting
from Virginia Polytechnic Institute.
Mark E. Baer joined the Company in 1988 as Director of Product Evaluation
and was promoted to Vice President of Electrical Engineering in 1990. Prior to
joining the Company, Mr. Baer served as Electrical Project Engineer with GS
Electric from 1982 to 1987, and as a Senior Product Engineer with Yale Material
Handling from 1987 to 1988. Mr. Baer has a B.S. in electrical engineering from
the Pennsylvania State University.
Joseph W. Crawford joined the Company in 1978 as Director of Credit and was
promoted to Vice President and Treasurer in 1990. Prior to joining the Company,
Mr. Crawford served as a Credit Analyst with Girard Trust Bank from 1965 to
1967, as a Credit Representative with American Mutual Insurance from 1967 to
1970, as an Assistant Credit Manager with Westinghouse Electric Supply from 1970
to 1972, and as a Credit Manager with KSM Fastening Systems (a division of
Omark) from 1972 to 1978. Mr. Crawford holds a degree in business administration
from Villanova University.
John Lilly joined the Company in 1993 as Corporate Vice President of
Information Services. Prior to joining the Company, Mr. Lilly served as Director
of Information Services with Hamilton Beach/Proctor Silex from 1990 to 1993 and
as a Management Consultant from 1988 to 1990. From 1970 to 1988, Mr. Lilly
served in a variety of information services positions with Blue Cross/Blue
Shield of Virginia, rising to the position of Director of Automated Services.
Mr. Lilly has a degree in data processing from Smith Deal College in Richmond,
Virginia.
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<PAGE> 61
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid for the fiscal
years ended December 31, 1993, 1994 and 1995 to each of the persons who are the
most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION(1)(2) COMPENSATION
- -------------------------------------------------- ---- ---------- ------------------ ------------
<S> <C> <C> <C> <C>
Jonathan Miller................................... 1995 $ 343,637 $ 11,951 $ 11,517(3)
Chairman of the Board, Chief 1994 900,000 35,527 41,892
Executive Officer and President, 1993 1,180,208 22,002 39,878
North American Group
Matthew Miller.................................... 1995 $ 355,911 $ -- $ 7,396(3)
Vice Chairman of the Board 1994 878,019 -- 25,406
and President, European Group 1993 2,276,288 -- 22,184
W. Earl Stogner................................... 1995 $ 675,000 $ 9,313 $ 8,986(3)
Executive Vice President 1994 675,000 9,573 31,767
and Chief Financial Officer 1993 600,000 3,271 28,392
</TABLE>
- ---------------
(1) The above listed executives are participants in the Shop Vac Corporation
Pension Plan, a defined benefit pension plan. This plan provides an annual
benefit based upon the employee's average compensation for his or her
highest five consecutive years of compensation and the number of years'
service to the Company. The table below sets forth the estimated annual
benefit payable based on the indicated final average compensation and years
of service, assuming retirement at age 65:
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35
------------------------------------------- ------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000................................... $ 15,625 $31,250 $46,875 $46,875 $46,875 $46,875 $46,875
125,000.................................... 20,000 40,000 60,000 60,000 60,000 60,000 60,000
150,000 and above.......................... 24,375 48,750 73,125 73,125 73,125 73,125 73,125
</TABLE>
(2) Comprised of amounts reimbursed to Jonathan Miller and W. Earl Stogner in
connection with taxes paid by them with respect to the value of the personal
use portion of Company-provided vehicles.
(3) Comprised of (i) in the case of Jonathan Miller, employer matching
contributions totaling $10,125 in 1995 to the Shop Vac Executive Benefit
Trust through March 31, 1995 and a $1,392 term life insurance premium, (ii)
in the case of Matthew Miller, employer matching contributions totalling
$6,004 in 1995 to the Shop Vac Executive Benefit Trust through March 31,
1995 and a $1,392 term life insurance premium and (iii) in the case of W.
Earl Stogner, employer matching contributions totalling $7,594 in 1995 to
the Shop Vac Executive Benefit Trust through March 31, 1995 and to the Shop
Vac Employee Savings Plan thereafter for the remainder of 1995 and a $1,392
term life insurance premium.
OTHER ARRANGEMENTS
Pursuant to employment agreements between the Company and each of Jonathan
Miller and Matthew Miller, the Company has agreed pay to each of them (i) a base
salary at the rate of $350,000 per annum and (ii) commencing in calendar year
1997 and for each successive calendar year thereafter, incentive compensation of
$400,000 for any calendar year if with respect to such year, the Company
generates actual earnings before interest and taxes ("EBIT") that equal or
exceed 90% of the Company's budgeted EBIT for such year or amounts of less than
$400,000 for a given calendar year if the Company achieves certain lower EBIT
threshholds for such year. In addition to the foregoing, the Company may
increase such base salaries, based on merit review, taking into account
performance, the employee's responsibilities and increased cost of living,
and/or pay additional discretionary bonus compensation, at the discretion of the
Company's independent directors. In exchange for such compensation, (i) Jonathan
Miller has agreed to serve as Chairman of the
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<PAGE> 62
Company's Board of Directors, President of the Company's North American Group
and Chief Executive Officer of the Company for a three year evergreen term, and
(ii) Matthew Miller has agreed to serve as Vice Chairman of the Company's Board
of Directors and President of the Company's European Group for a three-year
evergreen term. Under the terms of the agreement, if either Jonathan or Matthew
Miller is terminated without cause or resigns with good reason, he is entitled
to receive continued insurance coverage for the following three years and (at
his option) either (i) the greater of (a) continued salary for the next three
years, plus bonuses in each such year equal to the bonus paid to him in the year
immediately prior to the year in which his employment was terminated or (b)
$750,000 or (ii) a lump-sum payment equal to the present value of the payments
described in clause (i). Each of Jonathan Miller and Matthew Miller is also
entitled to receive such severance if his employment is terminated as a
consequence of a change of control of the Company; however, if such termination
occurs in connection with or as a consequence of a change of control occurring
upon or following the exercise by the Holders of the Notes of their rights to
the Millers' stock as a result of a default under the Indenture and the
subsequent foreclosure on the collateral, each of Jonathan Miller and Matthew
Miller have agreed that any and all payments due to them pursuant to their
respective employment agreements with respect to such termination will be
subordinated to the full payment of all sums due to the Holders of the Notes
thereunder.
Pursuant to the terms of an employment agreement between the Company and W.
Earl Stogner, the Company has agreed to pay to Mr. Stogner a base salary at the
rate of $675,000 per annum, plus a discretionary bonus determined by the
Company's Board of Directors in its sole discretion. In exchange for such
compensation, Mr. Stogner has agreed to serve as a Director, Executive Vice
President and Chief Financial Officer of the Company for a three-year evergreen
term. Under the terms of the agreement, if Mr. Stogner is terminated without
cause or resigns with good reason, he is entitled to receive continued insurance
coverage for the following three years and (at his option) either (i) continued
salary for the next three years, plus bonuses in each such year equal to the
bonus paid to him in the year immediately prior to the year in which his
employment was terminated or (ii) a lump-sum payment equal to the present value
of the payments described in clause (i). Mr. Stogner is also entitled to receive
such severance upon a change of control of the Company.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company currently leases a sales/administration/distribution facility
in Normanton, England from New Yorkshire Limited, a company controlled by
Jonathan and Matthew Miller. Annual rent under this lease for 1996 is $340,000
and for 1997 is $360,000 and is comparable to annual rent paid for similar
facilities in arms-length transactions in the local market. The Company has also
guaranteed up to UKL 500,000 (approximately $800,000) of indebtedness incurred
by New Yorkshire Limited from Midland Bank plc ("Midland") in connection with
the acquisition of the Normanton facility.
The Company and its stockholders have entered into a stockholders agreement
which provides, in part, (i) for the accrual and payment of an annual dividend
equal to 10% of the net income of the Company (after taxes) which accrues and is
payable commencing upon the death, disability or incapacity of Jonathan Miller
or Matthew Miller, (ii) effective joint control of the Company by Jonathan
Miller and Matthew Miller and (iii) restrictions on the transfer of any of the
Company's stock. The dividend provision set forth in the stockholders agreement
suspends the payment of such dividends to the extent such payment would result
in the breach or violation of the terms, conditions or covenants of the
Company's financing arrangements, including the Notes. The Company and its
stockholders have agreed in writing to permit the stockholders to pledge their
respective shares of the Company's stock in connection with the Private Offering
and the Exchange Offer, notwithstanding the provisions of the stockholders
agreement.
The Company has entered into written employment agreements with each of
Jonathan Miller, Matthew Miller and W. Earl Stogner. See "Management -- Other
Arrangements."
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PRINCIPAL STOCKHOLDERS
All of the voting common stock of the Company is beneficially owned equally
by Jonathan Miller and Matthew Miller. Jonathan Miller beneficially owns 50%
(3,250) of the issued and outstanding shares of the Company's voting stock
through (a) his direct ownership of 2,053 shares and (b) his controlling
ownership of a corporate general partner of a family limited partnership
("FLP"), which owns 1,197 shares. Matthew Miller beneficially owns 50% (3,250)
of the issued and outstanding shares of the Company's voting stock (a) through
his direct ownership of 2,053 shares, (b) as a controlling general partner of a
separate FLP, which owns 989.5 shares and (c) as trustee of a trust (the
"Trust") for the benefit of his children, which owns 207.5 shares. In the past
ten years, the Company has paid no dividends and has made no other distribution
to its stockholders with respect to its stock. In connection with the Private
Offering, Jonathan Miller and Matthew Miller pledged all of the outstanding
capital stock of the Company held directly by them, and caused the FLPs and the
Trust to pledge all of the outstanding capital stock of the Company owned by
such entities, to secure payment of the Company's obligations under the Notes.
The address of both Jonathan Miller and Matthew Miller is c/o the Company, 2323
Reach Road, Williamsport, Pennsylvania 17701.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW REVOLVING CREDIT FACILITY
On October 1, 1996, the Company and Felchar (together, the "Borrowers")
entered into a Credit Agreement with First Union National Bank of North
Carolina, as agent for the lenders and a lender (the "Lender"), to provide the
New Revolving Credit Facility.
The New Revolving Credit Facility has an initial term of three years and
provides for an aggregate commitment of up to $25 million, subject to a
borrowing base limitation (the "Borrowing Base") based on the aggregate of
certain percentages of the eligible accounts receivable and eligible inventory
of the Company and its domestic subsidiaries. With respect to the Borrowing
Base, as of October 31, 1996, the Company was able to borrow up to approximately
$23.0 million in the aggregate. The New Revolving Credit Facility includes (as
part of and not in addition to the $25 million New Revolving Credit Facility) a
sub-facility for the issuance of up to an aggregate of $10 million in stand-by
and trade letters of credit to support the Company's operations.
Amounts outstanding under the New Revolving Credit Facility will bear
interest at either (i) 0.75% plus the higher of (a) the federal funds rate plus
0.50% per annum and (b) the Lender's prime commercial lending rate or (ii) LIBOR
plus 2.00%, determined at the Company's option. Amounts outstanding under the
New Revolving Credit Facility are secured by a first priority lien on the
accounts receivable and inventories of the Borrowers, and the Company's
obligations under the New Revolving Credit Facility is guaranteed by Felchar,
which guarantee is secured by a pledge of Felchar's accounts receivable and
inventories.
The New Revolving Credit Facility contains covenants and provisions that
restricts, among other things, the Company's ability to: (i) merge or
consolidate with another entity; (ii) incur additional indebtedness, including
guarantees; (iii) incur liens on its property; (iv) engage in certain asset
sales or other dispositions or sale-leaseback transactions; (v) lend money; (vi)
engage in joint ventures, acquisitions and other investments; (vii) create new
subsidiaries; (viii) pay dividends, repurchase stock or make other restricted
payments; (ix) engage in transactions with affiliates; (x) make certain changes
in the Company's lines of business and (xi) enter into any negative pledges or
other burdensome contractual covenants. The New Revolving Credit Facility
requires the satisfaction of certain financial performance criteria (including a
specified maximum annual operating lease expense of $3.0 million; specified
limitations on annual capital expenditures (including capital lease obligations)
of $3.5 million for each of 1997 and 1998 and $4.0 million annually thereafter;
a leverage ratio of funded debt to EBITDA of 4.85:1 through September 30, 1997,
4.25:1 thereafter through September 30, 1998 and 3.50:1 thereafter and an
interest coverage ratio of EBITDA to Interest Expense (as defined in the New
Revolving Credit Facility) of 1.80:1 through September 30, 1997, 2.00:1
thereafter through September 30, 1998, 2.25:1 thereafter through September 30,
1999 and 2.50:1 thereafter). In addition, if any Subsidiary of either of the
Borrowers issues or sells equity securities or subordinated debt, the New
Revolving Credit Facility requires the Borrowers to make a mandatory principal
payment in an amount equal to 100% of the net proceeds of such sale or issuance
by such Subsidiary.
Events of default under the New Revolving Credit Facility includes, among
other things: (i) any failure of the Company to pay principal, interest or fees
thereunder when due; (ii) payment default or other default under other
Indebtedness; (iii) noncompliance with or breach of certain covenants contained
in the New Revolving Credit Facility and certain related documents; (iv)
material inaccuracy of any representation or warranty when made by the Company
in the New Revolving Credit Facility and certain related documents; (v) certain
events of bankruptcy or insolvency; (vi) imposition of judgment or ERISA liens;
(vii) invalidity of obligations created by the New Revolving Credit Facility and
related documents; (viii) a Change of Control (as defined in the New Revolving
Credit Facility); and (ix) a Material Adverse Change (as defined in the New
Revolving Credit Facility).
FOREIGN DEBT OBLIGATIONS
Societe Generale S.A. has extended a line of credit to Shop Vac France, a
division of the Company, and Goblin France S.A., the Company's French
subsidiary, which provides (i) an overdraft facility of FF 5.7 million
(approximately $1.1 million) and a receivables financing of FF 24.0 million
(approximately $4.6
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million) for Shop Vac France and (ii) an overdraft facility of FF 4.8 million
(approximately $900,000) for Goblin France S.A. At September 30, 1996, the
aggregate outstanding borrowings under the overdraft facilities totalled FF 9.6
million (approximately $1.9 million) and under the receivables financing
facility totalled FF 21.5 million (approximately $4.2 million).
Goblin (UK) Limited, the Company's subsidiary in the United Kingdom
("Goblin UK"), has obtained credit facilities (the "Midland Facilities") for an
amount in the aggregate of up to UKL 2.35 million (approximately $3.7 million)
from Midland pursuant to a letter agreement accepted by Goblin UK as of March 1,
1995 and extended subsequently by a letter agreement dated March 21, 1996
through March 1997. The Midland Facilities are comprised of a sterling
overdraft, a mixed currency overdraft, engagement facilities and documentary or
other credits or acceptances, as well as up to UKL 350,000 (approximately
$500,000) for duty deferment bonds. The Midland Facilities bear interest at
Midland's base rate plus between 1.0% and 2.0%, depending upon the outstanding
balance of the Midland Facilities. In addition, the Midland Facilities are
secured by (i) a first priority fixed charge over all present and future bank
and other debts of Goblin UK and (ii) a first priority floating charge over all
present and future assets, goodwill, undertakings and uncalled capital of Goblin
UK. The Company has guaranteed the Midland Facilities on behalf of Goblin UK. At
September 30, 1996, there were no outstanding borrowings under the Midland
Facilities.
The Company has guaranteed indebtedness of its subsidiary, McCulloch
Espana, with respect to credit facilities extended by four Spanish banks with an
aggregate borrowing availability of approximately $1.9 million. At September 30,
1996, the aggregate outstanding borrowings under these facilities totalled
approximately $700,000 and consisted of $600,000 of overdraft facility
borrowings and $100,000 of accounts receivable financing.
Under various agreements between Goblin Ireland Limited, the Company's
Irish subsidiary ("Goblin Ireland"), and each of Shannon Free Airport
Development Company Limited ("SFADC") and the Industrial Development Authority
in Ireland (the "IDA"), Goblin Ireland has received, upon satisfaction of
certain conditions, grants from SFADC and/or the IDA of approximately 45% of the
acquisition cost of certain capital assets. In accordance with the grant
agreements, Goblin Ireland is required to maintain aggregate retained earnings
in the amount of $5.3 million. Either of the IDA or SFADC, as the case may be,
may revoke its grants and require repayment of its grants previously made if
Goblin Ireland breaches any of the various grant agreements with it. If, among
other things, Goblin Ireland changes the nature of its operations, ceases to
operate, fails to satisfy its obligations or becomes bankrupt, the various grant
agreements with both SFADC and the IDA would be breached. Goblin Ireland
believes it is in full compliance with the provisions of the various grant
agreements. Goblin Ireland's contingent liability for the repayment of grants
received under the various grant agreements terminates 10 years from receipt of
the grant amounts and amounted to $3.7 million at December 31, 1995.
OLD REVOLVING CREDIT FACILITY
On May 15, 1990, the Company and Felchar entered into the Old Revolving
Credit Facility with the Lender. The Old Revolving Credit Facility contained
certain financial and operating covenants which restricted the Company's ability
to incur additional indebtedness, make investments or create or permit certain
liens. In addition, the Old Revolving Credit Facility was secured by pledges of
(i) the Millers' Stock, (ii) substantially all of the Company's assets, (iii)
all issued and outstanding shares of the capital stock of the Company's domestic
subsidiaries and (iv) 65% of the equity interests in each of the Company's
direct and indirect foreign subsidiaries. The Company was also required to
maintain certain financial ratios.
On February 1, 1994, the Company and Felchar amended the Old Revolving
Credit Facility to provide for a revolving line of credit of up to $55 million
that was scheduled to expire in 1999.
On May 25, 1995, the Old Revolving Credit Facility was amended to provide
for an additional $20 million of borrowing capacity, which was due on April 30,
1996 and has been repaid. The amendment agreement imposed additional financial
and operating covenants, including a requirement that the Company meet minimum
earnings levels and ratios related to debt, interest expense and accounts
payable. The
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amendment also required a repayment of at least $60 million of outstanding
principal in the event of either the sale of McCulloch or the issuance of equity
securities by the Company.
On November 1, 1995, with the $30 million net proceeds received in
connection with the sale of McCulloch, the Company repaid the remaining $3.4
million outstanding under the additional $20 million loan obtained pursuant to
the May 25, 1995 amendment agreement, repaid the remaining $8.0 million
outstanding balance of term loans with the Lender, as well as a portion of the
outstanding aggregate principal of the Old Senior Notes and the Old Revolving
Credit Facility. Prior to the Company's repayment of the Old Revolving Credit
Facility and the Old Senior Notes with a portion of the proceeds from the
Private Offering, it had been in breach of various financial covenants of the
Old Revolving Credit Facility. In addition, in April 1996, the Company failed to
make a required $6.7 million principal payment to the Holders of the Old Senior
Notes, and that payment default by the Company caused a cross-default of the Old
Revolving Credit Facility. On August 28, 1996, the Old Revolving Credit Facility
was amended to provide to the Company and Felchar a $7.5 million temporary
priority facility maturing on October 31, 1996. The proceeds of the priority
facility were available to be used (i) to make a $770,389 principal payment with
respect to the Old Senior Notes, (ii) to pay $307,621 in amendment fees to the
Holders of the Old Senior Notes in connection with an Amendment Agreement
between the Company and such Noteholders, (iii) to make a $112,500 facility fee
payment to the Lender upon closing the priority facility and (iv) for working
capital and general corporate purposes. The priority facility was fully secured
by a first priority lien on all the collateral securing the Old Revolving Credit
Facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Risk
Factors -- Substantial Leverage; Recent Defaults."
Pursuant to the Amendment Agreement with the Lender, the Lender temporarily
waived all existing defaults and the parties temporarily suspended the relevant
financial covenants and principal payment dates with respect to payments due or
past due under the Old Revolving Credit Facility. The Old Revolving Credit
Facility was repaid in full with a portion of the proceeds of the Private
Offering. The Company is in full compliance with the terms of all of its
financings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
OLD SENIOR NOTES
The Old Senior Notes, which had an aggregate outstanding principal amount
of approximately $30.0 million bearing interest at 10.83%, required (i) monthly
interest payments and (ii) annual principal payments of $6.7 million commencing
April 1996 through April 30, 2001. The Old Senior Notes were senior secured
indebtedness of the Company and contained certain financial and operating
covenants which, among other things, restricted the Company's ability to incur
indebtedness, make investments or create or permit certain liens. The Company
used a portion of the proceeds of the Private Offering to repay the Old Senior
Notes; including the prepayment penalty of approximately $2.5 million.
On May 25, 1995, the Holders of the Old Senior Notes agreed to permit the
Company to incur an additional $20 million of senior secured debt in the form of
a term loan from the Lender, and the Lender obtained a superpriority lien
against the Company's assets. However, in exchange for such accommodation, the
Company agreed to reduce its outstanding aggregate debt by $60 million not later
than December 31, 1995. Although the McCulloch disposition generated $30 million
in net cash proceeds, all of which were applied to reduce debt in order of
seniority and priority, the Company had been in breach, prior to the Company's
repayment of the Old Senior Notes and the Old Revolving Credit Facility with a
portion of the proceeds from the Private Offering, of numerous financial
covenants. In addition, in April 1996, the Company failed to make a $6.7 million
required principal payment to the holders of Old Senior Notes. See "Risk
Factors -- Substantial Leverage; Recent Defaults" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
On August 28, 1996, contemporaneously with making a $770,389 principal
payment to the Holders of the Old Senior Notes, the Company entered into an
Amendment Agreement with the Holders of the Old Senior Notes pursuant to which
such Holders temporarily waived all existing defaults under the Old Senior Notes
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and temporarily suspended the relevant financial covenants and principal payment
dates with respect to payments due or past due under the Old Senior Notes. The
Old Senior Notes were paid in full with a portion of the proceeds of the Private
Offering. The Company is in full compliance with the terms of all of its
financings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
CAPITALIZED LEASES
The Company and its subsidiaries have obligations under various capitalized
leases which expire within the next eight years for real estate and equipment
with a net book value of $10 million as of December 31, 1995.
SETTLEMENT LIABILITIES
In connection with the final settlement of certain patent litigation
between The Toro Company ("Toro"), on the one hand, and the Company and
McCulloch, on the other hand, the Company agreed to pay Toro the sum total of
$2.0 million as follows: (i) $500,000 on or before December 1, 1995, (ii)
$250,000 on or before February 15, 1996 and (iii) $1,250,000 in 36 equal monthly
installments of $34,722, commencing March 1, 1996. At September 30, 1996, the
Company had an outstanding balance of approximately $1.0 million owing to Toro.
OTHER INDEBTEDNESS
The remainder of the Company's indebtedness consists of certain
indebtedness of its international subsidiaries and totalled approximately $2.6
million as of September 30, 1996.
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DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued pursuant to an Indenture (the
"Indenture") between the Company and Marine Midland Bank, as trustee (the
"Trustee"). The Exchange Notes will evidence the same indebtedness as the
Private Notes (which they replace) and will be entitled to the benefits of the
Indenture. The form and terms of the Exchange Notes are the same as the form and
terms of the Private Notes except that (i) the Exchange Notes will have been
registered under the Securities Act, and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) Holders of the Exchange
Notes will not be entitled to certain rights of Holders of the Private Notes
under the Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer. The terms of the Notes include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act"), as in effect on the date of
the Indenture. The terms of the security arrangements with respect to the Notes
are set forth in the Pledge Agreement (as defined), which was entered into
simultaneously with the Indenture. The Notes are subject to all such terms, and
Holders of Notes are referred to the Indenture, the Pledge Agreement and the
Trust Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture and the Pledge Agreement does not purport to be
complete and is qualified in its entirety by reference to the Indenture and the
Pledge Agreement, including the definitions therein of certain terms used below.
A copy of the Indenture, the Pledge Agreement and Registration Rights Agreement
is available as set forth under "-- Additional Information." The definitions of
certain terms used in the following summary are set forth below under
"-- Certain Definitions."
The Notes will rank senior in right of payment to all subordinated
Indebtedness of the Company. The Notes will rank pari passu in right of payment
with all senior borrowings, including borrowings under the New Revolving Credit
Facility. The Notes are secured by a first priority pledge of the Millers'
Stock. The New Revolving Credit Facility is secured by a pledge of the
inventories and accounts receivable of the Company and Felchar Manufacturing
Corporation, a domestic Subsidiary of the Company that manufactures motors
("Felchar").
A portion of the operations of the Company are conducted through Felchar
and the Company's foreign Subsidiaries and, therefore, the Company is dependent
to a certain extent upon the cash flow of its Subsidiaries to meet its
obligations, including its obligations under the Notes. The Private Notes are,
and the Exchange Notes will be, structurally subordinated to all indebtedness
and other liabilities and commitments (including trade payables and lease
obligations) of the Company's Subsidiaries. Any right of the Company to receive
assets of any of its Subsidiaries upon the latter's liquidation or
reorganization (and the consequent right of the Holders of the Notes to
participate in those assets) will be structurally subordinated to the claims of
that Subsidiary's creditors, except to the extent that the Company is itself
recognized as a creditor of such Subsidiary, in which case the claims of the
Company would still be subordinate to any security in the assets of such
Subsidiary and any indebtedness of such Subsidiary senior to that held by the
Company. At September 30, 1996, on a pro forma basis after giving effect to the
Private Offering and the application of the net proceeds therefrom, the
aggregate principal amount of senior Indebtedness of the Company and its
subsidiaries would have been approximately $113.6 million, $100.0 million of
which would have been represented by the Notes. In addition, the Notes would
have been structurally subordinated to approximately $6.4 million of
Indebtedness and $39.2 million of other liabilities (including trade payables)
of the Company's subsidiaries. See "Risk Factors -- Effective Ranking."
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $100.0 million
and will mature on September 1, 2003. Interest on the Notes will accrue at the
rate of 10 5/8% per annum and will be payable semi-annually in arrears on March
1 and September 1, commencing on March 1, 1997, to Holders of record on the
immediately preceding February 15 and August 15. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if
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any, interest and Liquidated Damages, if any, on the Notes will be payable at
the office or agency of the Company maintained for such purpose within the City
and State of New York or, at the option of the Company, payment of interest and
Liquidated Damages, if any, may be made by check mailed to the Holders of the
Notes at their respective addresses set forth in the register of Holders of
Notes; provided that all payments with respect to Notes having a principal
amount of $1.0 million or more the Holders of which have given wire transfer
instructions to the Company will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by the Company, the Company's office or agency in New
York will be the office of the Trustee maintained for such purpose. The Notes
will be issued in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to September
1, 2000. Thereafter, the Notes will be subject to redemption at the option of
the Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on September 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------------------------------ ----------
<S> <C>
2000.............................................................. 105.313%
2001.............................................................. 102.656%
2002 and thereafter............................................... 100.000%
</TABLE>
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate; provided that
no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
SECURITY
The Principals and certain family partnerships and trusts that together own
100% of the Millers' Stock have entered into a pledge agreement (the "Pledge
Agreement") which provides for the first priority pledge by each such pledgor to
Marine Midland Bank, as collateral agent (the "Collateral Agent"), of all of the
Millers' Stock. Such pledge secures the payment and performance when due of all
of the Obligations of the Company under the Indenture and the Notes as provided
in the Pledge Agreement. The pledges under the Pledge Agreement are non-recourse
to any of the other assets or income of the pledgors thereunder.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Indenture and the Pledge
Agreement, the pledgors will be entitled to receive all cash dividends, interest
and other payments made upon or with respect to the collateral (the
"Collateral") pledged by them and to exercise any voting and other consensual
rights pertaining to the Collateral pledged by them. Upon the occurrence and
during the continuance of an Event of Default, (i) all rights of the pledgors to
exercise such voting or other consensual rights shall cease, and all such rights
shall become vested in the
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Collateral Agent, which, to the extent permitted by law, shall have the sole
right to exercise such voting and other consensual rights, (ii) all rights of
the pledgors to receive all cash dividends, interest and other payments made
upon or with respect to the pledged Collateral will cease and such cash
dividends, interest and other payments will be paid to the Collateral Agent and
(iii) the Collateral Agent may sell the pledged Collateral or any part thereof
in accordance with the terms of the Pledge Agreement. All funds distributed
under the Pledge Agreement and received by the Collateral Agent for the benefit
of the Holders of the Notes will be distributed by the Collateral Agent pro rata
to the Holders of Notes in accordance with the provisions of the Indenture and
the Pledge Agreement.
Under the terms of the Pledge Agreement, the Collateral Agent will
determine the circumstances and manner in which the pledged Collateral shall be
disposed of, including, but not limited to, the determination of whether to
release all or any portion of the pledged Collateral from the Liens created by
the Pledge Agreement and whether to foreclose on the pledged Collateral
following an Event of Default. Moreover, upon the full and final payment and
performance of all Obligations of the Company under the Indenture and the Notes,
the Pledge Agreement shall terminate and the pledged Collateral shall be
released.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control. Upon the occurrence of a Change of Control, each Holder
of Notes will have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
of purchase (the "Change of Control Payment"). Within ten days following any
Change of Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes pursuant to the procedures required by the Indenture and
described in such notice. The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of a Change of Control.
On a date that is at least 30 but no more than 60 days from the date on
which the Company mails notice of the Change of Control (the "Change of Control
Payment Date"), the Company will, to the extent lawful, (i) accept for payment
all Notes or portions thereof properly tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change
of Control Payment in respect of all Notes or portions thereof so tendered and
(iii) deliver or cause to be delivered to the Trustee the Notes so accepted
together with an Officers' Certificate stating the aggregate principal amount of
Notes or portions thereof being purchased by the Company. The Paying Agent will
promptly mail to each Holder of Notes so tendered the Change of Control Payment
for such Notes, and the Trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each Holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered, if any; provided
that each such new Note will be in a principal amount of $1,000 or an integral
multiple thereof. The Company will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer on the
terms, in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to a Change of Control Offer
made by the Company and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer.
The Change of Control provisions described above shall be applicable
whether or not any other provisions of the Indenture are applicable.
The New Revolving Credit Facility contains prohibitions of certain events
that would constitute a Change of Control. In addition, the exercise by the
Holders of Notes of their right to require the Company to repurchase the Notes
or of their rights under the Pledge Agreement could cause a default under the
New
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Revolving Credit Facility. The Company's ability to pay cash to the Holders of
Notes upon a repurchase may be limited by the Company's then existing financial
resources.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principals or any Related Party (as defined below) thereof,
(ii) the adoption of a plan relating to the liquidation or dissolution of the
Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation, but excluding any foreclosure on, or
sale of Collateral by, the Collateral Agent pursuant to the Pledge Agreement)
the result of which is that any "person" (as defined above), other than the
Principals or any Related Party, becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of (a) more than 35% of the voting stock of the Company and (b) more
of the voting stock of the Company than is at the time "beneficially owned" (as
defined above) by the Principals and their Related Parties in the aggregate or
(iv) the first day on which a majority of the members of the Board of Directors
of the Company are not Continuing Directors.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Principals" means Jonathan Miller and Matthew Miller.
"Related Party" with respect to any Principal means (i) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or the estate of such
Principal during any period in which such estate holds Equity Interests for the
benefit of such Principal's spouse or child or (ii) a trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding an 80% or more controlling interest of which
consist of such Principal and/or such other Persons referred to in the
immediately preceding clause (i).
Asset Sales. The Indenture provides that the Company will not, and will not
permit any of its Subsidiaries to, engage in an Asset Sale unless (i) the
Company (or the Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Subsidiary is in the form of cash; provided that
the amount of (x) any liabilities (as shown on the Company's or such
Subsidiary's most recent balance sheet), of the Company or any Subsidiary (other
than contingent liabilities and liabilities that are by their terms subordinated
to the Notes or any guarantee thereof) that are cancelled or assumed by the
transferee of any such assets pursuant to a customary novation agreement that
releases the Company or such Subsidiary from further liability and (y) any notes
or other obligations received by the Company or any such Subsidiary from such
transferee that are immediately converted by the Company or such Subsidiary into
cash (to the extent of the cash received), shall be deemed to be cash for
purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds (i) to permanently reduce borrowings
under one or more Credit Facilities (and to correspondingly reduce commitments
with respect thereto), or (ii) to the acquisition of a controlling interest in
another business, the making of a capital expenditure or the acquisition of
other long-term assets, in each case, in the same line of business as the
Company was engaged in on the date of the Indenture. Pending the final
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application of any such Net Proceeds, the Company may temporarily reduce the
Credit Facilities or otherwise invest such Net Proceeds in any manner that is
not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company will be required to make an offer to
all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
of purchase, in accordance with the procedures set forth in the Indenture. To
the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis (with
such adjustments as may be deemed appropriate by the Company so that only Notes
with denominations of $1,000 or integral multiples thereof, shall be purchased).
Upon completion of such offer to purchase, the amount of Excess Proceeds shall
be reset at zero.
CERTAIN COVENANTS
Restricted Payments. The Indenture provides that the Company will not, and
will not permit any of its Subsidiaries to, directly or indirectly: (i) declare
or pay any dividend or make any other payment or distribution on account of the
Company's Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's Equity Interests in their capacity
as such (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company); (ii) purchase, redeem or
otherwise acquire or retire for value any Equity Interests of the Company or any
Affiliate of the Company (other than any such Equity Interests owned by the
Company or any Wholly Owned Subsidiary of the Company); (iii) make any principal
payment on, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated to the Notes; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the "-- Incurrence of Indebtedness and Issuance of Preferred Stock"
covenant; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the date
of the Indenture (excluding Restricted Payments permitted by clauses (ii)
and (iii) of the next succeeding paragraph), is less than the sum of (i)
50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the date of the Indenture of Equity Interests of
the Company or of Disqualified Stock or debt securities of the Company that
have been converted into such Equity Interests (other than Equity Interests
(or Disqualified Stock or convertible debt securities) sold to a Subsidiary
of the Company and other than Disqualified Stock or debt securities that
have been converted into Disqualified Stock), plus (iii) to the extent that
any Restricted Investment that was made after the date of the Indenture is
sold for cash or otherwise liquidated or repaid for cash, the lesser of (A)
the cash return of
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capital with respect to such Restricted Investment (less the cost of
disposition, if any) and (B) the initial amount of such Restricted
Investment, plus (iv) $500,000.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any Indebtedness that is subordinated to
the Notes in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other Equity
Interests of the Company (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition shall be excluded from clause (c)
(ii) of the preceding paragraph; and (iii) the defeasance, redemption or
repurchase of subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness or the substantially concurrent
sale (other than to a Subsidiary of the Company) of Equity Interests of the
Company (other than Disqualified Stock); provided that the amount of any such
net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c) (ii) of the
preceding paragraph.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed, which calculations may be
based upon the Company's latest available financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock. The Indenture
provides that the Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and that the
Company will not issue any Disqualified Stock and will not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that the
Company may incur Indebtedness (including Acquired Debt) if the Fixed Charge
Coverage Ratio for the Company's most recently ended four full fiscal quarters
for which internal financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred would have been at least
(i) 2.0 to 1.0 in the case of Indebtedness incurred prior to September 1, 1998
and (ii) 2.25 to 1.0 in the case of Indebtedness incurred thereafter, in each
case determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been incurred at
the beginning of such four-quarter period.
The foregoing provisions will not apply to:
(i) the incurrence by the Company and Felchar of Indebtedness and
letters of credit pursuant to one or more Credit Facilities (with letters
of credit being deemed to have a principal amount equal to the maximum
potential liability of the Company thereunder) in an aggregate principal
amount not to exceed $25 million at any time outstanding, less any amounts
applied to permanently reduce borrowings under Credit Facilities pursuant
to the provisions described under "Asset Sales" above;
(ii) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes;
(iv) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or such Subsidiary, in an aggregate principal amount not to exceed
$5.0 million at any time outstanding;
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(v) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be incurred;
(vi) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Wholly Owned Subsidiaries; provided, however, that (i) if the Company is
the obligor on such Indebtedness, such Indebtedness is expressly
subordinate to the payment in full of all Obligations with respect to the
Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than the
Company or a Wholly Owned Subsidiary and (B) any sale or other transfer of
any such Indebtedness to a Person that is not either the Company or a
Wholly Owned Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Subsidiary, as the
case may be;
(vii) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any Indebtedness that is permitted by
the terms of the Indenture to be outstanding or currency exchange rate
risk; and
(viii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding not to exceed $10.0 million.
Liens. The Indenture provides that the Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien securing Indebtedness on any asset now owned or
hereafter acquired, or any income or profits therefrom or assign or convey any
right to receive income therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries. The
Indenture provides that the Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Subsidiary to (i)(A) pay dividends or make any other distributions to the
Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect
to any other interest or participation in, or measured by, its profits, or (B)
pay any indebtedness owed to the Company or any of its Subsidiaries, (ii) make
loans or advances to the Company or any of its Subsidiaries or (iii) transfer
any of its properties or assets to the Company or any of its Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (A)
Existing Indebtedness and the New Revolving Credit Facility as in effect on the
date of the Indenture, (B) applicable law, (C) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of its
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (D) by reason of restrictions imposed by Permitted Liens on the
transfer of the assets that are subject to such Liens, (E) by reason of
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (F) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired or (G) Permitted Refinancing Debt, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Debt are no
more restrictive than those contained in the agreements governing the
Indebtedness being refinanced.
Merger, Consolidation, or Sale of Assets. The Indenture provides that the
Company may not consolidate or merge with or into (whether or not the Company is
the surviving corporation), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions, to another corporation, Person or entity unless
(i) the Company is the surviving corporation or the entity or the Person formed
by or surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
entity or Person formed by or surviving any such consolidation or merger (if
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other than the Company) or the entity or Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made assumes
all the obligations of the Company under the Notes and the Indenture pursuant to
a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no Default or Event of Default exists; and
(iv) except in the case of a merger of the Company with or into a Wholly Owned
Subsidiary of the Company, the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant.
Transactions with Affiliates. The Indenture provides that the Company will
not, and will not permit any of its Subsidiaries to, make any payment to, or
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend any
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Subsidiary than those that would have been obtained
in a comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (A) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $500,000, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the Independent Directors and (B) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $2.5 million, an opinion as to
the fairness to the Holders of such Affiliate Transaction from a financial point
of view issued by an accounting, appraisal or investment banking firm of
national standing; provided that (x) any employment agreement in existence on
the date of the Indenture and any similar agreement entered into by the Company
or any of its Subsidiaries involving consideration that is not materially
greater than that under any such existing employment agreement, (y) transactions
between or among the Company and/or its Subsidiaries and (z) Restricted Payments
and Permitted Investments that are permitted by the provisions of the Indenture
described above under the caption "-- Restricted Payments", in each case, shall
not be deemed to be Affiliate Transactions.
Sale and Leaseback Transactions. The Indenture provides that the Company
will not, and will not permit any of its Subsidiaries to, enter into any sale
and leaseback transaction; provided that the Company may enter into a sale and
leaseback transaction if (i) the Company could have (A) incurred Indebtedness in
an amount equal to the Attributable Debt relating to such sale and leaseback
transaction pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "-- Incurrence
of Additional Indebtedness and Issuance of Preferred Stock" and (B) incurred a
Lien to secure such Indebtedness pursuant to the covenant described above under
the caption "-- Liens," (ii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by the Board of Directors and set forth in an Officers' Certificate
delivered to the Trustee) of the property that is the subject of such sale and
leaseback transaction and (iii) the transfer of assets in such sale and
leaseback transaction is permitted by, and the Company applies the proceeds of
such transaction in compliance with, the covenant described above under the
caption "-- Asset Sales."
Limitation on Issuances and Sales of Capital Stock of Wholly Owned
Subsidiaries. The Indenture provides that the Company (i) will not, and will
not permit any Wholly Owned Subsidiary of the Company to, transfer, convey,
sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned
Subsidiary of the Company to any Person (other than the Company or a Wholly
Owned Subsidiary of the Company), unless (A) such transfer, conveyance, sale,
lease or other disposition is of all the Capital Stock of such Wholly Owned
Subsidiary and (B) the cash Net Proceeds from such transfer, conveyance, sale,
lease or other
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disposition are applied in accordance with the covenant described above under
the caption "-- Asset Sales," and (ii) will not permit any Wholly Owned
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Subsidiary of
the Company.
Limitations on Issuances of Guarantees of Indebtedness. The Indenture
provides that the Company will not permit any Subsidiary, directly or
indirectly, to Guarantee or pledge any assets to secure the payment of any other
Indebtedness of the Company (other than Guarantees by any domestic operating
subsidiary with respect to Indebtedness incurred pursuant to the New Revolving
Credit Facility) unless such Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for the Guarantee of the
payment of the Notes by such Subsidiary, which Guarantee shall be senior to or
pari passu with such Subsidiary's Guarantee of or pledge to secure such other
Indebtedness. Notwithstanding the foregoing, any such Guarantee by a Subsidiary
of the Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon either (i) the release or discharge
of such Guarantee of such Indebtedness, except a discharge by or as a result of
payment under such Guarantee, or (ii) any sale, exchange or transfer, to any
Person not an Affiliate of the Company, of all of the Company's stock in, or all
or substantially all the assets of, such Subsidiary, which sale, exchange or
transfer is made in compliance with the applicable provisions of the Indenture.
The form of such Guarantee will be attached as an exhibit to the Indenture.
Business Activities. The Company will not, and will not permit any
Subsidiary to, engage in any business other than a Permitted Business, except to
such an extent as would not be material to the Company and its Subsidiaries
taken as a whole.
Independent Directors. From and after 180 days after the Closing Date, so
long as any of the Notes are outstanding, the Company shall have at least two
members of its Board of Directors who are neither officers nor employees of the
Company or any of its Affiliates or immediate family members thereof (the
"Independent Directors"). Any transaction requiring the approval of the majority
of the Independent Directors shall be prohibited at any time that there are not
at least two Independent Directors on the Company's Board of Directors. If the
Company fails to comply with the first sentence of this covenant, the Company
will pay Liquidated Damages to each Holder of Notes in an amount equal to $.50
per week per $1,000 in aggregate principal amount of Notes held by such Holder
until such Independent Directors take office; provided that, if at any time
after the first Independent Directors are appointed to the Board of Directors,
the Company shall fail to have at least two Independent Directors on its Board
of Directors, the Company shall have 90 days to cure such non-compliance before
Liquidated Damages will be assessed. In addition, on each day, after the first
anniversary of the date of the Indenture, that the Company fails to have two
Independent Directors on its Board of Directors for 180 days out of the
preceding 360-day period, the Company shall pay Liquidated Damages to each
Holder of Notes in an amount equal to $.50 per week per $1,000 in aggregate
principal amount of Notes held by such Holder. The Company shall not be required
to pay Liquidated Damages pursuant to this covenant in excess of $.50 per week
per $1,000 of Notes.
Payments for Consent. The Indenture provides that neither the Company nor
any of its Subsidiaries will, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
of any Notes for or as an inducement to any consent, waiver or amendment of any
of the terms or provisions of the Indenture or the Notes unless such
consideration is offered to be paid or is paid to all Holders of the Notes that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
Reports. The Indenture provides that, whether or not required by the rules
and regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes (i) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the
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Commission on Form 8-K if the Company were required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, following consummation of the Exchange Offer, the Company will file
a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, for so long as any Notes remain outstanding, the Company
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes; (ii) default in payment when due
of the principal of or premium, if any, on the Notes; (iii) failure by the
Company to comply with the provisions described under the captions "-- Change of
Control", "-- Asset Sales", "-- Restricted Payments" or "-- Incurrence of
Indebtedness and Issuance of Preferred Stock"; (iv) failure by the Company or
any pledgor for 30 days after notice from the Trustee or Holders of at least 25%
in aggregate principal amount of the then outstanding Notes to comply with any
of its other agreements, or to have cured any breach of any representation or
warranty, in the Indenture, the Notes or the Pledge Agreement; (v) default under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness for money borrowed by
the Company or any of its Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Subsidiaries) whether such Indebtedness or guarantee
now exists, or is created after the date of the Indenture, which default (A) is
caused by a failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (B) results in
the acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $2.0
million or more; (vi) failure by the Company or any of its Subsidiaries to pay
final judgments aggregating in excess of $2.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days; (vii) repudiation by any
pledgor of its obligations under the Pledge Agreement, or the unenforceability
of the Pledge Agreement against any pledgor for any reason; and (viii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
September 1, 2000 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to September 1, 2000, then the
premium specified in the Indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the Notes.
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The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, STOCKHOLDERS AND
PLEDGORS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or the Pledge Agreement or for any claim based on, in
respect of, or by reason of, such obligations or their creation. The liability
of the pledgors under the Pledge Agreement will be limited to the Collateral.
Each Holder of Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and Liquidated Damages on
the outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or
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Event of Default shall have occurred and be continuing on the date of such
deposit (other than a Default or Event of Default resulting from the borrowing
of funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period ending
on the 123rd day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute a
default under any material agreement or instrument (other than the Indenture) to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound; (vi) the Company must have delivered to the
Trustee an opinion of counsel to the effect that after the 123rd day following
the deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided below, the Indenture, the Notes or the Pledge Agreement
may be amended or supplemented with the consent of the Holders of at least a
majority in principal amount of the Notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Notes), and any existing default or compliance with any
provision of the Indenture, the Notes or the Pledge Agreement may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders"), (iii) reduce the rate of or change
the time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, Liquidated Damages,
if any, or interest on the Notes (except a rescission of acceleration of the
Notes by the Holders of at least a majority in aggregate principal amount of the
Notes and a waiver of the payment default that resulted in such acceleration),
(v) make any Note payable in money other than that stated in the Notes, (vi)
make any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of Notes to receive payments of principal of
or premium, if any, Liquidated Damages, if any, or interest on the Notes, (vii)
waive a redemption payment with respect to any Note (other than a payment
required by one of the covenants described above under the caption "--
Repurchase at the Option of Holders"), or (viii) make any change in the
foregoing amendment and waiver provisions.
Without the consent of at least 66 2/3% in principal amount of the Notes
then outstanding (including consents obtained in connection with a purchase of,
or tender offer or exchange offer for, Notes), no waiver or
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amendment to the Indenture may make any change in the provisions described above
under the caption "-- Change of Control" or "-- Security" that adversely affect
the rights of any Holder of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture, the Notes or
the Pledge Agreement, to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of Notes in
the case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of Notes or that does not adversely
affect the legal rights under the Indenture of any such Holder, or to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to the Company at 2323
Reach Road, P.O Box 3307, Williamsport, Pennsylvania 17701-0307, Attention: W.
Earl Stogner.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback) other
than sales of inventory in the ordinary course of business
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consistent with past practices or in connection with the discontinuance of the
McCulloch operations; provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption " -- Change of Control" and/or the
provisions described above under the caption " -- Merger, Consolidation or Sale
of Assets" and not by the provisions of the Asset Sale covenant, and (ii) the
issue or sale by the Company or any of its Subsidiaries of Equity Interests of
any of the Company's Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $1.0 million or (b) for net proceeds in
excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets
by the Company to a Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to
the Company or to another Wholly Owned Subsidiary, (ii) an issuance of Equity
Interests by a Wholly Owned Subsidiary to the Company or to another Wholly Owned
Subsidiary and (iii) a Restricted Payment that is permitted by the covenant
described above under the caption " -- Restricted Payments" will not be deemed
to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be reflected on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to the New Revolving
Credit Facility or with any domestic commercial bank having capital and surplus
in excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above and (v) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within six months after the date of acquisition.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other
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non-cash charges (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in computing
such Consolidated Net Income, minus (v) non-cash items increasing consolidated
revenues in determining such Consolidated Net Income for such period, in each
case, on a consolidated basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the New Revolving Credit Facility) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables or inventory financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables or
inventory) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Revolving Credit Facility)
in existence on the date of the Indenture, until such amounts are repaid.
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"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Subsidiaries following
the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest expense of such Person and its
Subsidiaries that was capitalized during such period, and (iii) any interest
expense on Indebtedness of another Person that is Guaranteed by such Person or
one of its Subsidiaries or secured by a Lien on assets of such Person or one of
its Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv)
the product of (a) all cash dividend payments (and non-cash dividend payments in
the case of a Person that is a Subsidiary) on any series of preferred stock of
such Person, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means any Subsidiary that executes a Subsidiary Guarantee and
its successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest or currency exchange rate swap agreements,
interest or currency exchange rate cap agreements and interest or currency
exchange rate collar agreements and (ii) other agreements or arrangements, in
any case, designed to protect such Person against fluctuations in interest or
currency exchange rates and not entered into for speculative purposes.
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"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment. If the Company or any
Subsidiary of the Company sells or otherwise disposes of any Equity Interests of
any direct or indirect Subsidiary of the Company such that, after giving effect
to any such sale or disposition, such Person is no longer a Subsidiary of the
Company, the Company shall be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Equity
Interests of such Subsidiary not sold or disposed of.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Millers' Stock" means all of the capital stock of the Company owned,
directly or indirectly, by Jonathan Miller, Matthew Miller and certain family
partnerships or trusts.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary gain (but not loss) or any gain (but not loss) realized
in connection with an Asset Sale, together with any related provision for taxes
on such gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and investment
banking fees, and sales commissions) and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Senior Term Debt or Senior Revolving Debt) secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
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<PAGE> 86
"Permitted Business" means the sale of wet/dry vacuums, floor-care or
cleaning products, or any similar products or any other business ancillary or
reasonably related thereto.
"Permitted Investments" means (i) any Investment in the Company or in a
Wholly Owned Subsidiary of the Company that is evidenced by Capital Stock or
Subsidiary Intercompany Notes; (ii) any Investment in Cash Equivalents; (iii)
any Investment by the Company or any Subsidiary of the Company in a Person that
is evidenced by Capital Stock or Subsidiary Intercompany Notes, if as a result
of such Investment (A) such Person becomes a Wholly Owned Subsidiary of the
Company or (B) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Wholly Owned Subsidiary of the Company and that is
engaged in the same or a similar line of business as the Company and its
Subsidiaries were engaged in on the date of the Indenture; (iv) any Restricted
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales"; (v) any Investment acquired by the Company or any of
its Subsidiaries (A) in exchange for any other Investment or accounts receivable
held by the Company or any such Subsidiary in connection with or as a result of
a bankruptcy, workout, reorganization or recapitalization of the issuer of such
other Investment or accounts receivable or (B) as a result of a foreclosure by
the Company or any of its Subsidiaries with respect to any secured Investment or
other transfer of title with respect to any secured Investment in default; (vi)
Hedging Obligations; and (vii) additional Investments having an aggregate fair
market value, taken together with all other Investments made pursuant to this
clause (vii) that are at that time outstanding, not to exceed $0.5 million (with
the fair market value of each Investment being measured at the time made and
without giving effect to subsequent changes in value).
"Permitted Liens" means (i) Liens on the Collateral created by the
Collateral Documents, (ii) Liens on the Company's and Felchar's receivables and
inventory, and the proceeds from the disposition thereof, securing the
borrowings or letters of credit under Credit Facilities that were permitted by
the terms of the Indenture to be incurred; (iii) Liens in favor of the Company;
(iv) Liens on property of a Person existing at the time such Person is merged
into or consolidated with the Company or any Subsidiary of the Company; provided
that such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company; (v) Liens on property existing at
the time of acquisition thereof by the Company or any Subsidiary of the Company,
provided that such Liens were in existence prior to the contemplation of such
acquisition; (vi) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vii) Liens to secure Indebtedness
(including Capital Lease Obligations) permitted by clause (iv) of the second
paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such Indebtedness;
(viii) Liens existing on the date of the Indenture; (ix) Liens on the assets of
the Company's Subsidiaries securing Indebtedness of such Subsidiaries that was
permitted by the terms of the Indenture to be incurred; (x) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; and (xi) Liens incurred in the ordinary course of business
of the Company or any Subsidiary of the Company with respect to obligations that
do not exceed $1.0 million at any one time outstanding.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
of its Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other Indebtedness
of the Company or any of its Subsidiaries; provided that: (i) the principal
amount (or accreted value, if applicable) of such Permitted Refinancing Debt
does not exceed the principal amount (or accreted value, if applicable) of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection therewith); (ii)
such Permitted Refinancing Debt has a final maturity date later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended,
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<PAGE> 87
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Debt has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (A) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (B)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means any Guarantee executed by a Subsidiary in
accordance with the provisions of the Indenture.
"Subsidiary Intercompany Notes" means the intercompany notes issued by
Subsidiaries of the Company in favor of the Company to evidence advances by the
Company, in each case, in the form attached as Exhibit E to the Indenture, which
notes shall not be junior to any other unsecured indebtedness of such
Subsidiary.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person, except that,
with respect to Goblin France, at least 95% of the outstanding Capital Stock or
other ownership interests thereof shall at the time be owned by such Person or
one or more Wholly Owned Subsidiaries of such Person.
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<PAGE> 88
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the Exchange Notes will initially be issued in
the form of a global note (the "Global Note"). The Global Note will be deposited
on the Closing Date with, or on behalf of, the Depositary and registered in the
name of Cede & Co., as nominee of the Depositary.
Notwithstanding the foregoing, Notes (i) originally issued to or
transferred to institutional "accredited investors," as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act, who are not qualified
institutional buyers or to any other persons who are not qualified institutional
buyers or (ii) held by qualified institutional buyers who elect to take physical
delivery of their certificates instead of holding their interest through the
Global Note (and which are thus ineligible to trade through the Depositary)
(collectively referred to herein as "Non-Global Purchasers") will be issued, in
registered form, without interest coupons as "Certificated Notes." Upon the
transfer to a qualified institutional buyer of such Certificated Notes initially
issued to a Non-Global Purchaser, such Certificated Notes will, unless the
transferee requests otherwise or the Global Note has previously been exchanged
in whole for Certificated Securities, be exchanged for an interest in the Global
Note representing the principal amount of Exchange Notes being transferred.
The Depositary has advised the Company that it is (i) a limited-purpose
trust company organized under the laws of the State of New York, (ii) is a
member of the Federal Reserve System, (iii) a "clearing operation" within the
meaning of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The Depositary was
created to hold securities for its participating organizations (collectively,
the "Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between Participants
through electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Qualified institutional buyers may elect to hold Exchange Notes
purchased by them through the Depositary. Qualified institutional buyers who are
not Participants may beneficially own securities held by or on behalf of the
Depositary only through Participants or Indirect Participants. Persons that are
not qualified institutional buyers may not hold Exchange Notes through the
Depositary.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with an interest
in the Global Note and (ii) ownership of the Exchange Notes will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interests of the Depositary's
Participants), the Depositary's Participants and the Depositary's Indirect
Participants. The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own and that security
interests in negotiable instruments can only be perfected by delivery of
certificates representing the instruments. Consequently, the ability to transfer
Exchange Notes or to pledge the Exchange Notes as collateral will be limited to
such extent.
So long as the Depositary or its nominee is the registered owner or holder
of the Global Note, the Depositary or such nominee will be considered the sole
owner or holder of the Exchange Notes represented by the Global Note for all
purposes under the Indenture. Except as provided below, owners of beneficial
interests in the Global Note will not be entitled to have Exchange Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Notes, and will not be
considered the owners or holders thereof under the Indenture for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in Exchange Notes represented by the Global Note to pledge
such interest to persons or entities that do not participate in the Depositary's
system, or to otherwise take actions with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Accordingly, each qualified institutional buyer owing a beneficial interest
in the Global Note must rely on the procedures of the Depositary and, if such
qualified institutional buyer is not a Participant or an Indirect Participant,
on the procedures of the Participant through which such qualified institutional
buyer owns its interest, to exercise any rights of a holder under the Indenture
or the Global Note. The Company understands that under existing industry
practice, in the event the Company requests any action of holders of Exchange
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<PAGE> 89
Notes or a qualified institutional buyer that is an owner of a beneficial
interest in the Global Note desires to take any action that the Depositary, as
the holder of the Global Note, is entitled to take, the Depositary would
authorize the Participants to take such action and the Participants would
authorize the qualified institutional buyers owning through such Participants to
take such action or would otherwise act upon the instructions of such qualified
institutional buyers. Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records of the Depositary or
for maintaining, supervising or reviewing any records of the Depositary relating
to the Notes.
Payments with respect to the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Exchange Notes represented by the Global Note
registered in the name of the Depositary or its nominee on the applicable record
date will be payable by the Trustee to or at the direction of the Depositary or
its nominee in its capacity as the registered holder of the Global Note
representing such Exchange Notes under the Indenture. Under the terms of the
Indenture, the Company and the Trustee may treat the persons in whose names the
Exchange Notes, including the Global Note, are registered as the owners thereof
for the purpose of receiving such payments and for any and all purposes
whatsoever. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of Exchange Notes. The Company believes, however, that it is currently
the policy of the Depositary to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the Global Note as shown on the records of
the Depositary. Payments by the Depositary's Participants and the Depositary's
Indirect Participants to the beneficial owners of Exchange Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
Neither the Company nor the Trustee will be liable for any delay by the
Depositary or any Participant or Indirect Participant in identifying the
beneficial owners of the related Exchange Notes and the Company and the Trustee
may conclusively rely on, and will be protected in relying on, instructions from
the Depositary for all purposes (including with respect to the registration and
delivery, and the respective principal amounts of the Exchange Notes to be
issued).
The Indenture requires that payments in respect of the Exchange Notes
having a principal amount in excess of $1.0 million (including principal,
premium, if any, interest and Liquidated Damages, if any) be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof. Secondary trading in long-term notes and debentures of corporate
issuers is generally settled in clearing-house or next-day funds. In contrast,
the Exchange Notes represented by the Global Note are expected to be eligible to
trade in the PORTAL market and to trade in the Depositary's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in such
Exchange Notes will, therefore, be required by the Depositary to be settled in
immediately available funds.
CERTIFICATED NOTES
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Certificated Notes. Upon any such issuance, the Trustee is required
to register such Certificated Notes in the name of, and cause the same to be
delivered to, such person or persons (or the nominee of any thereof). All such
Certificated Notes evidencing Private Notes will be subject to the legend
requirements applicable to the Private Notes. In addition, if (i) the Company
notifies the Trustee in writing that the Depositary is no longer willing or able
to act as a depository and the Company is unable to locate a qualified successor
within 90 days or (ii) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Exchange Notes in definitive
form under the Indenture, then, upon surrender by the Depositary of the Global
Note, Certificated Notes will be issued to each person that the Depositary
identifies as being the beneficial owner of the Exchange Notes represented by
the Global Note.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources the Company
believes to be reliable. The Company will have no responsibility for the
performance by the Depositary or its Participants of their respective
obligations as described hereunder or under the rules and procedures governing
their respective operations.
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<PAGE> 90
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Latham & Watkins, counsel to the Company, the following
discussion describes the material federal tax income consequences expected to
result to Holders whose Private Notes are exchanged for Exchange Notes in the
Exchange Offer. Such opinion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "Service") will not take a
contrary view, and no ruling from the Service has been or will be sought with
respect to the Exchange Offer. Legislative, judicial or administrative changes
or interpretations may be forthcoming that could alter or modify the statements
and conclusions set forth herein. Any such changes or interpretations may or may
not be retroactive and could affect the tax consequences to Holders. Certain
Holders (including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below. EACH HOLDER OF PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR
AS TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE
NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
LAWS.
The exchange of Private Notes for Exchange Notes will be treated as
"non-event" for federal income tax purposes because the Exchange Notes will not
be considered to differ materially in kind or extent from the Private Notes. As
a result, no material federal income tax consequences will result to Holders
exchanging Private Notes for Exchange Notes.
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<PAGE> 91
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with the resale of Exchange Notes received in
exchange for Private Notes where such Private Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of up to 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer that
requests such document in the Letter of Transmittal for use in connection with
any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers or any other persons. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the Holders of Private Notes (including any broker-dealers), and
certain parties related to such Holders, against certain liabilities, including
liabilities under the Securities Act.
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<PAGE> 92
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes offered hereby
will be passed upon for the Company by Latham & Watkins, New York, New York.
Rhoads & Sinon LLP, Harrisburg, Pennsylvania, will pass upon certain matters of
New Jersey law on behalf of the Company.
EXPERTS
The consolidated financial statements and schedule of the Company and its
subsidiaries as of December 31, 1995 and 1994, and for each of the years in the
three-year period ended December 31, 1995, have been included herein and in the
registration statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing. The reports of
KPMG Peat Marwick LLP refer to changes in 1993 in the method of accounting for
post-retirement benefits other than pensions and income taxes.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Exchange Notes offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information with respect to the Company and
the Exchange Notes offered hereby, reference is made to the Registration
Statement, including the exhibits thereto and the financial statements, notes
and schedules filed as a part thereof. As a result of the Exchange Offer, the
Company will become subject to the informational requirements of the Exchange
Act. The Registration Statement (and the exhibits and schedules thereto), as
well as the periodic reports and other information filed by the Company with the
Commission, may be inspected and copied at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Room 1400,
75 Park Place, New York, New York 10007 and Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 6061-2511. Copies of such
materials may be obtained from the Public Reference Section of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
its public reference facilities in New York, New York and Chicago, Illinois at
the prescribed rates. Statements contained in this Prospectus as to the contents
of any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
Pursuant to the Indenture, the Company has agreed to furnish to the Trustee
and to registered Holders of the Notes, without cost to the Trustee or such
registered Holders, copies of all reports and other information that would be
required to be filed by the Company with the Commission under the Exchange Act,
whether or not the Company is then required to file reports with the Commission.
As a result of this Exchange Offer, the Company will become subject to the
periodic reporting and other informational requirements of the Exchange Act. In
the event that the Company ceases to be subject to the informational
requirements of the Exchange Act, the Company has agreed that, so long as any
Notes remain outstanding, it will file with the Commission (but only if the
Commission at such time is accepting such voluntary filings) and distribute to
Holders of the Private Notes or the Exchange Notes, as applicable, copies of the
financial information that would have been contained in such annual reports and
quarterly reports, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations," that would have been required to
be filed with the Commission pursuant to the Exchange Act. The Company will also
furnish such other reports as it may determine or as may be required by law.
The principal address of the Company is 2323 Reach Road, Williamsport,
Pennsylvania 17701, and the Company's telephone number is (717) 326-0502.
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SHOP-VAC CORPORATION AND SUBSIDAIRIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1994 and 1995
and September 30, 1996 (Unaudited)............................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994,
and 1995 and Nine Months Ended September 30, 1995 and 1996 (Unaudited)........... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1993, 1994, and 1995 and Nine Months Ended September 30, 1996
(Unaudited)...................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995 and Nine Months Ended September 30, 1995 and 1996 (Unaudited)........... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE> 94
[KPMG PEAT MARWICK LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Shop-Vac Corporation:
We have audited the accompanying consolidated balance sheets of Shop-Vac
Corporation and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period ended December 31, 1995.
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 Shop-Vac
Corporation and subsidiaries as of December 31, 1994 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in notes 6 and 7 to the consolidated financial statements, the
Company changed its method of accounting for postretirement benefits other than
pensions and income taxes in 1993.
/s/ KPMG PEAT MARWICK LLP
- ---------------------------------------------------------
Harrisburg, Pennsylvania
March 6, 1996, except as to the second
paragraph of Note 3, which is as of
August 28, 1996 and the third
paragraph of Note 3, which is as of
October 1, 1996
F-2
<PAGE> 95
SHOP-VAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 2,167 $ 2,682 $ 3,142
Accounts and notes receivable, less allowance for
doubtful receivables of $1,833 in 1994, $1,725 in 1995
and $1,579 in 1996 (unaudited)........................... 33,027 31,262 35,100
Inventories................................................. 38,547 28,020 28,945
Deferred income tax benefit................................. 2,101 -- --
Prepaid expenses and other current assets................... 7,481 4,618 4,722
Net current assets of discontinued operations............... 67,108 19,029 21,252
-------- -------- --------
Total current assets.......................................... 150,431 85,611 93,161
Property, plant, and equipment, net........................... 33,554 36,503 32,588
Property, plant, and equipment under capital leases, net...... 9,230 10,080 9,946
Other assets.................................................. 4,960 3,286 1,940
Net noncurrent assets of discontinued operations.............. 54,407 -- --
-------- -------- --------
$252,582 $135,480 $ 137,635
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt........................... $ 7,515 $ 6,258 $ 6,819
Accounts payable............................................ 54,677 36,372 33,913
Accrued expenses............................................ 9,038 19,005 32,821
-------- -------- --------
Total current liabilities..................................... 71,230 61,635 73,553
Deferred income taxes......................................... 2,623 -- --
Long-term debt................................................ 86,789 89,392 93,687
Other liabilities............................................. 9,034 26,054 12,506
-------- -------- --------
Total liabilities................................... 169,676 177,081 179,746
-------- -------- --------
Stockholders' equity (deficit):
Common stock, Class A voting, no par, 20,000 shares
authorized, 6,500 shares issued. Class B
nonvoting, no par, 1,000,000 shares authorized,
650,000 shares issued.................................... 85 85 85
Paid-in capital............................................. 110 110 110
Retained earnings (deficit)................................. 83,414 (44,764) (45,440)
Equity adjustment from foreign currency translation......... (703) 2,968 3,134
-------- -------- --------
Total stockholders' equity (deficit)................ 82,906 (41,601) (42,111)
-------- -------- --------
$252,582 $135,480 $ 137,635
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 96
SHOP-VAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ---------------------
1993 1994 1995 1995 1996
-------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................ $224,726 $ 250,843 $ 231,323 $165,135 $151,308
Cost of sales.................... 162,710 182,694 179,416 127,229 113,394
-------- --------- --------- -------- --------
Gross profit..................... 62,016 68,149 51,907 37,906 37,914
Selling, general, and
administrative expense......... 38,421 41,867 35,637 27,442 23,851
Restructuring charges............ -- -- -- -- 5,996
-------- --------- --------- -------- --------
Income from operations........... 23,595 26,282 16,270 10,464 8,067
Interest expense................. 7,210 8,826 11,629 8,966 7,175
Non-operating expense (income),
net............................ (870) 9 459 299 396
-------- --------- --------- -------- --------
Income from continuing operations
before income taxes and
cumulative effect of changes in
accounting principles.......... 17,255 17,447 4,182 1,199 496
Income taxes..................... 5,130 4,964 1,425 1,006 1,172
-------- --------- --------- -------- --------
Income (loss) from continuing
operations before cumulative
effect of changes in accounting
principles..................... 12,125 12,483 2,757 193 (676)
-------- --------- --------- -------- --------
Discontinued operations:
Loss from operations of
discontinued business, net
of income tax benefit....... (4,148) (4,525) (10,639) (6,397) --
Loss on disposal of
discontinued business, net
of income tax benefit....... -- -- (120,296) -- --
-------- --------- --------- -------- --------
Loss on discontinued
operations..................... (4,148) (4,525) (130,935) (6,397) --
-------- --------- --------- -------- --------
Income (loss) before cumulative
effect of changes in accounting
principles..................... 7,977 7,958 (128,178) (6,204) (676)
Cumulative effect of changes in
accounting principles, net of
income tax benefit............. (1,049) -- -- -- --
-------- --------- --------- -------- --------
Net income (loss)................ $ 6,928 $ 7,958 $(128,178) $ (6,204) $ (676)
======== ========= ========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 97
SHOP-VAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------
EQUITY
SHARES ISSUED ADJUSTMENT TOTAL
-------------------- RETAINED FROM FOREIGN STOCKHOLDERS'
CLASS A CLASS B PAID-IN EARNINGS CURRENCY EQUITY
VOTING NON-VOTING AMOUNT CAPITAL (DEFICIT) TRANSLATION (DEFICIT)
------- ---------- ------ ------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993... 6,500 650,000 $ 85 $ 110 $ 68,534 $ 393 $ 69,122
Net income................. -- -- -- -- 6,928 -- 6,928
Equity adjustment from
foreign currency
translation.............. -- -- -- -- -- (3,511) (3,511)
--
----- ------- --- -------- -------- --------
Balance, December 31,
1993..................... 6,500 650,000 85 110 75,462 (3,118) 72,539
Net income................. -- -- -- -- 7,958 -- 7,958
Equity adjustment from
foreign currency
translation.............. -- -- -- -- -- 2,415 2,415
Redemption of minority
interest in subsidiary... -- -- -- -- (6) -- (6)
--
----- ------- --- -------- -------- --------
Balance, December 31,
1994..................... 6,500 650,000 85 110 83,414 (703) 82,906
Net loss................... -- -- -- -- (128,178) -- (128,178)
Equity adjustment from
foreign currency
translation.............. -- -- -- -- -- 3,671 3,671
--
----- ------- --- -------- -------- --------
Balance, December 31,
1995..................... 6,500 650,000 85 110 (44,764) 2,968 (41,601)
Net loss (unaudited)....... -- -- -- -- (676) -- (676)
Equity adjustment from
foreign currency
translation
(unaudited).............. -- -- -- -- -- 166 166
--
----- ------- --- -------- -------- --------
Balance, September 30, 1996
(unaudited).............. 6,500 650,000 $ 85 $ 110 $ (45,440) $ 3,134 $ (42,111)
===== ======= == === ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 98
SHOP-VAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ---------------------
1993 1994 1995 1995 1996
------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $ 6,928 $ 7,958 $(128,178) $ (6,204) $ (676)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization................. 4,278 5,054 6,132 4,586 5,963
Loss on disposal of discontinued operations... -- -- 120,296 -- --
Cumulative effect of changes in accounting
principles.................................. 1,049 -- -- -- --
Changes in assets and liabilities:
Accounts and notes receivable............... 4,139 (6,807) 609 (4,675) (3,909)
Inventories................................. (6,298) (8,557) 11,086 (588) (1,109)
Prepaid expenses and other current assets... 987 (4,215) 3,015 2,877 (518)
Discontinued operations -- working capital
changes and noncash charges.............. (11,360) (7,102) (9,317) (460) (3,151)
Other assets................................ (1,138) (773) 1,763 2,149 (1,281)
Accounts payable and accrued expenses....... 4,527 14,274 (27,994) (16,763) 12,126
Deferred income taxes....................... (536) 1,480 (412) 79 --
Other liabilities........................... 4,063 2,395 4,070 (4,157) (11,811)
------- -------- -------- -------- --------
Net cash provided (used) by operating activities... 6,639 3,707 (18,930) (23,156) (4,366)
------- -------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures............................. (7,656) (7,838) (8,042) (7,614) (155)
Proceeds from sale of property and equipment..... -- 66 222 -- --
Proceeds from sale of discontinued operations.... -- -- 30,000 -- --
Investing activities of discontinued
operations.................................... (7,153) (12,618) (2,887) (2,306) --
------- -------- -------- -------- --------
Net cash provided (used) by investing activities... (14,809) (20,390) 19,293 (9,920) (155)
------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from revolving line-of-credit, net...... 7,067 14,933 18,063 24,382 8,193
Payment of term loan............................. (4,000) (4,000) (8,000) -- --
Payment of private placement notes............... -- -- (9,238) -- (770)
Payment of industrial development revenue
bonds......................................... (500) (500) (500) (400) (2,300)
Proceeds from issuance of priority revolving
line-of-credit................................ -- -- 16,044 16,044 --
Payment of priority revolving line-of-credit..... -- -- (16,044) (10,018) --
Proceeds from issuance of other long-term debt... 5,121 6,700 3,139 4,484 1,207
Other long-term debt and capital lease
payments...................................... (1,442) (1,498) (3,234) (621) (1,474)
------- -------- -------- -------- --------
Net cash provided by financing activities.......... 6,246 15,635 230 33,871 4,856
------- -------- -------- -------- --------
Effect of exchange rate changes on cash............ -- 116 (78) 65 125
------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents...................................... (1,924) (932) 515 860 460
Cash and cash equivalents, beginning of period..... 5,023 3,099 2,167 2,167 2,682
------- -------- -------- -------- --------
Cash and cash equivalents, end of period........... $ 3,099 $ 2,167 $ 2,682 $ 3,027 $ 3,142
======= ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 99
SHOP-VAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Shop-Vac Corporation is a multi-national engineering, manufacturing and
distribution concern. The Company's principal line of business is wet/dry vacuum
cleaners for consumer and industrial applications. The primary markets for the
Company's products are the United States, Canada, Mexico, Australia, and Europe.
The Company's primary customers include major discount retailers and major
hardware and home center retailers. Sales and related cost of goods sold are
recognized based upon shipment of products.
Principles of Consolidation
The consolidated financial statements include the accounts of Shop-Vac
Corporation and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates in the Financial Statements
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Translation of Foreign Currency
The functional currency for the Company's foreign operations is the
applicable local currency. The translation of the applicable foreign functional
currencies into U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue and
expense accounts using a weighted average exchange rate experienced during the
period. The gains or losses resulting from such translations, net of income tax,
are included in stockholders' equity (deficit). Gains or losses resulting from
foreign currency transactions are included in results of operations.
Foreign Currency Instruments
The Company enters into foreign exchange forward contracts to hedge certain
foreign currency transactions. These contracts are purchased to reduce the
impact of foreign currency fluctuations on operating results. The Company enters
into these financial instruments utilizing over-the-counter as opposed to
exchange traded instruments. Assuming performance by the contracting parties,
these contracts do not subject the Company to risk due to exchange rate
movements as gains and losses on the contracts offset gains and losses on the
transactions being hedged. The contracts are settled in cash upon expiration,
with settlement proceeds or payments included in the measurements of the item
hedged. The Company does not hedge firm commitments beyond two years. The
Company reduces the risk of losses due to nonperformance by counterparties by
only entering into agreements with major international financial institutions.
At Decem-
F-7
<PAGE> 100
SHOP-VAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ber 31, 1995 and September 30, 1996, the Company had foreign exchange forward
contracts outstanding as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------ SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C>
Irish punt against Italian lira............................ $ 22,036 $ 8,733
Irish punt against German mark............................. 6,159 1,041
Irish punt against British pound........................... 1,249 --
Irish punt against French franc............................ 1,184 --
Irish punt against U.S. dollar............................. 296 --
Irish punt against Dutch guilder........................... 269 --
Canadian dollar against U.S. dollar........................ 3,620 2,516
Other currencies........................................... 1,347 587
-------- --------
$ 36,160 $12,877
======== ========
</TABLE>
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts and notes
receivable, accounts payable, and current portion of long-term debt approximate
fair values due to the short-term maturities of these instruments.
The fair values of the long-term portion of the Company's debt instruments
are based on the amount of future cash flows associated with each instrument
discounted using the Company's current borrowing rate for similar debt
instruments of comparable maturity. The amount reported in the consolidated
balance sheet for long-term debt approximates fair value.
Inventories
Inventories are stated at the lower of cost or market. Cost for most
foreign inventories has been determined on the first-in, first-out (FIFO) basis.
Cost for most domestic inventories has been determined on the last-in, first-out
(LIFO) basis. At December 31, 1994 and 1995 and September 30, 1996,
approximately 71%, 68% and 59% (unaudited), respectively, of total inventories
are stated on the LIFO method. If the FIFO cost method had been used with
respect to such inventories, total inventories would have been approximately
$3,045,000, $2,925,000 and $2,925,000 (unaudited) higher at December 31, 1994
and 1995 and September 30, 1996, respectively.
Inventories are classified as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- ------- SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials...................................... $23,614 $17,613 $16,865
Work-in-process.................................... 332 481 109
Finished goods..................................... 14,601 9,926 11,971
-------- -------- --------
$38,547 $28,020 $28,945
======== ======== ========
</TABLE>
Property, Plant, and Equipment and Depreciation
Property, plant, and equipment are valued at cost less accumulated
depreciation. Depreciation of property, plant, and equipment is computed for
financial statement purposes on straight-line and declining
F-8
<PAGE> 101
SHOP-VAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
balance methods over the estimated useful lives of the property and, in some
instances, on differing methods and over different lives for income tax
purposes. Leasehold improvements are amortized over the shorter of the life of
the asset or the terms of the related leases.
Expenditures for maintenance, repairs and renewals are generally charged to
earnings as incurred. Renewals of significant items are capitalized.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Earnings of foreign operations are reinvested in the business
and no provision for domestic income tax or foreign withholding tax is made on
such earnings until distributed (see note 7).
Foreign Government Grants
The Company recognizes foreign government grants relating to the training
and continued employment of certain personnel as a reduction in relevant
expenses in the period in which related costs are incurred. Foreign government
grants received by the Company toward the purchase of equipment and by lessors
of equipment leased by the Company under capital leases are recorded as a
reduction in the cost of the acquired or leased asset (see note 10). The Company
received government grants relating to equipment amounting to $159,000 in 1994.
The Company did not receive government grants for the years ended December 31,
1993 and 1995 and the nine months ended September 30, 1996 (unaudited).
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Research and Development Costs
Research and development costs are expensed as incurred. Such expenses were
approximately $757,000, $547,000 and $344,000 in 1993, 1994, and 1995,
respectively, and $271,000 (unaudited) and $219,000 (unaudited) for the
nine-month periods ended September 30, 1995 and 1996, respectively.
Retirement Benefit Plans
Substantially all domestic employees participate in noncontributory pension
plans and substantially all non-U.S. employees participate in contributory or
noncontributory pension plans. Pension accounting information is disclosed in
note 6 to the consolidated financial statements.
Statement of Cash Flows
Cash in excess of daily requirements is invested in short-term marketable
securities with an original maturity of three months or less. Such investments
are deemed to be cash equivalents for purposes of the statement of cash flows.
F-9
<PAGE> 102
SHOP-VAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental disclosure of cash flow information (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid for interest..................... $7,427 $8,679 $11,879 $9,164 $7,435
Cash paid for income taxes................. 965 3,861 1,176 1,407 584
Capital lease obligations for new property,
plant, and equipment..................... 112 5,895 1,654 1,654 558
</TABLE>
(2) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
------------------- 30,
1994 1995 1996
------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Land.......................................................... $ 1,579 $ 1,599 $ 1,595
Buildings and improvements.................................... 18,642 18,912 18,882
Machinery and equipment....................................... 59,503 68,614 69,094
Construction in progress...................................... 4,576 1,961 730
------- ------- -------
84,300 91,086 90,301
Less accumulated depreciation................................. 50,746 54,583 57,713
------- ------- -------
Net property, plant, and equipment............................ $33,554 $36,503 $32,588
======= ======= =======
</TABLE>
Property, plant, and equipment under capital leases consisted of the
following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
---------------- 30,
1994 1995 1996
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Buildings.................................................... $4,244 $ 4,274 $ 4,184
Machinery and equipment...................................... 7,817 9,501 10,102
------- ------- ------
12,061 13,775 14,286
Less accumulated amortization................................ 2,831 3,695 4,340
------- ------- ------
Net property, plant, and equipment under capital leases...... $9,230 $10,080 $ 9,946
======= ======= ======
</TABLE>
F-10
<PAGE> 103
SHOP-VAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) LONG-TERM DEBT
Details of the Company's long-term debt are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER PRO FORMA
------------------- 30, SEPTEMBER 30,
1994 1995 1996 1996
------- ------- ----------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revolving line of credit............. $30,618 $48,681 $56,874 --
Private placement notes.............. 40,000 30,762 29,992 --
Industrial development revenue
bonds.............................. 2,800 2,300 -- --
Term loan............................ 8,000 -- -- --
10 5/8% Senior Secured Notes due
2003............................... -- -- -- 100,000
Capital lease agreements, interest at
rates ranging from 4% to 11.35%.... 11,211 10,038 8,564 8,564
Other, substantially foreign,
interest at average rate of 9.5%... 1,675 3,869 5,076 5,076
------- ------- ------- --------
94,304 95,650 100,506 113,640
Less current installments............ 7,515 6,258 6,819 6,819
------- ------- ------- --------
$86,789 $89,392 $93,687 $ 106,821
======= ======= ======= ========
</TABLE>
At January 1, 1996, the Company was not in compliance with certain
covenants of the revolving line of credit agreement and private placement note
agreement. In addition, the Company did not make the required annual principal
payment of $6.7 million due on the private placement notes on April 30, 1996.
(The private placement notes required annual principal payments of $6,700,000
through 1999 with final maturity of $3,962,000 in April 2000.) On August 28,
1996, the Company entered into Amendment Agreements with the holders of the
private placement notes and the lender under the revolving line of credit which
suspended the relevant financial covenants and payment dates with respect to
payments due or past due under either the private placement notes or the
revolving line of credit to provide that no principal payments will become due
until October 31, 1996. Furthermore, the revolving line of credit lender will
provide an additional $7.5 million of availability (maximum $62.5 million) from
August 28, 1996 through October 31, 1996 (the "Priority Facility"), the proceeds
of which were used to make a $770,389 principal payment with respect to the
private placement notes, to pay $307,621 in amendment fees to the holders of the
private placement notes, to make a $112,500 facility fee payment upon closing
the Priority Facility and for working capital and general corporate purposes.
The Amendment Agreements require the Company to comply with certain covenants
through October 31, 1996, including limitation on capital expenditures and asset
dispositions, as well as providing periodic financial information to the
lenders.
On October 1, 1996, the Company issued $100 million of senior secured
notes. The notes bear interest, payable semi-annually, at 10 5/8% and mature on
September 1, 2003. The net proceeds from the issuance of the notes were
approximately $95.6 million after payment of $3.5 million in underwriters
discounts and approximately $900,000 in expenses related to the offering. The
net proceeds were used to repay $57.5 million outstanding under the Company's
existing revolving line of credit and priority facility, $30.0 million of
outstanding 10.83% private placement notes due 2001 and $2.5 million of related
prepayment fees and expenses, which were expensed. The remaining proceeds will
be used for general corporate purposes. The interest expense for the year ended
December 31, 1995 and the nine months ended September 30, 1996 on a pro forma
basis assuming the senior secured notes were issued at the beginning of the year
was $12.8 million (unaudited) and $9.5 million (unaudited), respectively. Also
on October 1, 1996, the Company established a new revolving credit facility for
up to $25 million, subject to a borrowing base limitation based on the aggregate
of certain percentages of the eligible accounts receivable and eligible
inventory of the Company and its domestic subsidiaries. The new revolving credit
facility expires in 1999 and bears interest, at the Company's
F-11
<PAGE> 104
SHOP-VAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
option, at either: 0.75% plus the higher of the federal funds rate plus 0.5% per
annum or the lender's prime commercial lending rate (9.0% at October 1, 1996);
or LIBOR plus 2% (7.375% at October 1, 1996). The agreements with the lenders of
the senior secured notes and the new revolving credit facility contain financial
and operating covenants requiring the Company to maintain certain financial
ratios, limiting capital expenditures and restricting its ability to incur
indebtedness, make investments and create or permit certain liens. The
obligations related to the prior revolving line of credit and the private
placement notes were in default at January 1, 1996. These obligations are
reported in the accompanying balance sheet as long-term as a result of the
issuance of the senior secured notes and the use of the proceeds to repay the
prior revolving line of credit and the private placement notes. Based on this
refinancing, the Company's future principal payments on long-term debt for the
next five years are approximately as follows: 1996 - $6,258,000;
1997 - $2,300,000; 1998 - $2,455,000; 1999 - $2,454,000; and 2000 - $894,000.
The Company's prior revolving line of credit bore interest at the lender's
adjusted base rate which was 9.25% at December 31, 1995 and 9.0% (unaudited) at
September 30, 1996. The total availability at December 31, 1995 was $55 million
of which $48,681,000 was outstanding. At December 31, 1995 and September 30,
1996 (unaudited), the private placement notes' interest rate was 10.83%.
The Industrial Development Revenue Bonds bear interest at a variable rate
determined periodically (6.23% at December 31, 1995). The bonds were secured at
December 31, 1995 by an irrevocable letter of credit from a financial
institution in the amount of $2,370,000. The bonds were redeemed in June 1996
(unaudited).
The Company currently leases a sales/administration/distribution facility
in England from a company controlled by the stockholders of the Company. This
lease has been recorded as a capital lease with annual payments of approximately
$340,000 (interest at 9%) which management believes is comparable to terms for
similar facilities in arms-length transactions. At December 31, 1995, land,
building and equipment under capital lease of $2,192,000 and capital lease
obligations of $2,068,000 have been recognized with respect to this lease. The
Company also guaranteed up to UKL 500,000 (approximately $800,000) of
indebtedness incurred by the company in connection with the company's
acquisition of the facility.
(4) COMMITMENTS AND CONTINGENCIES
It is the opinion of the Company's management and legal counsel that
various claims and litigation in which the Company is currently involved have
been adequately provided for, and any resulting claims or judgments will not
materially affect the Company's business, financial condition, cash flows, or
operations.
As of December 31, 1995 and September 30, 1996 short-term notes receivable
from certain customers of the Company's foreign operations totaling
approximately $5,391,000 and $4,971,000 (unaudited), respectively, have been
sold with recourse.
Stockholder Agreement
The Company and its stockholders have entered into an agreement which
provides, in part, for (i) the accrual and payment of an annual dividend equal
to 10% of the net income of the Company (after taxes) which accrues and is
payable commencing upon the death, disability or incapacity of Jonathan Miller
or Matthew Miller, (ii) effective joint control of the Company by Jonathan
Miller and Matthew Miller and (iii) restrictions on the transfer of any of the
Company's stock. The dividend provision set forth in the stockholders agreement
suspends the payment of such dividends to the extent such payment would result
in the breach or violation of the terms, conditions or covenants of the
Company's financing arrangements.
European Operations (unaudited)
The Company intends to terminate the manufacture of steam cleaners at its
facility in France and to consolidate all of its European manufacturing
activities, including the production of steam cleaners, into its facility in
Ireland. In connection with the foregoing consolidation, the Company incurred a
pre-tax charge in
F-12
<PAGE> 105
SHOP-VAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the third quarter of 1996 of approximately $2.3 million to cover severance,
lease payments, shut-down and related expenses. The Company also intends to
terminate its distribution operations in Austria, Germany, Hungary, the
Netherlands and Spain. In connection with such termination, the Company incurred
a pre-tax charge in the third quarter of 1996 of approximately $3.7 million to
cover severance, lease payments, shut-down and related expenses. Although the
Company expects that the termination of these distribution operations will
negatively impact sales in the near-term, the Company expects to continue sales
to its major customers in these markets on a direct basis.
(5) OPERATING LEASES
The Company rents certain real property and machinery and equipment under
operating leases expiring at various dates through 2000. Rental expense under
operating leases, including short-term machinery and equipment rentals,
aggregated approximately $530,000 in 1993, $617,000 in 1994 and $873,000 in
1995, and approximately $684,000 (unaudited) and $626,000 (unaudited) for the
nine-month periods ended September 30, 1995 and 1996, respectively.
Future minimum lease payments required under all noncancelable operating
leases of continuing operations at December 31, 1995 are approximately as
follows (dollars in thousands):
<TABLE>
<S> <C>
1996........................................ $1,034
1997........................................ 562
1998........................................ 391
1999........................................ 237
2000........................................ 79
------
Total minimum lease payments................ $2,303
======
</TABLE>
(6) EMPLOYEE BENEFIT PLANS
The Company provides non-contributory, defined benefit pension plans
covering substantially all domestic personnel. The benefits are based on average
compensation and the number of years of service. The Company's funding policy is
to contribute the recommended amount based on the calculations of the plans'
consulting actuary.
The following table sets forth the plans' funded status and amounts
recognized in the Company's balance sheet (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
------- --------
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested
benefits of $5,913 in 1994 and $7,531 in 1995.............. $(6,406) $ (8,246)
======= ========
Projected benefit obligation for service rendered to date....... $(9,521) $(10,515)
Plan assets at fair value, primarily short-term marketable
securities and mutual funds................................... 7,438 8,744
------- --------
Projected benefit obligation in excess of plan assets........... (2,083) (1,771)
Unrecognized prior service cost................................. 70 57
Unrecognized net loss........................................... 2,073 1,294
Unrecognized net transition obligation.......................... (100) (88)
------- --------
Accrued pension cost included in accounts payable
and accrued expenses.......................................... $ (40) $ (508)
======= ========
</TABLE>
F-13
<PAGE> 106
SHOP-VAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension cost includes the following components (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Service cost-benefits earned during the period........ $ 947 $ 1,298 $ 1,478
Interest cost on projected benefit obligations........ 503 643 720
Return on plan assets................................. (452) (524) (714)
Net amortization and deferral......................... 20 154 222
------- ------- -------
Net periodic pension cost............................. $ 1,018 $ 1,571 $ 1,706
======= ======= =======
</TABLE>
A weighted-average discount rate of 8% in 1993 and 1994 and 7.5% in 1995
and a rate of increase in future compensation levels of 5% in 1993 and 1994 and
4% in 1995 were used in determining the actuarial present value of the projected
benefit obligation. The expected long-term rate of return on assets was 8.9% in
1993, 1994, and 1995.
Certain U.S. employees of the Company are eligible to participate in the
Shop-Vac Employees' Savings Plan. This plan allows employees to contribute up to
15% of their earnings as pretax contributions. The Company also makes matching
contributions to each participant's account equal to 25% of the amount
contributed by the employee, up to a maximum employee contribution of 6%. The
Company's contributions to this plan totaled approximately $134,000, $170,000,
and $173,000 during the years ended December 31, 1993, 1994, and 1995,
respectively.
Until March 31, 1995, certain executive officers of the Company were
eligible to participate in the Shop-Vac Executive Benefit Trust, a nonqualified
deferred compensation plan. This plan allowed participants to contribute up to
30%, 40%, and 40% of their earnings as pretax contributions for the years ended
December 31, 1993, 1994, and 1995, respectively. The Company also made matching
contributions to each participant's account equal to 75% of the amount
contributed by the employee, up to a maximum employee contribution of 6%. The
Company's contributions to this plan totaled approximately $172,000, $260,000,
and $64,000 during the years ended December 31, 1993, 1994, and 1995,
respectively. This plan was terminated in 1995.
Prior to April 6, 1993, the Company contributed to a union security plan.
Contributions to this security plan amounted to $101,000 in 1993. Employees
voted to decertify the union which represented them effective April 6, 1993.
This action resulted in the cessation of the Company's obligation to contribute
to the union's pension and health and welfare funds. These employees are now
covered by the benefit plans of the Company. The Company has reflected the
estimated withdrawal liability under the multi-employer plan in the accompanying
consolidated financial statements.
Certain employees are also covered by a retirement benefit plan providing
prescription drug benefits. The plan is not funded. The Company accounts for
these costs by accruing for them over the employee service period. The Company
adopted the provisions of SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions, during 1993. The effect of this accounting change
was a non-cash charge of $1,568,000 before income taxes ($949,000 after income
taxes.) The accumulated benefit obligation at December 31, 1994 and 1995 was
$1,422,000 and $1,279,000, respectively, and is reflected in other liabilities
in the accompanying consolidated balance sheet. The benefit obligation was
calculated using a discount rate of 8% and 7.5% at December 31, 1994 and 1995,
respectively, and a 5% annual rate of increase in the cost of covered benefits.
The effect of a one percentage point increase in the annual rate would increase
the accumulated benefit obligation by approximately 13%.
(7) INCOME TAXES
During 1993, the Company adopted the provisions of SFAS No. 109, Accounting
for Income Taxes, which requires a change from the deferred method of accounting
for income taxes to the asset and liability
F-14
<PAGE> 107
SHOP-VAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
method. The cumulative effect of this accounting change was a charge of $100,000
and has been reflected in the consolidated statement of operations for the year
ended December 31, 1993. The $100,000 cumulative effect reflects the previously
unrecognized tax effect of differences between the financial statement bases and
tax bases of certain assets and liabilities in the Company's consolidated
financial statements, primarily inventories and fixed assets. Purchase
accounting adjustments to certain assets and liabilities recorded net of related
income tax effects have been adjusted as part of the cumulative effect, to
reflect the related deferred taxes or future income tax benefits in the
consolidated balance sheet.
Total income tax expense (benefit) is allocated as follows (dollars in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income from operations.................... $ 5,130 $ 4,964 $ 1,425 $ 1,006 $1,172
Cumulative effect of changes in accounting
principles.............................. (519) -- -- -- --
Results of discontinued operations........ (1,553) (1,195) (76) (2,506) --
Loss on disposal of discontinued
business................................ -- -- (454) -- --
------ ----- ------- ------- -------
$ 3,058 $ 3,769 $ 895 $(1,500) $1,172
====== ===== ======= ======= =======
</TABLE>
The domestic and foreign components of income (loss) from continuing
operations before income taxes and cumulative effect of change in accounting
principles are as follows (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Domestic................................ $10,024 $10,595 $3,150 $ 172 $4,303
Foreign................................. 7,231 6,852 1,032 1,027 (3,807)
------ --- ------ ------- -------
$17,255 $17,447 $4,182 $1,199 $ 496
====== === ====== ======= =======
</TABLE>
The difference between the expected income tax expense from continuing
operations at the statutory federal income tax rate of 35% and the actual income
tax expense from continuing operations as reflected in the accompanying
consolidated financial statements is as follows (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ------------------
1993 1994 1995 1995 1996
------ ------- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expense at statutory rate............... $6,039 $ 6,106 $1,464 $ 420 $ 174
State income tax, net................... 323 339 64 9 41
Foreign taxes........................... (664) (1,104) 70 577 2,357
Change in beginning of year valuation
allowance for deferred tax assets
allocated to income tax expense....... -- -- -- -- (1,400)
Foreign tax credits..................... (326) (310) -- -- --
Other................................... (242) (67) (173) -- --
------ ---- ------ ------ ------
Total provision for income taxes from
continuing operations................. $5,130 $ 4,964 $1,425 $1,006 $1,172
====== ==== ====== ====== ======
</TABLE>
F-15
<PAGE> 108
SHOP-VAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of income tax expense (benefit) from continuing operations are
as follows (dollars in thousands):
<TABLE>
<CAPTION>
DEFERRED
--------------------
CURRENT CURRENT NONCURRENT TOTAL
------- ------- ---------- ------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Federal........................................... $ 2,324 $ 1,315 $ (873) $2,766
Foreign........................................... 2,196 (394) 65 1,867
State............................................. 418 238 (159) 497
------- ------- ------- -------
$ 4,938 $ 1,159 $ (967) $5,130
======= ======= ======= =======
YEAR ENDED DECEMBER 31, 1994
Federal........................................... $ 1,861 $ (490) $ 1,777 $3,148
Foreign........................................... 1,514 (27) (193) 1,294
State............................................. 178 (131) 475 522
------- ------- ------- -------
$ 3,553 $ (648) $ 2,059 $4,964
------- ------- ------- -------
YEAR ENDED DECEMBER 31, 1995
Federal........................................... $ 1,309 $ 2,037 $ (2,451) $ 895
Foreign........................................... 493 (162) 100 431
State............................................. 145 226 (272) 99
------- ------- ------- -------
$ 1,947 $ 2,101 $ (2,623) $1,425
------- ------- ------- -------
NINE MONTHS ENDED SEPTEMBER 30,
1995 (UNAUDITED)
Federal........................................... $ 56 $ 87 $ (87) $ 56
Foreign........................................... 858 (3) 82 937
State............................................. 13 20 (20) 13
------- ------- ------- -------
$ 927 $ 104 $ (25) $1,006
======= ======= ======= =======
NINE MONTHS ENDED SEPTEMBER 30,
1996 (UNAUDITED)
Federal........................................... $ 4 $(1,491) $ 1,491 $ 84
Foreign........................................... 1,025 -- -- 1,025
State............................................. 63 (213) 213 63
------- ------- ------- -------
$ 1,172 $(1,704) $ 1,704 $1,172
======= ======= ======= =======
</TABLE>
F-16
<PAGE> 109
SHOP-VAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-------------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts.................................... $ 558 $ 504 $ 434
Inventories, including uniform capitalization........... 24 475 400
Compensated absences and postretirement benefits
principally due to accrual for financial reporting
purposes............................................. 2,234 1,871 1,687
Liabilities due to accrual for financial reporting
purposes............................................. 514 6,945 5,169
Credit carryovers....................................... 4,078 5,697 5,781
Loss carryforward from discontinued operations.......... 2,754 21,149 21,170
Other................................................... 752 331 1,002
-------- -------- --------
Total gross deferred tax assets........................... 10,914 36,972 35,643
Less valuation allowance.................................. 6,739 33,704 32,304
-------- -------- --------
4,175 3,268 3,339
-------- -------- --------
Deferred tax liabilities:
Plant and equipment, due to differences in depreciation
and capitalized interest............................. 3,782 3,119 3,277
Costs deferred for financial reporting currently
deductible for tax................................... 915 149 62
-------- -------- --------
Total gross deferred tax liabilities...................... 4,697 3,268 3,339
-------- -------- --------
Net deferred tax assets (liabilities)..................... $ (522) $ -- $ --
======== ======== ========
</TABLE>
The valuation allowance for deferred tax assets at January 1, 1994 was
$6,739,000. The net change in valuation allowance for the year ended December
31, 1995 was an increase of $26,965,000 and for the period ended September 30,
1996 was a decrease of $1,400,000 (unaudited).
The Company has not recognized a deferred tax liability for the basis
differences related to the stock in certain foreign subsidiaries since such
differences are primarily related to undistributed earnings and the earnings are
not expected to be remitted and become taxable to the Company in the foreseeable
future. The accumulated amount of such undistributed earnings was approximately
$17,537,000 and $14,837,000 (unaudited) at December 31, 1995 and September 30,
1996, respectively.
At December 31, 1995 and September 30, 1996, the Company has federal
alternative minimum tax credit carryovers of approximately $1,350,000 and
$1,434,000 (unaudited), respectively, which are available to reduce future
regular income taxes, if any, over an indefinite period.
At December 31, 1995 and September 30, 1996 (unaudited), the Company also
has general business credit carryforwards of approximately $454,000 and foreign
tax credit carryforwards of approximately
F-17
<PAGE> 110
SHOP-VAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$3,893,000 which are available to offset future federal income taxes. If not
used to reduce federal income taxes these credits will expire as follows
(dollars in thousands):
<TABLE>
<CAPTION>
GENERAL FOREIGN
BUSINESS TAX
CREDIT CREDIT
-------- -------
<S> <C> <C>
December 31, 1997......................................... $ -- 259
December 31, 1998......................................... -- 1,441
December 31, 1999......................................... -- 574
December 31, 2000......................................... -- 1,619
December 31, 2008......................................... 203 --
December 31, 2009......................................... 251 --
</TABLE>
The Company has an estimated tax loss carryforward for income tax purposes
of $48.7 million at December 31, 1995 and September 30, 1996 (unaudited), which
is available to reduce federal income taxes, if any, through 2010 and state
income taxes over various carryforward periods. Based on the Company's
historical and current pretax earnings, management believes that it is more
likely than not that the recorded deferred tax assets, net of the valuation
allowance, will be realized.
(8) GEOGRAPHIC INFORMATION
The Company and its subsidiaries are primarily engaged in the manufacture
and sale of various types of industrial and consumer shop vacuums. The Company
and subsidiaries operate in various geographic areas as indicated by the
following (dollars in thousands):
<TABLE>
<CAPTION>
EUROPE,
PRINCIPALLY
FRANCE,
GERMANY,
IRELAND AND
THE UNITED
UNITED STATES KINGDOM OTHER ELIMINATIONS CONSOLIDATED
------------- -------------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Total sales............................ $ 134,331 $ 82,114 $24,788 $(16,507) $224,726
Operating profit....................... $ 17,172 $ 5,766 $ 657 $ -- $ 23,595
Identifiable assets, $ 34,080 $ -- $106,978
December 31, 1993................... $ 64,738 $ 8,160
Year ended December 31, 1994:
Total sales............................ $ 157,412 $ 85,157 $24,674 $(16,400) $250,843
Operating profit (loss)................ $ 19,418 $ 6,879 $ (15) $ -- $ 26,282
Identifiable assets, $ 42,679 $ -- $131,067
December 31, 1994................... $ 80,860 $ 7,528
Year ended December 31, 1995:
Total sales............................ $ 144,459 $ 77,820 $22,982 $(13,938) $231,323
Operating profit....................... $ 14,458 $ 1,627 $ 185 $ -- $ 16,270
Identifiable assets,
December 31, 1995................... $ 71,203 $ 38,042 $ 7,206 $ -- $116,451
</TABLE>
F-18
<PAGE> 111
SHOP-VAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
EUROPE,
PRINCIPALLY
FRANCE,
GERMANY,
IRELAND AND
THE UNITED
UNITED STATES KINGDOM OTHER ELIMINATIONS CONSOLIDATED
------------- -------------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Nine months ended September 30, 1995
(unaudited):
Total sales............................ $ 100,755 $ 58,035 $16,354 $(10,009) $165,135
Operating profit....................... $ 8,978 $ 1,403 $ 83 $ -- $ 10,464
Identifiable assets,
September 30, 1995.................. $ 93,162 $ 43,966 $ 8,443 $ -- $145,571
Nine months ended September 30, 1996
(unaudited):
Total sales............................ $ 91,991 $ 54,007 $16,481 $(11,171) $151,308
Operating profit....................... $ 10,970 $ (3,205) $ 302 $ -- $ 8,067
Identifiable assets,
September 30, 1996.................. $ 69,105 $ 38,331 $ 8,947 $ -- $116,383
</TABLE>
Sales between geographic areas are made at the cost of producing the items plus
a profit margin. Operating profit is total operating revenue less operating
expenses; interest, other nonoperating income and expenses and income taxes are
not considered in computing operating profit. Identifiable assets are those
assets identified with the operations in each geographic area. Identifiable
assets exclude the net assets of discontinued operations.
(9) BUSINESS AND CREDIT CONCENTRATIONS
Most of the Company's customers are in the consumer products retail
industry. Approximately 11%, 15%, and 14% of net sales for the years ended
December 31, 1993, 1994, and 1995, respectively, were with one customer.
Approximately 14% and 12% (unaudited) of net sales for the nine-month periods
ended September 30, 1995 and 1996, respectively, were with one customer. The
Company's ten largest customers accounted for approximately 41%, 46%, and 49% of
the Company's net sales for 1993, 1994, and 1995, respectively, approximately
51% (unaudited) and 56% (unaudited) of the Company's net sales for each of the
nine-month periods ended September 30, 1995 and 1996, respectively, and
approximately 44%, 44% and 60% of the Company's accounts receivable balances at
December 31, 1994 and 1995, and September 30, 1996 (unaudited), respectively.
(10) FOREIGN GOVERNMENT GRANTS
Under various agreements between one of the Company's foreign subsidiaries
and the industrial development authority of a foreign government, the foreign
subsidiary has received, upon satisfaction of certain conditions, grants from
the foreign government amounting to approximately 45% of the cost of acquiring
certain capital assets. In accordance with the grant agreements, the foreign
subsidiary is required to maintain retained earnings in the amount of $5.3
million that may not be distributed as dividends for a period of 10 years from
the date of the grant agreements. The foreign government may revoke the grants
and require repayment of grants received by the foreign subsidiary if the
foreign subsidiary violates any of the various grant agreements' provisions.
Violation of the agreements would occur if, among other things, the foreign
subsidiary changes the nature of its operations, ceases to operate, stops paying
its liabilities, or becomes bankrupt. The foreign subsidiary believes it is in
compliance with the provisions of the agreements. The foreign subsidiary's
contingent liability for the repayment of grants received terminates 10 years
from receipt of the grant amounts and amounted to $3.7 million at December 31,
1995 and September 30, 1996 (unaudited).
F-19
<PAGE> 112
SHOP-VAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) DISCONTINUED OPERATIONS
During the early part of 1995 the Company was in the process of negotiating
the restructuring and refinancing of its existing debt. Based upon negotiations
with the lenders and a comprehensive product strategy and planning strategy
review, it was decided to dispose of a major subsidiary and related product
lines. As a result, the Company adopted a formal plan of disposal and engaged an
investment banking firm to sell its McCulloch Corporation subsidiary and other
related assets worldwide. Subsequently, the Company entered into an agreement in
October 1995 with a buyer to sell all of the McCulloch operations which sale was
completed on November 1, 1995. Furthermore, the agreement to sell McCulloch
required the Company to distribute McCulloch products in certain European
locations through December 31, 1996. The Company was obligated to use the net
proceeds from the sale of the operations to reduce debt.
The assets and liabilities of the discontinued operations have been
reclassified in the accompanying consolidated financial statements to separately
identify them as net current assets and net noncurrent assets related to
discontinued operations. These net assets consist of net working capital, net
property, plant and equipment, other assets, and intangible assets, less related
liabilities, as follows as of December 31, 1994 and 1995 and September 30, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
-------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable..................................... $ 38,380 $ 8,734 $10,819
Inventory............................................... 74,160 9,223 9,533
Prepaid expenses........................................ 7,955 1,072 900
------- ------- -------
120,495 19,029 21,252
------- ------- -------
Current liabilities:
Loans payable........................................... 8,667 -- --
Accounts payable........................................ 40,603 -- --
Accrued expenses........................................ 4,117 -- --
------- ------- -------
53,387 -- --
------- ------- -------
Net current assets of discontinued operations............. $ 67,108 $19,029 $21,252
======= ======= =======
Noncurrent assets:
Fixed assets............................................ $ 62,928 $ -- $ --
Other assets and intangibles............................ 7,915 -- --
------- ------- -------
70,843 -- --
------- ------- -------
Noncurrent liabilities:
Deferred income taxes................................... 8,419 -- --
Other liabilities....................................... 8,017 -- --
------- ------- -------
16,436 -- --
------- ------- -------
Net noncurrent assets of discontinued operations.......... $ 54,407 $ -- $ --
======= ======= =======
</TABLE>
The disposal of the McCulloch operations has been accounted for as a
discontinued operation and, accordingly, its operating results are segregated
and reported as discontinued operations in the accompanying consolidated
statement of operations. Prior year financial statements have been reclassified
to conform with the current year presentation. Sales and related costs of the
European distribution arrangement are included in discontinued operations and
inventory and receivables related to the distribution agreement are included
with
F-20
<PAGE> 113
SHOP-VAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
net current assets of discontinued operations. Summarized information relating
to the McCulloch operations for the years ended December 31, 1993 and 1994 and
the ten months ended October 31, 1995 are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales.......................................... $203,578 $247,160 $267,123
Cost and expenses.................................. 209,279 252,880 277,838
-------- -------- --------
Loss before income taxes........................... (5,701) (5,720) (10,715)
Income tax (benefit)............................... (1,553) (1,195) (76)
-------- -------- --------
Net loss........................................... $ (4,148) $ (4,525) $(10,639)
======== ======== ========
</TABLE>
The Company has recorded a loss on disposition of the net assets of
discontinued operations of $120.3 million, net of a tax benefit of $0.5 million,
which was recorded in the fourth quarter of 1995. The loss on disposal
represents the net book value of the operations being disposed of less the
proceeds received of $30 million in November 1995. Further, the loss includes
charges amounting to $19.6 million for reduction in the number of employees as a
result of the sale, consolidation of certain offices and leased facilities,
disposition of certain assets, estimated losses on existing contractual
arrangements, estimated losses on European distribution of McCulloch products
through December 31, 1996 and certain other charges resulting from the McCulloch
disposition, such as certain indemnity obligations arising in connection with
the McCulloch disposition, including, but not limited to, indemnification of the
purchaser of McCulloch with respect to certain potential environmental, lease,
product and workers' compensation liabilities. Through September 30, 1996
approximately $1.9 million (unaudited) of cash had been paid with respect to
those items.
F-21
<PAGE> 114
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 12
The Exchange Offer.................... 19
Use of Proceeds....................... 26
Capitalization........................ 27
McCulloch Disposition................. 28
Selected Consolidated Financial
Data................................ 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 31
Business.............................. 39
Management............................ 53
Certain Relationships and Related
Transactions........................ 57
Principal Stockholders................ 58
Description of Certain Indebtedness... 59
Description of Exchange Notes......... 63
Book Entry; Delivery and Form......... 82
Certain Federal Income Tax
Considerations...................... 84
Plan of Distribution.................. 85
Legal Matters......................... 86
Experts............................... 86
Available Information................. 86
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE
EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENT OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
LOGO
SHOP VAC CORPORATION
OFFER TO EXCHANGE ITS
10 5/8% SENIOR SECURED NOTES
DUE 2003
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY
AND ALL OF ITS OUTSTANDING
10 5/8% SENIOR
SECURED NOTES DUE 2003
------------------------
PROSPECTUS
------------------------
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 115
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14A:3-5 of the New Jersey Business Corporation Act provides in
relevant part any corporation organized for any purpose under any general or
special law of New Jersey shall have the power to indemnify a corporate agent
against such agent's expenses and liabilities in connection with any proceeding
involving the corporate agent by reason of such agent being or having been a
corporate agent, other than a proceeding by or in the right of the corporation,
if such corporate agent acted in good faith and in a manner the corporate agent
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal proceedings, such corporate agent
had no reasonable cause to believe such agent's conduct was unlawful.
In addition, Section 14A:3-5 provides that a corporation shall have the
power to indemnify a corporate agent against such agent's expenses in connection
with any proceeding by or in the right of the corporation to procure a judgment
in its favor which involves the corporate agent by reason of the corporate agent
being or having been such corporate agent, if the corporate agent acted in good
faith and in a manner the corporate agent reasonably believed to be in or not
opposed to the best interests of the corporation. However, in such proceeding no
indemnification shall be provided in respect of any claim, issue or matter as to
which such corporate agent shall have been adjudged to be liable to the
corporation, unless, and only to the extent that the Superior Court or the court
in which such proceeding was brought shall determine upon application that
despite the adjudication of liability, but in view of all circumstances of the
case, such corporate agent is fairly and reasonably entitled to indemnity for
such expenses as the Superior Court or such other court shall deem proper.
Additionally, Section 14A:3-5(4) provides that a corporation shall
indemnify a corporate agent against expenses to the extent that such corporate
agent has been successful on the merits or otherwise in any proceeding referred
to in the above-described provision or in defense of any claim, issue or matter
therein.
New Jersey law further provides that nothing in the above-described
provisions shall be deemed exclusive of any other rights, including the right to
be indemnified against liabilities and expenses incurred in proceedings by or in
the right of the corporation, to which a corporate agent may be entitled under a
certificate of incorporation, bylaw, agreement, vote of shareholders, or
otherwise; provided that no indemnification shall be made to or on behalf of a
corporate agent if a judgment or other final adjudication adverse to the
corporate agent establishes that the corporate agent's acts or omissions were in
breach of the corporate agent's duty of loyalty to the corporation or its
shareholders, were not in good faith or involved a knowing violation of law or
resulted in receipt by the corporate agent of an improper personal benefit.
"Corporate Agent" for the purposes of the above-described provisions means
any person who is or was a director, officer, employee or agent of the
indemnifying corporation or of any constituent corporation absorbed by the
indemnifying corporation in a consolidation or merger and any person who is or
was a director, officer, trustee, employee or agent of any other enterprise,
serving as such at the request of the indemnifying corporation, or of any such
constituent corporation, or the legal representative of any such director,
officer, trustee, employee or agent.
Section 14A:2-7(3) of the New Jersey Corporation Act provides that a
certificate of incorporation may provide that a director or officer shall not be
personally liable, or shall be liable only to the extent therein provided, to
the corporation or its shareholders for damages for breach of any duty owed to
the corporation or its shareholders, except that such provision shall not
relieve a director or officer from liability for any breach of duty based upon
an act or omission in breach of such person's duty of loyalty to the corporation
or its shareholders, not in good faith or involving a knowing violation of law
or (c) resulting in receipt by such person of an improper personal benefit. As
used in this subsection, an act or omission in breach of a person's duty of
loyalty means an act or omission which that person knows or believes to be
contrary to the best
II-1
<PAGE> 116
interests of the corporation or its shareholders in connection with a matter in
which such person has a material conflict of interest.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- --------------------------------------------------------------------------------
<C> <S>
3.1 Certificate of Incorporation, as amended, of Shop Vac Corporation.
3.2 By-Laws of Shop Vac Corporation.
4.1 Indenture, dated as of October 1, 1996, between Shop Vac Corporation and Marine
Midland Bank, as trustee, relating to $100,000,000 aggregate principal amount of
10 5/8% Senior Secured Notes due 2003.
4.2 Registration Rights Agreement, dated as of October 1, 1996, between Shop Vac
Corporation, Lehman Brothers and First Union Capital Markets Corp.
4.3 Specimen Certificate of 10 5/8% Senior Secured Notes due 2003 (the "Private
Notes") (included in Exhibit 4.1 hereto).
4.4 Specimen Certificate of 10 5/8% Senior Secured Notes due 2003 (the "Exchange
Notes") (included in Exhibit 4.1 hereto).
5.1* Opinion of Latham & Watkins regarding the validity of the Exchange Notes.
10.1 Credit Agreement, dated as of October 1, 1996, between Shop Vac Corporation,
Felchar Manufacturing Corporation and First Union National Bank of North
Carolina with respect to a $25,000,000 revolving credit facility.
10.2 Pledge Agreement, dated as of October 1, 1996, by Jonathan Miller, Matthew
Miller, the Jonathan Miller Family Limited Partnership, the Matthew Miller
Family Limited Partnership and the Matthew Miller 1984 Children's Trust in favor
of Marine Midland Bank.
10.3 Purchase Agreement, dated as of September 25, 1996, between Shop Vac
Corporation, Lehman Brothers and First Union Capital Markets Corp.
10.4 Shareholders Agreement dated July 21, 1987 by and among Shop Vac Corporation,
Martin Miller, as trustee, Jonathan Miller, individually and as a trustee, and
Matthew Miller, individually and as a trustee, as amended by Amendment to
Shareholders Agreement dated August 1, 1991.
10.5 Employment Agreement dated March 14, 1996 with respect to Jonathan Miller, as
amended by a First Amendment dated September 25, 1996.
10.6 Employment Agreement dated March 14, 1996 with respect to Matthew Miller, as
amended by a First Amendment dated September 25, 1996.
10.7 Employment Agreement dated March 14, 1996 with respect to W. Earl Stogner.
10.8 Agreement between District 65 Pension Plan and Shop Vac Corporation concerning
preliminary payments dated March 14, 1996.
10.9 Stock Purchase Agreement dated October 22, 1995 by and among Beaver Acquisition
Corporation and Shop Vac Corporation, and Amendment No. 1 to the Stock Purchase
Agreement dated November 1, 1995.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of Shop Vac Corporation.
23.1* Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney of Shop Vac Corporation (included on signature page to this
Registration Statement on Form S-4).
25.1 Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture
Act of 1939 of Marine Midland Bank (bound separately).
27.1 Financial Data Schedule.
99.1* Form of Letter of Transmittal and related documents to be used in conjunction
with the Exchange Offer.
</TABLE>
II-2
<PAGE> 117
(b) Financial Statement Schedules:
Schedule II. Valuation and Qualifying Accounts.
- ---------------
* To be filed by amendment.
SCHEDULES OMITTED
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act"), may be permitted to directors, officers and controlling
persons of the Registrants pursuant to the foregoing provisions, or otherwise,
the Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or the registrant in the successful defense of
any action, suit paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into this Prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d)(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement; (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act
II-3
<PAGE> 118
of 1933; (ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for purposes of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-4
<PAGE> 119
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on November 20, 1996.
SHOP VAC CORPORATION
By: /s/ W. EARL STOGNER
------------------------------------
W. Earl Stogner
Executive Vice President and
Chief Financial Officer and Director
(Principal Accouinting Officer)
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of Shop Vac Corporation, a New Jersey corporation (the "Company"), for
himself and not for one another, does hereby constitute and appoint W. Earl
Stogner and David Grill, and each of them, as his true and lawful attorney and
in his name, place and stead, in any and all capacities, to sign his name to any
and all amendments, including post-effective amendments, to this registration
statement with respect to the proposed issuance, sale and delivery by the
Company of 10 5/8% Senior Secured Notes due 2003, and to cause the same to be
filed with the Securities and Exchange Commission, granting unto said attorneys
and each of them full power and authority to do and perform any act and thing
necessary and proper to be done in the premises, as fully to all intents and
purposes as the undersigned could do if personally present, and each of them
shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<C> <S> <C>
Chairman of the Board, Chief November 20, 1996
/s/ JONATHAN MILLER Executive Officer and
- ------------------------------------------ President, North American
Jonathan Miller Group
(Principal Executive
Officer)
/s/ MATTHEW MILLER Vice Chairman of the Board and November 20, 1996
- ------------------------------------------ President, European Group
Matthew Miller and Director
Executive Vice President and November 20, 1996
/s/ W. EARL STOGNER Chief Financial Officer and
- ------------------------------------------ Director (Principal
W. Earl Stogner Accounting Officer)
</TABLE>
<PAGE> 120
SCHEDULE II
SHOP VAC CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COLUMN C
COLUMN B -------- COLUMN E
---------- ADDITIONS ----------
COLUMN A BALANCE AT COSTS COLUMN D BALANCE AT
- ------------------------------------------------ BEGINNING AND ---------- CLOSE OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------------------ ---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
1995
ALLOWANCE FOR DOUBTFUL ACCOUNTS................. 1,833 129 237 1,725
1994
ALLOWANCE FOR DOUBTFUL ACCOUNTS................. 1,859 336 362 1,833
1993
ALLOWANCE FOR DOUBTFUL ACCOUNTS................. 1,942 249 332 1,859
</TABLE>
S-1
<PAGE> 121
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- --------------------------------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation, as amended, of Shop Vac Corporation.
3.2 By-Laws of Shop Vac Corporation.
4.1 Indenture, dated as of October 1, 1996, between Shop Vac Corporation and Marine
Midland Bank, as trustee, relating to $100,000,000 aggregate principal amount of
10 5/8% Senior Secured Notes due 2003.
4.2 Registration Rights Agreement, dated as of October 1, 1996, between Shop Vac
Corporation, Lehman Brothers and First Union Capital Markets Corp.
4.3 Specimen Certificate of 10 5/8% Senior Secured Notes due 2003 (the "Private
Notes") (included in Exhibit 4.1 hereto).
4.4 Specimen Certificate of 10 5/8% Senior Secured Notes due 2003 (the "Exchange
Notes") (included in Exhibit 4.1 hereto).
5.1* Opinion of Latham & Watkins regarding the validity of the Exchange Notes.
10.1 Credit Agreement, dated as of October 1, 1996, between Shop Vac Corporation,
Felchar Manufacturing Corporation and First Union National Bank of North
Carolina with respect to a $25,000,000 revolving credit facility.
10.2 Pledge Agreement, dated as of October 1, 1996, by Jonathan Miller, Matthew
Miller, the Jonathan Miller Family Limited Partnership, the Matthew Miller
Family Limited Partnership and the Matthew Miller 1984 Children's Trust in favor
of Marine Midland Bank.
10.3 Purchase Agreement, dated as of September 25, 1996, between Shop Vac
Corporation, Lehman Brothers and First Union Capital Markets Corp.
10.4 Shareholders Agreement dated July 21, 1987 by and among Shop Vac Corporation,
Martin Miller, as trustee, Jonathan Miller, individually and as a trustee, and
Matthew Miller, individually and as a trustee, as amended by Amendment to
Shareholders Agreement dated August 1, 1991.
10.5 Employment Agreement dated March 14, 1996 with respect to Jonathan Miller, as
amended by a First Amendment dated September 25, 1996.
10.6 Employment Agreement dated March 14, 1996 with respect to Matthew Miller, as
amended by a First Amendment dated September 25, 1996.
10.7 Employment Agreement dated March 14, 1996 with respect to W. Earl Stogner.
10.8 Agreement between District 65 Pension Plan and Shop Vac Corporation concerning
preliminary payments dated March 14, 1996.
10.9 Stock Purchase Agreement dated October 22, 1995 by and among Beaver Acquisition
Corporation and Shop Vac Corporation, and Amendment No. 1 to the Stock Purchase
Agreement dated November 1, 1995.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of Shop Vac Corporation.
23.1* Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney of Shop Vac Corporation (included on signature page to this
Registration Statement on Form S-4).
25.1 Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture
Act of 1939 of Marine Midland Bank (bound separately).
27.1 Financial Data Schedule.
99.1* Form of Letter of Transmittal and related documents to be used in conjunction
with the Exchange Offer.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
THE CRAFTOOL COMPANY, INC.
THIS IS TO CERTIFY that we, Michael L. Allen, David R. Simon and George
L. Seltzer do hereby associate ourselves into a corporation under and by virtue
of Title 14A, Corporations, General, of the New Jersey Statutes.
FIRST: The name of the corporation is
THE CRAFTOOL COMPANY, INC.
SECOND: The corporation is organized for the purpose of, and granted
all powers necessary or incidental to, engaging in all activities within the
purposes for which corporations may be organized under Title 14A, Corporations,
General, of the New Jersey Statutes.
THIRD: The total number of shares of stock authorized is eleven
thousand (11,000) which are to be divided into two classes as set forth below:
<PAGE> 2
1. Common Stock - 10,000 shares of common stock, all of which
shares are without a par or nominal value.
2. Preferred Stock - 1,000 shares of preferred stock, all of
which shares are without a par or nominal
value.
The Board of Directors shall have the power to divide such classes into
series and to determine for any class or series its designation, relative
rights, preferences and limitations and to provide that the shares of any class
or series may be convertible at the option of the holder or of the corporation
or both into shares of any other class or any other series of the same or any
other class. The Board of Directors may in the exercise of the above power,
issue series of shares of any class which
a) entitle the holders thereof to cumulative, non-cumulative
or partially cumulative dividends;
b) entitle the holders thereof to receive dividends payable on
parity with or in preference to the
<PAGE> 3
dividend payable on any other class or series;
c) entitle the holders thereof to preferential rights upon the
liquidation of or upon any distribution of the assets of, the corporation;
d) are convertible
e) are redeemable
f) lack voting rights or have limited voting rights or enjoy
special or multiple voting rights.
The Board of Directors shall also have the power to change the designations or
number of shares or the relative rights, preferences and limitations of shares,
of any class or series of stock, no shares of which have been issued.
FOURTH: The directors shall have the power to do any act not
inconsistent with the laws of New Jersey and are vested with authority to act
co-extensive with the fullest possible authority which may be conferred by law.
FIFTH: The corporation will maintain an initial registered office at 1
Industrial Road, Wood Ridge, New Jersey
<PAGE> 4
and Martin Miller is designated as initial registered agent at said address.
SIXTH: There shall be no less than three directors of the corporation.
Initially the three directors shall be Florence Miller, 784 Sunset Avenue,
Haworth, New Jersey, Martin Miller, 784 Sunset Avenue, Haworth, New Jersey and
John Higgins, 24 Roslyn Lane, New City, New York.
SEVENTH: The names and addresses of the incorporators are set forth
below:
Michael L. Allen
139 Downey Drive
Tenafly, N.J. 07670
David R. Simon
5 Hickory Road
West Orange, N.J.
George L. Seltzer
Southern Blvd. - Apt. L8
Chatham Township, N.J.
IN WITNESS WHEREOF we have hereunto set
<PAGE> 5
[THE CRAFTOOL COMPANY LETTERHEAD]
February 14, 1969
Secretary of State
State House
Trenton, New Jersey 08625
Dear Sir:
This letter is written to you to authorize the use of the name The Craftool
Company, Inc., by a New Jersey Corporation to be formed with that name.
We are currently a New York Corporation, qualified to do business in New
Jersey; and immediately upon the formation of the New Jersey Corporation with
like name, we shall transfer all of our assets to that Corporation and continue
our operations as a New Jersey Corporation.
Very truly yours,
THE CRAFTOOL COMPANY, INC.,
/s/ John F. Higgins
-----------------------------
John F. Higgins,
Executive Vice President.
jfh/ma/b
<PAGE> 6
our hands and seals this 13th day of February, 1969.
/s/ Michael L. Allen
-------------------------
Michael L. Allen
/s/ David R. Simon
-------------------------
David R. Simon
/s/ George L. Seltzer
-------------------------
George L. Seltzer
Signed, sealed and delivered
in the presence of
/s/ Jane M. Hasson
- -------------------------------
STATE OF NEW JERSEY:
ss.:
COUNTY OF ESSEX :
BE IT REMEMBERED, that on this 13th day of February, 1969, before the
undersigned, A Notary Public of New Jersey, personally appeared Michael L.
Allen, David R. Simon and George L. Seltzer, who I am satisfied are the persons
named in and who executed the foregoing certificate, and I having first made
known to them, and each of them, the contents thereof, they did each acknowledge
they signed and sealed the same as their voluntary act and deed for the uses and
purposes therein expressed.
/s/ Jane M. Hasson
----------------------------
A Notary Public of New Jersey
JANE M. HASSON
NOTARY PUBLIC OF NEW JERSEY
My Commission Expires Sept. 15, 1970
<PAGE> 7
CERTIFICATE OF INCORPORATION
OF
THE CRAFTOOL COMPANY, INC.
---------------------------
Dated: February 13, 1969
---------------------------
Filed and Recorded
Feb. 18 1969
Robert J. Bushbards
___________________
Secretary of State
SIMON & ALLEN License Fee $101.00
Counsellors at Law Filing Fee 25.00
744 Broad Street Recording 8.00
Newark, New Jersey 07102 Certifying Copy 10.00
1-SF Standing 5.00
Sec. of State ------
$149.00
<PAGE> 8
THE CRAFTOOL COMPANY
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
A. The name of the corporation is THE CRAFTOOL COMPANY, INC., a New
Jersey corporation.
B. Attached hereto is a copy of a Resolution adopted by the Board of
Directors of The Craftool Company, Inc. pursuant to the power conferred upon
them in Article Third of the Certificate of Incorporation of said company and
Subsections 14A:7-2 (2 and 3) of the New Jersey Statutes.
C. The aforesaid Resolution was duly adopted by the Board of Directors
of The Craftool Company, Inc. at a duly constituted meeting held on February 19,
1968.
D. The Certificate of Incorporation of The Craftool Company, Inc., a
New Jersey corporation, is hereby amended so that the designation and number of
shares of each class and series acted upon in the aforesaid Resolution, and the
relative rights, preferences and limitations of the convertible preferred stock
- - series "A" - are as stated in that Resolution.
THE CRAFTOOL COMPANY, INC.
Attest:
/s/ Michael L. Allen By: /s/ John Higgins
- ------------------------- ----------------------------
MICHAEL L. ALLEN, JOHN HIGGINS, Executive
Assistant Secretary Vice President
<PAGE> 9
RESOLVED that the Board of Directors of The Craftool Company, Inc. does
hereby designate 350 shares of the authorized preferred stock of the corporation
as its "Preferred Stock-Series A"; said stock to have the following relative
rights, preferences and Limitations,
(a) The designation of the series of Preferred Stock created by this
resolution shall be "Convertible Preferred Stock-Series A".
(b) The stated value of the Convertible Preferred Stock shall be $500. per
share.
(c) The dividend rate of Convertible Preferred Stock shall be $10. per
share per annum, payable on the first day of January and July in each year,
commencing with the first day of July, 1971. Holders of Convertible Preferred
Stock shall not be entitled to any dividends, unless said dividends shall be
declared at the discretion of the Board of Directors and the dividends payable
on said shares shall not be cumulative. No cash dividend shall be payable upon
the common stock of the corporation unless the stated dividend of $10. per share
for the Convertible Preferred Stock shall have been paid or declared in the
subject year.
(d) The holders of the Convertible Preferred Stock shall be entitled to one
vote for each share of said stock standing of record in their respective names.
(e) The Convertible Preferred Stock shall not be redeemable on or before
March 31, 1974; and the redemption price of Convertible Preferred stock shall
thereafter be $500. per share.
(f) The preference of Convertible Preferred Stock are the junior stock of
the company as to assets in the event of any liquidation, dissolution or winding
up of the company shall, be an amount equal to $500. per share.
(g) The shares of Convertible Preferred Stock shall not be entitled to the
benefit of any sinking fund to be applied for their purchase or redemption.
<PAGE> 10
(h) The shares of Convertible Preferred Stock shall be convertible, at the
option of the holders thereof, at any time from and after the date of the fixing
of an initial conversion price at the office of the Company into fully paid and
non-assessable shares at a price equal to the initial public offering price of
the Company's common stock (without deduction for any commissions or expenses)
upon its first such public offering pursuant to a Registration Statement filed
with the United States Securities & Exchange Commission (taking the Convertible
Preferred Stock at $500. per share); said price to be called the "initial
conversion price". In the case of the redemption of any share of the Convertible
Preferred Stock such right of conversion shall terminate as to the shares called
for redemption, at the close of the day next prior to the date fixed for
redemption, unless default shall be made in the payment of the redemption price.
The conversion price shall be subject to adjustment from the date of its initial
determination upon the terms and conditions hereinafter set forth except that no
adjustment shall be made in the event that said adjustment would result in a
change of the conversion price of less than 50 cents per share. Upon conversion
the Company shall make no payment or adjustment on account of dividends on the
Convertible Preferred Stock surrendered for conversion.
The conversion price of the Convertible Preferred Stock shall be
subject to adjustment from time to time after the determination of the initial
conversion price as follows:
(1) In case the Company shall issue any shares of its Common Stock
(other than as provided in subparagraph (4) of this paragraph (h)) for a cash
consideration per share less than the conversion price in effect immediately
prior to the time of such issue, then forthwith upon such issue, said conversion
price shall (until another such issue) be reduced to a price (calculated to the
nearest cent) determined by dividing (1) an amount equal to the sum of (x) the
number of shares of Common Stock outstanding immediately prior to such issue,
multiplied by the then existing conversion price, and (y) the consideration, if
any, received by the Company upon such issue, by (2) the total number of shares
of Common Stock outstanding immediately after such issue. For the purposes of
this paragraph (h), the number of shares of Common Stock outstanding, at any
given time, shall not include shares in the treasury of the Company.
For the purpose of this subparagraph (1), the following provisions
shall also be applicable.
A. In case any dividends on the Common Stock of the Company payable in
Common Stock shall be declared or paid by the Company, the Common Stock so
issued shall be deemed
-2-
<PAGE> 11
to have been issued without consideration.
B. In the case of an issue of additional shares of Common Stock for
cash, the consideration received by the Company therefor shall be deemed to
be the amount of cash received for such shares (before deducting commission
or other costs of such sale).
C. In case of the issue of any additional shares of Common Stock in
payment of any dividends upon any preferred stock of the Company, the
Company shall be deemed to have received for such shares a consideration
equal to the amount of such dividends so paid.
(2) In case the Company shall issue any shares of its Common Stock in
subdivision of outstanding shares of Common Stock, by reclassification or
otherwise, the conversion price then in effect shall be reduced proportionately,
and in like manner, in case of any combination of shares of Common Stock, by
reclassification or otherwise, the conversion price then in effect shall be
proportionately increased.
(3) In case of any capital reorganization or any reclassification of
the capital stock of the Company or in case of the consolidation or merger of
the Company with another corporation, each share of Convertible Preference Stock
shall thereafter be convertible into the number of shares of stock or other
securities or property of the Company, or of the successor corporation resulting
from such consolidation or merger, as the case may be, to which the Common Stock
of the Company, deliverable upon conversion of such share of Convertible
Preference Stock, would have been converted upon such capital reorganization,
reclassification of capital stock, consolidation or merger; and, in any such
case, appropriate adjustment (as determined by the Board of Directors) shall be
made in the application of the provisions herein set forth with respect to
rights and interests thereafter of the holders of the Convertible Stock, to the
end that the provisions set forth herein (including the specified changes in and
other adjustments of the conversion price) shall thereafter be applicable, as
near as reasonably may be, in relation to any shares or other property
thereafter deliverable upon the conversion of the Convertible Preference Stock.
-3-
<PAGE> 12
(4) Anything in subparagraphs (1) through (3) of this paragraph (h) to
the contrary notwithstanding, no adjustment shall be made in the conversion
price of the Convertible Preferred Stock.
A. upon the issuance of Common Stock upon conversion of the Convertible
Preference Stock;
B. upon the exercise of option hereafter granted to officers and
employees of the Company and any subsidiaries under any future stock option
plan approved by the stockholders of the Company;
C. upon the issuance of shares of Common Stock for a consideration
other than cash or for a consideration a substantial part of which is other
than cash; and
D. In the event of the purchase or other acquisition by the Company of
any Common Stock or in the event of the sale or other disposition by the
Company of any Common Stock at any time theretofore purchased or otherwise,
acquired by it.
-4-
<PAGE> 13
THE CRAFTOOL COMPANY, INC.
CERTIFICATE OF AMENDMENT
TO CERTIFICATE OF INCORPORATION
-------------------------------
Dated: February 19, 1969.
-------------------------------
Simon & Allen
Counsellors at Law
744 Broad Street
Newark, N. J. 07102
Filed and Recorded
Mar. 7 1969
Robert M. Falcey
Assistant Secretary of State
License Fee None
Filing Fee $20.00
Recording 6.00
Certifying Copy 5.00
Sec. of State
------
$31.00
<PAGE> 14
RESTATED CERTIFICATE OF INCORPORATION
OF
THE CRAFTOOL COMPANY, INC.
TO: Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:9-5 of the New Jersey
Business Corporation Act, the undersigned corporation executes the following
Restated Certificate of Incorporation:
FIRST: The name of the corporation is:
THE CRAFTOOL COMPANY, INC.
SECOND: The corporation is organized for the purpose of, and granted
all powers necessary or incidental to, engaging in all activities within the
purposes for which corporations may be organized under Title 14A, Corporations,
General, of the New Jersey Statutes.
THIRD: A. The corporation shall have authority to issue a total of
three million (3,000,000) shares classified as follows:
<TABLE>
<CAPTION>
Class Number
<S> <C>
Common shares 2,500,000 shares
without nominal or
par value
Preferred stock 500,000 shares
without nominal or
par value
</TABLE>
The Board of Directors shall have the power to divide the preferred
stock into series and to determine for any series of the preferred stock its
designations, number of shares, relative rights, preferences and limitations and
to provide that the shares of preferred stock may be convertible at the option
of the holder or of the corporation or both into shares of any other class or
any other series of the same or any other class. The Board of Directors may, in
the exercise of the above powers, issue series of shares of preferred stock
which:
<PAGE> 15
1. entitle the holders thereof to cumulative, non-cumulative
or partially cumulative dividends;
2. entitle the holders thereof to receive dividends greater
than, equal to, or less than, dividends payable on any other class or
series;
3. entitle the holders thereof to preferential rights upon
liquidation of or upon any distribution of the assets of the
corporation;
4. are convertible;
5. are redeemable;
6. lack voting rights or have limited voting rights or enjoy
special or multiple voting rights.
The Board of Directors shall also have the power to change the designations or
number of shares or the relative rights, preferences and limitations of shares
of preferred stock, none of which has yet been issued.
B. The Board of Directors has previously designated three hundred fifty
(350) shares of the authorized preferred stock of the corporation as
"Convertible Preferred Stock - Series "A", which shares have a stated value of
$500.00 per share and have the following relative rights, preferences and
limitations:
1. The dividend rate of Convertible Preferred Stock - Series
"A" shall be $10.00 per share per annum, payable on the first day of
January and July in each year, commencing with the first day of July,
1971. Holders of Convertible Preferred Stock - Series "A" shall not be
entitled to any dividends, unless said dividends shall be declared at
the discretion of the Board of Directors. The dividends payable on said
shares shall not be cumulative. No cash dividend shall be payable upon
the common shares of the corporation unless the stated dividend of
$10.00 per share for the Convertible Preferred Stock - Series "A" shall
have been paid or declared in the subject year.
2. The holders of the Convertible Preferred Stock - Series "A"
shall be entitled to one vote for each share of said stock standing of
record in their respective names.
3. The Convertible Preferred Stock -
-2-
<PAGE> 16
Series "A" shall not be redeemable on or before March 31, 1974; and the
redemption price of Convertible Preferred - Series "A" shares shall
thereafter be $500.00 per share.
4. The preference of Convertible Preferred Stock - Series "A" over the
common shares of the corporation as to assets in the event of any liquidation,
dissolution or winding up of the corporation shall be an amount equal to $500.00
per share.
5. The shares of Convertible Preferred Stock - Series "A" shall not be
entitled to the benefit of any sinking fund to be applied for their purchase or
redemption.
6. The shares of Convertible Preferred Stock - Series "A" shall be
convertible, at the option of the holders thereof, at any time from and after
the date of the fixing of an initial conversion price at the office of the
corporation into fully paid and non-assessable shares at a price equal to the
initial public offering price of the corporation's common shares (without
deduction for any commissions or expenses) upon its first such public offering
pursuant to a Registration Statement filed with the United States Securities and
Exchange Commission (taking the Convertible Preferred Stock - Series "A" at
$500.00 per share), said price to be called the "initial conversion price". In
the case of the redemption of any share of the Convertible Preferred - Series
"A", such right of conversion shall terminate as to the shares called for
redemption, at the close of the day next prior to the date fixed for redemption,
unless default shall be made in the payment of the redemption price. The
conversion price shall be subject to adjustment from the date of its initial
determination upon the terms and conditions hereinafter set forth except that no
adjustment shall be made in the event that said adjustment would result in a
change of the conversion price of less than 50 cents per share. Upon conversion
the corporation shall make no payment or adjustment on account of dividends on
the Convertible Preferred Stock - Series "A" surrendered for conversion.
The conversion price of the Convertible Preferred Stock - Series "A"
shall be subject to adjustment from time to time after the determination
-3-
<PAGE> 17
of the initial conversion price as follows:
a. If the corporation shall issue any of its common shares
(other than as provided in subparagraph d of this paragraph 6 for a
cash consideration per share less than the conversion price in effect
immediately prior to the time of such issue, then forthwith upon such
issue, said conversion price shall (until another such issue) be
reduced to a price (calculated to the nearest cent) determined by
dividing (1) an amount equal to the sum of (x) the number of common
shares outstanding immediately prior to such issue, multiplied by the
then existing conversion price, and (y) the consideration, if any,
received by the corporation upon such issue, by (2) the total number of
common shares outstanding immediately after such issue. For the
purposes of this paragraph 6, the number of common shares outstanding,
at any given time, shall not include shares in the treasury of the
corporation.
For the purpose of this subparagraph a, the following
provisions shall also be applicable:
1. In case any dividends on the common shares of the
corporation payable in common shares shall be declared or paid
by the corporation, the common shares so issued shall be
deemed to have been issued without consideration.
2. If additional common shares are issued for cash,
the consideration received by the corporation therefor shall
be deemed to be the amount of cash received for such shares
(before deducting commission or other costs of such sale).
3. If additional common shares are issued in payment
of any dividends upon any preferred shares of the corporation,
the corporation shall be deemed to have received for such
shares a consideration equal to the amount of such dividends
so paid.
b. If the corporation shall issue common shares in subdivision
of outstanding common shares, by reclassification or otherwise, the
-4-
<PAGE> 18
conversion prices then in effect shall be reduced proportionately, and,
in like manner, if there is any combination of common shares by
reclassification or otherwise, the conversion price then in effect
shall be proportionately increased.
c. If any capital reorganization or any reclassification of
the shares of the corporation shall occur or if there is a
consolidation or merger of the corporation with another corporation,
each share of Convertible Preferred Stock - Series "A" shall thereafter
be convertible into the number of shares or other securities or
property of the corporation, or of the successor corporation resulting
from such consolidation or merger, as the case may be, to which the
common shares of the corporation, deliverable upon conversion of such
share of Convertible Preferred Stock - Series "A" would have been
converted upon such capital reorganization, reclassification of shares,
consolidation or merger; and, in any such case, appropriate adjustment
(as determined by the Board of Directors) shall be made in the
application of the provisions herein set forth with respect to rights
and interests thereafter of the holders of the Convertible Preferred
Stock - Series "A" to the end that the provisions set forth herein
(including the specified changes in and other adjustments of the
conversion price) shall thereafter be applicable, as near as reasonably
may be, in relation to any shares or other property thereafter
deliverable upon the conversion of the Convertible Preferred Stock -
Series "A".
d. Anything in subparagraphs a through c of this paragraph 6
to the contrary notwithstanding, no adjustment shall be made in the
conversion price of the Convertible Preferred Stock - Series "A".
1. upon the issuance of common shares upon conversion
of the Convertible Preferred Stock - Series "A";
2. upon the exercise of any option hereafter granted
to officers and employees of the corporation and any
subsidiaries under any future stock option plan approved by
the shareholders of the corporation;
3. upon the issuance of common shares for a
consideration other than cash
-5-
<PAGE> 19
or for consideration, a substantial part of which is other
than cash; and
4. in the event of the purchase or other acquisition
by the corporation of any common shares or in the event of the
sale or other disposition by the corporation of any common
shares at any time theretofore purchased or otherwise acquired
by it.
FOURTH: The Board of Directors shall have the power to do any act not
inconsistent with the laws of New Jersey and is hereby vested with authority to
act co-extensive with the fullest possible authority which may be conferred by
law.
FIFTH: There shall be no less than three (3) directors of the
corporation. The names and addresses of the three (3) current directors are as
follows:
<TABLE>
<CAPTION>
Name Address
<S> <C>
Martin Miller 1 Industrial Road
Wood-Ridge, New Jersey 07075
John Higgins 1 Industrial Road
Wood-Ridge, New Jersey 07075
Florence Miller 1 Industrial Road
Wood-Ridge, New Jersey 07075
</TABLE>
SIXTH: The address of the corporation's registered office is 1
Industrial Road, Wood-Ridge, New Jersey 07075, and the name of the corporation's
registered agent at such address is Martin Miller.
Dated this 26th day of February, 1970.
THE CRAFTOOL COMPANY, INC.
By: /s/ Martin Miller
------------------------
Martin Miller
President
<PAGE> 20
THE CRAFTOOL COMPANY, INC.
TO: Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:9-5(5) of the New Jersey
Business Corporation Act, the undersigned corporation executes the following
Certificate:
a. The name of the corporation is THE CRAFTOOL COMPANY, INC.
b. The attached Restated Certificate of Incorporation of THE CRAFTOOL
COMPANY, INC. was approved by the Board of Directors on February 17, 1970, and
thereafter adopted by the shareholders of the corporation on February 25, 1970.
c. The number of shares of the corporation issued and outstanding at
the time of the adoption of the Restated Certificate of Incorporation was 8,834
common shares and 350 shares of Convertible Preferred Stock - Series "A", all of
which were entitled to vote thereon. The number of shares that were voted for
and against such adoption were as follows:
<TABLE>
<CAPTION>
In Favor of Adoption Opposed to Adoption
-------------------- -------------------
<S> <C> <C>
Common shares 8834 None
Preferred stock 350 None
</TABLE>
d. The amendments of the Certificate of Incorporation adopted
concurrently with the adoption of the Restated Certificate of Incorporation were
as follows:
Articles "THIRD" and "FOURTH" of the Certificate of Incorporation were
deleted in their entirety, and in place thereof the following articles were
adopted:
THIRD: A. The corporation shall have authority to issue a total of
three million (3,000,000) shares classified as follows:
<TABLE>
<CAPTION>
Class Number
----- ------
<S> <C>
Common shares 2,500,000 shares
without nominal or
par value
Preferred stock 500,000 shares
without nominal or
par value
</TABLE>
<PAGE> 21
The Board of Directors shall have the power to divide the preferred
stock into series and to determine for any series of the preferred stock its
designations, number of shares, relative rights, preferences and limitations and
to provide that the shares of preferred stock may be convertible at the option
of the holder or of the corporation or both into shares of any other class or
any other series of the same or any other class. The Board of Directors may, in
the exercise of the above powers, issue series of shares of preferred stock
which:
1. entitle the holders thereof to cumulative, non-cumulative
or partially cumulative dividends;
2. entitle the holders thereof to receive dividends greater
than, equal to, or less than, dividends payable on any other class or
series;
3. entitle the holders thereof to preferential rights upon
liquidation of or upon any distribution of, the assets of the
corporation;
4. are convertible;
5. are redeemable;
6. lack voting rights or have limited voting rights or enjoy
special or multiple voting rights.
The Board of Directors shall also have the power to change the designations or
number of shares or the relative rights, preferences and limitations of shares
of preferred stock, none of which has yet been issued.
B. The Board of Directors has previously designated three hundred fifty
(350) shares of the authorized preferred stock of the corporation as
Convertible Preferred Stock - Series "A", which shares have a stated value of
$500.00 per share and have the following relative rights, preferences and
limitations:
1. The dividend rate of Convertible Preferred Stock - Series
"A" shall be $10.00 per share per annum, payable on the first day of
January and July in each year, commencing with the first day of July,
1971. Holders of Convertible Preferred Stock - Series "A" shall not be
entitled to any dividends, unless said dividends shall be declared at
the discretion of the Board of Directors. The dividends payable on said
shares shall not be cumulative. No cash dividend shall be payable
-2-
<PAGE> 22
upon the common shares of the corporation unless the stated dividend of
$10.00 per share for the Convertible Preferred Stock - Series "A" shall
have been paid or declared in the subject year.
2. The holders of the Convertible Preferred Stock - Series "A"
shall be entitled to one vote for each share of said stock standing of
record in their respective names.
3. The Convertible Preferred Stock - Series "A" shall not be
redeemable on or before March 31, 1974; and the redemption price of
Convertible Preferred - Series "A" shares shall thereafter be $500.00
per share.
4. The preference of Convertible Preferred Stock - Series "A"
over the common shares of the corporation as to assets in the event of
any liquidation, dissolution or winding up of the corporation shall be
an amount equal to $500.00 per share.
5. The shares of Convertible Preferred Stock - Series "A"
shall not be entitled to the benefit of any sinking fund to be applied
for their purchase or redemption.
6. The shares of Convertible Preferred Stock - Series "A"
shall be convertible, at the option of the holders thereof, at any time
from and after the date of the fixing of an initial conversion price at
the office of the corporation into fully paid and non-assessable shares
at a price equal to the initial public offering price of the
corporation's common shares (without deduction for any commissions or
expenses) upon its first such public offering pursuant to a
Registration Statement filed with the United States Securities and
Exchange Commission (taking the Convertible Preferred Stock - Series
"A" at $500.00 per share), said price to be called the "initial
conversion price". In the case of the redemption of any share of the
Convertible Preferred - Series "A", such right of conversion shall
terminate as to the shares called for redemption, at the close of the
day next prior to the date fixed for redemption, unless default shall
be made in the payment of the redemption price. The conversion price
shall be subject to adjustment from the date of its initial
determination upon the terms and conditions hereinafter set forth
except that no
-3-
<PAGE> 23
adjustment shall be made in the event that said adjustment would result
in a change of the conversion price of less than 50 cents per share.
Upon conversion the corporation shall make no payment or adjustment on
account of dividends on the Convertible Preferred Stock - Series "A"
surrendered for conversion.
The conversion price of the Convertible Preferred Stock -
Series "A" shall be subject to adjustment from time to time after the
determination of the initial conversion price as follows:
a. If the corporation shall issue any of its common
shares (other than as provided in subparagraph d of this
paragraph 6 for a cash consideration per share less than the
conversion price in effect immediately prior to the time of
such issue, then forthwith upon such issue, said conversion
price shall (until another such issue) be reduced to a price
(calculated to the nearest cent) determined by dividing (1) an
amount equal to the sum of (x) the number of common shares
outstanding immediately prior to such issue, multiplied by the
then existing conversion price, and (y) the consideration, if
any, received by the corporation upon such issue, by (2) the
total number of common shares outstanding immediately after
such issue. For the purposes of this paragraph 6, the number
of common shares outstanding, at any given time, shall not
include shares in the treasury of the corporation.
For the purpose of this subparagraph a, the following
provisions shall also be applicable:
1. In case any dividends on the common
shares of the corporation payable in common shares
shall be declared or paid by the corporation, the
common shares so issued shall be deemed to have been
issued without consideration.
2. If additional common shares are issued
for cash, the consideration received by the
corporation therefor shall be deemed to be the amount
of cash received for such shares (before deducting
commission or other costs of such sale).
-4-
<PAGE> 24
3. If additional common shares are issued in
payment of any dividends upon any preferred shares of
the corporation, the corporation shall be deemed to
have received for such shares a consideration equal
to the amount of such dividends so paid.
b. If the corporation shall issue common shares in
subdivision of outstanding common shares, by reclassification
or otherwise, the conversion prices then in effect shall be
reduced proportionately, and, in like manner, if there is any
combination of common shares by reclassification or otherwise,
the conversion price then in effect shall be proportionately
increased.
c. If any capital reorganization or any
reclassification of the shares of the corporation shall occur
or if there is a consolidation or merger of the corporation
with another corporation, each share of Convertible Preferred
Stock - Series "A" shall thereafter be convertible into the
number of shares or other securities or property of the
corporation, or of the successor corporation resulting from
such consolidation or merger, as the case may be, to which the
common shares of the corporation, deliverable upon conversion
of such share of Convertible Preferred Stock - Series "A"
would have been converted upon such capital reorganization,
reclassification of shares, consolidation or merger; and, in
any such case, appropriate adjustment (as determined by the
Board of Directors) shall be made in the application of the
provisions herein set forth with respect to rights and
interests thereafter of the holders of the Convertible
Preferred Stock Series "A" to the end that the provisions set
forth herein (including the specified changes in and other
adjustments of the conversion price) shall thereafter be
applicable, as near as reasonably may be, in relation to any
shares or other property thereafter deliverable upon the
conversion of the Convertible Preferred Stock Series "A".
d. Anything in subparagraphs a through c of this
paragraph 6 to the contrary notwithstanding, no adjustment
shall be made in the conversion price of the Convertible
Preferred Stock - Series "A";
-5-
<PAGE> 25
1. upon the issuance of common shares upon
conversion of the Convertible preferred Stock -
Series "A";
2. upon the exercise of any option hereafter
granted to officers and employees of the corporation
and any subsidiaries under any future stock option
plan approved by the shareholders of the corporation;
3. upon the issuance of common shares for a
consideration other than cash or for consideration, a
substantial part of which is other than cash; and
4. in the event of the purchase or other
acquisition by the corporation of any common shares
or in the event of the sale or other disposition by
the corporation of any common shares at any time
theretofore purchased or otherwise acquired by it.
FOURTH: The Board of Directors shall have the power to do any act nor
inconsistent with the laws of New Jersey and is hereby vested with authority to
act co-extensive with the fullest possible authority which may be conferred by
law.
Dated this 26th day of February, 1970.
THE CRAFTOOL COMPANY, INC.
By: /s/ Martin Miller
--------------------------
Martin Miller
President
<PAGE> 26
RESTATED CERTIFICATE OF INCORPORATION
OF
THE CRAFTOOL COMPANY, INC.
Dated: February 26, 1970
SIMON & ALLEN
Counsellors at Law
744 Broad Street
Newark, New Jersey 07102
FILED AND RECORDED
Mar 12 1970
/s/ Robert M. Falcey
- --------------------
Assistant Secretary of State
$1,000.00
25.00
13.00
5.00
$1,043.00 - 2 Checks
<PAGE> 27
CERTIFICATE OF AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION
of
THE CRAFTOOL COMPANY, INC.
To: Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:9-2 (4) and Section
14A:9-4(3) of the New Jersey Business Corporation Act, the undersigned
corporation executes the following Certificate of Amendment to its Restated
Certificate of Incorporation:
1. The name of the corporation is:
THE CRAFTOOL COMPANY, INC.
2. The following amendment to the Restated Certificate of Incorporation
was approved by the Board of Directors and thereafter duly adopted by the
shareholders of the corporation on the 15th day of June, 1970:
RESOLVED, that the first sentence of Article THIRD: of the Restated
Certificate of Incorporation be amended to read as follows:
"A. The corporation shall have authority to issue a total of
eleven thousand (11,000) shares classified as follows:
<TABLE>
<CAPTION>
Class Number
----- ------
<S> <C>
Common shares 10,000 shares
without nominal
or par value
Preferred shares 1,000 shares
without nominal
or par value."
</TABLE>
FURTHER RESOLVED, that the remainder of Article THIRD: shall continue
in effect exactly as stated in the Restated Certificate of
Incorporation.
<PAGE> 28
3. The number of shares outstanding at the time of the adoption of the
above amendment was 8,834 common shares and 350 shares of Convertible
Preferred Stock Series "A", all of which were entitled to vote thereon.
The number of shares that were voted for and against such amendment
were as follows:
<TABLE>
<CAPTION>
In Favor Opposed to
of Amendment Amendment
------------ ----------
<S> <C> <C>
Common shares 8,834 0
Preferred shares 350 0
</TABLE>
Dated this 24th day of June, 1970.
THE CRAFTOOL COMPANY, INC.
By /s/ Martin Miller
-----------------------------
Martin Miller, President
<PAGE> 29
CERTIFICATE OF AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION
of
THE CRAFTOOL COMPANY, INC.
Dated: June 24th, 1970
SIMON & ALLEN
744 Broad St.
Newark, N.J. 07102
FILED AND RECORDED
Jul 1 1970
/s/ Paul J. Sherwin
- -------------------
Secretary of State
LICENSE FEE None
------
FILING FEE $ 20.00
-------
RECORDING 3.00
-------
CERTIFYING COPY 5.00
-------
SEC. OF STATE $ 28.00
-------
<PAGE> 30
CERTIFICATE OF AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
THE CRAFTOOL COMPANY, INC.
To: Secretary of State
State of New Jersey
Pursuant to the provisions of Chapters 5, 6 and 9 of the New Jersey
Business Corporation Act, the undersigned corporation executes the following
Certificate of Amendment to its Restated Certificate of Incorporation:
1. The name of the corporation is:
THE CRAFTOOL COMPANY, INC.
2. The following amendment to the Restated Certificate of Incorporation
was unanimously approved by the Board of Directors and thereafter unanimously
approved by the shareholders of the corporation on the 5th day of August, 1971:
RESOLVED, that the first sentence of Article THIRD: of the Restated
Certificate of Incorporation be amended to read as follows:
"A. The corporation shall have authority to issue a total of
Twenty-One Thousand (21,000) shares classified as follows:
<TABLE>
<CAPTION>
Class Number
----- ------
<S> <C>
Common shares 20,000 shares
without nominal
or par value
Preferred shares 1,000 shares
without nominal
or par value."
</TABLE>
FURTHER RESOLVED, that the remainder of Article THIRD: shall continue
in effect exactly as stated in the Restated Certificate of
Incorporation.
<PAGE> 31
3. The number of shares outstanding at the time of the adoption of the
above amendment was 9202 common shares and 350 shares of Convertible Preferred
Stock - Series "A", all of which were entitled to vote thereon. The holders of
all outstanding common shares and all outstanding shares of Convertible
Preferred Stock - Series "A" unanimously approved the adoption of the above
amendment.
Dated: August 9, 1971
THE CRAFTOOL COMPANY, INC.
By:/s/ Martin Miller
-------------------------
Martin Miller, President
<PAGE> 32
CERTIFICATE OF AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
THE CRAFTOOL COMPANY, INC.
DATED: August 9, 1971
SIMON & ALLEN
744 Broad Street
Newark, New Jersey 07102
FILED AND RECORDED
AUG 19 1971
/s/ Paul J. Sherwin
- -------------------
Secretary of State
LICENSE FEE 100.00
------
FILING FEE 35.00
-------
RECORDING --
-------
CERTIFYING COPY 10.00
-------
SEC. OF STATE $145.00
-------
<PAGE> 33
THE CRAFTOOL COMPANY, INC.
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
A. The name of the corporation is THE CRAFTOOL COMPANY, INC., a New
Jersey corporation.
B. Attached hereto is a copy of a Resolution adopted by the Board of
Directors of The Craftool Company, Inc. pursuant to the power conferred upon
them in Article Third of the Certificate of Incorporation of said company and
Subsections 14A:7-2 (2 and 3) of the New Jersey Statutes.
C. The aforesaid Resolution was duly adopted by the Board of Directors
of The Craftool Company, Inc. at a duly constituted meeting held on December 28,
1972.
D. The Certificate of Incorporation of The Craftool Company, Inc., a
New Jersey corporation, is hereby amended so that the designation and number of
shares of each class and series acted upon in the aforesaid Resolution, and the
relative rights, preferences and limitations of the preferred stock - series "B"
- - are as stated in that Resolution.
THE CRAFTOOL COMPANY, INC.
Attest:
/s/ Florence Miller By: /s/ Martin Miller
- -------------------------- -----------------------------
Florence Miller, Secretary Martin Miller, President
<PAGE> 34
RESOLVED that the Board of Directors of The Craftool Company, Inc. does
hereby designate 600 shares of the authorized preferred stock of the corporation
as its "Preferred Stock - Series B"; said stock to have the following relative
rights, preferences and limitations:
(a) The designation of the series of Preferred Stock created by this
resolution shall be "Preferred Stock - Series B".
(b) The stated value of the Preferred Stock - Series B shall be $500
per share.
(c) The dividend rate of Preferred Stock - Series B shall be $40 per
share per annum, payable on the first day of January and July in each year,
commencing with the first day of July, 1973. Holders of Preferred Stock - Series
B shall not be entitled to any dividends, unless said dividends shall be
declared at the discretion of the Board of Directors and the dividends payable
on said shares shall not be cumulative. No cash dividend shall be payable upon
the common stock of the corporation unless the stated dividend of $40 per share
for the Preferred Stock - Series B shall have been paid or declared in the
subject year.
(d) The holders of the Preferred Stock - Series B shall be entitled to
one vote for each share of said stock standing of record in their respective
names.
(e) The Preferred Stock - Series B shall not be redeemable on or before
March 31, 1976; and the redemption price of Preferred Stock - Series B shall
thereafter be $500 per share.
(f) The preference of Preferred Stock - Series B as to the junior stock
of the company as to assets in the event of any liquidation, dissolution or
winding up of the company shall be an amount equal to $500 per share.
(g) The shares of Preferred Stock - Series B shall not be entitled to
the benefit of any sinking fund to be applied for their purchase or redemption.
<PAGE> 35
CORNER 35 UNSCANNABLE
<PAGE> 36
CERTIFICATE OF AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
SHOP VAC CORPORATION
TO: Secretary of State
State of New Jersey
Pursuant to Section 14A:9-2(4) and Section 14A:9-4, Corporations,
General, of the New Jersey Statutes, the undersigned corporation executes the
following Certificate of Amendment to its Restated Certificate of Incorporation:
1. The name of the corporation is:
SHOP VAC CORPORATION
2. Attached hereto is a copy of the amendment to the Restated
Certificate of Incorporation of the corporation which was approved by the
directors of the corporation on June 28, 1984 and thereafter adopted by the
shareholders of the corporation on June 28, 1984.
3. The number of shares issued and outstanding at the time of the
adoption of the amendment was 8880 shares of Common stock and 600 shares of
Preferred Stock - Series B. All shares of each class were entitled to vote on
the adoption of the amendment and each class was entitled to vote on the
adoption of the amendment as a class.
<PAGE> 37
4. In lieu of a meeting and vote of the shareholders, the amendment was
adopted without a meeting pursuant to the written consents of the shareholders
in accordance with Section 14A:5-6, Corporations, General, of the New Jersey
Statutes. 8880 shares of Common stock were represented by such consent and 600
shares of Preferred Stock - Series B were represented by such consent.
5. The stated capital of the corporation is not reduced by the adoption
of the amendment.
6. Outstanding shares of Common stock and Preferred Stock - Series B
may be converted, at the election of each shareholder, into shares of Class A
Preferred at the ratios of .6262 voting common shares per share of Class A
Preferred Stock and 3 shares of Preferred Stock - Series B per share of Class A
Preferred Stock.
Dated: July 12, 1984
SHOP VAC CORPORATION
By /s/ William C. Reynolds
---------------------------
William C. Reynolds
Vice President
<PAGE> 38
AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
SHOP VAC CORPORATION
Article THIRD of the Restated Certificate of Incorporation of the
Corporation is amended to read as follows:
THIRD: The corporation shall have authority to
issue a total of twenty-four thousand (24,000) shares
classified as follows:
<TABLE>
<CAPTION>
Class Number
----- ------
<S> <C>
Common 20,000 shares
Class A Preferred 4,000 shares
</TABLE>
A. The par value and express terms of the shares of each class are as
follows:
1. Common
Shares designated as Common shall be without par value and shall be
issued for such consideration as shall be determined by the Board of Directors.
Each share of Common shall entitle the holder thereof to notice of shareholders'
meetings and to one vote on any matter submitted to the shareholders for their
vote, consent, waiver, release or action.
2. Class A Preferred
Shares designated as Class A Preferred shall have a par value of One
Thousand Dollars ($1000) per
<PAGE> 39
share. The express terms of Class A Preferred are as follows:
a. Dividends. Shares of Class A Preferred shall rank in
respect of the order of payment of dividends senior in priority to shares of
Common. The holders of Class A Preferred shall be entitled to receive, as and
when declared by the Board of Directors, out of any funds of the corporation at
the time legally available for the payment of dividends, an annual preferential
noncumulative dividend at the annual rate of and not exceeding $120 per share,
payable on the first day of January and July of each year commencing on the
first day of the earlier of January or July after this Amendment is filed,
before any dividend is paid on shares of Common in respect of such year.
Dividends on Class B Preferred shall not be cumulative and if a dividend is not
declared with respect to any fiscal year, it shall not accumulate or accrue
whether or not the corporation has earned surplus in such year.
b. Redemption. The corporation may, at its option, at any
time, redeem the whole or any part of the Class A Preferred at a price equal to
One Thousand Dollars ($1000) per share, plus declared but unpaid dividends. The
holders of Class A Preferred shall not have any right to compel the redemption
of such shares. Except as
-2-
<PAGE> 40
provided in section 2(e) hereof, notice of redemption shall be given by the
corporation, by personal delivery or by registered or certified mail, at least
ninety (90) days and not more than one hundred and twenty (120) days prior to
the date fixed for such redemption, to the holders of record of the shares of
Class A preferred to be redeemed, at their respective addresses appearing on the
records of the corporation.
c. Liquidation. Shares of Class A Preferred shall rank in
respect of the distribution of assets in the event of any liquidation,
dissolution or winding up of the affairs of the corporation in priority to
shares of Common. In the event of a liquidation, dissolution or winding up of
the affairs of the corporation, whether voluntary or involuntary, the holders of
Class A preferred shall be entitled to be paid an amount equal to one thousand
dollars ($1000) per share, together with dividends declared but unpaid through
the date of payment of such amount, before any amount is paid or distribution
made to the holders of Common. If upon a liquidation, dissolution or winding up
of the affairs of the corporation, the net assets of the corporation available
for distribution to holders of Class A Preferred are insufficient to permit
payment of the full preferential amounts payable to such
-3-
<PAGE> 41
holders, then the assets available for distribution to holders of Class A
Preferred shall be distributed ratably to such holders in proportion to the full
amounts to which they would otherwise be entitled as such holders. A merger or
consolidation of the corporation with any other company or companies shall not
be deemed to be a liquidation, dissolution or winding up within the meaning of
this paragraph.
d. Voting. Each share of Class A Preferred shall entitle the
holder thereof to notice of shareholders' meetings and to one vote on any
matter submitted to the shareholders for their vote, consent, waiver, release or
action.
e. Conversion. A holder of Class A Preferred shares will have
the right, exercisable at any time prior to the date such shares have been
called for redemption, to convert shares of Class A Preferred stock into shares
of Common (the "Conversion Feature"). Pursuant to the Conversion Feature, a
holder of Class A Preferred stock may surrender some or all of his shares of
Class A Preferred stock for shares of Common equal in fair market value, as of
the date the holder's conversion rights are exercised, to the par value of the
shares of Class A Preferred stock surrendered by the holder in exchange
-4-
<PAGE> 42
therefor. However, in no event shall a share of Class A Preferred stock be
convertible into more than 1.5 shares of Common. The maximum number of shares of
Common receivable upon the conversion of a share of Class A Preferred shall be
appropriately adjusted should the corporation effect one or more stock splits,
stock dividends, or similar capital adjustments. The corporation shall have the
option of redeeming any Class A Preferred shares presented for conversion at par
value in lieu of issuing Common as described above but only in the case of Class
A Preferred shares presented for conversion (1) after the death or determination
of incompetency of the original holder thereof (in the case of an original
holder who is an individual not acting in a fiduciary capacity) or (2) after a
transfer by the original holder thereof (in the case of any other original
holder).
-5-
<PAGE> 43
SHOP VAC CORPORATION
(the Corporation)
Consent of the Holders of Preferred Stock-Series B
to Action Taken Without a Meeting
(adopted on June 18, 1984)
The undersigned holders of Preferred Stock - Series B of the
Corporation hereby consent, pursuant to Section 14A:5-6(l) of the New Jersey
Business Corporation Act, to the adoption of the following Plan of
Recapitalization without a meeting and on written consent:
WHEREAS the Corporation's authorized capital consists of
20,000 shares of Common stock, without par value, 350 shares of
Convertible Preferred Stock - Series "A", without par value, and 600
shares of Preferred Stock - Series B, without par value, of which 8,880
shares of Common stock are issued and outstanding, no shares of
Convertible Preferred Stock- Series "A" are issued and 600 shares of
Preferred Stock-Series B are issued and outstanding; and
WHEREAS, in the judgment of the Board of Directors of the
Corporation, it is in the best interest of the Corporation to implement
a recapitalization of the capital stock of the Corporation, whereby
the Convertible Preferred Stock - Series "A" and the Preferred
Stock - Series B will be eliminated and a new class of stock, Class A
Preferred, will be authorized.
NOW, THEREFORE, BE IT RESOLVED, that a plan of
recapitalization be and hereby is adopted substantially in the form set
forth below together with such changes as may be approved by an officer
of the Corporation:
FIRST: Article THIRD of the Restated Certificate of
Incorporation of the Corporation shall be amended to read as follows:
<PAGE> 44
THIRD: The corporation shall have authority to issue a total of
twenty-four thousand (24,000) shares classified as follows:
<TABLE>
<CAPTION>
Class Number
----- ------
<S> <C>
Common 20,000 shares
Class A Preferred 4,000 shares
</TABLE>
A. The par value and express terms of the shares of each class are as
follows:
1. Common
Shares designated as Common shall be without par value and shall be
issued for such consideration as shall be determined by the Board of Directors.
Each share of Common shall entitle the holder thereof to notice of shareholders'
meetings and to one vote on any matter submitted to the shareholders for their
vote, consent, waiver, release or action.
2. Class A Preferred
Shares designated as Class A Preferred shall have a par value of One
Thousand Dollars ($1000) per share. The express terms of Class A Preferred are
as follows:
a. Dividends. Shares of Class A Preferred shall rank in respect of the
order of payment of dividends
-2-
<PAGE> 45
senior in priority to shares of Common. The holders of Class A Preferred shall
be entitled to receive, as and when declared by the Board of Directors, out of
any funds of the corporation at the time legally available for the payment of
dividends, an annual preferential noncumulative dividend at the annual rate of
and not exceeding $120 per share, payable on the first day of January and July
of each year commencing on the first day of the earlier of January or July after
this Amendment is filed, before any dividend is paid on shares of Common in
respect of such year. Dividends on Class B Preferred shall not be cumulative and
if a dividend is not declared with respect to any fiscal year, it shall not
accumulate or accrue whether or not the corporation has earned surplus in such
year.
b. Redemption. The corporation may, at its option, at any time, redeem
the whole or any part of the Class A Preferred at a price equal to One Thousand
Dollars ($1000) per share, plus declared but unpaid dividends. The holders of
Class A Preferred shall not have any right to compel the redemption of such
shares. Except as provided in section 2(e) hereof, notice of redemption shall be
given by the corporation, by personal delivery or by registered or certified
mail, at least ninety (90) days and not more than one hundred and twenty (120)
days prior
-3-
<PAGE> 46
to the date fixed for such redemption, to the holders of record of the shares of
Class A Preferred to be redeemed, at their respective addresses appearing on the
records of the corporation.
c. Liquidation. Shares of Class A Preferred shall rank in respect of
the distribution of assets in the event of any liquidation, dissolution or
winding up of the affairs of the corporation in priority to shares of Common. In
the event of a liquidation, dissolution or winding up of the affairs of the
corporation, whether voluntary or involuntary, the holders of Class A Preferred
shall be entitled to be paid an amount equal to one thousand dollars ($1000) per
share, together with dividends declared but unpaid through the date of payment
of such amount, before any amount is paid or distribution made to the holders of
Common. If upon a liquidation, dissolution or winding up of the affairs of the
corporation, the net assets of the corporation available for distribution to
holders of Class A Preferred are insufficient to permit payment of the full
preferential amounts payable to such holders, then the assets available for
distribution to holders of Class A Preferred shall be distributed ratably to
such holders in proportion to the full amounts to which they would otherwise be
entitled as such holders. A
-4-
<PAGE> 47
merger or consolidation of the corporation with any other company or companies
shall not be deemed to be a liquidation, dissolution or winding up within the
meaning of this paragraph.
d. Voting. Each share of Class A Preferred shall entitle the holder
thereof to notice of shareholders' meetings and to one vote on any matter
submitted to the shareholders for their vote, consent, waiver, release or
action.
e. Conversion. A holder of Class A Preferred shares will have the
right, exercisable at any time prior to the date such shares have been called
for redemption, to convert shares of Class A Preferred stock into shares of
Common (the "Conversion Feature"). Pursuant to the Conversion Feature, a holder
of Class A Preferred stock may surrender some or all of his shares of Class A
Preferred stock for shares of Common equal in fair market value, as of the date
the holder's conversion rights are exercised, to the par value of the shares of
Class A Preferred stock surrendered by the holder in exchange therefor. However,
in no event shall a share of Class A Preferred stock be convertible into more
than 1.5 shares of Common. The maximum number of shares of Common receivable
upon the conversion of a share of Class A Preferred
-5-
<PAGE> 48
shall be appropriately adjusted should the corporation effect one or more stock
splits, stock dividends, or similar capital adjustments. The corporation shall
have the option of redeeming any Class A Preferred shares presented for
conversion at par value in lieu of issuing Common as described above but only in
the case of Class A Preferred shares presented for conversion (1) after the
death or determination of incompetency of the original holder thereof (in the
case of an original holder who is an individual not acting in a fiduciary
capacity) or (2) after a transfer by the original holder thereof (in the case of
any other original holder).
SECOND: Upon the filing of the Certificate of Amendment to the
Restated Certificate of Incorporation of the Corporation, the
Corporation shall offer to each holder of stock of the Corporation the
right to exchange any or all of the shareholder's Common stock or
Preferred Stock-Series B for shares Class A Preferred at the ratios of
.6262 voting common shares per share of Class A Preferred stock and 3
shares of Preferred Stock - Series B per share of Class A Preferred
stock.
/s/ Martin Miller
--------------------------
Martin Miller
Signed on June 18, 1984
/s/ Martin Miller, Trustee
---------------------------
Martin Miller, as Trustee
under an indenture of
Florence Miller, dated
October 26, 1976 for the
benefit of Jonathan and
Matthew Miller and their
decendants
Signed on June 18, 1984
<PAGE> 49
SHOP VAC CORPORATION
(the Corporation)
Consent of the Holders of Common Stock
to Action Taken Without a Meeting
(June 28, 1984)
The undersigned holders of Common stock of the Corporation hereby
consent, pursuant to Section 14A:5-6 (1) of the New Jersey Business Corporation
Act, to the adoption of the following Plan of Recapitalization without a meeting
and on written consent:
WHEREAS the Corporation's authorized capital consists of
20,000 shares of Common stock, without par value, 350 shares of
Convertible Preferred Stock - Series "A", without par value, and 600
shares of Preferred Stock - Series B, without par value, of which 8,880
shares of Common stock are issued and outstanding, no shares of
Convertible Preferred Stock - Series "A" are issued and 600 shares of
Preferred Stock-Series B are issued and outstanding; and
WHEREAS, in the judgment of the Board of Directors of the
Corporation, it is in the best interest of the Corporation to implement
a recapitalization of the capital stock of the Corporation, whereby
the Convertible Preferred Stock - Series "A" and the Preferred
Stock-Series B will be eliminated and a new class of stock, Class A
Preferred, will be authorized.
NOW, THEREFORE, BE IT RESOLVED, that a plan of
recapitalization be and hereby is adopted substantially in the form set
forth below together with such changes as may be approved by an officer
of the Corporation:
FIRST: Article THIRD of the Restated Certificate of
Incorporation of the Corporation shall be amended to read as follows:
<PAGE> 50
THIRD, The corporation shall have authority to issue a total of
twenty-four thousand (24,000) shares classified as follows:
<TABLE>
<CAPTION>
Class Number
----- ------
<S> <C>
Common 20,000 shares
Class A Preferred 4,000 shares
</TABLE>
A. The par value and express terms of the shares of each class are as
follows:
1. Common
Shares designated as Common shall be without par value and shall be
issued for such consideration as shall be determined by the Board of Directors.
Each share of Common shall entitle the holder thereof to notice of shareholders'
meetings and to one vote on any matter submitted to the shareholders for their
vote, consent, waiver, release or action.
2. Class A Preferred
Shares designated as Class A Preferred shall have a par value of One
Thousand Dollars ($1000) per share. The express terms of Class A Preferred are
as follows:
-2-
<PAGE> 51
a. Dividends. Shares of Class A Preferred shall rank in respect of the
order of payment of dividends senior in priority to shares of Common. The
holders of Class A Preferred shall be entitled to receive, as and when declared
by the Board of Directors, out of any funds of the corporation at the time
legally available for the payment of dividends, an annual preferential
noncumulative dividend at the annual rate of and not exceeding $120 per share,
payable on the first day of January and July of each year commencing on the
first day of the earlier of January or July after this Amendment is filed,
before any dividend is paid on shares of Common in respect of such year.
Dividends on Class A preferred shall not be cumulative and if a dividend is not
declared with respect to any fiscal year, it shall not accumulate or accrue
whether or not the corporation has earned surplus in such year.
b. Redemption. The corporation may, at its option, at any time,
redeem the whole or any part of the Class A Preferred at a price equal to One
Thousand Dollars ($1000) per share, plus declared but unpaid dividends. The
holders of Class A Preferred shall not have any right to compel the redemption
of such shares. Except as
-3-
<PAGE> 52
provided in section 2(e) hereof, notice of redemption shall be given by the
corporation, by personal delivery or by registered or certified mail, at least
ninety (90) days and not more than one hundred and twenty (120) days prior to
the date fixed for such redemption, to the holders of record of the shares of
Class A Preferred to be redeemed, at their respective addresses appearing on the
records of the corporation.
c. Liquidation. Shares of Class A Preferred shall rank in respect of
the distribution of assets in the event of any liquidation, dissolution or
winding up of the affairs of the corporation in priority to shares of Common. In
the event of a liquidation, dissolution or winding up of the affairs of the
corporation, whether voluntary or involuntary, the holders of Class A Preferred
shall be entitled to be paid an amount equal to one thousand dollars ($1000) per
share, together with dividends declared but unpaid through the date of payment
of such amount, before any amount is paid or distribution made to the holders of
Common. If upon a liquidation, dissolution or winding up of the affairs of the
corporation, the net assets of the corporation available for distribution to
-4-
<PAGE> 53
holders of Class A Preferred are insufficient to permit payment of the full
preferential amounts payable to such holders, then the assets available for
distribution to holders of Class A Preferred shall be distributed ratably to
such holders in proportion to the full amounts to which they would otherwise be
entitled as such holders. A merger or consolidation of the corporation with any
other company or companies shall not be deemed to be a liquidation, dissolution
or winding up within the meaning of this paragraph.
d. Voting. Each share of Class A Preferred shall entitle the holder
thereof to notice of shareholders' meetings and to one vote on any matter
submitted to the shareholders for their vote, consent, waiver, release or
action.
e. Conversion. A holder of Class A Preferred shares shall have the
right, exercisable at any time prior to the date such shares have been called
for redemption, to convert shares of Class A Preferred stock into shares of
Common (the "Conversion Feature"). Pursuant to the Conversion Feature, a holder
of Class A Preferred stock may surrender some or all of his shares of Class A
-5-
<PAGE> 54
Preferred stock for shares of Common equal in fair market value, as of the date
the holder's conversion rights are exercised, to the par value of the shares of
Class A Preferred stock surrendered by the holder in exchange therefor. However,
in no event shall a share of Class A Preferred stock be convertible into more
than 1.5 shares of Common. The maximum number of shares of Common receivable
upon the conversion of a share of Class A Preferred shall be appropriately
adjusted should the corporation effect one or more stock splits, stock
dividends, or similar capital adjustments. The corporation shall have the option
of redeeming any Class A Preferred shares presented for conversion at par value
in lieu of issuing Common as described above but only in the case of Class A
Preferred shares presented for conversion (1) after the death or determination
of incompetency of the original holder thereof (in the case of an original
holder who is an individual not acting in a fiduciary capacity) or (2) after a
transfer by the original holder thereof (in the case of any other original
holder).
SECOND: Upon the filing of the Certificate of Amendment to the
Restated Certificate of Incorporation of the Corporation, the
Corporation shall offer to each holder of stock of the Corporation the
-6-
<PAGE> 55
right to exchange any or all of the shareholder's Common stock or Preferred
Stock-Series B for shares of Class A Preferred at the ratios of .6262 voting
common shares per share of Class A Preferred stock and 3 shares of Preferred
Stock - Series B per share of Class A Preferred stock.
/s/ Martin Miller
--------------------------------
Martin Miller
Signed on June 28, 1984
/s/ Martin Miller
--------------------------------
Martin Miller, as Trustee
under an indenture of
Florence Miller, dated
October 26, 1976 for the
benefit of Jonathan and
Matthew Miller and their
descendants
Signed on June 28, 1984
/s/ Jonathan Miller
--------------------------------
Jonathan Miller
Signed on June 28, 1984
/s/ Mathew Miller
--------------------------------
Matthew Miller
Signed on June 28, 1984
-7-
<PAGE> 56
SHOP VAC CORPORATION
(the Corporation)
Consent of the Directors
to Action Taken without a Meeting
(adopted on June 28, 1964)
The undersigned, being all the directors of the Corporation, hereby
consent, pursuant to Section 14A:6-7(2) of the New Jersey Business Corporation
Act, to the adoption of the following Plan of Recapitalization without a meeting
and on written consent:
WHEREAS the Corporation's authorized capital consists of
20,000 shares of Common stock, without par value, 350 shares of
Convertible Preferred Stock - Series "A", without par value, and 600
shares of Preferred Stock - Series B, without par value, of which 8,880
shares of Common stock are issued and outstanding, no shares of
Convertible Preferred Stock-Series "A" are issued and 600 shares of
Preferred Stock Series B are issued and outstanding; and
WHEREAS, in the judgment of the Board of Directors of the
Corporation, it is in the best interest of the Corporation to implement
a recapitalization of the capital stock of the Corporation, whereby
the Convertible Preferred Stock - Series "A" and the Preferred Stock -
Series B will be eliminated and a new class of stock, Class A
Preferred, will be authorized.
NOW, THEREFORE, BE IT RESOLVED, that a plan of
recapitalization be and hereby is adopted substantially in the form set
forth below together with such changes as may be approved by an officer
of the Corporation:
FIRST: Article THIRD of the Restated Certificate of
Incorporation of the Corporation shall be amended to read as follows:
<PAGE> 57
THIRD: the corporation shall have authority to issue a total of
twenty-four thousand (24,000) shares classified as follows
<TABLE>
<CAPTION>
Class Number
----- ------
<S> <C>
Common 20,000 shares
Class A Preferred 4,000 shares
</TABLE>
A. The par value and express terms of the
shares of each class are as follows:
1. Common
Shares designated as Common shall be without par value and shall be
issued for such consideration as shall be determined by the Board of Directors.
Each share of Common shall entitle the holder thereof to notice of shareholders'
meetings and to one vote on any matter submitted to the shareholders for their
vote, consent, waiver, release or action.
2. Class A Preferred
Shares designated as Class A Preferred shall have a par value of One
Thousand Dollars ($1000) per share. The express terms of Class A Preferred are
as follows:
a. Dividends. Shares of Class A Preferred all rank in respect of the
order of payment of dividends
-2-
<PAGE> 58
senior in priority to shares of Common. The holders of Class A Preferred shall
be entitled to receive, as and when declared by the Board of Directors, out of
any funds of the corporation at the time legally available for the payment of
dividends, an annual preferential noncumulative dividend at the annual rate of
and not exceeding $120 per share, payable on the first day of January and July
of each year commencing on the first day of the earlier of January or July after
this Amendment is filed, before any dividend is paid on shares of Common in
respect of such year. Dividends on Class A preferred shall not be cumulative and
if a dividend is not declared with respect to any fiscal year, it shall not
accumulate or accrue whether or not the corporation has earned surplus in such
year.
b. Redemption. The corporation may, at its option, at any time, redeem
the whole or any part of the Class A Preferred at a price equal to One Thousand
Dollars ($1000) per share, plus declared but unpaid dividends. The holders of
Class A Preferred shall not have any right to compel the redemption of such
shares. Except as provided in section 2(e) hereof, notice of redemption shall be
given by the corporation, by personal delivery or by registered or certified
mail, at least ninety (90) days and not more than one hundred and twenty (120)
days prior
-3-
<PAGE> 59
to the date fixed for such redemption, to the holders of record of the shares of
Class A Preferred to be redeemed, at their respective addresses appearing on the
records of the corporation.
c. Liquidation. Shares of Class A Preferred shall rank in respect of
the distribution of assets in the event of any liquidation, dissolution or
winding up of the affairs of the corporation in priority to shares of Common. In
the event of a liquidation, dissolution or winding up of the affairs of the
corporation, whether voluntary or involuntary, the holders of Class A preferred
shall be entitled to be paid an amount equal to one thousand dollars ($1000) per
share, together with dividends declared but unpaid through the date of payment
of such amount, before any amount is paid or distribution made to the holders of
Common. If upon a liquidation, dissolution or winding up of the affairs of the
corporation, the net assets of the corporation available for distribution to
holders of Class A Preferred are insufficient to permit payment of the full
preferential amounts payable to such holders, then the assets available for
distribution to holders of Class A Preferred shall be distributed ratably to
such holders in proportion to the full amounts to which they would otherwise be
entitled as such holders. A
-4-
<PAGE> 60
merger or consolidation of the corporation with any other company or companies
shall not be deemed to be a liquidation, dissolution or winding up within the
meaning of this paragraph.
d. Voting. Each share of Class A Preferred shall entitle the holder
thereof to notice of shareholders' meetings and to one vote on any matter
submitted to the shareholders for their vote, consent, waiver, release or
action.
e. Conversion. A holder of Class A Preferred shares shall have the
right, exercisable at any time prior to the date such shares have been called
for redemption, to convert shares of Class A preferred stock into shares of
Common (the "Conversion Feature"). Pursuant to the Conversion Feature, a holder
of Class A Preferred stock may surrender some or all of his shares of Class A
Preferred stock for shares of Common equal in fair market value, as of the date
the holder's conversion rights are exercised, to the par value of the shares of
Class A Preferred stock surrendered by the holder in exchange therefor. However,
in no event shall a share of Class A Preferred stock be convertible into more
than 1.5 shares of Common. The maximum number of shares of Common receivable
upon the conversion of a share of Class A Preferred
-5-
<PAGE> 61
shall be appropriately adjusted should the corporation effect one or more stock
splits, stock dividends, or similar capital adjustments. The corporation shall
have the option of redeeming any Class A Preferred shares presented for
conversion at par value in lieu of issuing common as described above but only in
the case of Class A Preferred shares presented for conversion (1) after the
death or determination of incompetency of the original holder thereof (in the
case of an original holder who is an individual not acting in a fiduciary
capacity) or (2) after a transfer by the original holder thereof (in the case of
any other original holder).
SECOND: Upon the filing of the Certificate of Amendment to the
Restated Certificate of Incorporation of the Corporation, the
Corporation shall offer to each holder of stock of the Corporation the
right to exchange any or all of the shareholder's Common stock or
Preferred Stock - Series B for shares of Class A preferred at the
ratios of .6262 voting common shares per share of Class A preferred
stock and 3 shares of Preferred Stock - Series B per share of Class A
Preferred stock.
RESOLVED, that a plan of recapitalization substantially in the
form presented above be submitted to the shareholders of the
Corporation for their approval;
RESOLVED, that the proper officers of the Corporation be and
hereby are authorized to do all such acts and execute such
certificates, offers, agreements and other instruments as may be
necessary or appropriate to implement a plan of recapitalization
substantially in the form presented above and to otherwise carry out
the foregoing resolutions, the execution by any such officer of any
such document to be
-6-
<PAGE> 62
conclusive evidence of such officer's authority to act in accordance
with these resolutions;
AND FURTHER RESOLVED, that any and all actions heretofore or
hereafter taken by such officer or officers pursuant to or in
furtherance of the intent and purposes of, the foregoing resolutions
be, and they hereby are, ratified and confirmed as the act and deed of
the Corporation.
/s/ Martin Miller
-----------------------------
Martin Miller
Signed on June 28, 1984
/s/ Jonathan Miller
-----------------------------
Jonathan Miller
signed on June 28, 1984
/s/ Matthew Miller
-----------------------------
Matthew Miller
Signed on June 28, 1984
/s/ William C. Reynolds
-----------------------------
William C. Reynolds
Signed on June 19th, 1984
-7-
<PAGE> 63
CERTIFICATE OF MERGER FILED
OF DEC. 31, 1990
CANTON MANUFACTURING CORPORATION JOAN HABERLE
INTO Secretary of State
SHOP-VAC CORPORATION 0671323
To: The Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:10-7 Corporation, General, of
the New Jersey Statutes, the undersigned corporations hereby execute the
following Certificate of Merger.
ARTICLE ONE
The names of the corporations proposing to merge and the names of the
states under the laws of which such corporation are organized, are as follows:
<TABLE>
<CAPTION>
Name of Corporation State of Incorporation
------------------- -----------------------
<S> <C>
Shop-Vac Corporation New Jersey
Canton Manufacturing Corporation Pennsylvania
</TABLE>
ARTICLE TWO
The laws of Pennsylvania, the state under which such foreign
corporation is organized, permit such merger and that the applicable provisions
of the laws of said jurisdiction under which such foreign corporation was
organized have been, or upon compliance with filing and recording requirements
will have been, complied with.
ARTICLE THREE
The name of the surviving corporation shall be Shop-Vac Corporation and
it shall be governed by the laws of the State of New Jersey.
The total authorized capital stock of the surviving corporation shall
be 24,000 shares, itemized by classes, par value of shares, shares without par
value, and series, if any, within a class as follows:
<PAGE> 64
<TABLE>
<CAPTION>
Par Value Per Share or
Series statement that shares
Class (if any) Number of Shares are without par value
- ----- -------- ---------------- ----------------------
<S> <C> <C> <C>
Common -- 20,000 Without Par
Class A
Preferred -- 4,000 Par $1,000
</TABLE>
The address of the surviving corporation's registered office is
Corporation Trust Company, 28 West State Street, Trenton, NJ 08608 and the name
of the registered agent at such address is Corporation Trust Company.
ARTICLE FOUR
The following plan of merger was approved by the directors of the
undersigned domestic corporation in the manner prescribed by the New Jersey
Business Corporation Act, and was approved by the undersigned foreign
corporation in the manner prescribed by the laws of the State under which it is
organized:
PLAN OF MERGER
CANTON MANUFACTURING CORPORATION, A PENNSYLVANIA CORPORATION
INTO
SHOP-VAC CORPORATION, A NEW JERSEY CORPORATION
This Plan of Merger (the "Plan") is adopted in accordance with the New
Jersey Business Corporation Act and the Pennsylvania Business Corporation Law
and pursuant to the following terms and conditions:
I. Canton Manufacturing Corporation, a Pennsylvania corporation (the
"Merged Corporation"), shall be merged into Shop-Vac Corporation, a New Jersey
corporation (the "Surviving Corporation"), in accordance with the provisions of
this Plan.
II. This merger shall become effective on January 1, 1991 at 12:01 A.M.
prevailing time.
III. Upon this merger becoming effective, the separate existence of the
Merged Corporation shall cease and the said Merged Corporation shall be merged
into the Surviving Corporation which shall continue its corporate existence and
be the corporation surviving the merger, all in accordance with the provisions
of this Plan. The Surviving Corporation shall possess all the rights,
privileges, powers and franchises of a public as well as a private
- 2 -
<PAGE> 65
nature and be subject to all restrictions, disabilities and duties of the Merged
Corporation and all property, real, personal and mixed, and franchises of and
all debts due to the Merged Corporation on whatever account, as well as all
other things in action of or belonging to the Merged Corporation, shall be taken
and deemed to be transferred to and vested in the Surviving Corporation without
further act or deed and all property, rights, privileges, powers and franchises
and all and every other interest of the Merged Corporation shall be thereafter
as effectually the property of the Surviving Corporation as they were of the
Merged Corporation; and the title to any and all real estate, whether by deed or
otherwise, vested in the Merged Corporation shall not revert or be in any way
impaired by reason of this merger; Provided, however, that all rights of
creditors and all liens upon any property of the Merged Corporation shall be
preserved, unimpaired and all debts, liabilities, obligations and duties of the
Merged Corporation shall thenceforth attach to the Surviving Corporation and may
be enforced against the Surviving Corporation to the same extent as if said
debts, liabilities, obligations and duties had been incurred or contracted by
it.
If at any time, the Surviving Corporation shall consider or be advised
that any further assignments or assurances in law or any things are necessary or
desirable to vest in said corporation, according to the terms thereof, the title
to any property or rights of the Merged Corporation, the proper officers and
directors of said corporation shall and will execute and make all such proper
assignments and assurances and do all things necessary or proper to vest title
in such property or rights in the Surviving Corporation and otherwise carry out
the purposes of this Plan.
IV. Prior to this merger becoming effective, the Surviving Corporation
and/or the Merged Corporation, as applicable, shall file a Certificate of Merger
with the Secretary of the State of New Jersey pursuant to Section 14A:10-4.1 of
the New Jersey Business Corporation Act, and shall file Articles of Merger with
the Department of State of Pennsylvania, pursuant to Section 1927 of the
Pennsylvania Business Corporation Law.
V. The mode of carrying into effect the merger under this Plan is as
follows:
A. All shares of Common Stock in the Merged Corporation issued
and outstanding or issued and held as treasury shares by the Merged Corporation
immediately prior to the merger becoming effective shall cease to be issued and
outstanding or issued and held as treasury shares and shall be treated as
cancelled and retired upon the merger becoming effective and thereafter.
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<PAGE> 66
B. All shares of Common Stock in the Surviving Corporation
issued and outstanding immediately prior to the merger becoming effective shall
remain issued and outstanding upon the merger becoming effective and thereafter
as shares of Common Stock in the Surviving Corporation.
VI. The Surviving Corporation and the Merged Corporation shall bear all
expenses of the Merger.
VII. The proper officers of the Surviving Corporation and of the Merged
Corporation are hereby authorized and directed to execute, in the name and on
behalf of the Surviving Corporation and the Merged Corporation, respectively,
and under their corporate seals, or otherwise, and to deliver any and all
agreements, certificates, applications or other instruments and to take from
time to time any and all such other action necessary or desirable to carry out
the purposes of this Plan.
VIII. Anything herein or elsewhere to the contrary notwithstanding,
this Plan may be terminated and abandoned at any time before the effective time
of the merger by the Board of Directors of the Surviving Corporation. Upon any
such termination, neither party shall have any liability to the other.
ARTICLE FIVE
The plan of merger was approved by the board of directors of Shop-Vac
Corporation and that no vote of the shareholders of the surviving corporation
was required because of the applicability of the provisions of Section 14A:10-3
(4), Title 14A, Revised Statutes of New Jersey.
ARTICLE SIX
The effective date of this Certificate shall be January 1, 1991 at
12:01 a.m.
IN WITNESS WHEREOF each of the undersigned corporations has caused this
Certificate of Merger to be executed in its name by its President as of the 26th
day of December, 1990.
SHOP-VAC CORPORATION
By: /s/ W. Earl Stogner
-----------------------------
Vice President
CANTON MANUFACTURING CORPORATION
By: /s/ W. Earl Stogner
-----------------------------
Vice President
<PAGE> 67
CERTIFICATE OF AMENDMENT TO THE FILED
DEC. 17, 1992
CERTIFICATE OF INCORPORATION OF DANIEL J. DALTON
Secretary of State
SHOP VAC CORPORATION 0811406
To: The Secretary of State
State of New Jersey EIN: 13-5609081
Pursuant to the provisions of Section 14A:9-2(4) and Section
14A:9-4(3), Corporations, General, of the New Jersey Statutes, the undersigned
corporation executes the following Certificate of Amendment to its Certificate
of Incorporation:
1. The name of the corporation is SHOP VAC CORPORATION.
2. The following amendment to the Certificate of Incorporation was
approved by the directors by unanimous written consent and thereafter duly
submitted to the shareholders of the corporation on the 14th day of December,
1992:
The Third Paragraph of the Certificate of Incorporation is hereby
amended and restated to read as follows:
"THIRD. The authorized capital stock of the corporation shall
consist of two (2) classes of stock as follows:
Class A Common Stock - 20,000 shares of Class A Common
Stock with no par value.
Class B Common Stock - 1,000,000 shares of Class B Common
Stock with no par value.
The voting powers of the shareholders shall be vested
exclusively in the holders of the Class A Common Stock, and the holders
of the Class B Common Stock, as such, shall be entitled to no voting
powers whatsoever nor shall they be entitled to notice of any meetings.
Every holder of Class A
<PAGE> 68
Common Stock shall be entitled to one vote for each share of Class A
Common Stock standing in his or her name on the books of the
Corporation.
For the purpose of sharing in surplus by way of dividends and
in the event of liquidation or dissolution of the corporation, the
Class A Common Stock and the Class B Common Stock shall be treated as
though they constitute shares of the same class. Each share of Class A
Common Stock and Class B Common Stock shall share equally in any
dividends, whether declared out of surplus or in liquidation or
dissolution of the corporation.
The corporation is no longer authorized to issue Preferred
Stock."
3. The shareholders adopted the foregoing amendment by unanimous
written consent on December 14th, 1992.
4. The number of shares entitled to vote on the foregoing amendment was
6,500.
5. The number of shares voting for and against such amendment is as
follows:
<TABLE>
<CAPTION>
Number of Shares Voting Number of Shares Voting
for Amendment Against Amendment
----------------------- -----------------------
<S> <C> <C>
6,500 -0-
</TABLE>
6. Each share of the Common Stock of the corporation that is issued and
outstanding prior to the filing of this Certificate of Amendment shall be
converted into one share of Class A Common Stock upon filing of this Certificate
of Amendment. The holders of Common Stock of the Corporation are entitled to
turn over their certificates for such stock to have them redesignated Class A
Common Stock or, at the option of the Corporation, to have new Class A Common
Stock issued to then.
7. The corporation shall issue one hundred (100) shares of Class B
Common Stock for every share of Class A Common Stock issued and outstanding as
of December 15, 1992.
<PAGE> 69
Dated this _______ day of December, 1992.
SHOP VAC CORPORATION
By /s/ Jonathan Miller
---------------------------
Johnathan Miller, President
CERTIFICATE OF AMENDMENT TO
RECORDED AND FILED:
CERTIFICATE OF INCORPORATION OF
SHOP VAC CORPORATION
FILED BY:
-----------------------------
Recorder's Initials
TRANSACTION NO.:
--------------------------
<PAGE> 1
Exhibit 3.2
SHOP-VAC CORPORATION
********
BY-LAWS
********
ARTICLE I
OFFICES
Section 1. The registered office shall be located in Trenton, New
Jersey.
Section 2. The corporation may also have offices at such other places
both within and without the State of New Jersey as the board of directors may
from time to time determine or the business of the corporation may require.
ARTICLE II
ANNUAL MEETINGS OF SHAREHOLDERS
Section 1. All meetings of shareholders for the election of directors
shall be held in the City of Williamsport, Commonwealth of Pennsylvania, or at
such other place, either within or without the State of New Jersey, as may from
time to time be fixed by the board of directors.
Section 2. Annual meetings of shareholders, commencing with the year
1991, shall be held on the first Tuesday
<PAGE> 2
of April, if not a legal holiday, and if a legal holiday, then on the next
secular day following, at 10:00 A.M., or at such other date and time as shall be
fixed from time to time by the board of directors and stated in the notice of
meeting, at which the shareholders shall elect by a plurality vote a board of
directors, and transact such other business as may properly be brought before
the meeting.
Section 3. Written notice of the annual meeting stating the time,
place, and purpose or purposes of the meeting shall be delivered not less than
ten nor more than sixty days before the date of the meeting, either personally
or by mail, to each shareholder of record entitled to vote at such meeting.
ARTICLE III
SPECIAL MEETINGS OF SHAREHOLDERS
Section 1. Special meetings of shareholders for any purpose other than
the election of directors may be held at such time and place within or without
the State of New Jersey as shall be stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
Section 2. Special meetings of the shareholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president, the board of directors, or the
holders of not less than ten (10) percent of all the shares entitled to vote at
the meeting.
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<PAGE> 3
Special meetings of the shareholders may be called also by the chairman of the
board of directors or the President.
Section 3. Written notice of a special meeting stating the time, place,
and purpose or purposes of the meeting for which the meeting is called, shall be
delivered not less than ten nor more than sixty days before the date of the
meeting, either personally or by mail, by or at the direction of the president,
the secretary, or the officer or persons calling the meeting, to each
shareholder of record entitled to vote at such meeting.
Section 4. Business transacted at any special meeting shall be confined
to the purpose or purposes stated in the notice thereof.
ARTICLE IV
QUORUM AND VOTING OF STOCK
Section 1. The holders of a majority of the shares of stock issued and
outstanding and entitled to vote, represented in person or by proxy, shall
constitute a quorum at all the meetings of the shareholders for the transaction
of business except as otherwise provided by statute or by the certificate of
incorporation. If however, such quorum shall not be present or represented at
any meeting of the shareholders, the shareholders present in person or
represented by proxy shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or
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<PAGE> 4
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 2. If a quorum is present, the affirmative vote of a majority
of the shares of stock represented at the meeting shall be the act of the
shareholders unless the vote of a greater number of shares of stock is required
by law or the certificate of incorporation.
Section 3. Each outstanding share of stock, having voting power, shall
be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders, unless otherwise provided in the certificate of incorporation. A
shareholder may vote either in person or by proxy executed in writing by the
shareholder or by his agent.
In all elections for directors every shareholder, entitled to vote,
shall have the right to vote, in person or by proxy, the number of shares of
stock owned by him, for as many persons as there are directors to be elected and
for whose election he has a right to vote, or, if the certificate of
incorporation so provides, to cumulate the vote of said shares, and give one
candidate as many votes as the number of directors multiplied by the aggregate
number of his votes shall equal, or to distribute the votes on the same
principle among as many candidates as he may see fit.
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<PAGE> 5
Section 4. Subject to statutory provisions, any action required to be
taken at a meeting of the shareholders may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the shareholders entitled to vote with respect to the subject matter thereof.
Except as provided in the certificate of incorporation and subject to
the statutory provisions and upon compliance therewith any action required to be
taken at a meeting of shareholders, other than the annual election of directors,
may be taken without a meeting upon the written consent of shareholders who
would have been entitled to cast the minimum number of votes which would be
necessary to authorize such action at a meeting at which all shareholders
entitled to vote thereon were present and voting.
ARTICLE V
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board of directors, other than the first board of directors, shall be not less
than three nor more than nine. The exact number of directors within such maximum
and minimum shall be determined by resolution of the board of directors or by
the shareholders at an annual meeting or special meeting. Directors need not be
residents of the State of New Jersey nor shareholders of the corporation. The
directors, other than the first board of
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<PAGE> 6
directors, shall be elected at the annual meeting of the shareholders, and each
director elected shall serve until the next succeeding annual meeting and until
his successor shall have been elected and qualified. The first board of
directors shall hold office until the first annual meeting of shareholders.
Section 2. Unless otherwise provided in the certificate of
incorporation, any vacancy occurring in the board of directors may be filled by
the affirmative vote of a majority of the remaining directors though less than a
quorum of the board of directors. A director elected to fill a vacancy shall be
elected for the unexpired portion of the term of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
directors shall be filled by election at an annual meeting or at a special
meeting of shareholders called for that purpose. A director elected to fill a
newly created directorship shall serve until the next succeeding annual meeting
of shareholders and until his successor shall have been elected and qualified.
Section 3. The business affairs of the corporation shall be managed by
its board of directors which may exercise all such powers of the corporation and
do all such lawful acts and things as are not by statute or by the certificate
of incorporation or by these by-laws directed or required to be exercised or
done by the shareholders.
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<PAGE> 7
Section 4. The directors may keep the books and records of the
corporation, except such as are required by law to be kept within the state,
outside of the State of New Jersey, at such place or places as they may from
time to time determine.
Section 5. The board of directors, by the affirmative vote of a
majority of the directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the corporation as directors,
officers or otherwise.
ARTICLE VI
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. Meetings of the board of directors, regular or special, may
be held either within or without the State of New Jersey.
Section 2. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
shareholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present, or it may convene at such place and
time as shall be fixed by the consent in writing of all the directors.
Section 3. Regular meetings of the board of directors may be held upon
such notice, or without notice, and at such time
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<PAGE> 8
and at such place as shall from time to time be determined by the board.
Section 4. Special meetings of the board of directors may be called by
the president on one days' notice to each director, either personally or by mail
or by telephone or telegram; special meetings shall be called by the president
or secretary in like manner and on like notice on the written request of two
directors. Notice need not be given to any director who signs a waiver of
notice, whether before or after the meeting.
Section 5. Attendance of a director at any meeting shall constitute a
waiver of notice of such meeting, except where a director attends for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the board
of directors need be specified in the notice or waiver of notice of such
meeting.
Section 6. A majority of the directors shall constitute a quorum for
the transaction of business unless a greater or lesser number is required by
statute or by the certificate of incorporation. The act of a majority of the
directors present at any meeting at which a quorum is present shall be the act
of the board of directors, unless the act of a greater or lesser number is
required by statute or by the certificate of incorporation. If a quorum shall
not be present at any meeting of
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<PAGE> 9
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 7. Unless otherwise provided by the certificate of
incorporation, any action required to be taken at a meeting of the board, or any
committee thereof, shall be deemed the action of the board of directors or of a
committee thereof, if all directors or committee members, as the case may be,
execute either before or after the action is taken, a written consent thereto,
and the consent is filed with the records of the corporation.
ARTICLE VII
EXECUTIVE COMMITTEE
Section 1. The board of directors, by resolution adopted by a majority
of the number of directors fixed by the by-laws or otherwise, may designate one
or more directors to constitute an executive committee, which committee, to the
extent provided in such resolution, shall have and exercise all of the authority
of the board of directors in the management of the corporation, except as
otherwise required by law. Vacancies in the membership of the committee shall be
filled by the board of directors at a regular or special meeting of the board of
directors. The executive committee shall keep regular minutes of its proceedings
and report the same to the board when required.
-9-
<PAGE> 10
ARTICLE VIII
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or shareholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or shareholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice whatever is required to be given under
the provisions of the statutes or under the provisions of the certificate of
incorporation or these by-laws, a waiver thereof in writing signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
ARTICLE IX
OFFICERS
Section 1. The officers of the corporation shall be
chosen by the board of directors and shall be a president, a vice-
president, a secretary and a treasurer. The board of directors may
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<PAGE> 11
also choose additional vice-presidents, and one or more assistant secretaries
and assistant treasurers.
Section 2. The board of directors at its first meeting after each
annual meeting of shareholders shall choose a president, one or more
vice-presidents, a secretary and a treasurer, none of whom need be a member of
the board.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board of directors.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the shareholders and the board of
directors, shall have general and active management of the business of the
corporation and shall see
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<PAGE> 12
that all orders and resolutions of the board of directors are carried into
effect.
Section 7. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 8. The vice-president (including Executive Vice Presidents), or
if there shall be more than one, the vice-presidents in the order determined by
the board of directors, shall, in the absence or disability of the president,
perform the duties and exercise the powers of the president and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the shareholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all
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<PAGE> 13
meetings of the shareholders and special meetings of the board of directors, and
shall perform such other duties as may be prescribed by the board of directors
or president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors, shall,
in the absence or disability of the secretary, perform the duties and exercise
the powers of the secretary and shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
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<PAGE> 14
Section 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 13. If required by the board of directors, he shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
Section 14. The assistant treasurer, or, if there shall be more than
one, the assistant treasurers in the order determined by the board of directors,
shall, in the absence or disability of the treasurer, perform the duties and
exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
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<PAGE> 15
ARTICLE X
CERTIFICATE FOR SHARES
Section 1. The shares of the corporation shall be represented by
certificates signed by, the chairman or vice-chairman of the board, or the
president or a vice-president and by the treasurer or an assistant treasurer, or
the secretary or an assistant secretary of the corporation, and may be sealed
with the seal of the corporation or a facsimile thereof.
When the corporation is authorized to issue shares of more than one
class there shall be set forth upon the face or back of the certificate, or the
certificate shall have a statement that the corporation will furnish to any
shareholder upon request and without charge, a full statement of the
designations, preferences, limitations and relative rights of the shares of each
class authorized to be issued and, if the corporation is authorized to issue any
preferred or special class in series, the variations in the relative rights and
preferences between the shares of each such series so far as the same have been
fixed and determined and the authority of the board of directors to fix and
determine the relative rights and preferences of subsequent series.
Section 2. The signatures of the officers of the corporation upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent, or registered by a registrar, other than the corporation itself or an
employee of the
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<PAGE> 16
corporation. In case any officer who has signed or whose facsimile signature has
been placed upon such certificate shall have ceased to be such officer before
such certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer at the date of its issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate to be
issued in place of any certificate theretofore issued by the corporation
alleged to have been lost or destroyed. When authorizing such issue of a new
certificate, the board of directors, in its discretion and as a condition
precedent to the issuance thereof, may prescribe such terms and conditions as it
deems expedient, and may require such indemnities as it deems adequate, to
protect the corporation from any claim that may be made against it with respect
to any such certificate alleged to have been lost or destroyed.
TRANSFERS OF SHARES
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate representing shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, a new certificate shall be issued to the person entitled thereto, and
the old
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<PAGE> 17
certificate canceled and the transaction recorded upon the books of the
corporation.
CLOSING OF TRANSFER BOOKS
Section 5. For the purposes of determining shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment thereof
or entitled to receive payment of any dividend or allotment of any right, or
entitled to give a written consent to any action without a meeting, or in order
to make a determination of shareholders for any other proper purpose, the board
of directors may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, sixty days. If the stock transfer
books shall be closed for the purpose of determining shareholders entitled to
notice of or to vote at a meeting of shareholders, such books shall be closed
for at least ten days immediately preceding such meeting. If the stock transfer
book shall be closed for the purpose of determining shareholders entitled to
give a written consent to any action without a meeting, such books may not be
closed for more than sixty days before the date fixed for tabulation of consents
or if no date has been fixed for tabulation, the books may not be closed for
more than sixty days before the last day on which consents received may be
counted. In lieu of closing the stock transfer books, the board of directors may
fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not
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<PAGE> 18
more than sixty days and, in case of a meeting of shareholders, not less than
ten days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken and, in case of determining
shareholders entitled to give a written consent the record date may not be more
than sixty days before the date fixed for tabulation of the consents or if no
date has been fixed for the tabulation, more than sixty days before the last day
on which consents may be counted. If the stock transfer books are not closed and
no record date is fixed, the record date for a shareholders' meeting shall be
the close of business on the day next preceding the day on which notice is
given, or, if no notice is given, the day next preceding the day on which the
meeting is held; and the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the resolution of
the board relating thereto is adopted. When a determination of shareholders of
record for a shareholders' meeting has been made as provided in this section,
such determination shall apply to any adjournment thereof unless the board fixes
a new record date for the adjourned meeting.
REGISTERED SHAREHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person
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<PAGE> 19
registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of New Jersey.
LIST OF SHAREHOLDERS
Section 7. The officer or agent having charge of the transfer books for
shares shall make, and certify a complete list of the shareholders entitled to
vote at a shareholders' meeting, or adjournment thereof, arranged in
alphabetical order within each class, series, or group of shareholders
maintained by the corporation for convenience of reference, with the address of,
and the number of shares held by each shareholder, which list shall be produced
and kept open at the time and place of the meeting and shall be subject to the
inspection of any shareholder during the whole time of the meeting. Such list
shall be prima facie evidence as to who are the shareholders entitled to examine
such list or to vote at any meeting of the shareholders.
ARTICLE XI
GENERAL PROVISIONS
DIVIDENDS
Section 1. Subject to the provisions of the certificate of
incorporation relating thereto, if any, dividends
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<PAGE> 20
may be declared by the board of directors at any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in its bonds, in its own shares
or other property including the shares or bonds of other corporations subject to
any provisions of law and of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
-20-
<PAGE> 21
SEAL
Section 5. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words "Corporate
Seal, New Jersey". The seal may be used by causing it or a facsimile thereof to
be impressed or affixed or in any manner reproduced.
ARTICLE XII
AMENDMENTS
Section 1. These by-laws may be altered, amended, or repealed
or new by-laws may be adopted by the affirmative vote of a majority of the board
of directors at any regular or special meeting of the board, subject to any
provision in the certificate of incorporation reserving to the shareholders the
power to adopt, amend, or repeal by-laws, but by-laws made by the board may be
altered or repealed and new by-laws made by the shareholders. The shareholders
may prescribe that any by-law made by them shall not be altered or repealed by
the board.
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<PAGE> 1
- --------------------------------------------------------------------------------
EXHIBIT 4.1
---------------------------------------------------------
SHOP VAC CORPORATION
10 5/8% SENIOR SECURED NOTES DUE 2003
and
10 5/8% NEW SENIOR SECURED NOTES DUE 2003
-----------------
INDENTURE
Dated as of October 1, 1996
-----------------
-----------------
MARINE MIDLAND BANK
-----------------
Trustee
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<C> <C>
310 (a)(1) ............................................. 7.10
(a)(2) ............................................ 7.10
(a)(3) ............................................ N.A.
(a)(4) ............................................ N.A.
(a)(5) ............................................ 7.10
(b) ............................................... 7.10
(c) ............................................... N.A.
311 (a) ................................................ 7.11
(b) ............................................... 7.11
(c) ............................................... N.A.
312 (a) ................................................ 2.05
(b) ............................................... 11.03
(c) ............................................... 11.03
313 (a) ................................................ 7.06
(b)(1) ............................................ 10.03
(b)(2) ............................................ 7.06; 7.07
(c) ............................................... 7.06;11.02
(d) ............................................... 7.06
314 (a) ................................................ 4.03;11.02;11.05
(b) ............................................... 10.02
(c)(1) ............................................ 11.04
(c)(2) ............................................ 11.04
(c)(3) ............................................ N.A.
(d) ............................................... 10.03, 10.04, 10.05
(e) ............................................... 11.05
(f) ............................................... N.A.
315 (a) ................................................ 7.01
(b) ............................................... 7.05,11.02
(c) ............................................... 7.01
(d) ............................................... 7.01
(e) ............................................... 6.11
316 (a)(last sentence) ................................. 2.09
(a)(1)(A) ......................................... 6.05
(a)(1)(B) ......................................... 6.04
(a)(2) ............................................ N.A.
(b) ............................................... 6.07
(c) ............................................... 2.12
317 (a)(1) ............................................. 6.08
(a)(2) ............................................ 6.09
(b) ............................................... 2.04
318 (a) ................................................ 11.01
(b) ............................................... N.A.
(c) ............................................... 11.01
</TABLE>
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
<S> <C> <C>
Section 1.01. Definitions....................................................... 1
Section 1.02. Other Definitions................................................. 11
Section 1.03. Incorporation by Reference of Trust Indenture Act................. 12
Section 1.04. Rules of Construction............................................. 12
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating................................................... 13
Section 2.02. Execution and Authentication...................................... 13
Section 2.03. Registrar and Paying Agent........................................ 14
Section 2.04. Paying Agent to Hold Money in Trust............................... 14
Section 2.05. Holder Lists...................................................... 14
Section 2.06. Transfer and Exchange............................................. 15
Section 2.07. Replacement Notes................................................. 20
Section 2.08. Outstanding Notes................................................. 20
Section 2.09. Treasury Notes.................................................... 20
Section 2.10. Temporary Notes................................................... 21
Section 2.11. Cancellation...................................................... 21
Section 2.12. Defaulted Interest................................................ 21
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee................................................ 21
Section 3.02. Selection of Notes to Be Redeemed................................. 21
Section 3.03. Notice of Redemption.............................................. 22
Section 3.04. Effect of Notice of Redemption.................................... 22
Section 3.05. Deposit of Redemption Price....................................... 22
Section 3.06. Notes Redeemed in Part............................................ 23
Section 3.07. Optional Redemption............................................... 23
Section 3.08. Mandatory Redemption.............................................. 23
Section 3.09. Offer to Purchase by Application of Excess Proceeds............... 23
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes.................................................. 25
Section 4.02. Maintenance of Office or Agency................................... 25
Section 4.03. Reports........................................................... 26
Section 4.04. Compliance Certificate............................................ 26
Section 4.05. Taxes............................................................. 26
Section 4.06. Stay, Extension and Usury Laws.................................... 27
</TABLE>
i
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 4.07. Restricted Payments............................................... 27
Section 4.08. Dividend and Other Payment Restrictions Affecting
Subsidiaries...................................................... 28
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred
Stock............................................................. 28
Section 4.10. Asset Sales....................................................... 29
Section 4.11. Independent Directors............................................. 30
Section 4.12. Transactions with Affiliates...................................... 30
Section 4.13. Restrictions on Certain Change of Control Payments................ 31
Section 4.14. Liens............................................................. 31
Section 4.15. Continued Existence............................................... 31
Section 4.16. Offer to Repurchase Upon Change of Control........................ 31
Section 4.17. Limitation on Sale and Leaseback Transactions..................... 32
Section 4.18. Limitation on Issuances and Sales of Capital Stock of
Wholly Owned Subsidiaries......................................... 32
Section 4.19. Business Activities............................................... 32
Section 4.20. Advances to Subsidiaries.......................................... 33
Section 4.21. Restrictions on Payments for Consents............................. 33
Section 4.22. Limitation on Issuances of Guarantees of Indebtedness............. 33
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.......................... 33
Section 5.02. Successor Corporation Substituted................................. 34
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default................................................. 34
Section 6.02. Acceleration...................................................... 36
Section 6.03. Other Remedies.................................................... 36
Section 6.04. Waiver of Past Defaults........................................... 36
Section 6.05. Control by Majority............................................... 37
Section 6.06. Limitation on Suits............................................... 37
Section 6.07. Rights of Holders of Notes to Receive Payment..................... 37
Section 6.08. Collection Suit by Trustee........................................ 37
Section 6.09. Trustee May File Proofs of Claim.................................. 37
Section 6.10. Priorities........................................................ 38
Section 6.11. Undertaking for Costs............................................. 38
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee................................................. 39
Section 7.02. Rights of Trustee................................................. 39
Section 7.03. Individual Rights of Trustee...................................... 40
Section 7.04. Trustee's Disclaimer.............................................. 40
Section 7.05. Notice of Defaults................................................ 40
</TABLE>
ii
<PAGE> 5
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 7.06. Reports by Trustee to Holders of the Notes........................ 40
Section 7.07. Compensation, Reimbursement and Indemnity......................... 41
Section 7.08. Replacement of Trustee............................................ 41
Section 7.09. Successor Trustee by Merger, etc.................................. 42
Section 7.10. Eligibility; Disqualification..................................... 42
Section 7.11. Preferential Collection of Claims Against Issuer.................. 43
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant
Defeasance........................................................ 43
Section 8.02. Legal Defeasance and Discharge.................................... 43
Section 8.03. Covenant Defeasance............................................... 43
Section 8.04. Conditions to Legal or Covenant Defeasance........................ 44
Section 8.05. Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions..................... 45
Section 8.06. Repayment to Issuer............................................... 45
Section 8.07. Reinstatement..................................................... 45
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes............................... 46
Section 9.02. With Consent of Holders of Notes.................................. 46
Section 9.03. Compliance with Trust Indenture Act............................... 47
Section 9.04. Revocation and Effect of Consents................................. 48
Section 9.05. Notation on or Exchange of Notes.................................. 48
Section 9.06. Trustee to Sign Amendments, etc................................... 48
ARTICLE 10
COLLATERAL AND SECURITY
Section 10.01. Pledge Agreement.................................................. 48
Section 10.02. Recording and Opinions............................................ 49
Section 10.03. Release of Collateral............................................. 49
Section 10.04. Certificates of the Issuer........................................ 50
Section 10.05. Certificates of the Trustee....................................... 50
Section 10.06. Authorization of Actions to Be Taken by the
Collateral Agent Under the Pledge Agreement....................... 50
Section 10.07. Authorization of Receipt of Funds by the Trustee
Under the Pledge Agreement........................................ 50
Section 10.08. Termination of Security Interest.................................. 50
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls...................................... 51
Section 11.02. Notices........................................................... 51
</TABLE>
iii
<PAGE> 6
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 11.03. Communication by Holders of Notes with Other
Holders of Notes.................................................. 52
Section 11.04. Certificate and Opinion as to Conditions Precedent................ 52
Section 11.05. Statements Required in Certificate or Opinion..................... 52
Section 11.06. Rules by Trustee and Agents....................................... 52
Section 11.07. No Personal Liability of Directors, Officers,
Employees and Stockholders........................................ 53
Section 11.08. Governing Law..................................................... 53
Section 11.09. No Adverse Interpretation of Other Agreements..................... 53
Section 11.10. Successors........................................................ 53
Section 11.11. Severability...................................................... 53
Section 11.12. Counterpart Originals............................................. 53
Section 11.13. Table of Contents, Headings, etc.................................. 53
</TABLE>
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B CERTIFICATE OF TRANSFEROR
Exhibit C FORM OF PLEDGE AGREEMENT
Exhibit D FORM OF SUBSIDIARY GUARANTEE
Exhibit E FORM OF SUBSIDIARY INTERCOMPANY NOTE
iv
<PAGE> 7
INDENTURE dated as of October 1, 1996 among Shop Vac
Corporation, a New Jersey corporation (the "Issuer") and Marine Midland Bank, as
trustee (the "Trustee").
The Issuer and the Trustee agree as follows for the benefit of
each other and for the equal and ratable benefit of the Holders of the 10 5/8%
Senior Secured Notes due 2003 (the "Senior Secured Notes") of the Issuer, and
the 10 5/8% New Senior Secured Notes due 2003 of the Issuer (the "New Senior
Secured Notes" and, together with the Senior Secured Notes, the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquired Debt" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of a sale and
leaseback transaction) other than sales of inventory in the ordinary course of
business consistent with past practices or in connection with the discontinuance
of the McCulloch operations; provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Issuer and its
Subsidiaries taken as a whole shall be governed by Section 4.16 and Article 5
hereof, and (ii) the issue or sale by the Issuer or any of its Subsidiaries of
Equity Interests of any of the Issuer's Subsidiaries, in the case of either
clause (i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $1.0 million or (b)
for net proceeds in excess of $1.0 million. Notwithstanding the foregoing: (i) a
transfer of assets by the Issuer to a Wholly Owned Subsidiary or by a Wholly
Owned Subsidiary to the Issuer or to another Wholly Owned Subsidiary, (ii) an
issuance of Equity Interests by a Wholly Owned Subsidiary to the Issuer or to
another Wholly Owned Subsidiary, and (iii) a Restricted Payment that is
permitted by Section 4.07 hereof will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback
transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
<PAGE> 8
"Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
"Board" means the Board of Directors or other similar
governing entity of the Issuer the members of which are elected by the
equityholders of the Issuer.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease that would at such time be required to be reflected on a balance
sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof having maturities of
not more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less from
the date of acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any lender party to the
New Revolving Credit Facility or with any domestic commercial bank having
capital and surplus in excess of $500.0 million and a Keefe Bank Watch Rating of
"B" or better, (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above, and (v) commercial paper having the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation and in each case maturing within six months after the date of
acquisition.
"Certificated Notes" means Notes that are in the form of the
Notes attached hereto as Exhibit A, that do not include the information called
for by footnotes 1 and 2 thereof.
"Change of Control" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Issuer and its
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) other than the Principals or any Related Party,
(ii) the adoption of a plan relating to the liquidation or dissolution of the
Issuer, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation, but excluding any foreclosure on, or
sale of Collateral by, the Collateral Agent pursuant to the Pledge Agreement)
the result of which is that any "person" (as defined above), other than the
Principals or any Related Party becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of (a) more than 35% of the voting stock of the Issuer and (b) more
of the voting stock of the Issuer than is at the time "beneficially owned" (as
such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) by the
Principals and their Related Parties in the aggregate, or (iv) the first day on
which a majority of the members of the Board of the Issuer are not Continuing
Directors.
2
<PAGE> 9
"Collateral" means any assets of the Issuer defined as Pledged
Collateral in the Pledge Agreement dated as of the date of this Indenture and
substantially in the form attached as Exhibit C, as hereto, such agreement may
be amended, modified or supplemented from time to time.
"Collateral Agent" shall have the meaning set forth in the
Pledge Agreement.
"Consolidated Cash Flow" means, with respect to any Person for
any period, the Consolidated Net Income of such Person for such period plus (i)
an amount equal to any extraordinary loss plus any net loss realized in
connection with an Asset Sale (to the extent such losses were deducted in
computing such Consolidated Net Income), plus (ii) provision for taxes based on
income or profits of such Person and its Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such Consolidated
Net Income, plus (iii) consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing such Consolidated Net Income, plus (iv) depreciation,
amortization (including amortization of goodwill and other intangibles, but
excluding amortization of prepaid cash expenses that were paid in a prior
period) and other non-cash charges (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Subsidiaries for such period to the extent that
such depreciation, amortization and other non-cash charges were deducted in
computing such Consolidated Net Income, less (v) all non-cash items increasing
consolidated revenues in determining such Consolidated Net Income for such
period, in each case, on a consolidated basis and determined in accordance with
GAAP.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that is
not a Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or distributions
paid in cash to the referent Person or a Wholly Owned Subsidiary thereof, (ii)
the Net Income of any Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Subsidiary
of that Net Income is not at the date of determination permitted without any
prior governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its stockholders, (iii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded and (iv) the cumulative effect of
a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as
of any date, the sum of (i) the consolidated equity of the equityholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person
3
<PAGE> 10
upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of this Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination,
any member of the Board who (i) was a member of such Board on the date of this
Indenture or (ii) was nominated for election or elected to such Board with the
approval of a majority of the Continuing Directors who were members of such
Board at the time of such nomination or election.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 11.02 hereof or such other address
as to which the Trustee may give notice to the Issuer.
"Credit Agent" means First Union National Bank of North
Carolina, agent for the lenders party to the New Revolving Credit Facility and
any successor agent under the New Revolving Credit Facility.
"Credit Facilities" means, with respect to the Issuer, one or
more debt facilities (including, without limitation, the New Revolving Credit
Facility) or commercial paper facilities with banks or other institutional
lenders providing for revolving credit loans, term loans, receivables or
inventory financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables or inventory) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
"Default" means any event that is or with the passage of time
or the giving of notice or both would be an Event of Default.
"Depositary" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified in Section 2.03
hereof as the Depositary with respect to the Notes, until a successor shall have
been appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock that, by their
terms (or by the terms of any security into which they are convertible or for
which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the Holder thereof, in whole or in part, on or prior
to the date that is 91 days after the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Offer" means the offer that shall be made by the
Issuer pursuant to the Registration Rights Agreement to exchange New Senior
Secured Notes for Senior Secured Notes.
4
<PAGE> 11
"Exchange Offer Registration Statement" means the registration
statement relating to the Exchange Offer to be filed by the Issuer pursuant to
the Registration Rights Agreement.
"Existing Indebtedness" means the Indebtedness of the Issuer
and its Subsidiaries (other than Indebtedness under the New Revolving Credit
Facility) in existence on the date hereof, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any
period, the sum of (i) the consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations) and (ii) the consolidated interest expense of such
Person and its Subsidiaries that was capitalized during such period, and (iii)
any interest expense on Indebtedness of another Person that is Guaranteed by
such Person or one of its Subsidiaries or secured by a Lien on assets of such
Person or one of its Subsidiaries (whether or not such Guarantee or Lien is
called upon) and (iv) the product of (a) all cash dividend payments (and
non-cash dividend payments in the case of a Person that is a Subsidiary) on any
series of preferred stock of such Person, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person
for any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the Issuer or any of its Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Issuer or any of its Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow shall be
calculated without regard to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, and (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of the
referent Person or any of its Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public
5
<PAGE> 12
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as have been
approved by a significant segment of the accounting profession, which are in
effect as of the date hereof.
"Global Note" means a Note that contains the paragraph
referred to in footnote 1 and the additional schedule referred to in footnote 2
to the form of the Note attached hereto as Exhibit A.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States is
pledged.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Guarantor" means any Subsidiary that executes a Subsidiary
Guarantee and its successors and assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest or currency exchange rate swap
agreements, interest or currency exchange rate cap agreements and interest or
currency exchange rate collar agreements and (ii) other agreements or
arrangements, in any case, designed to protect such Person against fluctuations
in interest or currency exchange rates and not entered into for speculative
purposes.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether or
not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Investments" means, with respect to any Person, any
investments by such Person in other Persons (including Affiliates) in the form
of a direct or indirect loans (including any guarantee of Indebtedness or other
obligation), any advance or capital contribution (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities together with all items that are or would
be classified as an investment on a balance sheet prepared in accordance with
GAAP; provided that an acquisition of assets, Equity Interests or other
securities by the Issuer for consideration consisting of common equity
securities of the Issuer shall not be deemed to be an Investment. If the
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<PAGE> 13
Issuer or any Subsidiary of the Issuer sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of the Issuer such that, after
giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of the Issuer, the Issuer shall be deemed to have made an Investment
on the date of any such sale or disposition equal to the fair market value of
the Equity Interests of such Subsidiary not sold or disposed of.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidated Damages" means all liquidated damages then owing
pursuant to Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions) or
(b) the disposition of any securities by such Person or any of its Subsidiaries
or the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries and (ii) any extraordinary gain (but not loss) or any gain (but not
loss) realized in connection with an Asset Sale, together with any related
provision for taxes on such gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by
the Issuer or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Senior Term Debt or Senior Revolving Debt) secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"New Revolving Credit Facility" means that certain New
Revolving Credit Facility, dated as of October 1, 1996, by and among the Issuer,
Felchar Manufacturing Corporation ("Felchar") and First Union National Bank of
North Carolina as a lender and as the Credit Agent, providing for revolving
credit borrowings, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, replaced, increased or
refinanced from time to time.
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<PAGE> 14
"New Senior Secured Notes" means the 10 5/8% Senior Secured
Notes due 2003 of the Issuer to be issued pursuant to the Exchange Offer.
"Note Custodian" means the Trustee, as custodian with respect
to the Notes in global form, or any successor entity thereto.
"Notes" means, collectively, the Senior Secured Notes and the
New Senior Secured Notes issued in exchange thereof.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the Offering of the Notes by the Issuer.
"Officer" means, (a) with respect to any Person that is a
corporation, the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Operating Officer, the Chief Financial Officer, the
Treasurer, any Assistant Treasurer, the Controller, the Secretary or any
Vice-President of such Person and (b) with respect to any other Person, the
individuals selected by the Board of such Person to perform functions similar to
those of the officers listed in clause (a).
"Officers' Certificate" means a certificate signed on behalf
of the Issuer by two Officers of the Issuer, one of whom must be the Chief
Executive Officer, the Chief Financial Officer, the Treasurer or the principal
accounting officer of the Issuer that meets the requirements of Section 11.05
hereof.
"Opinion of Counsel" means an opinion from legal counsel who
is reasonably acceptable to the Trustee, that meets the requirements of Section
11.05 hereof. The counsel may be an employee of or counsel to the Issuer, any
Subsidiary of the Issuer or the Trustee.
"Permitted Business" means the sale of wet/dry vacuums,
floor-care or cleaning products, or any similar products or any other business
ancillary or reasonably related thereto.
"Permitted Investments" means (i) any Investment in the Issuer
or in a Wholly Owned Subsidiary of the Issuer that is evidenced by Capital Stock
or Subsidiary Intercompany Notes (ii) any Investment in Cash Equivalents; (iii)
any Investment by the Issuer or any Subsidiary of the Issuer in a Person that is
evidenced by Capital Stock or Subsidiary Intercompany Notes, if as a result of
such Investment (A) such Person becomes a Wholly Owned Subsidiary of the Issuer
or (B) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Issuer or a Wholly Owned Subsidiary of the Issuer and that is engaged in the
same or a similar line of business as the Issuer and its Subsidiaries were
engaged in on the date of the Indenture; (iv) any Restricted Investment made as
a result of the receipt of non-cash consideration from an Asset Sale that was
made pursuant to and in compliance with Section 4.10 hereof; (v) any Investment
acquired by the Issuer or any of its Subsidiaries (A) in exchange for any other
Investment or accounts receivable held by the Issuer or any such Subsidiary in
connection with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or accounts receivable
or (B) as a result of a foreclosure by the Issuer or any of its Subsidiaries
with respect to any secured Investment or other transfer of title with respect
to any secured Investment in default; (vi) Hedging Obligations; and (vii)
additional Investments having an aggregate fair market value, taken together
with
8
<PAGE> 15
all other Investments made pursuant to this clause (vii) that are at that time
outstanding, not to exceed $0.5 million (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value).
"Permitted Liens" means (i) Liens on the Collateral created by
the Pledge Agreement, (ii) Liens on the Issuer's and Felchar's receivables and
inventory, and the proceeds from the disposition thereof, securing the
borrowings or letters of credit under the New Revolving Credit Facilities; (iii)
Liens in favor of the Issuer; (iv) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Issuer or any
Subsidiary of the Issuer; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Issuer; (v) Liens on property existing at the time of acquisition thereof by the
Issuer or any Subsidiary of the Issuer, provided that such Liens were in
existence prior to the contemplation of such acquisition; (vi) Liens to secure
the performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (vii) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (iv) of the second paragraph of Section 4.09
covering only the assets acquired with such Indebtedness; (viii) Liens existing
on the date hereof; (ix) Liens on the assets of the Issuer's Subsidiaries
securing Indebtedness of such Subsidiaries that are permitted by the terms
herein to be incurred; (x) Liens for taxes, assessments or governmental charges
or claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; and (xi) Liens incurred in
the ordinary course of business of the Issuer or any Subsidiary of the Issuer
with respect to obligations that do not exceed $1.0 million at any one time
outstanding.
"Permitted Refinancing Debt" means any Indebtedness of the
Issuer or any of its Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Issuer or any of its Subsidiaries; provided that: (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Debt does not exceed the principal amount (or accreted value, if
applicable) of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred in
connection therewith); (ii) such Permitted Refinancing Debt has a final maturity
date later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Debt has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Notes on terms
at least as favorable to the Holders of the Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Issuer or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).
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<PAGE> 16
"Pledge Agreement" means the Pledge Agreement dated as of the
date hereof, made by Jonathan Miller, Matthew Miller, the Jonathan Miller Family
Limited Partnership, the Matthew Miller Family Limited Partnership and the
Matthew Miller 1984 Children's Trust in favor of Marine Midland Bank, as
collateral agent.
"Pledgors" means the signatories to the Pledge Agreement.
"Principals" means Jonathan Miller and Matthew Miller.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of October 1, 1996, by and among the Issuer and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time.
"Related Party" with respect to any Principal means (i) any
controlling stockholder, 80% (or more) owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Principal or the estate of
such Principal during any period in which such estate holds Equity Interests for
the benefit of such Principal's spouse or child or (ii) trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding an 80% or more controlling interest of which
consist of such Principal and/or such other Persons referred to in the
immediately preceding clause (i).
"Responsible Officer," when used with respect to the Trustee,
means any officer within the Corporate Trust Administration department of the
Trustee (or any successor group of the Trustee) or any other officer of the
Trustee customarily performing functions similar to those performed by any of
the above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Secured Notes" means the Issuer's 10 5/8% Senior
Secured Notes due 2003 issued pursuant to this Indenture.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person
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<PAGE> 17
or (b) the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means any Guarantee executed by a
subsidiary in accordance with the provisions of this Indenture.
"Subsidiary Intercompany Notes" means the intercompany notes
issued by Subsidiaries of the Issuer in favor of the Issuer to evidence advances
by the Issuer, in each case in the form attached as Exhibit E hereto, which
notes shall not be junior to any other unsecured indebtedness of such
Subsidiary.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA.
"Transfer Restricted Securities" means securities that bear or
are required to bear the legend set forth in Section 2.06 hereof.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person, except
that, with respect to Goblin France, at least 95% of the outstanding Capital
Stock or other ownership interests thereof shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
<S> <C>
"Affiliate Transaction"........................................ 4.12
"Asset Sale Offer"............................................. 3.09
"Change of Control Offer"...................................... 4.16
"Change of Control Payment".................................... 4.16
"Change of Control Payment Date"............................... 4.16
"Covenant Defeasance".......................................... 8.03
"Event of Default"............................................. 6.01
"Excess Proceeds".............................................. 4.10
"incur"........................................................ 4.09
"Independent Director"......................................... 4.11
"Legal Defeasance" ............................................ 8.02
</TABLE>
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<PAGE> 18
<TABLE>
<S> <C>
"Offer Amount"................................................. 3.09
"Offer Period"................................................. 3.09
"Paying Agent"................................................. 2.03
"Purchase Date"................................................ 3.09
"Registrar".................................................... 2.03
"Restricted Payments".......................................... 4.07
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes and the Subsidiary Guarantees, if any, means
the Issuer and the Guarantors, if any, and any successor obligor upon the Notes
and such Subsidiary Guarantees.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
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<PAGE> 19
(6) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement of successor sections or
rules adopted by the SEC from time to time.
ARTICLE 2
THE NOTES
SECTION 2.01. FORM AND DATING.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto. The Notes may have notations,
legends or endorsements required by law, stock exchange rule or usage. Each Note
shall be dated the date of its authentication. The Notes shall be in
denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Issuer and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
Notes issued in global form shall be substantially in the form of
Exhibit A attached hereto (including the text referred to in footnotes 1 and 2
thereto). Notes issued in certificated form shall be substantially in the form
of Exhibit A attached hereto (but without including the text referred to in
footnotes 1 and 2 thereto). Each Global Note shall represent such of the
outstanding Notes as shall be specified therein and each shall provide that it
shall represent the aggregate amount of outstanding Notes from time to time
endorsed thereon and that the aggregate amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the amount of outstanding Notes
represented thereby shall be made by the Trustee or the Note Custodian, at the
direction of the Trustee, in accordance with instructions given by the Holder
thereof as required by Section 2.06 hereof.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers of the Issuer shall sign the Notes for the Issuer by
manual or facsimile signature. The seal of the Issuer shall be reproduced on the
Notes and may be in facsimile form.
If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall, upon a written order of the Issuer signed by two
Officers, authenticate Notes for original issue up to the aggregate principal
amount stated in paragraph 4 of the Notes, plus such additional Notes as may be
issued in the Exchange Offer. The aggregate principal amount of Notes
outstanding at any time may not exceed such amount except as provided in Section
2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Issuer to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this
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<PAGE> 20
Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as an Agent to deal with the
Issuer or an Affiliate of the Issuer.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Issuer shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Issuer may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Issuer may change any
Paying Agent or Registrar without notice to any Holder. The Issuer shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Issuer fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Issuer or any
Guarantor may act as Paying Agent or Registrar.
The Issuer initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.
The Issuer initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Issuer shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Notes, and
will notify the Trustee of any default by the Issuer or any Guarantor in making
any such payment. While any such default continues, the Trustee may require a
Paying Agent to pay all money held by it to the Trustee. The Issuer at any time
may require a Paying Agent to pay all money held by it to the Trustee. Upon
payment over to the Trustee, the Paying Agent (if other than the Issuer) shall
have no further liability for the money. If the Issuer or any Guarantor acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy
or reorganization proceedings relating to the Issuer or any Guarantor, the
Trustee shall serve as Paying Agent for the Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Issuer and/or the Guarantors shall furnish to the
Trustee at least seven Business Days before each interest payment date and at
such other times as the Trustee may request in writing, a list in such form and
as of such date as the Trustee may reasonably require of the names and addresses
of the Holders of Notes and the Issuer and the Guarantors, if any, shall
otherwise comply with TIA Section 312(a).
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<PAGE> 21
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Certificated Notes. When Certificated
Notes are presented by a Holder to the Registrar with a request:
(x) to register the transfer of the Certificated Notes; or
(y) to exchange such Certificated Notes for an equal
principal amount of Certificated Notes of other
authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Certificated Notes presented or surrendered for register of transfer or
exchange:
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the
Registrar duly executed by such Holder or by his
attorney, duly authorized in writing; and
(ii) in the case of a Certificated Note that is a Transfer
Restricted Security, such request shall be
accompanied by the following additional information
and documents, as applicable (all of which may be
submitted by facsimile):
(A) if such Transfer Restricted Security is being
delivered to the Registrar by a Holder for
registration in the name of such Holder, without
transfer, a certification to that effect from
such Holder (in substantially the form of
Exhibit B hereto); or
(B) if such Transfer Restricted Security is being
transferred (i) to a "qualified institutional
buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A
under the Securities Act, (ii) pursuant to an
exemption from registration in accordance with
Rule 904 under the Securities Act or (iii)
pursuant to an effective registration statement
under the Securities Act, a certification to
that effect from such Holder (in substantially
the form of Exhibit B hereto); or
(C) if such Transfer Restricted Security is being
transferred (i) pursuant to an exemption from
registration in accordance with Rule 144 under
the Securities Act or (ii) in reliance on
another exemption from the registration
requirements of the Securities Act, a
certification to that effect from such Holder
(in substantially the form of Exhibit B hereto)
and an Opinion of Counsel from such Holder or
the transferee reasonably acceptable to the
Issuer and to the Registrar to the effect that
such transfer is in compliance with the
Securities Act.
(b) Transfer of a Certificated Note for a Beneficial Interest in a
Global Note. A Certificated Note may not be exchanged for a beneficial interest
in a Global Note except upon satisfaction of the requirements set forth below.
Upon receipt by the Trustee of a Certificated Note, duly endorsed or accompanied
by appropriate instruments of transfer, in form satisfactory to the Trustee,
together with:
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<PAGE> 22
(i) if such Certificated Note is a Transfer Restricted Security, a
certification from the Holder thereof (in substantially the form
of Exhibit B hereto) to the effect that such Certificated Note
is being transferred by such Holder to a "qualified
institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the
Securities Act; and
(ii) whether or not such Certificated Note is a Transfer Restricted
Security, written instructions from the Holder thereof directing
the Trustee to make, or to direct the Note Custodian to make, an
endorsement on the Global Note to reflect an increase in the
aggregate principal amount of the Notes represented by the
Global Note,
in which case the Trustee shall cancel such Certificated Note in accordance with
Section 2.11 hereof and cause, or direct the Note Custodian to cause, in
accordance with the standing instructions and procedures existing between the
Depositary and the Note Custodian, the aggregate principal amount of Notes
represented by the Global Note to be increased accordingly. If no Global Notes
are then outstanding, the Issuer shall issue and, upon receipt of an
authentication order in accordance with Section 2.02 hereof, the Trustee shall
authenticate a new Global Note in the appropriate principal amount.
(c) Transfer and Exchange of Global Notes. The transfer and exchange
of Global Notes or beneficial interests therein shall be effected through the
Depositary, in accordance with this Indenture and the procedures of the
Depositary therefor, which shall include restrictions on transfer comparable to
those set forth herein to the extent required by the Securities Act.
(d) Transfer of a Beneficial Interest in a Global Note for a
Certificated Note.
(i) Any Person having a beneficial interest in a Global Note
may upon request exchange such beneficial interest for a
Certificated Note. Upon receipt by the Trustee of written
instructions or such other form of instructions as is
customary for the Depositary, from the Depositary or its
nominee on behalf of any Person having a beneficial
interest in a Global Note, and, in the case of a Transfer
Restricted Security, the following additional information
and documents, as applicable (all of which may be
submitted by facsimile):
(A) if such beneficial interest is being transferred
to the Person designated by the Depositary as
being the beneficial owner, a certification to
that effect from such Person (in substantially
the form of Exhibit B hereto); or
(B) if such beneficial interest is being transferred
(i) to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act)
in accordance with Rule 144A under the
Securities Act, (ii) pursuant to an exemption
from registration in accordance with Rule 904
under the Securities Act or (iii) pursuant to an
effective registration statement under the
Securities Act, a certification to that effect
from the transferor (in substantially the form
of Exhibit B hereto); or
(C) if such beneficial interest is being transferred
(i) pursuant to an exemption from registration
in accordance with Rule 144 under the Securities
Act or (ii) in reliance on another exemption
from the registration requirements of the
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<PAGE> 23
Securities Act, a certification to that effect
from the transferor (in substantially the form
of Exhibit B hereto) and an Opinion of Counsel
from the transferee or transferor reasonably
acceptable to the Issuer and to the Registrar to
the effect that such transfer is in compliance
with the Securities Act,
in which case the Trustee or the Note Custodian, at the
direction of the Trustee, shall, in accordance with the
standing instructions and procedures existing between the
Depositary and the Note Custodian, cause the aggregate
principal amount of Global Notes to be reduced accordingly
and, following such reduction, the Issuer shall execute
and, upon receipt of an authentication order in accordance
with Section 2.02 hereof, the Trustee shall authenticate
and deliver to the transferee a Certificated Note in the
appropriate principal amount.
(ii) Certificated Notes issued in exchange for a beneficial
interest in a Global Note pursuant to this Section 2.06(d)
shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions
from its direct or indirect participants or otherwise,
shall instruct the Trustee. The Trustee shall deliver such
Certificated Notes to the Persons in whose names such
Notes are so registered.
(e) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provision of this Indenture (other than the provisions
set forth in subsection (f) of this Section 2.06), a Global Note may not be
transferred as a whole (other than to the Issuer in the Exchange Offer) except
by the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor Depositary or a nominee of such
successor Depositary.
(f) Authentication of Certificated Notes in Absence of Depositary.
If at any time:
(i) the Depositary for the Notes notifies the Issuer that the
Depositary is unwilling or unable to continue as
Depositary for the Global Notes and a successor Depositary
for the Global Notes is not appointed by the Issuer within
90 days after delivery of such notice; or
(ii) the Issuer, at its sole discretion, notifies the Trustee
in writing that it elects to cause the issuance of
Certificated Notes under this Indenture,
then the Issuer shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.02 hereof, authenticate and
deliver, Certificated Notes in an aggregate principal amount equal to the
principal amount of the Global Notes in exchange for such Global Notes.
(g) Legends.
(i) Except as permitted by the following paragraphs (ii) and
(iii), each Note certificate evidencing Global Notes and
Certificated Notes (and all Notes issued in exchange
therefor or substitution thereof) shall bear legends in
substantially the following form:
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<PAGE> 24
"THE NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED
THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A THEREUNDER. THE HOLDER OF THIS NOTE, BY ITS
ACCEPTANCE HEREOF, REPRESENTS, ACKNOWLEDGES AND AGREES FOR
THE BENEFIT OF THE ISSUER THAT: (I) IT HAS ACQUIRED A
"RESTRICTED" NOTE WHICH HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT; (II) IT WILL NOT OFFER, SELL OR OTHERWISE
TRANSFER THIS NOTE PRIOR TO THE LATER OF THE DATE WHICH IS
THREE YEARS AFTER THE DATE OF ORIGINAL ISSUANCE HEREOF AND
THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE
ISSUER WAS THE OWNER OF SUCH RESTRICTED NOTE (OR ANY
PREDECESSOR) EXCEPT (A) TO THE ISSUER, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS NOTE IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHO
THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144A, (D) OUTSIDE THE UNITED STATES IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY APPLICABLE JURISDICTION; AND (III) IT WILL,
AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THIS NOTE OF THE RESALE RESTRICTIONS
SET FORTH IN (II) ABOVE, ANY OFFER, SALE OR OTHER
DISPOSITION PURSUANT TO THE FOREGOING CLAUSES (II)(D) AND
(E) IS SUBJECT TO THE RIGHT OF THE ISSUER OF THIS NOTE AND
THE TRUSTEE FOR SUCH NOTES TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATIONS OR OTHER INFORMATION
ACCEPTABLE TO THEM IN FORM AND SUBSTANCE."
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security
represented by a Global Note) pursuant to Rule 144 under
the Securities Act or pursuant to an effective
registration statement under the Securities Act:
(A) in the case of any Transfer Restricted Security that
is a Certificated Note, the Registrar shall permit
the Holder thereof to exchange such Transfer
Restricted Security for a Certificated Note that does
not bear the legend set forth in (i) above and
rescind any restriction on the transfer of such
Transfer Restricted Security; and
(B) in the case of any Transfer Restricted Security
represented by a Global Note, such Transfer
Restricted Security shall not be required to bear the
legend set forth in (i) above, but shall continue to
be subject to the provisions of Section 2.06(c)
hereof; provided, however, that with respect to any
request for an exchange of a Transfer Restricted
Security that is represented by a Global Note for a
Certificated Note that does not bear the legend set
forth in (i) above, which request is made in reliance
upon Rule 144, the Holder thereof shall certify in
writing to the Registrar that such request is being
made
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<PAGE> 25
pursuant to Rule 144 (such certification to be
substantially in the form of Exhibit B hereto).
(iii) Notwithstanding the foregoing, upon consummation of the
Exchange Offer, the Issuer shall issue and, upon receipt
of an authentication order in accordance with Section 2.02
hereof, the Trustee shall authenticate New Senior Secured
Notes in exchange for Senior Secured Notes accepted for
exchange in the Exchange Offer, which New Senior Secured
Notes shall not bear the legend set forth in (i) above,
and the Registrar shall rescind any restriction on the
transfer of such Notes, in each case unless the Holder of
such Senior Secured Notes is either (A) a broker-dealer,
(B) a Person participating in the distribution of the
Senior Secured Notes or (C) a Person who is an affiliate
(as defined in Rule 144A) of the Issuer.
(h) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in Global Notes have been exchanged for Certificated
Notes, redeemed, repurchased or cancelled, all Global Notes shall be returned to
or retained and cancelled by the Trustee in accordance with Section 2.11 hereof.
At any time prior to such cancellation, if any beneficial interest in a Global
Note is exchanged for Certificated Notes, redeemed, repurchased or cancelled,
the principal amount of Notes represented by such Global Note shall be reduced
accordingly and an endorsement shall be made on such Global Note, by the Trustee
or the Note Custodian, at the direction of the Trustee, to reflect such
reduction.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges,
the Issuer shall execute and the Trustee shall
authenticate Certificated Notes and Global Notes at
the Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Issuer
may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer
taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 3.07, 4.10,
4.16 and 9.05 hereto).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for
redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part.
(iv) All Certificated Notes and Global Notes issued upon
any registration of transfer or exchange of
Certificated Notes or Global Notes shall be the valid
obligations of the Issuer and the Guarantors, if any,
evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Certificated
Notes or Global Notes surrendered upon such
registration of transfer or exchange.
(v) The Issuer shall not be required:
(A) to issue, to register the transfer of or to
exchange Notes during a period beginning at the
opening of business 15 days before the day of
any selection of Notes for redemption under
Section 3.02 hereof and ending at the close of
business on the day of selection; or
(B) to register the transfer of or to exchange any
Note so selected for redemption in whole or in
part, except the unredeemed portion of any Note
being redeemed in part.
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<PAGE> 26
(vi) Prior to due presentment for the registration of a
transfer of any Note, the Trustee, any Agent and the
Issuer may deem and treat the Person in whose name
any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of
principal of and interest on such Notes, and neither
the Trustee, any Agent nor the Issuer shall be
affected by notice to the contrary.
(vii) The Trustee shall authenticate Certificated Notes and
Global Notes in accordance with the provisions of
Section 2.02 hereof.
SECTION 2.07. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee or the Issuer or
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Issuer shall issue and the Trustee, upon the written
order of the Issuer signed by two Officers of the Issuer, shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Issuer, an indemnity bond must be supplied by the Holder that is
sufficient in the judgment of the Trustee and the Issuer to protect the Issuer,
the Trustee, any Agent and any authenticating agent from any loss that any of
them may suffer if a Note is replaced. The Issuer and the Trustee may charge for
their expenses in replacing a Note.
Every replacement Note is an additional obligation of the Issuer and
the Guarantors, if any, and shall be entitled to all of the benefits of this
Indenture equally and proportionately with all other Notes duly issued
hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Issuer or an Affiliate of the
Issuer holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Issuer, a Subsidiary or an
Affiliate thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver or consent, Notes owned by the
Issuer or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Issuer, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that a Trustee knows are so owned shall be so disregarded. The Issuer
agrees to notify the Trustee of the existence of any Notes owned by the Issuer
or any of its Subsidiaries.
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<PAGE> 27
SECTION 2.10. TEMPORARY NOTES.
Until Certificated Notes are ready for delivery, the Issuer may
prepare and the Trustee shall authenticate temporary Notes upon a written order
of the Issuer signed by two Officers of the Issuer. Temporary Notes shall be
substantially in the form of Certificated Notes but may have variations that the
Issuer considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Issuer shall prepare
and the Trustee shall authenticate Certificated Notes in exchange for temporary
Notes.
Holders of temporary Notes shall be entitled to all of the benefits of this
Indenture.
SECTION 2.11. CANCELLATION.
The Issuer at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all cancelled Notes shall be delivered
to the Issuer. The Issuer may not issue new Notes to replace Notes that have
been paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Issuer defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Issuer shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Issuer shall fix or cause to be fixed each
such special record date and payment date, provided that no such special record
date shall be less than 10 days prior to the related payment date for such
defaulted interest. At least 15 days before the special record date, the Issuer
(or, upon the written request of the Issuer, the Trustee in the name and at the
expense of the Issuer) shall mail or cause to be mailed to Holders a notice that
states the special record date, the related payment date and the amount of such
interest to be paid.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Issuer elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed and (iv) the redemption price.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed among the Holders of the Notes in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not so listed, on a
pro rata basis, by lot or in accordance with any other method the Trustee
considers fair and appropriate. In the event of partial redemption by lot, the
particular Notes to be redeemed shall be selected, unless otherwise provided
herein, not less than 30 nor more than 60 days prior to the redemption date by
the Trustee from the outstanding Notes not previously called for redemption.
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<PAGE> 28
The Trustee shall promptly notify the Issuer in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30 days
but not more than 60 days before a redemption date, the Issuer shall mail or
cause to be mailed, by first class mail, a notice of redemption to each Holder
whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Issuer defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Issuer's request, the Trustee shall give the notice of
redemption in the Issuer's name and at its expense; provided, however, that the
Issuer shall have delivered to the Trustee, at least 10 days prior to the date
on which such notice is to be given by the Trustee, an Officers' Certificate
requesting that the Trustee give such notice and setting forth the information
to be stated in such notice as provided in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
One Business Day prior to the redemption date, the Issuer shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest and Liquidated Damages, if any, on all
22
<PAGE> 29
Notes to be redeemed on that date. The Trustee or the Paying Agent shall
promptly return to the Issuer any money deposited with the Trustee or the Paying
Agent by the Issuer in excess of the amounts necessary to pay the redemption
price of, and accrued interest and Liquidated Damages, if any, on, all Notes to
be redeemed, if so requested by the Issuer.
If the Issuer complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Issuer to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Issuer shall
issue and, upon the Issuer's written request, the Trustee shall authenticate for
the Holder at the expense of the Issuer a new Note equal in principal amount to
the unredeemed portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) The Issuer shall have the option to redeem the Notes, in whole or
in part, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the applicable redemption date, if redeemed during the twelve-month
period beginning on September 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2000....................................... 105.313%
2001....................................... 102.656%
2002 and thereafter........................ 100.000%
</TABLE>
(b) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 4.10 and 4.16 hereof, the Issuer
shall not be required to make mandatory redemption payments with respect to the
Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Issuer shall
be required to commence an offer to all Holders to purchase Notes (an "Asset
Sale Offer"), they shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Issuer shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if
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<PAGE> 30
less than the Offer Amount has been tendered, all Notes tendered in response to
the Asset Sale Offer. Payment for any Notes so purchased shall be made in the
same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Issuer shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale
Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Issuer defaults in making such payment, any
Note accepted for payment pursuant to the Asset Sale Offer shall cease to
accrue interest after the Purchase Date;
(e) that Holders electing to have only a portion of their Notes
purchased pursuant to an Asset Sale Offer must specify that portion of
such Notes that are to be purchased (in integral multiples of $1,000);
(f) that Holders electing to have a Note purchased pursuant to
any Asset Sale Offer shall be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Note completed, or transfer by book-entry transfer, to the Issuer, a
depositary, if appointed by the Issuer, or a Paying Agent at the address
specified in the notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if
the Issuer, the depositary or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Note the Holder delivered for purchase
and a statement that such Holder is withdrawing his election to have such
Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered
by Holders exceeds the Offer Amount, the Issuer shall select the Notes to
be purchased in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the
Notes are not so listed, on a pro rata basis (with such adjustments as may
be deemed appropriate by the Issuer so that only Notes with denominations
of $1,000, or integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall
be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Issuer shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Issuer in accordance
with the terms of this Section 3.09. The Issuer, the Depositary or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering
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<PAGE> 31
Holder an amount equal to the purchase price of the Notes tendered by such
Holder and accepted by the Issuer for purchase, and the Issuer shall promptly
issue a new Note, and the Trustee, upon written request from the Issuer shall
authenticate and mail or deliver such new Note to such Holder, in a principal
amount equal to any unpurchased portion of the Note surrendered. Any Note not so
accepted shall be promptly mailed or delivered by the Issuer to the Holder
thereof. The Issuer shall publicly announce the results of the Asset Sale Offer
on the Purchase Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Issuer shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Issuer, holds as of 10:00 a.m.
Eastern Time on the due date money deposited by the Issuer in immediately
available funds and designated for and sufficient to pay all principal, premium,
if any, and interest then due. The Issuer shall pay all Liquidated Damages, if
any, in the same manner on the dates and in the amounts set forth in the
Registration Rights Agreement and the Trustee shall be entitled to the rights
and protections of this Indenture with respect to any Liquidation Damages which
are deposited with the Trustee.
The Issuer shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 2% per annum in excess of the then applicable interest rate on the Notes to
the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) at the same
rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Issuer shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Issuer in respect of the Notes and this Indenture may be
served. The Issuer shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Issuer shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Issuer may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Issuer of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Issuer shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Issuer hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Issuer in accordance with Section
2.03. The Trustee may resign such agency at any time by giving written notice to
the Issuer no later than 30 days prior to the effective date of such
resignation.
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SECTION 4.03. REPORTS.
Whether or not required by the rules and regulations of the
Securities and Exchange Commission (the "Commission"), so long as any Senior
Secured Notes are outstanding, the Issuer will furnish to the Holders of such
Senior Secured Notes (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Issuer were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Issuer's certified independent public accountants and (ii) all current
reports that would be required to be filed with the Commission on Form 8-K if
the Issuer were required to file such reports. In addition, whether or not
required by the rules and regulations of the Commission, following consummation
of the Exchange Offer, the Issuer will file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, for so long as any
Senior Secured Notes remain outstanding, the Issuer will furnish to the Holders
and to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Issuer shall deliver to the Trustee, within 90 days after the
end of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Issuer and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Issuer has kept, observed, performed and fulfilled its
obligations under this Indenture and whether the Pledgors have kept, observed,
performed and fulfilled their obligations under the Pledge Agreement, as
applicable, and further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge the Issuer has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and the Pledgors have kept, observed, performed and fulfilled each and
every covenant contained in the Pledge Agreement and the Issuer is not in
default in the performance or observance of any of the terms, provisions and
conditions of this Indenture and the Pledgors are not in default in the
performance or observance of any of the terms, provisions and conditions of the
Pledge Agreement (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which he or she may have
knowledge and what action the Issuer is taking or proposes to take with respect
thereto) and that to the best of his or her knowledge no event has occurred and
remains in existence by reason of which payments on account of the principal of
or interest, if any, on the Notes is prohibited or if such event has occurred, a
description of the event and what action the Issuer is taking or proposes to
take with respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Issuer's independent public accountants (who shall be a
firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Issuer has violated any
provisions of Article Four or Article Five hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Issuer shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer of the Issuer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Issuer is taking or proposes to
take with respect thereto.
SECTION 4.05. TAXES.
The Issuer shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate
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proceedings or where the failure to effect such payment is not adverse in any
material respect to the Holders of the Notes.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Issuer covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Issuer shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly: (i) declare or pay any dividend or make any payment
or distribution on account of the Issuer's Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation involving
the Issuer) or to the direct or indirect holders of the Issuer's Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Issuer); (ii)
purchase, redeem or otherwise acquire or retire for value any Equity Interests
of the Issuer or any Affiliate of the Issuer (other than any such Equity
Interests owned by the Issuer or any Wholly Owned Subsidiary of the Issuer);
(iii) make any principal payment on, or purchase, redeem, defease or otherwise
acquire or retire for value any Indebtedness that is subordinated to the Notes;
or (iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Issuer would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first paragraph
of Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Issuer and its Subsidiaries after the date
hereof (excluding Restricted Payments permitted by clauses (ii) and (iii)
of the next succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income of the Issuer for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the date hereof to the end of the Issuer's most recently
ended fiscal quarter for which internal financial statements are available
at the time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, less 100% of such deficit), plus (ii)
100% of the aggregate net cash proceeds received by the Issuer from the
issue or sale since the date hereof of Equity Interests of the Issuer or
of Disqualified Stock or debt securities of the Issuer that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Issuer and other than Disqualified Stock or debt securities that have
been converted into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after the date hereof is sold for cash
or otherwise liquidated or repaid for cash, the lesser of (A) the cash
return of capital with respect to such Restricted Investment (less the
cost of disposition, if any) and (B) the initial amount of such Restricted
Investment, plus (iv) $500,000.
The foregoing provisions shall not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
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Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Issuer or any Indebtedness that is subordinated to
the Notes in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Issuer) of other Equity
Interests of the Issuer (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition shall be excluded from clause (c)
(ii) of the preceding paragraph; and (iii) the defeasance, redemption or
repurchase of subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Debt or the substantially concurrent sale
(other than to a Subsidiary of the Issuer) of Equity Interests of the Issuer
(other than Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (c) (ii) of the preceding
paragraph.
The amount of all Restricted Payments (other than cash) shall be the
fair market value (evidenced by a resolution of the Board set forth in an
Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Issuer or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment, the Issuer shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this Section 4.07 were computed, which calculations may be based upon the
Issuer's latest available financial statements.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Issuer shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Subsidiary
to (i)(A) pay dividends or make any other distributions to the Issuer or any of
its Subsidiaries (1) on its Capital Stock or (2) with respect to any other
interest or participation in, or measured by, its profits, or (B) pay any
Indebtedness owed to the Issuer or any of its Subsidiaries, (ii) make loans or
advances to the Issuer or any of its Subsidiaries or (iii) transfer any of its
properties or assets to the Issuer or any of its Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (A) Existing
Indebtedness and the New Revolving Credit Facilities as in effect on the date
hereof, (B) applicable law, (C) any instrument governing Indebtedness or Capital
Stock of a Person acquired by the Issuer or any of its Subsidiaries as in effect
at the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of this Indenture to be incurred, (D) by
reason of restrictions imposed by Permitted Liens on the transfer of the assets
that are subject to such Liens, (E) by reason of customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (F) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired or (G)
Permitted Refinancing Debt, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Debt are no more restrictive
than those contained in the agreements governing the Indebtedness being
refinanced.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Issuer shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and that the
Issuer will not issue any Disqualified Stock and will not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that the
Issuer may incur Indebtedness (including Acquired Debt) if the Fixed Charge
Coverage Ratio for the Issuer's most recently ended four full fiscal quarters
for which internal financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred would have been at least
(i) 2.0 to 1.0 in the case of Indebtedness incurred prior to September 1, 1998
and (ii) 2.25 to 1.0 in the case of Indebtedness incurred thereafter,
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in each case determined on a pro forma basis (including a pro forma application
of the net proceeds therefrom), as if the additional Indebtedness had been
incurred at the beginning of such four-quarter period.
The foregoing provisions will not apply to:
(i) the incurrence by the Issuer and Felchar of Indebtedness and
letters of credit pursuant to one or more Credit Facilities (with letters of
credit being deemed to have a principal amount equal to the maximum potential
liability of the Issuer thereunder) in an aggregate principal amount not to
exceed $25 million at any one time outstanding, less any amounts applied to
permanently reduce borrowings under Credit Facilities pursuant to Section 4.10
hereof;
(ii) the incurrence by the Issuer and its Subsidiaries of the Existing
Indebtedness;
(iii) the incurrence by the Issuer of Indebtedness represented by the
Notes;
(iv) the incurrence by the Issuer or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case incurred for the purpose of financing
all or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Issuer or such
Subsidiary, in an aggregate principal amount not to exceed $5.0 million at any
time outstanding;
(v) the incurrence by the Issuer or any of its Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund, Indebtedness that
was permitted by this Indenture to be incurred;
(vi) the incurrence by the Issuer or any of its Subsidiaries of
intercompany Indebtedness between or among the Issuer and any of its Wholly
Owned Subsidiaries; provided, however, that (i) if the Issuer is the obligor on
such Indebtedness, such Indebtedness is expressly subordinate to the payment in
full of all Obligations with respect to the Notes and (ii)(A) any subsequent
issuance or transfer of Equity Interests that results in any such Indebtedness
being held by a Person other than the Issuer or a Wholly Owned Subsidiary and
(B) any sale or other transfer of any such Indebtedness to a Person that is not
either the Issuer or a Wholly Owned Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Issuer or such Subsidiary,
as the case may be;
(vii) the incurrence by the Issuer or any of its Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging interest rate
risk with respect to any Indebtedness that is permitted by the terms of this
Indenture to be outstanding or currency exchange rate risk; and
(viii) the incurrence by the Issuer or any of its Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause of this
paragraph) in an aggregate principal amount (or accreted value, as applicable)
at any time outstanding not to exceed $10.0 million.
SECTION 4.10. ASSET SALES.
The Issuer shall not, and shall not permit any of its Subsidiaries
to, engage in an Asset Sale unless (i) the Issuer (or the Subsidiary, as the
case may be) receives consideration at the time of such Asset Sale at least
equal to the fair market value (evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee) of the
assets or Equity Interests issued or sold or otherwise disposed of and (ii) at
least 75% of the consideration therefor received by the Issuer or such
Subsidiary is in the form of cash; provided that the amount of (x) any
liabilities (as shown on the Issuer's or such Subsidiary's most recent balance
sheet), of the Issuer or any Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are cancelled or assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Issuer or such
Subsidiary from further liability and (y) any notes or other
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obligations received by the Issuer or any such Subsidiary from such transferee
that are immediately converted by the Issuer or such Subsidiary into cash (to
the extent of the cash received), shall be deemed to be cash for purposes of
this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, the Issuer may apply such Net Proceeds (i) to permanently reduce
borrowings under one or more Credit Facilities (and to correspondingly reduce
commitments with respect thereto), or (ii) to the acquisition of a controlling
interest in another business, the making of a capital expenditure or the
acquisition of other long-term assets, in each case, in the same line of
business as the Issuer was engaged in on the date hereof. Pending the final
application of any such Net Proceeds, the Issuer may temporarily reduce the
Credit Facilities or otherwise invest such Net Proceeds in any manner that is
not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Issuer will be required to make an offer to
all Holders of the Notes to purchase the maximum principal amount of the Notes
that may be purchased out of the Excess Proceeds, at an offer price in cash in
an amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase, in
accordance with the procedures set forth in this Indenture. To the extent that
the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Issuer may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of the Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis (with
such adjustments as may be deemed by the Issuer so that only Notes with
denominations of $1,000, or integral multiples thereof, shall be purchased).
Upon completion of such offer to purchase, the amount of Excess Proceeds shall
be reset at zero.
SECTION 4.11. INDEPENDENT DIRECTORS.
From and after 180 days after the Closing Date, so long as any of the
Notes are outstanding, the Issuer shall have at least two members of its Board
of Directors who are neither officers nor employees of the Issuer or any of its
Affiliates or immediate family members thereof (the "Independent Directors").
Any transaction requiring the approval of the majority of the Independent
Directors shall be prohibited at any time that there are not at least two
Independent Directors on the Issuer's Board of Directors. If the Issuer fails to
comply with the first sentence of this covenant, the Issuer will pay Liquidated
Damages to each Holder of Notes in an amount equal to $.50 per week per $1,000
in aggregate principal amount of Notes held by such Holder until such
Independent Directors take office; provided that, if at any time after the first
Independent Directors are appointed to the Board of Directors, the Issuer shall
fail to have at least two Independent Directors on its Board of Directors, the
Issuer shall have 90 days to cure such non-compliance before Liquidated Damages
will be assessed. In addition, on each day, after the first anniversary of the
date of this Indenture, that the Issuer fails to have two Independent Directors
on its Board of Directors for 180 days out of the preceding 360-day period, the
Issuer shall pay Liquidated Damages to each Holder of Notes in an amount equal
to $.50 per week per $1,000 in aggregate principal amount of Notes held by such
Holder. The Issuer shall not be required to pay Liquidated Damages pursuant to
this covenant in excess of $.50 per week per $1,000 of Notes.
SECTION 4.12. TRANSACTIONS WITH AFFILIATES.
The Issuer shall not, and shall not permit any of its Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that
are no less favorable to the Issuer or the relevant Subsidiary than those that
would have been obtained in a comparable transaction by the Issuer or such
Subsidiary with an unrelated Person and (ii) the Issuer delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate
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consideration in excess of $500,000, a resolution of the Board set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the Independent Directors and (b) with respect to any Affiliate
Transaction or series of related Affiliate transactions involving aggregate
consideration in excess of $2.5 million, an opinion as to the fairness to the
Holders of Notes of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing; provided that (x) any employment agreement in existence on the date
hereof and any similar agreement entered into by the Issuer or any of its
Subsidiaries involving consideration that is not materially greater than that
under any such existing employment agreement, (y) transactions between or among
the Issuer and/or its Subsidiaries and (z) Restricted Payments and Permitted
Investments that are permitted by the provisions of this Indenture, in each
case, shall not be deemed to be Affiliate Transactions.
SECTION 4.13. RESTRICTIONS ON CERTAIN CHANGE OF CONTROL PAYMENTS
If an Event of Default has occurred and is continuing, neither the
Issuer nor any of its Subsidiaries will, directly or indirectly, pay or cause to
be paid any amounts that become due or owing to Jonathan Miller or Matthew
Miller in respect of any change of control (as defined in the agreement pursuant
to which such amounts are to be paid) as a result of the exercise by the Trustee
of its rights under the Pledge Agreement, until all Obligations with respect to
the Notes have been paid in full in cash.
SECTION 4.14. LIENS.
The Issuer shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien
securing Indebtedness on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
SECTION 4.15. CONTINUED EXISTENCE.
Subject to Article 5 hereof, the Issuer shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate, partnership, limited liability company or other existence, and the
corporate, partnership, limited liability company or other existence of each of
its Subsidiaries, in accordance with the respective organizational documents (as
the same may be amended from time to time) of the Issuer or any such Subsidiary
and (ii) the rights (charter and statutory), licenses and franchises of the
Issuer and any of its Subsidiaries; provided, however, that the Issuer shall not
be required to preserve any such right, license or franchise, or the corporate,
partnership or other existence of any of its Subsidiaries, if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Issuer and its Subsidiaries, taken as a
whole, and that the loss thereof is not adverse in any material respect to the
Holders of the Notes.
SECTION 4.16. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
Upon the occurrence of a Change of Control, each Holder of Notes
shall have the right to require the Issuer to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to
the offer described below (a "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of purchase
( the "Change of Control Payment"). Within ten days following any Change of
Control, the Issuer will mail a notice to each Holder describing the transaction
or transactions that constitute the Change of Control and offering to repurchase
the Notes pursuant to the procedures required by this Indenture and described in
such notice. The Issuer will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
On a date that is at least 30 but no more than 60 days from the date
on which the Issuer mails notice of the Change of Control (the "Change of
Control Payment Date"), the Issuer will, to the extent lawful, (i) accept for
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payment all Notes or portions thereof properly tendered pursuant to the Change
of Control Offer, (ii) deposit with the Paying Agent an amount equal to the
Change of Control Payment in respect of all Notes or portions thereof so
tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the aggregate principal
amount of Notes or portions thereof being purchased by the Issuer. The Paying
Agent will promptly mail to each Holder of Notes so tendered the Change of
Control Payment for such Notes, and the Trustee will promptly authenticate and
mail (or cause to be transferred by book entry) to each Holder a new Note equal
in principal amount to any unpurchased portion of the Notes surrendered, if any;
provided that each such new Note will be in a principal amount of $1,000 or an
integral multiple thereof. The Issuer will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Issuer will not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer on
the terms, in the manner, at the times and otherwise in compliance with the
requirements set forth in this Indenture applicable to a Change of Control Offer
made by the Issuer and purchases all Senior Secured Notes validly tendered and
not withdrawn under such Change of Control Offer.
The Change of Control provisions described above shall be applicable
whether or not any other provisions of this Indenture are applicable.
SECTION 4.17. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS.
The Issuer shall not, and shall not permit any of its Subsidiaries
to, enter into any sale and leaseback transaction; provided that the Issuer may
enter into a sale and leaseback transaction if (i) the Issuer could have (A)
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 4.09 and (B) incurred a Lien to
secure such Indebtedness pursuant to Section 4.14, (ii) the gross cash proceeds
of such sale and leaseback transaction are at least equal to the fair market
value (as determined in good faith by the Board and set forth in an Officers'
Certificate delivered to the Trustee) of the property that is the subject of
such sale and leaseback transaction and (iii) the transfer of assets in such
sale and leaseback transaction is permitted by, and the Issuer applies the
proceeds of such transaction in compliance with, Section 4.10.
SECTION 4.18. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY
OWNED SUBSIDIARIES.
The Issuer (i) shall not, and shall not permit any Wholly Owned
Subsidiary of the Issuer to, transfer, convey, sell, lease or otherwise dispose
of any Capital Stock of any Wholly Owned Subsidiary of the Issuer to any Person
(other than the Issuer or a Wholly Owned Subsidiary of the Issuer), unless (a)
such transfer, conveyance, sale, lease or other disposition is of all the Equity
Interests of such Wholly Owned Subsidiary and (b) the cash Net Proceeds from
such transfer, conveyance, sale, lease or other disposition are applied in
accordance with Section 4.10 hereof and (ii) shall not permit any Wholly Owned
Subsidiary of the Issuer to issue any of its Equity Interests (other than, if
necessary, Equity Interests constituting directors' qualifying interests) to any
Person other than to the Issuer or a Wholly Owned Subsidiary of the Issuer.
SECTION 4.19. BUSINESS ACTIVITIES.
The Issuer shall not, and shall not permit any Subsidiary to, engage
in any business other than Permitted Businesses, except to such an extent as
would not be material to the Issuer and its Subsidiaries taken as a whole.
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SECTION 4.20. ADVANCES TO SUBSIDIARIES.
All advances to Subsidiaries made by the Issuer or any of its
Subsidiaries from time to time after the date hereof shall be evidenced by a
Subsidiary Intercompany Note in favor of the Issuer. A form of Subsidiary
Intercompany Note is attached hereto as Exhibit E.
SECTION 4.21. RESTRICTIONS ON PAYMENTS FOR CONSENTS.
Neither the Issuer nor any of its Subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of Notes for or as an inducement to
any consent, waiver or amendment of any of the terms or provisions of this
Indenture or the Notes unless such consideration is offered to be paid or is
paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
SECTION 4.22. LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
The Issuer shall not permit any Subsidiary, directly or indirectly,
to Guarantee or pledge any assets to secure the payment of any other
Indebtedness of the Issuer, other than Guarantees by any domestic operating
Subsidiary with respect to Indebtedness pursuant to the New Revolving Credit
Facility, unless such Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for the Guarantee of the
payment of the Notes by such Subsidiary, which Guarantee shall be senior to or
pari passu with such Subsidiary's Guarantee of or pledge to secure such other
Indebtedness. Notwithstanding the foregoing, any such Guarantee by a Subsidiary
of the Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon either (i) the release or discharge
of such Guarantee of such Indebtedness, except a discharge by or as a result of
payment under such Guarantee, or (ii) any sale, exchange or transfer, to any
Person not an Affiliate of the Issuer, of all of the Issuer's stock in, or all
or substantially all the assets of, such Subsidiary, which sale, exchange or
transfer is made in compliance with the applicable provisions of this Indenture.
The form of such Guarantee is attached as Exhibit D hereto.
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
(a) The Issuer shall not consolidate or merge with or into (whether
or not the Issuer is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions, to another corporation, Person or
entity unless (i) the Issuer is the surviving corporation or the entity or the
Person formed by or surviving any such consolidation or merger (if other than
the Issuer) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Issuer) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of the Issuer under the Notes
and this Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no Default
or Event of Default exists; and (iv) except in the case of a merger of the
Issuer with or into a Wholly Owned Subsidiary of the Issuer, the Issuer or the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Issuer), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (A) shall have Consolidated
Net Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Issuer immediately preceding the transaction and
(B) shall, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter
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period, be permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first paragraph of
Section 4.09 hereof.
(b) The Issuer shall deliver to the Trustee prior to the consummation
of the proposed transaction pursuant to the foregoing paragraph (a) an Officer's
Certificate to the foregoing effect and an Opinion of Counsel stating that the
proposed transaction and such supplemental indenture comply with this Indenture.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Issuer in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or with which the Issuer is merged or to which such
sale, assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for (so that from and after the date of such
consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Issuer" shall refer instead to
the successor corporation and not to the Issuer), and may exercise every right
and power of the Issuer under this Indenture with the same effect as if such
successor Person had been named as the Issuer herein; provided, however, that
the predecessor Issuer shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
the Issuer's assets that meets the requirements of Section 5.01 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(a) the Issuer defaults in the payment when due of interest on,
or Liquidated Damages with respect to, the Notes and such default
continues for a period of 30 days;
(b) the Issuer defaults in the payment when due of principal of
or premium, if any, on the Notes when the same becomes due and
payable at maturity, upon redemption (including in connection with an
offer to purchase) or otherwise;
(c) the Issuer fails to comply with any of the provisions of
Section 4.07, 4.09, 4.10 or 4.16 hereof;
(d) the Issuer or any Pledgor fails to comply with any of its
other agreements, or to have cured any breach of any representation
or warranty, in this Indenture, the Notes or the Pledge Agreement and
such failure continues for a period of 30 days after receipt of
notice of such failure from the Trustee or Holders of at least 25% in
aggregate principal amount of Notes then outstanding;
(e) there is a default under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the
Issuer or any of its Subsidiaries (or the payment of which is
guaranteed by the Issuer or any of its Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of
this Indenture, which default (A) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (B)
results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $2.0 million or
more;
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(f) the Issuer or any of its Subsidiaries fail to pay final
judgments aggregating in excess of $2.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days;
(g) there is a repudiation by any Pledgor of its obligations
under the Pledge Agreement, or the Pledge Agreement becomes
unenforceable against any Pledgor for any reason;
(h) the Issuer or any of the Issuer's Significant Subsidiaries
or any group of Subsidiaries that, taken as a whole, would constitute
a Significant Subsidiary pursuant to or within the meaning of
Bankruptcy Law:
(i) commences a voluntary case, or
(ii) consents to the entry of an order for relief against
it in an involuntary case, or
(iii) consents to the appointment of a Custodian of it or
for all or substantially all of its property, or
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due;
or
(i) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Issuer or any of its
Significant Subsidiaries or any group of Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary in
an involuntary case;
(ii) appoints a Custodian of the Issuer or any of its
Significant Subsidiaries or any group of Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary or
for all or substantially all of the property of the Issuer or
any of its Significant Subsidiaries or any group of Subsidiaries
that, taken as a whole, would constitute a Significant
Subsidiary; or
(iii) orders the liquidation of the Issuer or any of its
Significant Subsidiaries or any group of Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60
consecutive days; or
(j) except as otherwise permitted hereunder, any Subsidiary
Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full
force and effect or any guarantor (or its successors or assigns), or
any Person acting on behalf of any guarantor (or its successors or
assigns), shall deny or disaffirm its obligations under its
Subsidiary Guarantee;
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Issuer, any Significant Subsidiary
or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in this Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
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In the case of an Event of Default pursuant to the provisions of this
Section 6.01 occurring by reason of any willful action (or inaction) taken (or
not taken) by or on behalf of the Issuer with the intention of avoiding payment
of the premium that the Issuer would have had to pay if the Issuer then had
elected to redeem the Notes pursuant to Section 3.07 hereof, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Notes, anything in this Indenture
or in the Notes to the contrary notwithstanding. If an Event of Default occurs
prior to September 1, 2000 by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Issuer with the intention of avoiding the
prohibition on redemption of the Notes prior to September 1, 2000 pursuant to
Section 3.07 hereof, then the premium payable for purposes of this paragraph for
each of the years beginning on September 1 of the years set forth below shall be
as set forth in the following table expressed as a percentage of the amount that
would otherwise be due but for the provisions of this sentence, plus accrued
interest, if any, to the date of payment:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1996............................. 115.939%
1997 ............................ 113.282%
1998............................. 110.626%
1999 ............................ 107.969%
</TABLE>
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (g) or (h) of Section 6.01 hereof with respect to the Issuer, any
Significant Subsidiary or any group of Significant Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary) occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable immediately.
Upon any such declaration, the Notes shall become due and payable immediately.
Notwithstanding the foregoing, if an Event of Default specified in clause (g) or
(h) of Section 6.01 hereof occurs with respect to the Issuer, any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary, all outstanding Notes shall be due
and payable immediately without further action or notice. The Holders of a
majority in aggregate principal amount of the then outstanding Notes by written
notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal, interest or premium that has become due solely because of the
acceleration) have been cured or waived.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by notice to the Trustee may on behalf of the Holders
of all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium and Liquidated Damages, if any, or interest
on, the Notes (including in connection with an offer to purchase) (provided,
however, that the Holders of a majority in aggregate principal amount of the
then outstanding
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Notes may rescind an acceleration and its consequences, including any related
payment default that resulted from such acceleration). Upon any such waiver,
such Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured for every purpose of this Indenture; but no
such waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability and shall be entitled to the benefit of Section
7.01(c)(iii) hereof.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of another
Holder of a Note or to obtain a preference or priority over another Holder of a
Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Issuer for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
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The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents (including accountants,
experts or such other professionals as the Trustee deems necessary, advisable or
appropriate) and counsel (including the allocated costs of inside counsel)) and
the Holders of the Notes allowed in any judicial proceedings relative to the
Issuer or the Guarantors, if any, (or any other obligor upon the Notes), its
creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on any
such claims and any custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To
the extent that the payment of any such compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.07 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders may be entitled to receive in
such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium and Liquidated Damages, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium and Liquidated Damages, if any and
interest, respectively; and
Third: to the Issuer or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
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ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise thereof, as
a prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the TIA and the Trustee need
perform only those duties that are specifically set forth in this
Indenture and no others, and no implied covenants or obligations shall be
read into this Indenture or the TIA against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, without investigation, as to the truth of the
statements and the correctness of the opinions expressed therein, upon any
statements, certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However, the Trustee
shall examine the certificates and opinions to determine whether or not
they conform on their face to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
gross negligent action, its own gross negligent failure to act, or its own
willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section ;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to this Section
7.01.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or expense
which might be incurred by it in compliance with such request or direction.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuer. Money
held in trust by the Trustee need not be segregated from other funds except to
the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
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<PAGE> 46
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys, accountants, experts
and such other professionals as the Trustee deems necessary, advisable or
appropriate and shall not be responsible for the misconduct or negligence of any
attorney, accountant, expert or other such professional appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Issuer or any Guarantor shall be
sufficiently evidenced by a written order signed by two Officers of the Issuer
or such Guarantor issuing such demand, request, direction or notice.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Issuer, the Guarantors
or any Affiliate of the Issuer with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest within the meaning of the TIA it must eliminate such conflict within 90
days, apply to the SEC for permission to continue as trustee or resign. Any
Agent may do the same with like rights and duties. The Trustee is also subject
to Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Issuer's use of the proceeds from the Notes or any money
paid to the Issuer or upon the Issuer's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of
the Default or Event of Default within 90 days after it occurs. Except in the
case of a Default or Event of Default relating to the payment of principal of,
premium, if any, or interest on any Note, the Trustee may withhold the notice if
and so long as a committee of its Responsible Officers in good faith determines
that withholding the notice is in the interests of the Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15, beginning with the May 15,
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as
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of such reporting date that complies with TIA Section 313(a) (but if no event
described in TIA Section 313(a) has occurred within the twelve months preceding
the reporting date, no report need be transmitted). The Trustee also shall
comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail all
reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Issuer and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA Section 313(d).
The Issuer shall promptly notify the Trustee when the Notes are listed on any
stock exchange.
SECTION 7.07. COMPENSATION, REIMBURSEMENT AND INDEMNITY.
The Issuer and the Guarantors, if any, shall pay to the Trustee from
time to time reasonable compensation for its acceptance of this Indenture and
the rendering by it of the services required hereunder. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Issuer and the Guarantors, if any, shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by or on behalf of it in addition to the compensation
for its services. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's attorneys, accountants, experts and
such other professionals as the Trustee deems necessary, advisable or
appropriate.
The Issuer and the Guarantors, if any, shall indemnify the Trustee
against any and all losses, liabilities or expenses incurred by it arising out
of or in connection with the acceptance or administration of its duties under
this Indenture (including its duties under Section 9.06 hereof), including the
costs and expenses of enforcing this Indenture against the Issuer or the
Guarantors, if any, (including this Section 7.07) and defending itself against
or investigating any claim (whether asserted by the Issuer, a Guarantor or any
Holder or any other person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent any
such loss, liability or expense may be attributable to its gross negligence or
willful misconduct. The Trustee shall notify the Issuer and the Guarantors, if
any, promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Issuer or such Guarantors shall not relieve the Issuer
or such Guarantors of their obligations hereunder. The Issuer and the
Guarantors, if any, shall defend any claim or threatened claim asserted against
the Trustee, and the Trustee shall cooperate in the defense. The Trustee may
have separate counsel and the Issuer shall pay the reasonable fees and expenses
of such counsel. The Issuer and the Guarantors, if any need not pay for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
The obligations of the Issuer and the Guarantors, if any, under this
Section 7.07 shall survive the satisfaction and discharge of this Indenture.
To secure the Issuer's and the Guarantors' payment obligations in
this Section , the Trustee shall have a Lien prior to the Notes on all money or
property held or collected by the Trustee, except that held in trust to pay
principal and interest on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(h) or (i) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section 313(b)(2)
to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section .
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The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Issuer. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Issuer in writing. The Issuer may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property for the purpose of rehabilitation, conservation or liquidation;
or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuer shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Issuer.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuer, or the
Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10, such Holder of a Note may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The Issuer shall mail a notice of its succession to
Holders of the Notes. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in Section
7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Issuer's obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $50 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
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SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Issuer may, at the option of its Board of Directors evidenced by
a resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article Eight.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Issuer's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Issuer shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from their obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Issuer shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all their other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Issuer, shall execute proper instruments acknowledging
the same), except for the following provisions which shall survive until
otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive solely from the trust fund described in Section
8.04 hereof, and as more fully set forth in such Section , payments in respect
of the principal of, premium, if any, and interest and Liquidated Damages on
such Notes when such payments are due, (b) the Issuer's obligations with respect
to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and the Issuer's
obligations in connection therewith and (d) this Article Eight. Subject to
compliance with this Article Eight, the Issuer may exercise its option under
this Section 8.02 notwithstanding the prior exercise of their option under
Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Issuer's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Issuer shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.14 and 4.16 hereof with respect to the outstanding Notes on and
after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the Notes shall thereafter be deemed not
"outstanding" for the purposes of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder (it being understood that such Notes shall not be deemed outstanding
for accounting purposes). For this purpose, Covenant Defeasance means that, with
respect to the outstanding Notes, the Issuer may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 6.01 hereof, but, except as specified above, the remainder of this
Indenture and such Notes shall be unaffected thereby. In addition, upon the
Issuer's exercise under Section 8.01 hereof of the option applicable to this
Section 8.03 hereof, subject to the satisfaction of the conditions set forth in
Section 8.04 hereof, Sections 6.01(d) through 6.01(f) hereof shall not
constitute Events of Default.
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SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either Section
8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Issuer must irrevocably deposit with the Trustee,
in trust, for the benefit of the Holders, cash in United States
dollars, non-callable Government Securities without reinvestment
thereof, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if
any, and interest and Liquidated Damages on the outstanding Notes on
the stated date for payment thereof or on the applicable redemption
date, as the case may be;
(b) in the case of an election under Section 8.02 hereof,
the Issuer shall have delivered to the Trustee an Opinion of Counsel
in the United States confirming that (A) the Issuer has received
from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a
change in the applicable federal income tax law, in either case to
the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would
have been the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof,
the Issuer shall have delivered to the Trustee an Opinion of Counsel
in the United States confirming that the Holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant
Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the incurrence of Indebtedness all or
a portion of the proceeds of which will be used to defease the Notes
pursuant to this Article Eight concurrently with such incurrence) or
insofar as Sections 6.01(g) or 6.01(h) hereof is concerned, at any
time in the period ending on the 123rd day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under,
any material agreement or instrument (other than this Indenture) to
which the Issuer or any of its Subsidiaries is a party or by which
the Issuer or any of its Subsidiaries is bound;
(f) the Issuer shall have delivered to the Trustee an
Opinion of Counsel to the effect that after the 123rd day following
the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(g) the Issuer shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Issuer with the intent of preferring the Holders over any other
creditors of the Issuer, or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Issuer; and
(h) the Issuer shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that
all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
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(i) the Issuer shall have delivered to the Trustee an
Opinion of Counsel to the effect that the trust resulting from the
deposit does not constitute, or is qualified as, a regulated
investment company under the Investment Company Act of 1940.
(j) the Issuer shall pay and shall indemnify the Trustee
against any tax, fee or other charge imposed on or assessed against
deposited Government Securities or the principal and interest
received on such Government Securities.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Issuer acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.
The Issuer shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Issuer from time to time upon the request of
the Issuer any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 8.06. REPAYMENT TO ISSUER.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Issuer, in trust for the payment of the principal of, premium or
Liquidated Damages, if any, or interest on any Note and remaining unclaimed for
two years after such principal, and premium or Liquidated Damages, if any, or
interest has become due and payable shall be paid to the Issuer on its request
or (if then held by the Issuer) shall be discharged from such trust; and the
Holder of such Note shall thereafter, as a secured creditor, look only to the
Issuer for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Issuer as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Issuer cause to be published once, in the New York Times and The
Wall Street Journal (national editions), notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such notification or publication, any unclaimed balance
of such money then remaining will be repaid to the Issuer.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the obligations of the Issuer under this Indenture, the Notes
and the Pledge Agreement shall be revived and reinstated as though no deposit
had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the
Trustee or Paying
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Agent is permitted to apply all such money in accordance with Section 8.02 or
8.03 hereof, as the case may be; provided, however, that, if the Issuer makes
any payment of principal of, premium, if any, or interest on any Note following
the reinstatement of its obligations, the Issuer shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money held
by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Issuer and the
Trustee may amend or supplement this Indenture or the Notes without the consent
of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(c) to provide for the assumption of the Issuer's obligations to the
Holders of the Notes in the case of a merger or consolidation pursuant to
Article Five hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any Holder of the Note; or
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Issuer accompanied by a resolution of the
Board of Directors of the Issuer authorizing the execution of any such amended
or supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Issuer in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Issuer and the
Trustee may amend or supplement this Indenture (including Section 3.09, 4.10,
4.16 and Article 10 hereof, and including the defined terms used therein) and
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for the
Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or
Event of Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, or interest on the Notes, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of this Indenture or the Notes may be waived with the consent
of the Holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for the Notes). Without the consent of at least 662/3% in principal amount of
the Notes then outstanding (including consents obtained in connection with a
tender offer or exchange offer for such Notes), no waiver or amendment to this
Indenture may make any change in the provisions of Section 4.10, 3.09, 4.16 or
Article 10 hereof, including the defined terms used therein, that adversely
affects the rights of any Holder of Notes.
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Upon the request of the Issuer accompanied by a resolution of the
Board of Directors of the Issuer authorizing the execution of any such amended
or supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 7.02
hereof, the Trustee shall join with the Issuer in the execution of such amended
or supplemental Indenture unless such amended or supplemental Indenture affects
the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Issuer shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Issuer to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Issuer or the Guarantors, if any,
with any provision of this Indenture or the Notes. However, without the consent
of each Holder affected, an amendment or waiver may not (with respect to any
Notes held by a nonconsenting Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Note or alter or waive any of the provisions with respect to the
redemption of the Notes except as provided above with respect to
Sections 3.09, 4.10 and 4.16 hereof;
(c) reduce the rate of or change the time for payment of
interest, including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or Liquidated Damages, if any, or
interest on the Notes (except a rescission of acceleration of the
Notes by the Holders of at least a majority in aggregate principal
amount of the then outstanding Notes and a waiver of the payment
default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating
to waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of or premium or Liquidated Damages, if
any, or interest on the Notes;
(g) waive a redemption payment with respect to any Note (except
as provided above with respect to Sections 4.10 and 4.16 hereof); or
(h) make any change in the foregoing amendment and waiver
provisions.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in an amended or supplemental Indenture that complies with the TIA as
then in effect.
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SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Issuer in
exchange for all Notes (accompanied by a notation of the Subsidiary Guarantee
duly endorsed by the guarantors thereunder) may issue and the Trustee shall
authenticate new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall
not affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article Nine if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Issuer may sign an amendment or supplemental Indenture until its Board of
Directors approves it. In executing any amended or supplemental indenture, the
Trustee shall be entitled to receive an Officer's Certificate and an Opinion of
Counsel stating that (i) the execution of such amended or supplemental indenture
is authorized or permitted by this Indenture, (ii) no Event of Default shall
occur as a result of the execution of such Officer's Certificate or the delivery
of such Opinion of Counsel and (iii) the amended or supplemental indenture
complies with the terms of this Indenture.
ARTICLE 10
COLLATERAL AND SECURITY
SECTION 10.01. PLEDGE AGREEMENT.
The due and punctual payment of the principal of, premium and
Liquidated Damages, if any, and interest on the Notes when and as the same shall
be due and payable, whether on an interest payment date, at maturity, by
acceleration, repurchase, redemption or otherwise, and interest on the overdue
principal of, premium and Liquidated Damages, if any, and interest (to the
extent permitted by law), if any, on the Notes and performance of all other
obligations of the Issuer and the Guarantors, if any, to the Holders of Notes or
the Trustee under this Indenture, the Notes and the Subsidiary Guarantee, if
any, according the terms hereunder or thereunder, shall be secured as provided
in the Pledge Agreement which the Pledgors have entered into simultaneously with
the execution of this Indenture. Each Holder of Notes, by its acceptance
thereof, consents and agrees to the terms of the Pledge Agreement (including,
without limitation, the provisions providing for foreclosure and release of
Collateral) as the same may be in effect or may be amended from time to time in
accordance with its terms and authorizes and directs the Collateral Agent to
enter into the Pledge Agreement and to perform its obligations and exercise its
rights thereunder in accordance therewith. The Issuer shall cause the Pledgors
to deliver to the Trustee copies of all documents delivered to the Collateral
Agent pursuant to the Pledge Agreement, and shall cause to be done all such acts
and things as may be necessary or proper, or as may be required by the
provisions of the Pledge Agreement, to assure and confirm to the Trustee and the
Collateral Agent that the security interest in the Collateral contemplated
hereby,
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by the Pledge Agreement or any parts thereof, as from time to time constituted,
so as to render the same available for the security and benefit of this
Indenture, the Notes and Subsidiary Guarantees, if any, secured hereby,
according to the intent and purposes herein expressed. The Issuer shall cause to
be taken, upon request of the Trustee, any and all actions reasonably required
to cause the Pledge Agreement to create and maintain, as security for the
Obligations of the Issuer and the Guarantors, if any, hereunder, a valid and
enforceable perfected first priority Lien in and on all the Collateral, in favor
of the Collateral Agent for the benefit of the Holders of Notes, superior to and
prior to the rights of all third Persons and subject to no other Liens than
Permitted Liens.
SECTION 10.02. RECORDING AND OPINIONS.
(a) The Issuer shall furnish to the Collateral Agent and the Trustee
simultaneously with the execution and delivery of this Indenture an Opinion of
Counsel either (i) stating that in the opinion of such counsel all action has
been taken with respect to the recording, registering and filing of this
Indenture, financing statements or other instruments necessary to make effective
the Lien intended to be created by the Pledge Agreement, and reciting with
respect to the security interests in the Collateral, the details of such action,
or (ii) stating that, in the opinion of such counsel, no such action is
necessary to make such Lien effective.
(b) The Issuer and the Guarantors, if any, shall furnish to the
Collateral Agent and the Trustee within 3 months after each anniversary of the
date of this Indenture, an Opinion of Counsel, dated as of such date, either (i)
(A) stating that, in the opinion of such counsel, action has been taken with
respect to the recording, registering, filing, re-recording, re-registering and
refiling of all supplemental indentures, financing statements, continuation
statements or other instruments of further assurance as is necessary to maintain
the Lien of the Pledge Agreement and reciting with respect to the security
interests in the Collateral the details of such action or referring to prior
Opinions of Counsel in which such details are given, (B) stating that, based on
relevant laws as in effect on the date of such Opinion of Counsel, all financing
statements and continuation statements have been executed and filed that are
necessary as of such date and during the succeeding 12 months fully to preserve
and protect, to the extent such protection and preservation are possible by
filing, the rights of the Holders of Notes and the Collateral Agent and the
Trustee hereunder and under the Pledge Agreement with respect to the security
interests in the Collateral, or (ii) stating that, in the opinion of such
counsel, no such action is necessary to maintain such Lien and assignment.
(c) The Issuer and the Guarantors, if any, shall otherwise comply
with the provisions of TIA Section 314(b).
SECTION 10.03. RELEASE OF COLLATERAL.
(a) Subject to subsections (b), (c) and (d) of this Section 10.03 and
the terms of the Pledge Agreement, Collateral may be released from the Lien and
security interest created by the Pledge Agreement at any time or from time to
time in accordance with the provisions of the Pledge Agreement. In addition,
subject to the terms of the Pledge Agreement, upon the request of the Issuer
pursuant to an Officers' Certificate certifying that all conditions precedent
hereunder have been met and (at the sole cost and expense of the Issuer) the
Collateral Agent shall release the Collateral that is sold, conveyed or disposed
of in compliance with the provisions of the Pledge Agreement and the Subsidiary
Guarantees, if any, and this Indenture. Upon receipt of such Officers'
Certificate, the Collateral Agent shall execute, deliver or acknowledge any
necessary or proper instruments of termination, satisfaction or release to
evidence the release of any Collateral permitted to be released pursuant to this
Indenture or the Pledge Agreement and under the Subsidiary Guarantees, if any.
(b) No Collateral shall be released from the Lien and security
interest created by the Pledge Agreement pursuant to the provisions of the
Pledge Agreement unless there shall have been delivered to the Collateral Agent
the certificate required by this Section 10.03.
(c) At any time when a Default or Event of Default shall have
occurred and be continuing and the maturity of the Notes shall have been
accelerated (whether by declaration or otherwise) and the Trustee shall have
49
<PAGE> 56
delivered a notice of acceleration to the Collateral Agent, no release of
Collateral pursuant to the provisions of the Pledge Agreement shall be effective
as against the Holders of Notes.
(d) The release of any Collateral from the terms of this Indenture
and the Pledge Agreement shall not be deemed to impair the security under this
Indenture in contravention of the provisions hereof if and to the extent the
Collateral is released pursuant to the terms of this Indenture or the terms of
the Pledge Agreement. To the extent applicable, the Issuer shall cause TIA
Section 313(b), relating to reports, and TIA Section 314(d), relating to the
release of property or securities from the Lien and security interest of the
Pledge Agreement and relating to the substitution therefor of any property or
securities to be subjected to the Lien and security interest of the Pledge
Agreement, to be complied with. Any certificate or opinion required by TIA
Section 314(d) may be made by an Officer of the Issuer except in cases where TIA
Section 314(d) requires that such certificate or opinion be made by an
independent Person, which Person shall be an independent engineer, appraiser or
other expert selected or approved by the Trustee and the Collateral Agent in the
exercise of reasonable care.
SECTION 10.04. CERTIFICATES OF THE ISSUER.
The Issuer and the Guarantors, if any, shall furnish to the Trustee
and the Collateral Agent, prior to each proposed release of Collateral pursuant
to the Pledge Agreement, (i) all documents required by TIA Section 314(d) and
(ii) an Opinion of Counsel, which may be rendered by internal counsel to the
Issuer and the Guarantors, if any, to the effect that such accompanying
documents constitute all documents required by TIA Section 314(d).
SECTION 10.05. CERTIFICATES OF THE TRUSTEE.
In the event that the Issuer wishes to release Collateral in
accordance with the Pledge Agreement and has delivered the certificates and
documents required by the Pledge Agreement and Sections 10.03 and 10.04 hereof,
the Trustee shall determine whether it has received all documentation required
by TIA Section 314(d) in connection with such release and, based on such
determination and the Opinion of Counsel delivered pursuant to Section 10.04(b),
shall deliver a certificate to the Collateral Agent setting forth such
determination.
SECTION 10.06. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE COLLATERAL AGENT
UNDER THE PLEDGE AGREEMENT.
Subject to the provisions of Section 7.01 and 7.02 hereof and the
Pledge Agreement, the Trustee may, with the consent of the Holders of a majority
in principal amount of Notes, direct the Collateral Agent to take all actions it
deems necessary or appropriate in order to (a) enforce any of the terms of the
Pledge Agreement and the Subsidiary Guarantees, if any, and (b) collect and
receive any and all amounts payable in respect of the Obligations of the Issuer
and the Guarantors, if any, hereunder and the Subsidiary Guarantees, if any.
SECTION 10.07. AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER THE PLEDGE
AGREEMENT.
The Trustee is authorized to receive any funds for the benefit of the
Holders of Notes distributed under the Pledge Agreement, and to make further
distributions of such funds to the Holders of Notes according to the provisions
of this Indenture.
SECTION 10.08. TERMINATION OF SECURITY INTEREST.
Upon the payment in full of all Obligations of the Issuer and the
Guarantors, if any, under this Indenture, the Notes and the Subsidiary
Guarantees, if any, or upon Legal Defeasance, the Trustee shall, upon receipt of
an Officer's Certificate, deliver a certificate to the Collateral Agent stating
that such Obligations have been paid in full, and, subject to the terms of the
Pledge Agreement, instruct the Collateral Agent to release the Liens pursuant to
this Indenture and the Pledge Agreement.
50
<PAGE> 57
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision hereof limits, qualifies or conflicts with a
provision of the TIA or another provision that would be required or deemed under
such Act to be part of and govern this Indenture if this Indenture were subject
thereto, the latter provision shall control. If any provision of this Indenture
modifies or excludes any provision of the TIA that may be so modified or
excluded, the latter provision shall be deemed to apply to this Indenture as so
modified or to be excluded, as the case may be.
SECTION 11.02. NOTICES.
Any notice or communication by the Issuer or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Issuer or any Guarantor:
W. Earl Stogner, as Executive
Vice President and Chief
Financial Officer
Shop Vac Corporation
2323 Reach Road
Williamsport, Pennsylvania 17701
Telecopier No.: (717) 326-0422
With a copy to:
Latham & Watkins
53rd at Third, Suite 1000
885 Third Avenue
New York, New York 10022-4802
Telecopier No.: (212) 751-4864
Attention: Kirk A. Davenport, Esq.
If to the Trustee:
Marine Midland Bank
140 Broadway, 12th Floor
New York, NY 10005-1180
Telecopier No.: (212) 658-6425
Attention: Corporate Trust Administration
The Issuer, any Guarantor or the Trustee, by notice to the others,
may designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
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<PAGE> 58
Any notice or communication to a Holder shall be mailed by first
class mail, or by overnight air courier guaranteeing next day delivery to its
address shown on the register kept by the Registrar. Any notice or communication
shall also be so mailed to any Person described in TIA Section 313(c), to the
extent required by the TIA. Failure to mail a notice or communication to a
Holder or any defect in it shall not affect its sufficiency with respect to
other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Issuer mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 11.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture, the Pledge Agreement
or the Notes. The Issuer, the Guarantors, if any, the Trustee, the Registrar and
anyone else shall have the protection of TIA Section 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Issuer to the Trustee to take
any action under this Indenture, the Issuer shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent and covenants, if any, provided for in this
Indenture relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent and covenants have been satisfied.
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of
TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
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<PAGE> 59
SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No past, present or future director, officer, employee, incorporator
or stockholder of the Issuer shall have any liability for any obligations of the
Issuer under the Notes, this Indenture, the Pledge Agreement or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes.
SECTION 11.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE PLEDGE AGREEMENT.
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Issuer or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 11.10. SUCCESSORS.
All agreements of the Issuer in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
SECTION 11.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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<PAGE> 60
SIGNATURES
SHOP VAC CORPORATION
By: /s/ W. Earl Stogner
_____________________________________________
Name: W. Earl Stogner
Title: Executive Vice President and Chief
Financial Officer
MARINE MIDLAND BANK
By: /s/ Peter S. Wolfrath
_____________________________________________
Name: Peter S. Wolfrath
Title: Assistant Vice President
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<PAGE> 61
- --------------------------------------------------------------------------------
EXHIBIT A
(Face of Note)
10 5/8% Senior Secured Notes due 2003
No.
SHOP VAC CORPORATION
promise to pay to CEDE & CO
or registered assigns,
the principal sum of
Dollars on September 1, 2003.
Interest Payment Dates: March 1 and September 1
Record Dates: February 15 and August 15
Dated:
SHOP VAC CORPORATION
By:___________________________
Name: W. Earl Stogner
Title: Executive Vice
President and Chief
Financial Officer
By:___________________________
Name:
(SEAL)
This is one of the Global
Notes referred to in the
within-mentioned Indenture:
MARINE MIDLAND BANK,
as Trustee
By:__________________________________
- --------------------------------------------------------------------------------
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<PAGE> 62
(Back of Note)
105/8% Senior Secured Notes due 2003
[Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"),
to the Issuer or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such other
name as may be requested by an authorized representative of DTC (and any payment
is made to Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.](1)
"THE NOTE (OR ITS PREDECESSOR) HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS AND NEITHER THIS NOTE
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THIS NOTE IS HEREBY NOTIFIED
THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5
OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER. THE HOLDER OF THIS NOTE, BY ITS
ACCEPTANCE HEREOF, REPRESENTS, ACKNOWLEDGES
AND AGREES FOR THE BENEFIT OF THE ISSUER
THAT: (I) IT HAS ACQUIRED A "RESTRICTED"
NOTE WHICH HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT; (II) IT WILL NOT OFFER, SELL
OR OTHERWISE TRANSFER THIS NOTE PRIOR TO THE
LATER OF THE DATE WHICH IS THREE YEARS AFTER
THE DATE OF ORIGINAL ISSUANCE HEREOF AND THE
LAST DATE ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF
SUCH RESTRICTED NOTE (OR ANY PREDECESSOR)
EXCEPT (A) TO THE ISSUER, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT,
(C) FOR SO LONG AS THIS NOTE IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A, TO A PERSON
WHO THE SELLER REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (D) OUTSIDE THE UNITED STATES IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE
904 UNDER THE SECURITIES ACT, OR (E)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR
ANY APPLICABLE JURISDICTION; AND (III) IT
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED
TO, NOTIFY ANY PURCHASER FROM IT OF THIS
NOTE OF THE RESALE RESTRICTIONS SET FORTH IN
(II) ABOVE, ANY
- --------
1 To be included only if the Note is issued in Global form.
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<PAGE> 63
OFFER, SALE OR OTHER DISPOSITION PURSUANT TO
THE FOREGOING CLAUSES (II)(D) AND (E) IS
SUBJECT TO THE RIGHT OF THE ISSUER OF THIS
NOTE AND THE TRUSTEE FOR SUCH NOTES TO
REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATIONS OR OTHER INFORMATION
ACCEPTABLE TO THEM IN FORM AND SUBSTANCE."2
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Shop Vac Corporation, a New Jersey corporation (the
"Issuer"), promises to pay interest on the principal amount of this Note at
105/8% per annum from the date of this Note until maturity and shall pay the
Liquidated Damages payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Issuer will pay interest and Liquidated Damages
semiannually on March 1 and September 1 of each year, or if any such day is not
a Business Day, on the next succeeding Business Day (each an "Interest Payment
Date"). Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided further, that
the first Interest Payment Date shall be March 1, 1997. The Issuer shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 2% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Issuer will pay interest on the Notes (except
defaulted interest) and Liquidated Damages to the Persons who are registered
Holders of Notes at the close of business on the February 15 or August 15 next
preceding the Interest Payment Date, even if such Notes are cancelled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. Any such
interest installment not punctually paid or duly provided for shall forthwith
cease to be payable to the registered Holders on such Interest Payment Date, and
may be paid to the registered Holders at the close of business on a special
interest payment date to be fixed by the Trustee for the payment of such
defaulted interest, notice whereof shall be given to the registered Holders not
less than 10 days prior to such special interest payment date, or may be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in the
Indenture. The Notes will be payable as to principal, premium, interest and
Liquidated Damages at the office or agency of the Issuer maintained for such
purpose within or without the City and State of New York, or, at the option of
the Issuer, payment of interest and Liquidated Damages may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes having a principal amount of
$1.0 million or more the Holders of which shall have provided wire transfer
instructions to the Issuer or the Paying Agent. Such payment shall be in such
coin or currency
- --------
(2) This legend should be included on the Senior Secured Notes and omitted from
the New Senior Secured Notes.
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<PAGE> 64
of the United States of America as at the time of payment is legal tender for
payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, Marine Midland Bank, a New
York banking corporation and the Trustee under the Indenture, will act as Paying
Agent and Registrar. The Issuer may change any Paying Agent or Registrar without
notice to any Holder. The Issuer or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE AND PLEDGE AGREEMENT. The Issuer issued the Notes under an
Indenture dated as of October 1, 1996 (the "Indenture") between the Issuer and
the Trustee. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are
subject to all such terms, and Holders are referred to the Indenture and such
Act for a statement of such terms. The Notes are secured obligations of the
Issuer limited to $100 million in aggregate principal amount, plus amounts, if
any, issued to pay Liquidated Damages on outstanding Notes as set forth in
Paragraph 2 hereof. The Notes are secured by a pledge of Equity Interests in all
of the Equity Interests of the Issuer pursuant to the Pledge Agreement referred
to in the Indenture.
5. OPTIONAL REDEMPTION. The Issuer shall have the option to redeem the
Notes, in whole or in part, at the redemption prices (expressed as percentages
of principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on September 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2000....................................... 105.313%
2001....................................... 102.656%
2002 and thereafter........................ 100.000%
</TABLE>
6. MANDATORY REDEMPTION. Except as set forth in Paragraph 7 below,
the Issuer shall not be required to make mandatory redemption payments with
respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Issuer shall be
required to make an offer (a "Change of Control Offer") to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at
a purchase price equal to 101% of the principal amount thereof plus, in each
case, accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase (in either case, the "Change of Control Payment"). Within 10 days
following any Change of Control, the Issuer shall mail a notice to each Holder
setting forth the procedures governing the Change of Control Offer as required
by the Indenture.
(b) If the Issuer or a Subsidiary consummates any Asset Sales,
within five days of each date on which the aggregate amount of Excess Proceeds
exceeds $5 million, the Issuer shall commence an offer to all Holders of Notes
(as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase
the maximum principal amount of Notes that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages, if any,
to the date fixed for the closing of such offer, in accordance with
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<PAGE> 65
the procedures set forth in the Indenture. To the extent that the aggregate
amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Issuer (or such Subsidiary) may use such deficiency for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Holders of Notes that are the
subject of an offer to purchase will receive an Asset Sale Offer from the Issuer
prior to any related purchase date and may elect to have such Notes purchased by
completing the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuer may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuer need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date and
the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the consent
of any Holder of a Note, the Indenture or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Issuer's and the Guarantors' obligations to
Holders of the Notes in case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the Holders of the Notes
or that does not adversely affect the legal rights under the Indenture of any
such Holder, or to comply with the requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest or Liquidated Damages on the Notes;
(ii) default in payment when due of principal of or premium, if any, on the
Notes when the same becomes due and payable at maturity, upon redemption
(including in connection with an offer to purchase) or otherwise, (iii) failure
by the Issuer to comply with Section 4.07, 4.09, 4.10 or 4.16 of the Indenture;
(iv) failure by the Issuer or any Pledgor for 30 days after notice is received
by the Issuer or the Pledgors from the Trustee or Holders of at least 25% in
aggregate principal amount of the Notes then outstanding, as the case may be, to
comply with certain other agreements, or to have cured any breach of any
representation or warranty, in the Indenture,
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<PAGE> 66
the Notes or the Pledge Agreement; (v) default under certain other agreements
relating to Indebtedness of the Issuer which default is a Payment Default or
results in the acceleration of such Indebtedness prior to its express maturity;
(vi) certain final judgments for the payment of money that remain undischarged
for a period of 60 days; (vii) certain events of bankruptcy or insolvency with
respect to the Issuer or any of its Material Subsidiaries; and (viii)
repudiation by any Pledgor of the Pledge Agreement or the Pledge Agreement
becomes unenforceable or invalid or shall cease for any reason to be in full
force and effect. If any Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes will become due and payable without further
action or notice. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest. The Holders of a
majority in aggregate principal amount of the Notes then outstanding by notice
to the Trustee may on behalf of the Holders of all of the Notes waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of interest on,
or the principal of, the Notes. The Issuer is required to deliver to the Trustee
annually a statement regarding compliance with the Indenture, and the Issuer is
required upon becoming aware of any Default or Event of Default, to deliver to
the Trustee a statement specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH ISSUER. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Issuer or its Affiliates, and may otherwise deal with the Issuer or its
Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Issuer, as such, shall not have any
liability for any obligations of the Issuer under the Notes, the Pledge
Agreement or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
addition to the rights provided to Holders of Notes under the Indenture, Holders
of Transferred Restricted Securities shall have all the rights set forth in the
Registration Rights Agreement dated as of October 1, 1996, between the Issuer
and the parties named on the signature pages thereof (the "Registration Rights
Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuer has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained
A-6
<PAGE> 67
in any notice of redemption and reliance may be placed only on the other
identification numbers placed thereon.
The Issuer will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Shop Vac Corporation
2325 Reach Road
Williamsport, Pennsylvania 17701
Attention: W. Earl Stogner, as
Executive Vice President
and Chief Financial Officer
A-7
<PAGE> 68
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Issuer. The agent may substitute
another to act for him.
________________________________________________________________________________
Date:_______________________
Your Signature:____________________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee.
A-8
<PAGE> 69
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuer
pursuant to Section 4.10 or 4.16 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.16
If you want to elect to have only part of the Note purchased by the
Issuer pursuant to Section 4.10 or Section 4.16 of the Indenture, state the
amount you elect to have purchased (in integral multiples of $1,000 only):
$___________
Date:______________________ Your Signature:________________________
(Sign exactly as your name appears
on the Note)
Tax Identification No.:________________
Signature Guarantee.
A-9
<PAGE> 70
SCHEDULE OF EXCHANGES OF CERTIFICATED NOTES3
The following exchanges of a part of this Global Note for
Certificated Notes have been made:
<TABLE>
<CAPTION>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note authorized officer of
Principal Amount of Principal Amount of following such decrease Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
- ---------------------- ----------------------- ------------------------ ----------------------- ----------------
<S> <C> <C> <C> <C>
</TABLE>
- --------
3 To be included only if the Note is issued in Global form.
A-10
<PAGE> 71
- --------------------------------------------------------------------------------
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF
NOTES
Re: 10 5/8% Senior Secured Notes due 2003 of Shop Vac Corporation.
This Certificate relates to $_____ principal amount of Notes held in
* ________ book-entry or *_______ certificated form by ________________ (the
"Transferor").
The Transferor*:
[ ] has requested the Trustee by written order to deliver in exchange for
its beneficial interest in the Global Note held by the Depositary a Note or
Notes in certificated, registered form of authorized denominations in an
aggregate principal amount equal to its beneficial interest in such Global Note
(or the portion thereof indicated above); or
[ ] has requested the Trustee by written order to exchange or register
the transfer of a Note or Notes.
[ ] In connection with such request and in respect of each such Note, the
Transferor does hereby certify that Transferor is familiar with the Indenture
relating to the above captioned Notes and as provided in Section 2.06 of such
Indenture, the transfer of this Note does not require registration under the
Securities Act (as defined below) because:*
[ ] Such Note is being acquired for the Transferor's own account, without
transfer (in satisfaction of Section 2.06(a)(ii)(A) or Section 2.06(d)(i)(A) of
the Indenture).
[ ] Such Note is being transferred (i) to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act")) in reliance on Rule 144A, (ii) pursuant to an exemption
from registration in accordance with Rule 904 under the Securities Act (in
satisfaction of Section 2.06(a)(ii)(B) or Section 2.06(d)(i)(B) of the
Indenture) or (iii) pursuant to an effective registration statement under the
Securities Act.
- ---------------
*Check applicable box.
B-1
<PAGE> 72
/ / Such Note is being transferred (i) pursuant to an exemption from
registration in accordance with Rule 144 under the Securities Act or (ii) in
reliance on another exemption from the registration requirements of the
Securities Act, and an Opinion of Counsel to the effect that such transfer does
not require registration under the Securities Act accompanies this Certificate
(in satisfaction of Section 2.06(a)(ii)(C) or Section 2.06(d)(i)(C) of the
Indenture).
________________________________________
[INSERT NAME OF TRANSFEROR]
By:_____________________________________
Date:_______________________________
- ---------------
*Check applicable box.
B-2
<PAGE> 1
Exhibit 4.2
This Registration Rights Agreement (this "Agreement") is made
and entered into as of October 1, 1996 by and among Shop VAC Corporation, a New
Jersey corporation (the "Company"), Lehman Brothers Inc. and First Union Capital
Markets Corp. (each an "Initial Purchaser" and, collectively, the "Initial
Purchasers"), each of whom has agreed to purchase the Company's 10 5/8% Senior
Secured Notes due 2003 (the "Senior Secured Notes") pursuant to the Purchase
Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement,
dated September 25, 1996 (the "Purchase Agreement"), by and among the Company
and the Initial Purchasers. In order to induce the Initial Purchasers to
purchase the Senior Secured Notes, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the obligations of the Initial Purchasers set
forth in paragraph (j) of Section 7 of the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions. As used in this Agreement, the following
capitalized terms shall have the following meanings:
Broker-Dealer: Any broker or dealer registered under
the Exchange Act.
Closing Date: The date on which the Senior Secured
Notes were first authenticated under the Indenture.
Commission: The Securities and Exchange Commission.
Consummate: A Registered Exchange Offer shall be
deemed "Consummated" for purposes of this Agreement upon the occurrence
of (i) the filing and effectiveness under the Securities Act of the
Exchange Offer Registration Statement relating to the New Senior
Secured Notes to be issued in the Exchange Offer, (ii) the maintenance
of such Registration Statement continuously effective and the keeping
of the Exchange Offer open for a period not less than the minimum
period required pursuant to Section 3(b) hereof, and (iii) the delivery
by the Company to the Registrar under the Indenture of New Senior
Secured Notes in the same aggregate principal amount as the aggregate
principal amount of Senior Secured Notes that were tendered by Holders
thereof pursuant to the Exchange Offer.
Damages Payment Date: With respect to the Senior
Secured Notes, each Interest Payment Date until the earlier of (i) the
date on which Liquidated Damages no longer are payable or (ii) maturity
of the Notes.
Effectiveness Target Date: As defined in Section 5.
Exchange Act: The Securities Exchange Act of 1934, as
amended.
Exchange Offer: The registration by the Company under
the Securities Act of the New Senior Secured Notes pursuant to a
Registration Statement pursuant to which the Company offers the Holders
of all outstanding Transfer Restricted Securities the opportunity to
exchange all such outstanding Transfer Restricted Securities held by
such Holders for New Senior Secured Notes in an aggregate principal
amount equal to the aggregate principal amount of the Transfer
Restricted Securities tendered in such exchange offer by such Holders.
1
<PAGE> 2
Exchange Offer Registration Statement: The
Registration Statement relating to the Exchange Offer, including the
Prospectus which forms a part thereof.
Exempt Resales: The transactions in which the Initial
Purchasers propose to sell the Senior Secured Notes to certain
"qualified institutional buyers," as such term is defined in Rule 144A
under the Securities Act, and to certain institutional "accredited
investors," as such term is defined in Rule 501(a)(1), (2), (3) and (7)
of Regulation D under the Securities Act ("Accredited Institutions").
Holders: As defined in Section 2(b) hereof.
Indemnified Holder: As defined in Section 8(a)
hereof.
Indenture: The Indenture, dated as of October 1,
1996, among the Company and Marine Midland Bank, a New York banking
corporation, as trustee (the "Trustee"), pursuant to which the Notes
are to be issued, as such Indenture is amended or supplemented from
time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture
and the Notes.
NASD: National Association of Securities Dealers,
Inc.
New Senior Secured Notes: The Company's 10 5/8%
Senior Secured Notes due 2003 to be issued pursuant to the Indenture in
the Exchange Offer.
Notes: The Senior Secured Notes and the New Senior
Secured Notes.
Person: An individual, partnership, corporation,
trust or unincorporated organization, or a government or agency or
political subdivision thereof.
Prospectus: The prospectus included in a Registration
Statement, as amended or supplemented by any prospectus supplement and
by all other amendments thereto, including post-effective amendments,
and all material incorporated by reference into such Prospectus.
Purchaser: As defined in the preamble hereto.
Record Holder: With respect to any Damages Payment
Date relating to Notes, each Person who is a Holder of Notes on the
record date with respect to the Interest Payment Date on which such
Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of
the Company relating to (a) an offering of New Senior Secured Notes
pursuant to an Exchange Offer or (b) the registration for resale of
Transfer Restricted Securities pursuant to the Shelf Registration
Statement, which is filed pursuant to the provisions of this Agreement,
in each case, including the Prospectus included therein, all amendments
and supplements thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
Securities Act: The Securities Act of 1933, as
amended.
2
<PAGE> 3
Shelf Filing Deadline: As defined in Section 4
hereof.
Shelf Registration Statement: As defined in Section 4
hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C.
Section 77aaa-77bbbb) as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Senior Secured
Note, until the earliest to occur of (a) the date on which such Senior
Secured Note has been exchanged by a person other than a Broker-Dealer
for New Senior Secured Notes in the Exchange Offer, (b) following the
exchange by a Broker-Dealer in the Exchange Offer of such Senior
Secured Note for one or more New Senior Secured Notes, the date on
which such New Senior Secured Notes are sold to a purchaser who
receives from such Broker-Dealer on or prior to the date of such sale a
copy of the prospectus contained in the Exchange Offer Registration
Statement, (c) the date on which such Senior Secured Note has been
effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (d) the date on
which such Senior Secured Note is distributed to the public pursuant to
Rule 144 under the Securities Act;
Underwritten Registration or Underwritten Offering: A
registration in which securities of the Company are sold to an
underwriter for reoffering to the public.
2. Securities Subject to This Agreement.
(a) Transfer Restricted Securities. The securities
entitled to the benefits of this Agreement are the Transfer Restricted
Securities.
(b) Holders of Transfer Restricted Securities. A
Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted
Securities.
3. Registered Exchange Offer.
(a) Unless the Exchange Offer shall not be
permissible under applicable law or Commission policy (after the
procedures set forth in Section 6(a) below have been complied with),
the Company shall (i) cause to be filed with the Commission as soon as
practicable after the Closing Date, but in no event later than 60 days
after the Closing Date, a Registration Statement under the Securities
Act relating to the New Senior Secured Notes and the Exchange Offer,
(ii) use its best efforts to cause such Registration Statement to
become effective at the earliest possible time, but in no event later
than 120 days after the Closing Date, (iii) in connection with the
foregoing, file (A) all pre-effective amendments to such Registration
Statement as may be necessary in order to cause such Registration
Statement to become effective, (B) if applicable, a post-effective
amendment to such Registration Statement pursuant to Rule 430A under
the Securities Act and (C) cause all necessary filings in connection
with the registration and qualification of the New Senior Secured Notes
to be made under the Blue Sky laws of such jurisdictions as are
necessary to permit Consummation of the Exchange Offer, and (iv) unless
the Exchange Offer would not be permitted by applicable law or
Commission policy, the Company will commence the Exchange Offer and use
its best efforts to issue on or prior to 30 business days after the
date on which such Registration Statement was declared effective by the
Commission, New Senior Secured Notes in exchange for all Senior Secured
Notes tendered prior thereto in the Exchange Offer. The Exchange Offer
shall be on the appropriate form
3
<PAGE> 4
permitting registration of the New Senior Secured Notes to be offered
in exchange for the Transfer Restricted Securities and to permit
resales of New Senior Secured Notes held by Broker-Dealers as
contemplated by Section 3(c) below.
(b) The Company shall cause the Exchange Offer
Registration Statement to be effective continuously and shall keep the
Exchange Offer open for a period of not less than the minimum period
required under applicable federal and state securities laws to
Consummate the Exchange Offer; provided, however, that in no event
shall such period be less than 20 business days. The Company shall
cause the Exchange Offer to comply with all applicable federal and
state securities laws. No securities other than the Notes shall be
included in the Exchange Offer Registration Statement. The Company
shall use its best efforts to cause the Exchange Offer to be
Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than
30 business days thereafter.
(c) The Company shall indicate in a "Plan of
Distribution" section contained in the Prospectus contained in the
Exchange Offer Registration Statement that any Broker-Dealer who holds
Senior Secured Notes that are Transfer Restricted Securities and that
were acquired for its own account as a result of market-making
activities or other trading activities (other than Transfer Restricted
Securities acquired directly from the Company), may exchange such
Senior Secured Notes pursuant to the Exchange Offer; however, such
Broker-Dealer may be deemed to be an "underwriter" within the meaning
of the Securities Act and must, therefore, deliver a prospectus meeting
the requirements of the Securities Act in connection with any resales
of the New Senior Secured Notes received by such Broker-Dealer in the
Exchange Offer, which prospectus delivery requirement may be satisfied
by the delivery by such Broker-Dealer of the Prospectus contained in
the Exchange Offer Registration Statement. Such "Plan of Distribution"
section shall also contain all other information with respect to such
resales by Broker-Dealers that the Commission may require in order to
permit such resales pursuant thereto, but such "Plan of Distribution"
shall not name any such Broker-Dealer or disclose the amount of New
Senior Secured Notes held by any such Broker-Dealer except to the
extent required by the Commission as a result of a change in policy
announced after the date of this Agreement.
The Company shall use its best efforts to keep the Exchange
Offer Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for resales of New Senior Secured Notes acquired by
Broker-Dealers for their own accounts as a result of market-making activities or
other trading activities, and to ensure that it conforms with the requirements
of this Agreement, the Securities Act and the policies, rules and regulations of
the Commission as announced from time to time, for a period of 180 days from the
date on which the Exchange Offer Registration Statement is declared effective.
The Company shall provide sufficient copies of the latest
version of such Prospectus to Broker-Dealers promptly upon request at any time
during such 180 day period in order to facilitate such resales.
4. Shelf Registration.
(a) Shelf Registration. If (i) the Company is not
required to file an Exchange Offer Registration Statement or to
consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy (after the procedures
set forth in Section 6(a) below have been complied with) or (ii) if any
Holder of Transfer Restricted Securities that is a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act)
or an
4
<PAGE> 5
"accredited investor" (as defined in Rule 501(A)(1), (2), (3) or (7)
under the Securities Act) shall notify the Company within 20 business
days of the Consummation of the Exchange Offer (A) that such Holder is
prohibited by applicable law or Commission policy from participating in
the Exchange Offer, or (B) that such Holder may not resell the New
Senior Secured Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and that the Prospectus contained in
the Exchange Offer Registration Statement is not appropriate or
available for such resales by such Holder, or (C) that such Holder is a
Broker-Dealer and holds Senior Secured Notes acquired directly from the
Company or one of its affiliates, then the Company shall use its best
efforts to:
(x) cause to be filed a shelf registration
statement pursuant to Rule 415 under the Securities Act, which
may be an amendment to the Exchange Offer Registration
Statement (in either event, the "Shelf Registration
Statement") on or prior to the earliest to occur of (1) the
60th day after the date on which the Company determines that
it is not required to file the Exchange Offer Registration
Statement or (2) the 60th day after the date on which the
Company receives notice from a Holder of Transfer Restricted
Securities as contemplated by clause (ii) above (such earliest
date being the "Shelf Filing Deadline"), which Shelf
Registration Statement shall provide for resales of all
Transfer Restricted Securities the Holders of which shall have
provided the information required pursuant to Section 4(b)
hereof; and
(y) use its best efforts to cause such Shelf
Registration Statement to be declared effective by the
Commission on or before the 60th day after the Shelf Filing
Deadline.
The Company shall use its best efforts to keep such Shelf Registration
Statement continuously effective, supplemented and amended as required
by the provisions of Sections 6(b) and (c) hereof to the extent
necessary to ensure that it is available for resales of Notes by the
Holders of Transfer Restricted Securities entitled to the benefit of
this Section 4(a), and to ensure that it conforms with the requirements
of this Agreement, the Securities Act and the policies, rules and
regulations of the Commission as announced from time to time, for a
period ending on the third anniversary of the Closing Date.
(b) Provision by Holders of Certain Information in
Connection with the Shelf Registration Statement. No Holder of Transfer
Restricted Securities may include any of its Transfer Restricted
Securities in any Shelf Registration Statement pursuant to this
Agreement unless and until such Holder furnishes to the Company in
writing, within 20 business days after receipt of a request therefor,
such information as the Company may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or
preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to Liquidated Damages pursuant
to Section 5 hereof unless and until such Holder shall have used its
best efforts to provide all such reasonably requested information. Each
Holder as to which any Shelf Registration Statement is being effected
agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to
the Company by such Holder not materially misleading.
5
<PAGE> 6
6
5. Liquidated Damages.
(a) If (a) any of the Registration Statements required by this
Agreement is not filed with the Commission on or prior to the date specified for
such filing in this Agreement, (b) any of such Registration Statements has not
been declared effective by the Commission on or prior to the date specified for
such effectiveness in this Agreement (the "Effectiveness Target Date"), (c) the
Exchange Offer has not been Consummated within 30 business days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (d) any Registration Statement required by this Agreement is filed
and declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded within two business days
by a post-effective amendment to such Registration Statement that cures such
failure and that is itself immediately declared effective (each such event
referred to in clauses (a) through (d), a "Registration Default"), the Company
will pay liquidated damages to each Holder of Transfer Restricted Securities
with respect to the first 90-day period immediately following the occurrence of
such Registration Default, in an amount equal to $.05 per week per $1,000
principal amount of Transfer Restricted Securities held by such Holder for each
week or portion thereof that the Registration Default continues. The amount of
the liquidated damages payable to any Holder of Transfer Restricted Securities
shall increase by an additional $.05 per week per $1,000 in principal amount of
Transfer Restricted Securities held by such Holder with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of liquidated damages of $.50 per week per $1,000 principal
amount of Transfer Restricted Securities. All accrued liquidated damages shall
be paid to Record Holders by the Company by wire transfer of immediately
available funds or by federal funds check on the last day of each such 90-day
period. Following the cure of all Registration Defaults relating to any
particular Transfer Restricted Securities, the accrual of liquidated damages
with respect to such Transfer Restricted Securities will cease.
All obligations of the Company set forth in the preceding
paragraph that are outstanding with respect to any Transfer Restricted Security
at the time such security ceases to be a Transfer Restricted Security shall
survive until such time as all such obligations with respect to such Transfer
Restricted Security shall have been satisfied in full.
(b) The Company shall notify the Trustee within one business
day after each and every date on which an event occurs in respect of which
Liquidated Damages are required to be paid (an "Event Date"). Liquidated Damages
shall be paid by depositing with the Trustee, in trust, for the benefit of the
Holders thereof, on or before the applicable Interest Payment Date (whether or
not any payment other than Liquidated Damages is payable on the Securities),
immediately available funds in sums sufficient to pay the Liquidated Damages
then due to Holders of Transfer Restricted Securities with respect to which the
Trustee serves. Each obligation to pay Liquidated Damages shall be deemed to
accrue from the applicable Event Date.
6. Registration Procedures.
(a) Exchange Offer Registration Statement. In
connection with the Exchange Offer, the Company shall comply with all
of the provisions of Section 6(c) below, shall use its best efforts to
effect such exchange to permit the sale of Transfer Restricted
Securities being sold in accordance with the intended method or methods
of distribution thereof, and shall comply with all of the following
provisions:
(i) If in the reasonable opinion of counsel
to the Company there is a question as to whether the Exchange
Offer is permitted by applicable law, the Company hereby
agrees to seek a no-action letter or other favorable decision
from the Commission
<PAGE> 7
7
allowing the Company to Consummate an Exchange Offer for such
Senior Secured Notes. The Company hereby agrees to pursue the
issuance of such a decision to the Commission staff level but
shall not be required to take commercially unreasonable action
to effect a change of Commission policy. The Company hereby
agrees, however, to (A) participate in telephonic conferences
with the Commission, (B) deliver to the Commission staff an
analysis prepared by counsel to the Company setting forth the
legal bases, if any, upon which such counsel has concluded
that such an Exchange Offer should be permitted and (C)
diligently pursue a resolution (which need not be favorable)
by the Commission staff of such submission.
(ii) As a condition to its participation in
the Exchange Offer pursuant to the terms of this Agreement,
each Holder of Transfer Restricted Securities shall furnish,
upon the request of the Company, prior to the Consummation
thereof, a written representation to the Company (which may be
contained in the letter of transmittal contemplated by the
Exchange Offer Registration Statement) to the effect that (A)
it is not an affiliate of the Company, (B) it is not engaged
in, and does not intend to engage in, and has no arrangement
or understanding with any person to participate in, a
distribution of the New Senior Secured Notes to be issued in
the Exchange Offer and (C) it is acquiring the New Senior
Secured Notes in its ordinary course of business. In addition,
all such Holders of Transfer Restricted Securities shall
otherwise cooperate in the Company's preparations for the
Exchange Offer. Each Holder hereby acknowledges and agrees
that any Broker-Dealer and any such Holder using the Exchange
Offer to participate in a distribution of the securities to be
acquired in the Exchange Offer (1) could not under Commission
policy as in effect on the date of this Agreement rely on the
position of the Commission enunciated in Morgan Stanley and
Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993,
and similar no-action letters (including any no-action letter
obtained pursuant to clause (i) above), and (2) must comply
with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale
transaction and that such a secondary resale transaction
should be covered by an effective registration statement
containing the selling security holder information required by
Item 507 or 508, as applicable, of Regulation S-K if the
resales are of New Senior Secured Notes obtained by such
Holder in exchange for Senior Secured Notes acquired by such
Holder directly from the Company.
(iii) Prior to effectiveness of the Exchange
Offer Registration Statement, the Company shall provide a
supplemental letter to the Commission (A) stating that the
Company is registering the Exchange Offer in reliance on the
position of the Commission enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988), Morgan Stanley
and Co., Inc. (available June 5, 1991) and, if applicable, any
no-action letter obtained pursuant to clause (i) above and (B)
including a representation that the Company has not entered
into any arrangement or understanding with any Person to
distribute the New Senior Secured Notes to be received in the
Exchange Offer and that, to the best of the Company's
information and belief, each Holder participating in the
Exchange Offer is acquiring the New Senior Secured Notes in
its ordinary course of business and has no arrangement or
understanding with any Person to participate in the
distribution of the New Senior Secured Notes received in the
Exchange Offer.
<PAGE> 8
8
(b) Shelf Registration Statement. In connection with
the Shelf Registration Statement, the Company shall comply with all the
provisions of Section 6(c) below and shall use its best efforts to
effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods
of distribution thereof, and pursuant thereto the Company will as
expeditiously as possible prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate
form under the Securities Act, which form shall be available for the
sale of the Transfer Restricted Securities in accordance with the
intended method or methods of distribution thereof.
(c) General Provisions. In connection with any
Registration Statement and any Prospectus required by this Agreement to
permit the sale or resale of Transfer Restricted Securities (including,
without limitation, any Registration Statement and the related
Prospectus required to permit resales of Notes by Broker-Dealers), the
Company shall:
(i) use its best efforts to keep such
Registration Statement continuously effective and provide all
requisite financial statements for the period specified in
Section 3 or 4 of this Agreement, as applicable; upon the
occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain a
material misstatement or omission or (B) not to be effective
and usable for resale of Transfer Restricted Securities during
the period required by this Agreement, the Company shall file
promptly an appropriate amendment to such Registration
Statement, in the case of clause (A), correcting any such
misstatement or omission, and, in the case of either clause
(A) or (B), use its best efforts to cause such amendment to be
declared effective and such Registration Statement and the
related Prospectus to become usable for their intended
purpose(s) as soon as practicable thereafter;
(ii) prepare and file with the Commission
such amendments and post-effective amendments to the
Registration Statement as may be necessary to keep the
Registration Statement effective for the applicable period set
forth in Section 3 or 4 hereof, as applicable, or such shorter
period as will terminate when all Transfer Restricted
Securities covered by such Registration Statement have been
sold; cause the Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Securities Act, and to comply
fully with the applicable provisions of Rules 424 and 430A
under the Securities Act in a timely manner; and comply with
the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers
thereof set forth in such Registration Statement or supplement
to the Prospectus;
(iii) advise the underwriter(s), if any, and
selling Holders promptly and, if requested by such Persons, to
confirm such advice in writing, (A) when the Prospectus or any
Prospectus supplement or post-effective amendment has been
filed, and, with respect to any Registration Statement or any
post-effective amendment thereto, when the same has become
effective, (B) of any request by the Commission for amendments
to the Registration Statement or amendments or supplements to
the Prospectus or for additional information relating thereto,
(C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement
under the Securities Act or of the suspension by any state
securities commission of the qualification of the Transfer
<PAGE> 9
9
Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of
the preceding purposes, (D) of the existence of any fact or
the happening of any event that makes any statement of a
material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any
document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the
Registration Statement or the Prospectus in order to make the
statements therein not misleading. If at any time the
Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall
issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under
state securities or Blue Sky laws, the Company shall use its
best efforts to obtain the withdrawal or lifting of such order
at the earliest possible time;
(iv) furnish to each of the selling Holders
and each of the underwriter(s), if any, before filing with the
Commission, copies of any Registration Statement or any
Prospectus included therein or any amendments or supplements
to any such Registration Statement or Prospectus (including
all documents incorporated by reference after the initial
filing of such Registration Statement), which documents will
be subject to the review of such Holders and underwriter(s),
if any, for a period of at least five business days, and the
Company will not file any such Registration Statement or
Prospectus or any amendment or supplement to any such
Registration Statement or Prospectus (including all such
documents incorporated by reference) to which a selling Holder
of Transfer Restricted Securities covered by such Registration
Statement or the underwriter(s), if any, shall reasonably
object within five business days after the receipt thereof. A
selling Holder or underwriter, if any, shall be deemed to have
reasonably objected to such filing if such Registration
Statement, amendment, Prospectus or supplement, as applicable,
as proposed to be filed, contains a material misstatement or
omission;
(v) promptly prior to the filing of any
document that is to be incorporated by reference into a
Registration Statement or Prospectus, provide copies of such
document to the selling Holders and to the underwriter(s), if
any, make the Company's representatives available for
discussion of such document and other customary due diligence
matters, and include such information in such document prior
to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for
inspection by the selling Holders, any underwriter
participating in any disposition pursuant to such Registration
Statement, and any attorney or accountant retained by such
selling Holders or any of the underwriter(s), all financial
and other records, pertinent corporate documents and
properties of the Company and cause the Company's officers,
directors, managers and employees to supply all information
reasonably requested by any such Holder, underwriter, attorney
or accountant in connection with such Registration Statement
subsequent to the filing thereof and prior to its
effectiveness;
(vii) if requested by any selling Holders or
the underwriter(s), if any, promptly incorporate in any
Registration Statement or Prospectus, pursuant to a supplement
or post-effective amendment if necessary, such information as
such selling Holders and underwriter(s), if any, may
reasonably request to have included therein,
<PAGE> 10
10
including, without limitation, information relating to the
"Plan of Distribution" of the Transfer Restricted Securities,
information with respect to the principal amount of Transfer
Restricted Securities being sold to such underwriter(s), the
purchase price being paid therefor and any other terms of the
offering of the Transfer Restricted Securities to be sold in
such offering; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as
practicable after the Company is notified of the matters to be
incorporated in such Prospectus supplement or post-effective
amendment;
(viii) cause the Transfer Restricted
Securities covered by the Registration Statement to be rated
with the appropriate rating agencies, if so requested by the
Holders of a majority in aggregate principal amount of Notes
covered thereby or the underwriter(s), if any;
(ix) furnish to each selling Holder and each
of the underwriter(s), if any, without charge, at least one
copy of the Registration Statement, as first filed with the
Commission, and of each amendment thereto, including all
documents incorporated by reference therein and all exhibits
(including exhibits incorporated therein by reference);
(x) deliver to each selling Holder and each
of the underwriter(s), if any, without charge, as many copies
of the Prospectus (including each preliminary prospectus) and
any amendment or supplement thereto as such Persons reasonably
may request; the Company hereby consents to the use of the
Prospectus and any amendment or supplement thereto by each of
the selling Holders and each of the underwriter(s), if any, in
connection with the offering and the sale of the Transfer
Restricted Securities covered by the Prospectus or any
amendment or supplement thereto;
(xi) enter into such agreements (including
an underwriting agreement), and make such representations and
warranties, and take all such other actions in connection
therewith in order to expedite or facilitate the disposition
of the Transfer Restricted Securities pursuant to any
Registration Statement contemplated by this Agreement, all to
such extent as may be requested by any Purchaser or by any
Holder of Transfer Restricted Securities or underwriter in
connection with any sale or resale pursuant to any
Registration Statement contemplated by this Agreement; and in
connection with an Underwritten Registration, the Company
shall:
(A) upon request, furnish to each
selling Holder and each underwriter, if any, in such
substance and scope as they may request and as are
customarily made by issuers to underwriters in
primary underwritten offerings, upon the date of the
effectiveness of the Shelf Registration Statement:
(1) a certificate, dated
the date of the effectiveness of the Shelf
Registration Statement, signed by (y) the
Chairman of the Board its President or a
Vice President and (z) the Chief Financial
Officer of the Company, confirming, as of
the date thereof, the matters set forth in
paragraph (h) of Section 7 of the Purchase
Agreement and such other matters as such
parties may reasonably request;
(2) an opinion, dated the
date of the effectiveness of the Shelf
Registration Statement, of counsel for the
Company, covering
<PAGE> 11
11
the matters set forth in paragraphs (d), (e)
and (f) of Section 7 of the Purchase
Agreement and such other matter as such
parties may reasonably request, and in any
event including a statement to the effect
that such counsel has participated in
conferences with officers and other
representatives of the Company,
representatives of the independent public
accountants for the Company, the Initial
Purchasers' representatives and the Initial
Purchasers' counsel in connection with the
preparation of such Registration Statement
and the related Prospectus and have
considered the matters required to be stated
therein and the statements contained
therein, although such counsel has not
independently verified the accuracy,
completeness or fairness of such statements;
and that such counsel advises that, on the
basis of the foregoing (relying as to
materiality to a large extent upon facts
provided to such counsel by officers and
other representatives of the Company and
without independent check or verification),
no facts came to such counsel's attention
that caused such counsel to believe that the
applicable Registration Statement, at the
time such Registration Statement or any
post-effective amendment thereto became
effective, contained an untrue statement of
a material fact or omitted to state a
material fact required to be stated therein
or necessary to make the statements therein
not misleading, or that the Prospectus
contained in such Registration Statement as
of its date, contained an untrue statement
of a material fact or omitted to state a
material fact necessary in order to make the
statements therein, in light of the
circumstances under which they were made,
not misleading. Without limiting the
foregoing, such counsel may state further
that such counsel assumes no responsibility
for, and has not independently verified, the
accuracy, completeness or fairness of the
financial statements, notes and schedules
and other financial data included in any
Registration Statement contemplated by this
Agreement or the related Prospectus; and
(3) a customary comfort
letter, dated the date of the effectiveness
of the Shelf Registration Statement, from
the Company's independent accountants, in
the customary form and covering matters of
the type customarily covered in comfort
letters by underwriters in connection with
primary underwritten offerings, and
affirming the matters set forth in the
comfort letters delivered pursuant to
paragraph (i) of Section 7 of the Purchase
Agreement, without exception;
(B) set forth in full or incorporate
by reference in the underwriting agreement, if any,
the indemnification provisions and procedures of
Section 8 hereof with respect to all parties to be
indemnified pursuant to said Section; and
(C) deliver such other documents and
certificates as may be reasonably requested by such
parties to evidence compliance with clause (A) above
and with any customary conditions contained in the
underwriting agreement or other agreement entered
into by the Company pursuant to this clause (xi), if
any.
<PAGE> 12
12
If at any time the representations and
warranties of the Company contemplated in clause (A)(1) above
cease to be true and correct, the Company shall so advise the
Initial Purchasers and the underwriter(s), if any, and each
selling Holder promptly and, if requested by such Persons,
shall confirm such advice in writing;
(xii) prior to any public offering of
Transfer Restricted Securities, cooperate with the selling
Holders, the underwriter(s), if any, and their respective
counsel in connection with the registration and qualification
of the Transfer Restricted Securities under the securities or
Blue Sky laws of such jurisdictions as the selling Holders or
underwriter(s) may reasonably request and do any and all other
acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted
Securities covered by the Shelf Registration Statement;
provided, however, that the Company shall not be required to
register or qualify as a foreign corporation where it is not
now so qualified or to take any action that would subject it
to the service of process in suits or to taxation, other than
as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so subject;
(xiii) shall issue, upon the request of any
Holder of Senior Secured Notes covered by the Shelf
Registration Statement, New Senior Secured Notes, having an
aggregate principal amount equal to the aggregate principal
amount of Senior Secured Notes surrendered to the Company by
such Holder in exchange therefor or being sold by such Holder;
such New Senior Secured Notes to be registered in the name of
such Holder or in the name of the purchaser(s) of such Notes,
as the case may be; in return, the Senior Secured Notes held
by such Holder shall be surrendered to the Company for
cancellation;
(xiv) cooperate with the selling Holders and
the underwriter(s), if any, to facilitate the timely
preparation and delivery of certificates representing Transfer
Restricted Securities to be sold and not bearing any
restrictive legends; and enable such Transfer Restricted
Securities to be in such denominations and registered in such
names as the Holders or the underwriter(s), if any, may
request at least two business days prior to any sale of
Transfer Restricted Securities made by such underwriter(s);
(xv) use its best efforts to cause the
Transfer Restricted Securities covered by the Registration
Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to
enable the seller or sellers thereof or the underwriter(s), if
any, to consummate the disposition of such Transfer Restricted
Securities, subject to the proviso contained in clause (xii)
above;
(xvi) if any fact or event contemplated by
clause (c)(iii)(D) above shall exist or have occurred, prepare
a supplement or post-effective amendment to the Registration
Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not
misleading;
(xvii) provide a CUSIP number for all
Transfer Restricted Securities not later than the effective
date of the Registration Statement and provide the Trustee
under
<PAGE> 13
13
the Indenture with printed certificates for the Transfer
Restricted Securities which are in a form eligible for deposit
with the Depository Trust Company;
(xviii) cooperate and assist in any filings
required to be made with the NASD and in the performance of
any due diligence investigation by any underwriter (including
any "qualified independent underwriter") that is required to
be retained in accordance with the rules and regulations of
the NASD, and use its best efforts to cause such Registration
Statement to become effective and approved by such
governmental agencies or authorities as may be necessary to
enable the Holders selling Transfer Restricted Securities to
consummate the disposition of such Transfer Restricted
Securities;
(xix) otherwise use its best efforts to
comply with all applicable rules and regulations of the
Commission, and make generally available to its security
holders, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not
be audited) for the twelve-month period (A) commencing at the
end of any fiscal quarter in which Transfer Restricted
Securities are sold to underwriters in a firm or best efforts
Underwritten Offering or (B) if not sold to underwriters in
such an offering, beginning with the first month of the
Company's first fiscal quarter commencing after the effective
date of the Registration Statement;
(xx) cause the Indenture to be qualified
under the TIA not later than the effective date of the first
Registration Statement required by this Agreement, and, in
connection therewith, cooperate with the Trustee and the
Holders of Notes to effect such changes to the Indenture as
may be required for such Indenture to be so qualified in
accordance with the terms of the TIA; and execute and use its
best efforts to cause the Trustee to execute, all documents
that may be required to effect such changes and all other
forms and documents required to be filed with the Commission
to enable such Indenture to be so qualified in a timely
manner; and
(xxi) provide promptly to each Holder upon
request each document filed with the Commission pursuant to
the requirements of Section 13 and Section 15 of the Exchange
Act.
Each Holder agrees by acquisition of a Transfer
Restricted Security that, upon receipt of any notice from the Company
of the existence of any fact of the kind described in Section
6(c)(iii)(D) hereof, such Holder will forthwith discontinue disposition
of Transfer Restricted Securities pursuant to the applicable
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xvi)
hereof, or until it is advised in writing (the "Advice") by the Company
that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings that are incorporated by
reference in the Prospectus. If so directed by the Company, each Holder
will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in such Holder's possession, of
the Prospectus covering such Transfer Restricted Securities that was
current at the time of receipt of such notice. In the event the Company
shall give any such notice, the time period regarding the effectiveness
of such Registration Statement set forth in Section 3 or 4 hereof, as
applicable, shall be extended by the number of days during the period
from and including the date of the giving of such notice pursuant to
Section 6(c)(iii)(D) hereof to and including the date when each selling
Holder covered by such Registration Statement shall
<PAGE> 14
14
have received the copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(xvi) hereof or shall have received the
Advice.
7. Registration Expenses.
All expenses incident to the Company's performance of
or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective,
including without limitation: (i) all registration and filing fees and
expenses (including filings made by any Purchaser or Holder with the
NASD (and, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel that may be required by the
rules and regulations of the NASD)); (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or securities
laws; (iii) all expenses of printing (including printing certificates
for the New Senior Secured Notes to be issued in the Exchange Offer and
printing of Prospectuses), messenger and delivery services and
telephone; (iv) all fees and disbursements of counsel for the Company;
(v) all application and filing fees in connection with listing Notes on
a national securities exchange or automated quotation system pursuant
to the requirements hereof; and (vi) all fees and disbursements of
independent certified public accountants of the Company (including the
expenses of any special audit and comfort letters required by or
incident to such performance).
The Company will, in any event, bear its internal
expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the
expenses of any annual audit and the fees and expenses of any Person,
including special experts, retained by the Company.
8. Indemnification and Contribution.
(a) In connection with a Shelf Registration Statement or in
connection with any delivery of a Prospectus contained in an Exchange Offer
Registration Statement by any Participating Broker-Dealer or Initial Purchaser,
as applicable, who seeks to sell New Senior Secured Notes, the Company shall
indemnify and hold harmless each Holder of Transfer Restricted Securities
included within any such Shelf Registration Statement and each participating
Broker-Dealer or Initial Purchaser selling New Senior Secured Securities, and
each person, if any, who controls any such person within the meaning of Section
15 of the Securities Act, (each, a "Participant") from and against any loss,
claim, damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or action
relating to purchases and sales of Senior Secured Notes), to which such
Participant or controlling person may become subject, under the Securities Act
or otherwise, insofar as such loss, claim, damage, liability or action arises
out of, or is based upon, (i) any untrue statement or alleged untrue statement
of a material fact contained in any such Registration Statement or any
prospectus forming part thereof or in any amendment or supplement thereto or
(ii) the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and shall reimburse each Participant promptly upon demand for any legal or other
expenses reasonably incurred by such Participant in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that (i) the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of, or is based upon,
any untrue statement or alleged untrue statement or omission or alleged omission
made in any such Registration Statement or any prospectus forming part thereof
or in any such amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by or on behalf of any Participant
<PAGE> 15
15
specifically for inclusion therein; and provided further that as to any
preliminary Prospectus, the indemnity agreement contained in this Section 8(a)
shall not inure to the benefit of any such Participant or any controlling person
of such Participant on account of any loss, claim, damage, liability or action
arising from the sale of the New Senior Secured Securities to any person by that
Participant if (i) that Participant failed to send or give a copy of the
Prospectus, as the same may be amended or supplemented, to that person within
the time required by the Securities Act and (ii) the untrue statement or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact in such preliminary Prospectus was corrected in the Prospectus,
unless, in each case, such failure resulted from non-compliance by the Company
with Section 6(c). The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to any Participant or to any
controlling person of that Participant.
(b) Each Participant, severally and not jointly, shall
indemnify and hold harmless the Company, each of its directors, officers,
employees or agents and each person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof, to
which the Company or any such director, officer, employees or agents or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary Prospectus, Registration Statement or
Prospectus or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of that Participant
specifically for inclusion therein, and shall reimburse the Company and any such
director, officer, employees or agents or controlling person for any legal or
other expenses reasonably incurred by the Company or any such director, officer,
employees or agents or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred. The foregoing indemnity agreement is in
addition to any liability which any Participant may otherwise have to the
Company or any such director, officer or controlling person.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 8.
If any such claim or action shall be brought against an indemnified party, and
it shall have notified the indemnifying party thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it wishes,
jointly with any other similarly notified indemnifying party, to assume the
defense thereof with counsel satisfactory to the indemnified party. After notice
from the indemnifying party to the indemnified party of its election to assume
the defense of such claim or action, the indemnifying party shall not be liable
to the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Initial Purchasers shall have the right to employ counsel to represent
jointly the Initial Purchasers and those other Participants and their respective
officers, employees and controlling persons who may be subject to liability
arising out of any claim in respect of which indemnity may be sought by the
Participants against the Company under this Section 8 if, in the reasonable
judgment of the Initial Purchasers it is advisable
<PAGE> 16
16
for the Initial Purchasers and those Participants, officers, employees and
controlling persons to be jointly represented by separate counsel, and in that
event the fees and expenses of such separate counsel shall be paid by the
Company. Each indemnified party, as a condition of the indemnity agreements
contained in Section 8, shall use its best efforts to cooperate with the
indemnifying party in the defense of any such action or claim. No indemnifying
party shall (i) without the prior written consent of the indemnified parties
(which consent shall not be unreasonably withheld), settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding,
or (ii) be liable for any settlement of any such action effected without its
written consent (which consent shall not be unreasonably withheld), but if
settled with its written consent or if there be a final judgment of the
plaintiff in any such action, the indemnifying party agrees to indemnify and
hold harmless any indemnified party from and against any loss of liability by
reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8
shall for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a) or 8(b) in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, in such
proportion as shall be appropriate to reflect the relative fault of the Company
on the one hand and the Participants on the other with respect to the statements
or omissions which resulted in such loss, claim, damage or liability, or action
in respect thereof, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Participants, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Participants agree that it would not be just and equitable
if contributions pursuant to this Section 8(d) were to be determined by pro rata
allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 8(d) shall be
deemed to include, for purposes of this Section 8(d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(d), no Participant shall be required to contribute
any amount in excess of the amount by which proceeds received by such
Participant from an offering of the Notes exceeds the amount of any damages
which such Participant has otherwise paid or become liable to pay by reason of
any untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Participants'
obligations to contribute as provided in this Section 8(d) are several and not
joint.
9. Rule 144A.
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
<PAGE> 17
17
Securities from such Holder or beneficial owner, the information required by
Rule 144A(d)(4) under the Securities Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.
10. Participation in Underwritten Registrations.
No Holder may participate in any Underwritten Registration
hereunder unless such Holder (a) agrees to sell such Holder's Transfer
Restricted Securities on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all reasonable questionnaires, powers of attorney,
indemnities, underwriting agreements, lockup letters and other documents
required under the terms of such underwriting arrangements.
11. Selection of Underwriters.
The Holders of Transfer Restricted Securities covered by the
Shelf Registration Statement who desire to do so may sell such Transfer
Restricted Securities in an Underwritten Offering. In any such Underwritten
Offering, the investment banker or investment bankers and manager or managers
that will administer the offering will be selected by the Holders of a majority
in aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company.
12. Miscellaneous.
(a) Remedies. The Company agrees that monetary
damages (including the liquidated damages contemplated hereby) would
not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agree to
waive the defense in any action for specific performance that a remedy
at law would be adequate.
(b) No Inconsistent Agreements. The Company will not
on or after the date of this Agreement enter into any agreement with
respect to its securities that is inconsistent with the rights granted
to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. The Company has not previously entered into any
agreement granting any registration rights with respect to their
securities to any Person. The rights granted to the Holders hereunder
do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's securities under any
agreement in effect on the date hereof.
(c) Adjustments Affecting the Notes. The Company will
not take any action, or permit any change to occur, with respect to the
Notes that would materially and adversely affect the ability of the
Holders to Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and waivers or
consents to or departures from the provisions hereof may not be given
unless the Company has obtained the written consent of Holders of a
majority of the outstanding principal amount of Transfer Restricted
Securities. Notwithstanding the foregoing, a waiver or consent to
departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the
Exchange Offer and that does not affect directly or indirectly the
rights of other Holders whose securities are not being tendered
pursuant to such Exchange Offer may be given by the Holders of a
majority of the outstanding principal amount of Transfer Restricted
Securities being tendered or registered.
<PAGE> 18
18
(e) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by
hand-delivery, first-class mail (registered or certified, return
receipt requested), telex, telecopier, or air courier guaranteeing
overnight delivery:
(i) if to a Holder, at the address set forth
on the records of the Registrar under the Indenture, with a
copy to the Registrar under the Indenture; and
(ii) if to the Company:
W. Earl Stogner,
Executive Vice President
and Chief Financial Officer
Shop Vac Corporation
2323 Reach Road
Williamsport, Pennsylvania 17701
With a copy to:
Kirk A. Davenport, Esq.
Latham & Watkins
53rd at Third, Suite 1000
885 Third Avenue
New York, New York 10022-4802
All such notices and communications shall be deemed
to have been duly given: at the time delivered by hand, if personally
delivered; five business days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when
receipt acknowledged, if telecopied; and on the next business day, if
timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other
communications shall be concurrently delivered by the Person giving the
same to the Trustee at the address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors and assigns
of each of the parties, including without limitation and without the
need for an express assignment, subsequent Holders of Transfer
Restricted Securities; provided, however, that this Agreement shall not
inure to the benefit of or be binding upon a successor or assign of a
Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities from such Holder.
(g) Counterparts. This Agreement may be executed in
any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the
same agreement.
<PAGE> 19
19
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more
of the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity,
legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be
affected or impaired thereby.
(k) Entire Agreement. This Agreement together with
the other Transaction Documents (as defined in the Purchase Agreement)
is intended by the parties as a final expression of their agreement and
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter
contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein with
respect to the registration rights granted by the Company with respect
to the Transfer Restricted Securities. This Agreement supersedes all
prior agreements and understandings between the parties with respect to
such subject matter.
(l) Required Consents. Whenever the consent or
approval of Holders of a specified percentage of Transfer Restricted
Securities is required hereunder, Transfer restricted Securities held
by the Company or its affiliates (as such term is defined in Rule 405
under the Securities Act) shall not be counted in determining whether
such consent or approval was given by the Holders of such required
percentage.
<PAGE> 20
20
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
SHOP VAC CORPORATION
By: /s/ W. Earl Stagner
---------------------------------
Name: W. Earl Stagner
Title:Executive Vice President and Chief Financial Officer
LEHMAN BROTHERS INC.
By: /s/ [Signature Illegible]
-------------------------------------
Name:
Title:
FIRST UNION CAPITAL MARKETS CORP.
By: /s/ R. Owen Williams
-------------------------------------
Name: R. Owen Williams
Title: Managing Director
<PAGE> 1
Exhibit 10.1
CREDIT AGREEMENT
between
SHOP VAC CORPORATION
and
FELCHAR MANUFACTURING
CORPORATION
as Borrowers
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA,
and certain other Lenders
and
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
as Agent
$25,000,000 Revolving Credit Facility
October 1, 1996
<PAGE> 2
TABLE OF CONTENTS
Page
----
Recitals.................................................................. 1
ARTICLE I
DEFINITIONS
1.1. Defined Terms ................................................... 1
1.2. Accounting Terms ................................................ 21
1.3. Singular/Plural ................................................. 21
1.4. Other Terms ..................................................... 21
ARTICLE II
AMOUNT AND TERMS OF THE LOANS;
LETTERS OF CREDIT
2.1. The Loans ....................................................... 21
2.2. Borrowings ...................................................... 22
2.3. Notes ........................................................... 23
2.4. Reduction of Commitments ........................................ 24
2.5. Payments; Voluntary, Mandatory .................................. 24
2.6. Interest ........................................................ 25
2.7. Fees ............................................................ 26
2.8. Interest Periods ................................................ 26
2.9. Conversions and Continuations ................................... 27
2.10. Method of Payments; Computations ................................ 28
2.11. Increased Costs, Change in Circumstances, etc ................... 29
2.12. Taxes ........................................................... 31
2.13. Compensation .................................................... 33
2.14. Use of Proceeds ................................................. 34
2.15. Recovery of Payments ............................................ 34
2.16. Pro Rata Borrowings ............................................. 34
2.17. Letters of Credit ............................................... 35
2.18. Weekly Settlement ............................................... 40
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<PAGE> 3
ARTICLE III
CLOSING; CONDITIONS OF CLOSING AND BORROWING
3.1 Closing ......................................................... 40
3.2 Conditions of Initial Loans and Advances ........................ 40
3.2.1 Executed Loan Documents ................................ 40
3.2.2 Closing Certificates; etc .............................. 40
3.2.3 Real Estate Matters .................................... 42
3.2.4 Environmental Assessment ............................... 42
3.2.5 Consents; No Adverse Change ............................ 42
3.2.6 Financial Matters ...................................... 42
3.2.7 Miscellaneous .......................................... 43
3.3 Conditions to All Loans and Advances ............................ 43
3.4 Waiver of Conditions Precedent .................................. 44
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Corporate Organization and Power ................................ 44
4.2 Subsidiaries .................................................... 44
4.3 Enforceability of Loan Documents; Compliance With Other
Instruments .................................................... 44
4.4 Use of Proceeds ................................................. 45
4.5 Governmental Authorization ...................................... 45
4.6 Litigation; Government Regulation ............................... 45
4.7 Taxes ........................................................... 45
4.8 Event of Default ................................................ 46
4.9 Margin Securities ............................................... 46
4.10 Full Disclosure ................................................. 46
4.11 ERISA ........................................................... 46
4.12 Financial Statements ............................................ 47
4.13 Solvency ........................................................ 48
4.14 Leased Properties ............................................... 48
4.15 Realty .......................................................... 48
4.16 Principal Places of Business .................................... 48
4.17 Assets for Conduct of Business .................................. 49
4.18 Trade Relations ................................................. 49
4.19 Compliance With Laws ............................................ 49
4.20 Environmental Matters ........................................... 49
4.21 Outstanding Borrowings .......................................... 50
4.22 Contracts; Labor Disputes ....................................... 50
4.23 Insurance ....................................................... 50
4.24 Ownership of Properties ......................................... 50
4.25 First Priority .................................................. 50
4.26 Investment Company .............................................. 51
4.27 Stock of the Borrowers .......................................... 51
-ii-
<PAGE> 4
4.28 Single Business Enterprise ...................................... 51
4.29 Material Contracts .............................................. 51
ARTICLE V
AFFIRMATIVE COVENANTS
5.1 Financial and Business Information about the Borrowers .......... 51
5.2 Notice of Certain Events ........................................ 53
5.3 Corporate Existence and Maintenance of Properties, Licenses ..... 54
5.4 Payment of Indebtedness; Performance of Other Obligations ....... 54
5.5 Payment of Trade Accounts Payable, etc .......................... 55
5.6 Insurance ....................................................... 55
5.7 Maintenance of Books and Records; Inspection .................... 56
5.8 Compliance with ERISA ........................................... 56
5.9 COBRA ........................................................... 57
5.10 Payment of Taxes ................................................ 57
5.11 Compliance with Statutes, etc ................................... 57
5.12 Name Change ..................................................... 57
5.13 Compliance with Environmental Laws .............................. 57
5.14 Lockbox Arrangement ............................................. 57
5.15 Further Assurances .............................................. 58
ARTICLE VI
NEGATIVE COVENANTS
6.1 Merger and Dissolution .......................................... 58
6.2 Acquisitions .................................................... 59
6.3 Indebtedness .................................................... 59
6.4 Liens and Encumbrances .......................................... 59
6.5 Contingent Obligations .......................................... 59
6.6 Disposition of Assets ........................................... 60
6.7 Transactions With Related Persons ............................... 60
6.8 Restricted Investments .......................................... 60
6.9 Restrictions on Dividends ....................................... 61
6.10 Capital Expenditures ............................................ 61
6.11 Leases .......................................................... 61
6.12 Interest Coverage Ratio ......................................... 61
6.13 Funded Debt/EBITDA Ratio ........................................ 61
6.14 Sale and leaseback .............................................. 62
6.15 Hazardous Substances ............................................ 62
6.16 Subsidiaries or Partnerships .................................... 62
6.17 New Business .................................................... 63
6.18 Fiscal Year ..................................................... 63
6.19 Amendments; Prepayments of Debt, Etc ............................ 63
6.20 Location of Assets .............................................. 63
6.21 Receivables Documents ........................................... 63
-iii-
<PAGE> 5
ARTICLE VII
EVENTS OF DEFAULT
7.1 Events of Default ............................................... 63
ARTICLE VIII
RIGHTS AND REMEDIES AFTER EVENT OF DEFAULT
8.1 Remedies: Termination of Commitments, Acceleration, etc ......... 65
8.2 Right of Set-off ................................................ 66
8.3 Rights and Remedies Cumulative; Non-Waiver; etc ................. 66
ARTICLE IX
THE AGENT
9.1 Appointment ..................................................... 67
9.2 Nature of Duties ................................................ 67
9.3 Absence of Reliance on the Agent ................................ 67
9.4 Certain Rights of the Agent ..................................... 68
9.5 Notice of Default ............................................... 68
9.6 Reliance by Agent ............................................... 69
9.7 Indemnification ................................................. 69
9.8 The Agent in its Individual Capacity ............................ 69
9.9 Holders ......................................................... 69
9.10 Successor Agent ................................................. 69
9.11 Collateral Matters .............................................. 70
ARTICLE X
MISCELLANEOUS
10.1 Survival ........................................................ 70
10.2 Governing Law, Consent to Jurisdiction .......................... 71
10.3 Waiver of Jury Trial ............................................ 71
10.4 Notice .......................................................... 73
10.5 Assignments, Participations ..................................... 75
10.6 Fees and Expenses ............................................... 77
10.7 Indemnification ................................................. 78
10.8 Amendments, Waivers, Etc ........................................ 78
10.9 Rights and Remedies Cumulative, Non-waiver, etc ................. 79
10.10 Binding Effect, Assignment ...................................... 80
10.11 Severability .................................................... 80
10.12 Entire Agreement ................................................ 80
10.13 Interpretation .................................................. 80
10.14 Counterparts; Effectiveness ..................................... 80
-iv-
<PAGE> 6
10.15 Conflict of Terms .................................................. 81
10.16 Injunctive Relief .................................................. 81
10.17 Confidentiality .................................................... 81
10.18 The Borrowers as Co-Obligors ....................................... 81
10.19 Post-Closing Matters ............................................... 82
SCHEDULES
Schedule 1.1(a) - Existing Liens
Schedule 4.1 - Foreign Jurisdiction; Names; Subsidiaries
Schedule 4.3 - Compliance with Other Instruments
Schedule 4.6 - Litigation; Government Regulation
Schedule 4.7 - Taxes
Schedule 4.11 - Employee Plans
Schedule 4.14 - Leased Properties
Schedule 4.15 - Realty
Schedule 4.16 - Principal Places of Business
Schedule 4.18 - Trade Relations
Schedule 4.20 - Environmental Matters
Schedule 4.21 - Outstanding Borrowings
Schedule 4.23 - Insurance
Schedule 4.29 - Material; Contracts
Schedule 6.5 - Contingent Obligations
EXHIBITS
Exhibit A - Form of Revolving Credit Note
Exhibit B-1 - Notice of Borrowing
Exhibit B-2 - Notice of Conversion/Continuation
Exhibit B-3 - Letter of Credit Request
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Borrowing Base Certificate
Exhibit E - Compliance Certificate
Attachment A: Covenant Compliance Worksheet
Exhibit F - Inventory Report
Exhibit G - Financial Condition Certificate
-v-
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of the 1st day of October, 1996 (the
"Credit Agreement" or "Agreement"), is between
SHOP VAC CORPORATION, a New Jersey corporation with its principal
offices in Williamsport, Pennsylvania, and FELCHAR MANUFACTURING CORPORATION, a
New York corporation with its principal offices in Kirkwood, New York
(collectively, the "Borrowers" or individually, a "Borrower");
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking
association with its principal offices in Charlotte, North Carolina ("First
Union"), and the other financial institutions that are now or hereafter become
parties hereto (collectively with First Union, the "Lenders"); and
FIRST UNION, as Agent for the Lenders to the extent described in ARTICLE
IX hereof (in such capacity, the "Agent").
RECITALS
A. The Borrowers have applied to the Lenders for a revolving credit loan
in the aggregate principal amount of up to $25,000,000, to be advanced by the
Lenders in accordance with the terms hereof.
B. Each of the Borrowers will pledge its accounts receivable and
inventory to secure its respective obligations hereunder and under the Loan
Documents.
C. The parties acknowledge that this Credit Agreement and each of the
Loan Documents (as hereinafter defined) have been negotiated and delivered in
Charlotte, North Carolina.
D. First Union has arranged or will arrange, at its discretion, for a
Lender or a syndicate of Lenders to make the Loans. The Lenders are willing to
make the Loans described hereinabove based on the terms and conditions set forth
in this Credit Agreement.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrowers, the Lenders, and
the Agent hereby agree as set forth herein.
ARTICLE I
DEFINITIONS
1.1. Defined Terms. For purposes of this Credit Agreement, in addition
to the terms defined elsewhere, the following terms shall have the meanings set
forth below:
<PAGE> 8
"Account Debtor" shall mean any Person who is or who may become
obligated to a Borrower under or on account of an Account or Account Receivable.
"Accounts" or "Accounts Receivable" shall have the meaning assigned to
such term in the Security Agreement.
"Adjusted Base Rate" shall mean a per annum rate equal to the Base Rate
plus 0.75%.
"Adjusted LIBOR Rate" shall mean a per annum rate equal to the LIBOR
Rate plus 2.00%
"Advance" shall mean an advance of funds by a Lender to the Agent
pursuant to the Commitment of such Lender, to be disbursed by the Agent to the
Borrowers as a Loan from such Lender.
"Affiliate" shall mean, as to any Person, each of the Persons (i) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with such Person; (ii) or which
beneficially owns or holds 10% or more of any class of the outstanding voting
stock (or in the case of a Person which is not a corporation 10% or more of the
equity interest) of such Person; or (iii) 10% or more of any class of the
outstanding voting stock (or in the case of a Person which is not a corporation,
10% or more of the equity interest) of which is beneficially owned or held by
the such Person. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting stock, by contract or
otherwise.
"Agent" shall mean First Union, as appointed in ARTICLE IX hereof, and
its successors and assigns.
"Agreement" or "this Agreement" or "Credit Agreement" shall mean this
Credit Agreement and any amendments, modifications and supplements hereto, any
replacements, renewals, extensions and restatements hereof, and any substitutes
herefor, in whole or in part and all Schedules and Exhibits hereto, and shall
refer to this Agreement as the same may be in effect at the time such reference
becomes operative.
"Assignment and Acceptance" shall mean an Assignment and Acceptance
Agreement substantially in the form of EXHIBIT C between a Lender and an
Eligible Assignee, and accepted by the Agent, pursuant to which such Lender
assigns to such Eligible Assignee, and the Eligible Assignee accepts, all or a
portion of such Lender's rights and obligations under this Credit Agreement.
"Bankruptcy Code" shall mean 11 U.S.C. Sections 101 et seq., as amended,
and any successor statute or statutes having substantially the same function.
"Base Rate" shall mean an interest rate per annum equal to the higher of
(i) the Prime Rate, or (ii) one-half percentage point (0.5%) in excess of the
Federal Funds Rate, as adjusted to conform to changes as of the opening of
business on the date of any such change in the Federal Funds Rate.
"Base Rate Loan" shall mean, at any time, any Loan that bears interest
at such time at the Adjusted Base Rate.
2
<PAGE> 9
"Borrowers" shall mean collectively Shop Vac Corporation, a New Jersey
corporation. and Felchar Manufacturing Corporation, a New York corporation,
together with and their respective permitted successors and assigns.
"Borrowing" shall mean the incurrence by the Borrowers on a given date
(including as a result of conversions of outstanding Loans pursuant to SECTION
2.9) of one Type of Loan, provided that Base Rate Loans incurred pursuant to
SECTION 2.11(c) shall be considered part of the related Borrowing of LIBOR
Loans.
"Borrowing Base" shall mean at any time, the amount, as determined in
accordance with the Borrowing Base Certificate most recently delivered to, and
accepted by, the Agent, equal to:
(i) Seventy-five percent (75%) of the face amount (less maximum
discounts, credits and allowances that may be taken by or
granted to Account Debtors in connection therewith) of Eligible
Accounts Receivable; plus
(ii) Thirty percent (30%) of Eligible Finished Goods Inventory
(provided, however, that the amount to be included in the
Borrowing Base attributable to Eligible Finished Goods Inventory
shall not exceed $7,000,000); less
(iii) any Reserves.
"Borrowing Base Certificate" shall mean a fully completed certificate in
the form of EXHIBIT D to this Credit Agreement.
"Borrowing Date" shall have the meaning assigned to such term in SECTION
2.2(a).
"Business Day" shall mean any day (other than a Saturday, Sunday or
legal holiday) on which commercial banks in Charlotte, North Carolina are open
for business, and with respect to any determination relevant to a LIBOR Loan or
any Swap Agreement, any Business Day which is also a Eurodollar Business Day.
"Capital Asset" shall mean any asset that would, in accordance with
Generally Accepted Accounting Principles, be required to be classified and
accounted for as a capital asset.
"Capital Expenditures" shall mean, for any period, the aggregate cost
(less the amount of any trade-in allowance included in such cost) of all Capital
Assets acquired by the Borrowers and their Subsidiaries during such period,
including Capital Lease Obligations incurred during such period.
"Capital Lease" shall mean any lease of any property, real or personal,
that would, in accordance with Generally Accepted Accounting Principles, be
required to be classified and accounted for as a capital lease on the balance
sheet of the lessee.
"Capital Lease Obligation" shall mean, with respect to any Capital
Lease, the amount of the obligation of the lessee thereunder that would, in
accordance with Generally Accepted Accounting Principles, appear on a balance
sheet as a liability of such lessee in respect of such Capital Lease.
3
<PAGE> 10
"Cash" shall mean currency of the United States of America.
"Cash Collateral Account" shall have the meaning assigned to such term
in SECTION 2.17(i).
"Cash Investments" shall mean (i) marketable direct obligations issued
or unconditionally fully guaranteed by the United States of America, issued by
any agency of the United States of America and backed by the full faith and
credit of the United States of America, in each case maturing within six months
from the date of acquisition thereof; (ii) marketable direct obligations issued
by any state of the United States of America or any political subdivision of any
such state or any public instrumentality thereof, in each case maturing within
six months from the date of acquisition thereof and, at the time of acquisition,
having the highest rating obtainable from either Standard & Poor's or Moody's
Investors Service, Inc. (the "Rating Agencies"); (iii) repurchase obligations of
any of the Lenders or their Affiliates with a term not exceeding seven (7) days
with respect to underlying securities of the types described in clause (i)
above; (iv) variable rate demand notes backed by letters of credit issued by any
of the Lenders or their Affiliates; (v) Eurodollar deposits in any of the
Lenders or their Affiliates; (vi) marketable commercial paper maturing no more
than six months from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 or the equivalent thereof by
Standard & Poor's or at least P-1 or the equivalent thereof by Moody's Investors
Service, Inc.; and (vii) demand deposits, time deposits and certificates of
deposit that are held or issued by a Lender, or are insured by the Federal
Deposit Insurance Corporation (the "FDIC") or any successor instrumentality of
the federal government of the United States of America up to the applicable
limit on insurance granted by the FDIC or such other instrumentality with
respect to such instruments (it being understood that the amount invested in
such instrument may not exceed the limit on such insurance), maturing within six
months from the date of issuance thereof and issued by any Lender or a bank or
trust company organized under the laws of the United States of America or any
state thereof and having capital, surplus and undivided profits aggregating at
least $500 million.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of Shop Vac Corporation and its Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than Principals or any Related Party, (ii) the adoption
of a plan relating to the liquidation or dissolution of Shop Vac Corporation,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as defined
above), other than the Principals or any Related Party becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act), directly or indirectly, of (a) more than 35% of the voting stock of the
Shop Vac Corporation and (b) more of the voting stock of the Shop Vac
Corporation than is at the time "beneficially owned" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act) by the Principals and their
Related Parties in the aggregate, or (iv) the first day on which a majority of
the members of the Board of Directors of Shop Vac Corporation are not Continuing
Directors.
"Closing" shall have the meaning assigned to such term in SECTION 3.1.
"Closing Date" shall mean the date referred to in SECTION 3.1 hereof.
"Collateral" shall mean all Accounts Receivable and Inventory of the
Borrowers, wherever located and whether now or hereafter existing or now owned
or hereafter acquired or arising, and all other collateral that shall, from time
to time, directly or indirectly secure the Obligations.
4
<PAGE> 11
"Commitment" shall mean, for any Lender, such Lender's Revolving Credit
Commitment.
"Compliance Certificate" shall mean a fully completed certificate in the
form of EXHIBIT E.
"Consolidated Net Income" shall mean, for any period, the net income (or
loss) of the Borrowers and their Subsidiaries, on a consolidated basis and
excluding intercompany items, for such period. determined in accordance with
Generally Accepted Accounting Principles, but excluding from the determination
of such net income (or loss): (a) gains (or losses) on the sale, conversion or
other disposition of Capital Assets, (b) gains (or losses) on the acquisition,
retirement, sale or other disposition of Stock of any Borrower or any of their
Subsidiaries, (c) gains (or losses) on the collection of life insurance
proceeds, (d) any write-up or write-down of any asset, and (e) any other gain or
credit (or loss) of an extraordinary nature.
"Contingent Obligation" shall mean, with respect to any Person, any
direct or indirect liability of such Person with respect to any Indebtedness,
lease, dividend, guaranty, letter of credit (other than a standby letter of
credit with no reasonable likelihood of draw, in the reasonable opinion of the
Agent) or other obligation (the "primary obligation") of another Person (the
"primary obligor"), whether or not contingent, (a) to purchase, repurchase or
otherwise acquire such primary obligations or any property constituting direct
or indirect security therefor, (b) to advance or provide funds (i) for the
payment or discharge of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency or any balance sheet item, level of income or financial
condition of the primary obligor, (c) 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 in respect thereof to make
payment of such primary obligation, or (d) otherwise to assure or hold harmless
the owner of any such primary obligation against loss or failure or inability to
perform in respect thereof. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Contingent Obligation is made (unless such
Contingent Obligation is limited by its terms in which case the amount of such
Contingent Obligation shall be such limited amounts) or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof as
determined by such Person in good faith.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of Shop Vac Corporation who (i) was a member of
such Board of Directors on the date of this Agreement or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board of Directors at the
time of such nomination or election.
"Current Assets" shall mean, at any date, the aggregate of the current
assets of the Borrowers and their Subsidiaries appearing on the asset side of
their consolidated balance sheet, as determined in accordance with Generally
Accepted Accounting Principles.
"Current Liabilities" shall mean, at any date, the aggregate of the
current liabilities of the Borrowers and their Subsidiaries appearing on the
liability side of their consolidated balance sheet, as determined in accordance
with Generally Accepted Accounting Principles, minus, to the extent otherwise
included in the calculation of such current liabilities, the principal balance
outstanding under the Revolving Loans.
5
<PAGE> 12
"Default" shall mean any event that, with the passage of time or giving
of notice, or both, would constitute an Event of Default.
"Default Rate" shall mean, with respect to any Loan, an interest rate
per annum equal to the Elected Rate applicable to such Loan plus two (2)
percentage points.
"Dollars" or "$" shall mean dollars of the United States of America.
"EBITDA" shall mean, with respect to the Borrowers and their
Subsidiaries on a consolidated basis as of the last day of any period, the
aggregate of (i) Consolidated Net Income for the immediately preceding period
then ended, plus (ii) without duplication, the sum of Interest Expense, losses
related to any foreign currency translations, taxes, depreciation, amortization
and other non-cash expenses or charges reducing income for such period (to the
extent taken into account in the calculation of Consolidated Net Income for such
period), minus (iii) without duplication, any income or gains realized upon the
sale of assets other than in the ordinary course of business, any gains related
to foreign currency translations and non-cash credits increasing Consolidated
Net Income for such period (to the extent taken into account in the calculation
of Consolidated Net Income for such period). In addition, notwithstanding
anything to the contrary herein, EBITDA with respect to the Borrowers and their
Subsidiaries on a consolidated basis for the quarter ending September 30, 1996,
shall mean EBITDA plus the reserve, not to exceed $6,400,000, for one-time
restructuring charges related to the consolidation or closing of certain of the
Borrowers' European subsidiaries.
"EPA" shall mean the United States Environmental Protection Agency.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and all rules and regulations from time to time
promulgated thereunder.
"ERISA Event" means (a) a Reportable Event with respect to a Qualified
Plan (as defined in SECTION 4.11); (b) a withdrawal by any Borrower from a
Qualified Plan subject to Section 4063 of ERISA during a plan year in which it
was a substantial employer (as defined in Section 4001(a)(2) of ERISA); (c) a
complete or partial withdrawal by any Borrower from a Multiemployer Plan; (d)
the filing of a notice of intent to terminate, the treatment of a plan amendment
as a termination under Section 4041 or 4041A of ERISA or the commencement of
proceedings by the Pension Benefit Guaranty Corporation to terminate a Qualified
Plan or Multiemployer Plan subject to Title IV of ERISA; (e) a failure to make
required contributions to a Qualified Plan or Multiemployer Plan; (f) an event
or condition which is reasonably expected to constitute grounds under Section
4042 of ERISA for the termination by the Pension Benefit Guaranty Corporation
of, or the appointment of a trustee to administer, any Qualified Plan or
Multiemployer Plan; (g) an application for a funding waiver or an extension of
any amortization period pursuant to Section 412 of the Internal Revenue Code
with respect to any Qualified Plan; (h) any Borrower engages in or otherwise
becomes liable for a material excise tax or civil penalty with respect to a
non-exempt prohibited transaction; or (i) a violation of the applicable
requirements of Section 404 or 405 of ERISA or the exclusive benefit rule under
Section 401(a) of the Internal Revenue Code by any fiduciary with respect to any
Qualified Plan for which any Borrower is found by a court of competent
jurisdiction to be liable.
"Elected Rate" shall mean the rate of interest with respect to a Loan
selected by the Borrowers pursuant to ARTICLE II or as may apply as a result of
a conversion.
6
<PAGE> 13
"Eligible Account Receivable" shall mean any bona fide Account created
or acquired by a Borrower in the ordinary course of its business that the Agent
deems to be an Eligible Account Receivable acting in good faith based on prudent
banking practices and on audits performed by the Agent with respect to such
Accounts. The Agent shall determine, on a daily basis, whether any Account
constitutes and continues to constitute an Eligible Account Receivable, and if
an Eligible Account Receivable subsequently becomes ineligible for any reason,
its ineligibility shall become effective immediately. In making its
determination whether an Account is an Eligible Account Receivable, the Agent
may consider whether an Account satisfies and continues to satisfy the following
requirements:
(a) The Account is a bona fide existing obligation of the named
Account Debtor arising from the sale and delivery of materials, merchandise or
the rendering of services to such Account Debtor in the ordinary course of a
Borrower's business, is actually and absolutely owing to such Borrower and is
not contingent for any reason, and such Borrower has lawful and absolute title
to such Account Receivable and the unqualified right to assign and grant a
security interest therein to the Agent on behalf of the Lender, as Collateral;
(b) The subject materials, merchandise or products have been
shipped or delivered on open account to the named Account Debtor on an absolute
sale basis and not on consignment, on approval or on a sale or return,
bill-and-hold or guaranteed sale basis or subject to any other repurchase or
return agreement, and no part of the subject goods has been returned nor notice
received by a Borrower that the goods will be returned;
(c) The Account is not evidenced by chattel paper or an
instrument of any kind, unless such chattel paper or instrument is duly endorsed
to and is in the possession of the Agent;
(d) Except for Account Debtors located in Canada (which for
purposes hereof will be treated as an Account Debtor located in the United
States), if the Account Debtor is located outside of the United States
(excluding its territories and possessions), the Account is payable in the full
amount of the face value of the Account in Dollars and is supported by (i) an
irrevocable letter of credit issued by a financial institution satisfactory to
the Agent, and the letter of credit and all documents required to draw thereon
have been delivered to the Agent, or (ii) credit insurance that is satisfactory
to the Agent and has been assigned to the Agent for the benefit of the Lenders;
(e) The Account is a valid, legally enforceable obligation of
the Account Debtor and no offset (including without limitation discounts,
counterclaims or contra accounts) or other defense on the part of such Account
Debtor or any claim on the part of such Account Debtor denying liability
thereunder has been asserted; provided, however, that if the Account Receivable
is subject to any such offset, defense or claim, or any Inventory related
thereto has been returned, the balance of such Account Receivable, after
subtracting the maximum amount of such offset, defense, claim, or return, shall
be an Eligible Account Receivable if it represents a valid, uncontested and
legally enforceable obligation of the Account Debtor and meets all of the other
criteria for eligibility set forth herein;
(f) Except for Permitted Liens, the Account is not subject to
any lien or security interest whatsoever, and a currently effective Financing
Statement filed by the Agent against each applicable Borrower covering such
Account Receivable is on file in all appropriate filing
7
<PAGE> 14
locations and, except for Permitted Liens. the Agent, on behalf of the Lenders,
has a first priority security interest therein;
(g) The Account has been billed within a reasonable period of time, is
due not more than one hundred twenty (120) days after its invoice date, and has
not remained unpaid for a period of more than sixty (60) days from its due date;
(h) The Account Debtor is Solvent and not the subject of any bankruptcy
or insolvency proceeding of any kind, and the creditworthiness of the Account
Debtor is, in all other respects, reasonably acceptable to the Agent, in its
reasonable discretion, at the time in question;
(i) The Account does not arise out of a transaction with an employee,
officer, agent, director, stockholder or other Affiliate of any Borrower;
(j) The Account is not due from a Account Debtor whose total
indebtedness to the Borrowers on Accounts Receivable exceeds twenty-five percent
(25%) of the aggregate amount of all the Borrowers' Eligible Accounts
Receivable (except when the Account Debtor is Walmart, in which case the total
indebtedness of such Account Debtor to the Borrowers on accounts Receivable does
not exceed forty percent (40%) of the aggregate amount of all the Borrowers
Eligible Accounts Receivable) provided, however, that only Accounts due from
such Account Debtor in excess of twenty-five percent (25%) of the aggregate
amount of all of the Borrowers Eligible Accounts Receivable shall be ineligible
(except when the Account Debtor is Walmart, in which case only Accounts due from
such Account Debtor in excess of forty (40%) of the aggregate amount of all of
the Borrowers' Eligible Accounts Receivable shall be ineligible);
(k) The Account is not due from an Account Debtor whose indebtedness to
the Borrowers on Accounts which are unpaid sixty (60) days or more after the due
date of the respective invoices exceeds fifty percent (50%) of such Account
Debtor's total indebtedness to the Borrowers;
(l) The Account does not arise out of a direct contract with the United
States of America, or any department, agency, subdivision or instrumentality
thereof, or if so, the applicable Borrowers have complied with all requirements
of the Federal Assignment of Claims Act relative to the assignment of such
Account Receivable to the Agent;
(m) There are no material regulatory, administrative or judicial
obstacles to the Agent's or the Lenders' direct enforcement of the Account
against the Account Debtor or to the Agent's or the Lenders' intervention in any
enforcement action that might be brought by any Borrower with respect thereto;
(n) The Account Debtor is not located in the State of New Jersey,
Minnesota, Indiana or Connecticut or any other state which requires that any
Borrower in order to sue any Person in such state's courts, either (i) qualify'
to do business in such state or (ii) file a report with the taxation department
of such states, or, if the Account Debtor is located in any such states, such
Borrower has either qualified as a foreign corporation authorized to transact
business in such state or has filed appropriate reports with the taxation
division for the then current year; except where the failure to qualify or file
would not impair the ability of such Borrower or its Subsidiaries to collect on
the Account from an Account Debtor located in such state; and
8
<PAGE> 15
(o) Any credit balances of an Account Debtor aged 90 days or more than
the invoice date shall not be included in Eligible Account Receivable.
"Eligible Assignee" shall mean (i) a commercial bank organized under the
laws of the United States or any state thereof and having total assets in excess
of $5,000,000,000, (ii) a commercial bank organized under the laws of any other
country that is a member of the OECD or a political subdivision of any such
country and having total assets in excess of $5,000,000,000, provided that such
bank is acting through a branch or agency located in the United States, in the
country under the laws of which it is organized or in another country that is
also a member of the OECD, (iii) the central bank of any country that is a
member of the OECD, (iv) a finance company, mutual funds, insurance company or
other financial institution that is engaged in making, purchasing or otherwise
investing in commercial loans in the ordinary course of its business and having
total assets in excess of $3,000,000,000, (v) any Affiliate of an existing
Lender or (vi) any other Person approved by the Agent and the Borrowers, which
approval shall not be unreasonably withheld.
"Eligible Finished Goods Inventory" shall mean all Finished Goods
Inventory created or acquired by a Borrower in the ordinary course of its
business as presently conducted or anticipated to be conducted that the Agent
reasonably deems to be Eligible Finished Goods Inventory acting in good faith
based on prudent banking practices and on audits performed by the Agent. The
Agent shall determine, on a daily basis, whether any such Inventory constitutes
and continues to constitute Eligible Finished Goods Inventory, and if Eligible
Finished Goods Inventory subsequently becomes ineligible for any reason, its
ineligibility shall become effective immediately. In making its determination of
Eligible Inventory, the Agent may consider whether the Finished Goods Inventory
satisfies and continues to satisfy the following requirements:
(a) The Finished Goods Inventory consists of finished goods in
each case located at the locations specified on Exhibit B to the Security
Agreement (as such Exhibit B may be amended from time to time) and shall not
include any Inventory not located at such locations;
(b) The Finished Goods Inventory is, in the Agent's reasonable
judgment, (j) in good saleable condition, (ii) not deteriorating in quality or
obsolete and (iii) subject to satisfactory internal control and management
procedures;
(c) The Finished Goods Inventory meets in all material respects
all standards imposed by any Governmental Authority having regulatory authority
over such Inventory, its use or sale, and is either currently usable or
currently saleable in the normal course of any Borrower's business;
(d) Except for the Agent's security interest, on behalf of the
Lenders, and Permitted Liens, the Finished Goods Inventory is not subject to any
lien or security interest whatsoever, and currently effective Financing
Statements filed by the Agent against each Borrower covering all Inventory are
on file in all appropriate filing locations where such Inventory is located and.
except for Permitted Liens the Agent, on behalf of the Lenders, has a first
priority perfected security interest in such Inventory;
(e) If the Inventory is located at a location that is leased to
any Borrower, either (i) the lessor (and if the lessor is not the owner of the
location, the owner) has executed and delivered a landlord agreement in
recordable form to the Agent in form and substance reasonably
9
<PAGE> 16
satisfactory to the Agent or (ii) if the lease is for a term no longer than
month-to-month, the lessor under such lease is entitled to no contractual or
statutory lien on such Inventory and the Borrowers furnish written evidence to
the Agent of each payment of rent or other charges under the lease within five
(5) days after payment;
(f) If the Inventory is located at a location under a bailment
with any Borrower, the bailee has executed and delivered a bailee agreement in
recordable form to the Agent in form and substance reasonably satisfactory to
the Agent;
(g) The Inventory is not consigned; and
(h) Each of the warranties and representations set forth in the
Security Agreement with respect to Inventory remains true and correct.
"Employee Plan" shall mean any "employee benefit plan" within the
meaning of Section 3(3) of ERISA maintained by the Borrowers.
"Environmental Claims" shall mean any and all administrative, regulatory
or judicial proceedings, suits, demands, demand letters, claims, liens or
notices of noncompliance or violation. arising out of a violation of or
liability under Environmental Law or any permit issued, or any approval given,
under any such Environmental Law (hereinafter, "Claims"), including, without
limitation, (i) any and all Claims by Governmental Authorities for enforcement,
cleanup, removal, response or remedial actions or damages pursuant to any
applicable Environmental Law and (ii) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Substances or arising from alleged
injury or threat of injury to health or the environment.
"Environmental Laws" shall mean any federal, provincial, state or local
law, statute, ordinance, rule, regulation, permit, license, order, approval, or
other legal requirement (including without limitation any subsequent enactment,
amendment or modification) relating to the protection of human health or the
environment, including, but not limited to, any requirement pertaining to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, handling, reporting, licensing, permitting, investigation or
remediation of materials that are or may constitute a threat to human health or
the environment. Without limiting the foregoing, each of the following is an
Environmental Law: the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. Section 9601 et. seq.) ("CERCLA"), the Hazardous
Material Transportation Act (49 U.S.C. Section 1801 et. seq.), the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et. seq.) ("RCRA"), the
Federal Water Pollution Control Act (33 U.S.C. Section 1251 et. seq.), the Clean
Air Act (42 U.S.C. Section 7401 et. seq.), the Toxic Substances Control Act (15
U.S.C. Section 2601 et. seq.), the Safe Drinking Water Act (42 U.S.C. Section
300, et. seq.), and the Occupational Safety and Health Act (29 U.S.C. Section
651 et. seq.) ("OSHA"), as such laws have been amended or supplemented, and each
similar federal, state and local statute, and each rule and regulation
promulgated thereunder.
"Eurodollar Business Day" shall mean a day on which commercial banks are
open for business (including dealings in foreign exchange and foreign currency
deposits in the London interbank market) in London, England.
"Event of Default" shall have the meaning specified in Article VII
hereof.
10
<PAGE> 17
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Facility" shall mean the Revolving Credit Facility.
"Federal Funds Rate" shall mean, for any day. a fluctuating interest
rate per annum equal to 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 for such day (or. if such day is not a
Business Day. for the next preceding Business Day) by the Federal Reserve Bank
of Richmond. or if such rate is not so published on the relevant Business Day,
the average of the quotations for such day on such transactions received by the
Agent from three federal funds brokers of recognized standing selected by the
Agent.
"Financial Condition Certificate" shall mean a fully completed Financial
Condition Certificate, in form and substance substantially similar to EXHIBIT H
hereto with the attachments required thereby.
"Financial Statements" shall mean the annual consolidated financial
statements of the Borrowers and their Subsidiaries for the periods ended
December 31,1995, December 31,1994, and December 31, 1993, and the unaudited
interim financial statements for the Borrowers and Subsidiaries for the seven
month period ended July 31, 1996; and all other financial statements of the
Borrowers and their Subsidiaries that have previously been delivered by the
Borrowers, any of these Subsidiaries to the Agent or any Lender, including
without limitation interim financial statements.
"Financing Statements" shall mean financing statements approved for
filing in accordance with the applicable adopted version of the Uniform
Commercial Code and all other titles, documents and certificates that the Agent
may reasonably require from the Borrowers to describe and perfect the security
interests created hereunder or under the other Loan Documents, and all
amendments thereto and assignments thereof, in form and substance reasonably
satisfactory to the Agent.
"Finished Goods Inventory" shall mean all Inventory consisting of
completed consumer and industrial wet/dry vacuum cleaners, component parts and
accessories that are ready for sale and finished plastic parts located at
Canton, Pennsylvania and Williamsport, Pennsylvania and shall include fully
manufactured goods of Felchar that are awaiting shipment to, or have been
shipped to, Shop Vac's facility in Williamsport, Pennsylvania, or awaiting
shipment to non-Borrower Subsidiaries or to original equipment manufacturers.
"First Union" shall mean First Union National Bank of North Carolina, a
national banking association, and its successors and assigns.
"Foreign Subsidiary" shall mean any direct or indirect subsidiary of a
Borrower that is organized and existing under the laws of any jurisdiction other
than a state of the United States of America.
"Foreign Subsidiary Letter of Credit Outstandings" shall mean, at any
time, the sum of (i) the aggregate Stated Amount of all outstanding Foreign
Subsidiary Letters of Credit at such time and (ii) the aggregate amount of all
outstanding Reimbursement Obligations at such time.
"Foreign Subsidiary Letters of Credit" shall mean Letters of Credit
issued pursuant to SECTION 2.17(a) for the benefit of a Foreign Subsidiary.
11
<PAGE> 18
"Funded Debt" shall mean all Indebtedness for borrowed money of any of
the Borrowers or their Subsidiaries on a consolidated basis less Cash and Cash
Investments.
"Generally Accepted Accounting Principles" shall mean generally accepted
accounting principles. as recognized by the American Institute of Certified
Public Accountants, consistently applied and maintained on a consistent basis
for the Borrowers and their Subsidiaries on a consolidated basis throughout the
period indicated and consistent with the financial practice of the Borrowers and
their Subsidiaries after the date hereof; provided, however, that, in the event
that changes in Generally Accepted Accounting Principles shall be mandated by
the Financial Accounting Standards Board, or any similar accounting body of
comparable standing, or shall be recommended by the Borrowers' certified public
accountants, to the extent that such changes would modify such accounting terms
or the interpretation or computation thereof, such changes shall be followed in
defining such accounting terms only from and after the date this Agreement shall
have been amended to the extent necessary to reflect any such changes in the
financial covenants and other terms and conditions of this Agreement.
"Generally Accepted Auditing Standards" shall mean those standards that
are generally accepted auditing standards as approved and adopted by the
membership of the American Institute of Certified Public Accountants,
specifically the General Standards, Standards of Fieldwork and Standards of
Reporting.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any central bank thereof, any municipal,
local, city or county government, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Hazardous Substances" means any substance or material meeting any one
or more of the following criteria: (i) it is defined as a hazardous waste,
hazardous substance, pollutant, contaminant or toxic substance under any
Environmental Law; (ii) it is toxic, explosive, corrosive, ignitable,
infectious, radioactive or mutagenic; (iii) its presence requires investigation
or remediation under an Environmental Law; or (iv) it is or contains, without
limiting the foregoing, asbestos, polychlorinated biphenyls, urea formaldehyde
foam insulation, petroleum hydrocarbons, crude oil, nuclear fuel, natural gas or
synthetic gas.
"Indebtedness" shall mean, without duplication, all liabilities,
obligations and indebtedness of the Borrowers and their Subsidiaries of any and
every kind and nature, including, without limitation, the Obligations,
obligations for borrowed money and interest thereon (including interest paid in
kind), whether heretofore, now or hereafter owing, arising, due or payable from
any Borrower or its Subsidiaries to any Person and howsoever evidenced, created,
incurred, acquired or owing, whether primary, secondary, direct, contingent,
fixed or otherwise and whether matured or unmatured. Without in any way limiting
(he generality of the foregoing, Indebtedness specifically includes the
following: (i) all obligations or liabilities of any Person that are secured by
any lien, claim, encumbrance or security interest upon property owned by any
Borrower or Subsidiary, even though such Borrower or Subsidiary has not assumed
or become liable for the payment thereof; (ii) all obligations or liabilities
created or arising under any Capital Lease of real or personal property, or
conditional sale or other title retention agreement with respect to property
used or acquired by any Borrower or Subsidiary', even though the rights and
remedies of the lessor, seller or lender thereunder are limited to repossession
of such property; and (iii) all obligations under any guaranty agreements,
letters of credit or other documents creating such
12
<PAGE> 19
contingent liabilities; provided that Indebtedness shall not include trade
payables, accrued expenses. accrued dividends, accrued income taxes, warranty
reserves and deferred income taxes, to the extent arising in the ordinary course
of business.
"Intercompany Loans" shall mean (i) loans by any of the Borrowers to the
Foreign Subsidiaries and (ii) Foreign Subsidiary Letters of Credit.
"Intercompany Loans" shall not include any amounts owing by a Foreign Subsidiary
to the Borrowers arising from a non cash transaction and reflected on the
Borrowers' Books as of September 30, 1996.
"Intercompany Loan Documents" shall mean Intercompany Notes and any
other documents evidencing or relating to Intercompany Loans.
"Intercompany Notes" shall mean the promissory notes of any Foreign
Subsidiary of a Borrower executed and delivered by a Foreign Subsidiary to a
Borrower evidencing the obligation of the Foreign Subsidiary to repay funds
advanced pursuant to an Intercompany Loan.
"Interest Expense" shall mean, for any period, total cash interest
expense of the Borrowers and their Subsidiaries on a consolidated basis for such
period (including, without limitation, cash interest expense attributable to
Capital Lease Obligations), less interest income for such period, determined in
accordance with Generally Accepted Accounting Principles.
"Interest Period" shall have the meaning set forth in SECTION 2.8
hereof.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
the same may be amended from time to time.
"Inventory" shall have the meaning assigned to such term in the Security
Agreement.
"Inventory Report" shall mean a fully completed certificate in the form
of EXHIBIT F to this Credit Agreement.
"Investments" shall have the meaning assigned to such term in SECTION
6.8.
"Issuing Bank" shall mean First Union, in its capacity as issuer of the
Letters of Credit, and its successors and assigns in such capacity.
"L/C Participant" shall have the meaning assigned w such term in SECTION
2.17(c).
"LIBOR Loan" shall mean, at any time, any Loan that bears interest at
such time at the adjusted LIBOR Rate.
"LIBOR Rate" shall mean, for any Interest Period, an interest rate per
annum (rounded upwards, if necessary, to the next higher 1/100 of one percentage
point) equal to an interest rate obtained by dividing (i) the rate of interest
determined by Lender to be the rate for deposits in U.S. dollars for the
applicable Interest Period which appears on the Telerate Page 3750 at
approximately 11:00 a.m. London time, three (3) Business Days prior to the first
date of the applicable Interest Period, or if such rate is not available, the
rate per annum at which, in the reasonable opinion of Lender, U.S. dollars in
the amount of the Loan request are being offered to leading reference banks for
settlement in the London
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<PAGE> 20
interbank market at approximately 11:00 a.m. London time, three (3) Business
Days prior to the first date of the applicable Interest Period. by (ii) the
percentage equal to one hundred percent (expressed as a decimal fraction) minus
the Reserve Requirement for such Interest Period. The LIBOR Rate shall be
adjusted as of the first day of each Interest Period to reflect the LIBOR Rate
as of such day. Each calculation by the Agent of the applicable LIBOR Rate shall
be conclusive and binding for all purposes.
absent bad faith or manifest error.
"Landlord Consents" shall mean (i) a waiver and consent from each
landlord with respect to the properties of the Borrower and its Subsidiaries
listed on SCHEDULE 4.14 and (ii) all other landlord consents that the Agent or
the Required Lenders may reasonably require of the Borrower or any of its
Subsidiaries from time to time in respect of amendments, modifications or
renewals of the leases referred to in clause (i) above or in respect of any
other material leases to which the Borrowers or any of their Subsidiaries are
now or hereafter a party, in each case in form and substance reasonably
satisfactory to the Agent, together with any amendments, modifications and
supplements thereto and restatements thereof, in whole or in part.
"Leased Properties" shall mean the real properties leased and occurred
by the Borrowers and their Subsidiaries, as of the date hereof and at any time
hereafter and consisting, as of the date hereof, of the properties set forth in
SCHEDULE 4.14 hereof.
"Lenders" shall mean First Union and the other financial institutions
now or hereafter parties to this Agreement, and their successors or assigns
"Lending Office" shall mean, with respect to any Lender, the branch or
branches (or Affiliates) from which any of such Lender's Loans are made or
maintained.
"Letter of Credit Outstandings" shall mean, at any time, the sum of (i)
the aggregate Stated Amount of all outstanding Letters of Credit, including
Foreign Subsidiary Letters of Credit, at such time and (ii) the aggregate amount
of all outstanding Reimbursement Obligations at such time.
"Letter of Credit Request" shall have the meaning assigned to such term
in SECTION 2.17(b).
"Letters of Credit" shall have the meaning assigned to such term in
SECTION 2.17(a), and shall include Foreign Subsidiary Letters of Credit.
"Lien" means any interest in property securing an obligation owed to, or
a claim by, a Person other than the owner of the property, whether such interest
is based on the common law, statute or contract, and including but not limited
to the lien or security interest arising from a mortgage, encumbrance, pledge,
security agreement, conditional sale or trust receipt or a lease, consignment or
bailment for security purposes. The term "Lien" shall include reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
property. For the purposes of this Agreement, the Borrowers and their
Subsidiaries shall be deemed to be the owners of any property which it or they
have acquired or hold subject to a conditional sale agreement, financing lease,
or other arrangement pursuant to which title to the property has been retained
by or vested in some other Person for security purposes.
"Loan Documents" shall mean and collectively refer to this Agreement,
the Notes, the Security Agreement, the Financing Statements, Swap Agreements, if
any, with a Lender relating to the Notes, and
14
<PAGE> 21
any and all agreements, instruments and documents, including, without
limitation, notes, guaranties. mortgages, deeds to secure debt, deeds of trust,
chattel mortgages, pledges, powers of attorney. consents. assignments.
contracts. notices, security agreements, lockbox agreements, trust account
agreements and all other written matters whether heretofore, now or hereafter
executed by or in behalf of any Borrower or its Subsidiaries or delivered to the
Agent or any Lender, with respect to this Agreement or with respect to the
transactions contemplated by this Agreement. and in each case, together with any
amendments, modifications and supplements thereto, any replacements, renewals,
extensions and restatements thereof, and any substitutes therefor, in whole or
in part.
"Loans" shall mean and collectively refer to the Revolving Credit Loans.
"Material Adverse Effect" or "Material Adverse Change" shall mean a
material adverse effect upon, or a material adverse change in, any of (i) the
financial condition, operations, business or properties of the Borrowers and
their Subsidiaries, taken as a whole; (ii) the ability of any Borrower or any
Subsidiary to perform under any Loan Document in any material respect; (iii) the
legality, validity or enforceability of any Loan Document; or (iv) the
perfection or priority of the liens of the Agent granted under the Loan
Documents or the rights and remedies of the Agent or the Lenders under the Loan
Documents for reasons other than the Agent's or any Lender's gross negligence or
wilful misconduct or the failure of the Agent or Lenders to file appropriate
continuation statements.
"Multiemployer Plan" shall mean any "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA to which any Borrower or any of its
Subsidiaries is, or has been, making or is required to make contributions.
"Norwich Property" shall have the meaning assigned to such term in
SECTION 6.6.
"Notes" shall mean the Revolving Credit Notes.
"Notice of Borrowing" shall have the meaning assigned to such term in
SECTION 2.2(a).
"Notice of Conversion/Continuation" shall have the meaning assigned to
such term in SECTION 2.9(b).
"Obligations" shall mean and include (i) the Loans, any Reimbursement
Obligations and all other loans, advances, indebtedness, liabilities,
obligations, covenants and duties owing, arising, due or payable from the
Borrowers and their Subsidiaries to the Agent, the Issuing Bank or any Lender of
any kind or nature, present or future, howsoever evidenced, created, incurred,
acquired or owing, arising under this Agreement, the Notes or the other Loan
Documents or in any other way related to this Agreement, whether direct or
indirect (including those acquired by assignment), absolute or contingent,
primary or secondary, due or to become due, now existing or hereafter arising
and however acquired, and (ii) all interest (including, to the extent permitted
by law, all post-petition interest), charges, expenses, fees, attorneys' fees
and any other sums payable by any Borrower to the Agent, the Issuing Bank or any
Lender under this Agreement or any of the other Loan Documents.
"Old Revolving Credit Facility" shall mean the revolving credit facility
extended to the Borrower by First Union National Bank pursuant to the Second
Amended and Restated Loan Agreement dated as of February 1,1994, as amended by a
First Amendment dated as of December 19, 1994, a Second Amendment dated May 25,
1995, a Third Amendment dated November 1, 1995, the Letter Agreement
15
<PAGE> 22
dated December 13, 1995, the Letter Agreement dated February 22, 1996 and the
Fourth Amendment and Omnibus Modification of Loan Documents dated August 28,
1996.
"Old Senior Notes" shall mean the Borrowers' 10.83 percent (10.83%)
Senior Secured Notes in the aggregate original principal amount of $40,000,000,
due April 30, 2001, executed and delivered by Borrowers pursuant to the terms of
the Note Agreements, each dated as of April 26,1991 as amended by First
Amendment, Joinder and Assumption Agreement dated as of February 1, 1994, a
Second Amendment Agreement dated as of May 25, 1995, a Third Amendment Agreement
dated as of July 1, 1995, a Fourth Amendment Agreement dated as of November 1,
1995 and a Fifth Amendment Agreement dated as of August 28, 1996, to Allstate
Life Insurance Company of New York, First Allmerica Financial Life Insurance
Company (formerly known as State Mutual Life Insurance Company of America),
Allmerica Financial Life Insurance and Annuity Company (formerly known as SMA
Life Assurance Company), Jefferson-Pilot Life Insurance Company, Ohio National
Life Assurance Corporation and First Union National Bank of North Carolina.
"Operating Lease" shall mean any lease of property that is not a Capital
Lease.
"Participant" shall mean any Person, now or at any time hereafter,
participating with the Lenders in the Loans to the Borrowers pursuant to this
Agreement, and its successors and assigns.
"Pension Plan" shall mean any "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA that is maintained by a Borrower (other than a
Multiemployer Plan).
"Percentage" shall mean, with respect to any Lender at any time, such
Lender's Revolving Credit Percentage at such time, as the context may require.
"Permitted Liens" shall mean any of the following liens securing any
Indebtedness of any of the Borrowers or any Subsidiary on the property, real or
personal, of any of the Borrowers or such Subsidiary, whether now owned or
hereafter acquired:
(a) Liens granted to the Agent, for the benefit of the Lenders;
(b) Liens imposed by mandatory provisions of law of carriers,
warehousemen, mechanics and materialmen incurred in the ordinary course of
business for sums not yet due and payable;
(c) Liens incurred in the ordinary course of business in
connection with worker's compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure the performance of letters of
credit, bids, tenders, statutory obligations, leases and contracts (other than
for borrowed money) including utility and similar deposits entered into in the
ordinary course of business, provided that all such liens in the aggregate have
no reasonable likelihood of causing a Material Adverse Effect;
(d) Liens for current taxes, assessments or other governmental
charges that are not delinquent or remain payable without any penalty or that
are being contested in good faith and with due diligence by appropriate
proceedings, provided that all such liens in the aggregate have no reasonable
likelihood of causing a Material Adverse Effect and, if reasonably requested by
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the Agent, such Borrower or such Subsidiary has established reserves determined
in accordance with Generally Accepted Accounting Principles with respect
thereto;
(e) Purchase money liens incurred in the purchase of Equipment permitted
under SECTION 6.10 hereof;
(f) Set-off rights of banks, whether statutory or consensual;
(g) zoning, entitlement, building and other land use regulations imposed
by Governmental Authorities having jurisdiction over the Realty which are not
violated by the current use of the Realty and covenants, conditions and
restrictions, easements and other matters of record affecting title to the
Realty which do not impair the use or occupancy of the Realty for the purposes
it is currently used;
(h) Leases referenced in SCHEDULE 4.14 hereto and any extensions,
amendments, modifications, renewals or replacements thereof;
(i) Liens on property that is the subject of a Capital Lease to secure
the performance of the Capital Lease Obligations relating thereto;
(j) Liens arising from Uniform Commercial Code financing statements
regarding operating leases permitted by this Agreement;
(k) Any interest or title of a lessor or sublessor or licensor under any
lease or license permitted by this Agreement;
(l) Liens set forth on SCHEDULE 1.1(a) attached hereto;
(m) Liens of Foreign Subsidiaries to secure Indebtedness permitted by
SECTION 6.3;
(n) Any other liens or encumbrances as the Required Lenders may approve
in writing from time to time.
"Person" shall mean a corporation, an association, a joint venture, a
partnership, a limited liability company, an organization, a business, an
individual, a trust or a government or political subdivision thereof or any
government agency or any other legal entity.
"Plan" means any employee benefit or other plan established or
maintained or with respect to which contributions have been made by any Borrower
or any of its domestic Subsidiaries, or under which the Borrower or its domestic
Subsidiaries have liability and which is covered by Title IV of ERISA or to
which the minimum funding standards of Section 412 of the Code apply.
"Prime Rate" shall mean the per annum interest rate publicly announced
from time to time by First Union National Bank of North Carolina from its
principal office in Charlotte, North Carolina to be its prime rate (which rate
is one of several interest rate bases used by Lender), as that rate may change
from time to time with changes to occur on the date the Prime Rate changes.
Lender lends at rate both above and below the Prime Rate, and the Borrowers
acknowledge and agree that the Prime Rate is not represented or intended to be
the lowest or most favorable rate of interest offered by Lender.
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"Principals" means Jonathan Miller and Matthew Miller.
"Prohibited Transaction" shall mean any transaction described in (i)
Section 406 of ERISA or (ii) Section 4975(c) of the Internal Revenue Code for
which there is no statutory, individual or class exemption.
"Projections" shall mean the financial projections described in SECTION
4.12(b).
"Pro Rata Share" of any amount shall mean, with respect to any Lender at
any time, the product of (i) such amount, multiplied by (ii) such Lender's
Percentage at such time under the Facility.
"Realty" shall mean all of the right, title and interest of the
Borrowers and any of their Subsidiaries in and to land, improvements and
fixtures, including any leasehold interests (whether as lessor or lessee).
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System, 12 C.F.R. Part 204, or any successor or other regulator
hereafter relating to reserve requirements applicable to member banks of the
Federal Reserve System.
"Regulation G" shall mean Regulation G of the Board of Governors of the
Federal Reserve System, 12 C.F.R. Part 207, or any successor or other regulation
hereafter promulgated by said Board to replace the prior Regulation G and having
substantially the same function.
"Regulation U" shall mean Regulation U promulgated by the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 221, or any successor or
other regulation hereafter promulgated by said Board to replace the prior
Regulation U and having substantially the same function.
"Regulation X" shall mean Regulation X promulgated by the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 224, or any successor or
other regulation hereafter promulgated by said Board to replace the prior
Regulation X and having substantially the same function.
"Reimbursement Obligation" shall have the meaning assigned to such term
in SECTION 2.17(d).
"Related Party" with respect to any Principal means (i) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (ii) trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (i).
"Reportable Event" shall mean a reportable event as defined in Section
4043(b) of ERISA (other than an event for which notice is waived under the ERISA
regulations).
"Required Lenders" shall mean, at any time, the Lenders owning or
holding 51 % or more of the sum of (i) the then aggregate principal amount of
the Loans then outstanding plus (ii) the aggregate Stated Amount of all Letters
of Credit then outstanding; or, if no Loans or Letters of Credit are then
outstanding, the Lenders with 51% or more of the aggregate of all Commitments at
such time. For purposes of this definition, the Stated Amount of each
outstanding Letter of Credit shall be considered to be owed to the Lenders
according to their respective Revolving Credit Percentages.
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"Requirement of Law" means, as to any Person, the charter, articles or
certificate of incorporation and bylaws or other organizational or governing
documents of such Person, and any statute, law, treaty, rule, regulation, order,
decree, writ, injunction or determination of any 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.
"Reserve Requirement" shall mean, with respect to any Interest Period,
the reserve percentage (expressed as a decimal) applicable two (2) Business Days
before the first clay of such Interest Period determined by the Agent to be in
effect on such day, as provided by the Board of Governors of the Federal Reserve
System (or any successor governmental body), applied for determining the maximum
reserve requirements (including, without limitation, basic, supplemental,
marginal and emergency reserves) applicable to the Lenders under Regulation D
with respect to "Eurocurrency liabilities" within the meaning of Regulation D,
or under any similar or successor regulation with respect to Eurocurrency
liabilities or Eurocurrency funding.
"Reserves" shall mean any reserves established by the Agent against the
Borrowing Base.
"Revolving Credit Commitment" shall mean, with respect to all of the
Lenders, the aggregate amount of $25,000,000, as such amount may be reduced
pursuant to the terms hereof and, with respect to any Lender at any time, the
amount set forth under such Lender's name on its signature page hereto under the
caption "Revolving Credit Commitment" or, if such Lender has entered into one or
more Assignment and Acceptances, the amount set forth for such Lender at such
time in the Register maintained by the Agent pursuant to SECTION 10.5(c) as such
Lender's "Revolving Credit Commitment," as such amount may be reduced at or
prior to such time pursuant to the terms hereof.
"Revolving Credit Facility" shall mean the revolving line of credit made
available by the Lenders to the Borrowers pursuant to SECTION 2.1(b) hereof.
"Revolving Credit Facility Maturity Date" shall mean September 30, 1999.
"Revolving Credit Facility Termination Date" shall mean the earliest of
(i) September 30, 1999; (ii) the date of termination after the occurrence of an
Event of Default; (iii) such date of termination as is mutually agreed upon by
the Lenders and the Borrowers; and (iv) the date after all Obligations have been
paid in full and the Lenders are no longer obligated to make Advances or
Revolving Credit Loans or issue Letters of Credit hereunder.
"Revolving Credit Loans" shall have the meaning assigned to such term in
SECTION 2.1(a).
"Revolving Credit Notes" shall mean the joint and several promissory
notes of the Borrowers, dated the date hereof, in substantially the form of
EXHIBIT A attached hereto, executed and delivered to the Lenders pursuant to
SECTION 2.3(b) hereof, or in connection with an Assignment and Acceptance
pursuant to SECTION 10.5(d), evidencing the obligation of the Borrowers to repay
funds advanced pursuant to the Revolving Credit Commitment of each Lender
individually, and the Total Revolving Credit Commitment in the aggregate,
together with any amendments, modifications and supplements thereto, any
replacements, restatements, renewals and extensions thereof, and any substitutes
therefor, in whole or part.
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"Revolving Credit Percentage" shall mean, with respect to any Lender at
any time, a fraction (expressed as a percentage) the numerator of which is the
Revolving Credit Commitment of such Lender at such time and the denominator of
which is the Total Revolving Credit Commitment at such time; provided that if
the Revolving Credit Percentage of any Lender is to be determined after the
Revolving Credit Commitments have been terminated, then such Revolving Credit
Percentage shall be determined immediately prior (and without giving effect) to
such termination.
"Security Agreement" shall mean the Security Agreement, dated as of the
date hereof, between the Borrowers and the Agent, whereby the Borrowers have
granted to the Agent a security interest in certain Collateral described therein
as security for the Obligations, together with any amendments, modifications and
supplements thereto, any replacements, renewals, extensions and restatements
thereof, and any substitutes therefor, in whole or in part.
"Senior Secured Notes" shall mean the Borrowers' promissory notes in the
aggregate principal amount of $100,000,000 bearing interest at 10 5/8% per
annum, maturing on September 2003 and issued pursuant to the Senior Secured
Notes Offering.
"Senior Secured Notes Offering" shall mean the offering pursuant to
which the Borrowers shall offer for sale the Senior Secured Notes pursuant to
the terms and conditions set forth in the offering memorandum by the Borrowers
dated October 1, 1996.
"Solvent" shall mean, as to any Person on any particular date, that such
Person (i) does not have unreasonably small capital to carry on its business as
now conducted and as presently proposed to be conducted, (ii) is able to pay its
debts as they become due in the ordinary course of business (taking into account
the timing and amounts of cash expected to be received by it, and amounts
expected to be payable on or in respect of its debts) and (iii) has assets with
a present fair saleable value greater than its total stated liabilities and
identified contingent liabilities taking into account the likelihood of
realization of such contingent liabilities.
"Stated Amount" shall mean, with respect to any Letter of Credit at any
time, the maximum amount available to be drawn thereunder at such time
(regardless of whether any conditions for drawing could then be met).
"Stock" shall mean all shares, options, interests or other equivalents
(howsoever designated) of or in a corporation or other entity, whether voting or
non-voting, including, without limitation, common stock, warrants, preferred
stock and common stock obtainable upon conversion of (i) convertible debentures
or (ii) any agreements, instruments and documents convertible, in whole or in
part, into any one or more or all of the foregoing.
"Subsidiary" shall mean any corporation or other entity of which more
than fifty percent (50%) of the outstanding Stock having ordinary voting power
to elect a majority of the board of directors is at the time, directly or
indirectly, owned by any Person or one or more of its Subsidiaries (irrespective
of whether, at the time, Stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency).
"Swap Agreement" shall mean any interest rate swap agreement, hedging
agreement or similar arrangement (including without limitation, any swap
agreement as defined in 11 U.S.C. Section 101(55) or any
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successor statute) between the Borrowers and a lender, now or hereafter
existing, pursuant to which the Borrowers obtain interest rate protection for
the Loans or any portion thereof.
"Total Commitment" shall mean, at any time, the sum of all Commitments
at such time.
"Total Debt" shall mean all Indebtedness of the Borrowers and their
Subsidiaries, on a consolidated basis.
"Total Revolving Credit Commitment" shall mean, at any time, the sum of
the Revolving Credit Commitments of each Lender at such time.
"Total Unutilized Revolving Credit Commitment" shall mean, at any time,
the sum of the Unutilized Revolving Credit Commitments of each Lender at such
time.
"Uniform Commercial Code" shall mean the Uniform Commercial Code of the
State of North Carolina, as amended from time to time, unless in any particular
instance the Uniform Commercial Code of another state is applicable, in which
case it shall mean the Uniform Commercial Code of such state.
"Unutilized Revolving Credit Commitment" shall mean, with respect to any
Lender at any time, such Lender's Revolving Credit Commitment at such time less
the sum of (i) the aggregate principal amount of all Revolving Credit Loans made
by such Lender that are outstanding at such time and (ii) such Lender's Pro Rata
Share of all Letter of Credit Outstandings at such time.
1.2. Accounting Terms. Any accounting terms used in this Agreement that
are not specifically defined shall have the meanings customarily given them in
accordance with Generally Accepted Accounting Principles.
1.3. Singular/Plural. Unless the context otherwise requires words in the
singular include the plural and words in the plural include the singular.
1.4. Other Terms. All other terms contained in this Agreement shall,
when the context so indicates, have the meanings provided for by the Uniform
Commercial Code of the State of North Carolina to the extent the same are used
or defined therein.
ARTICLE II
AMOUNT AND TERMS OF THE LOANS;
LETTERS OF CREDIT
2.1. The Loans.
(a) Each Lender severally agrees, subject to and on the terms and
conditions of this Agreement, to make Loans (each, a "Revolving Credit Loan" and
collectively, the "Revolving Credit Loans") to the Borrowers, jointly and
severally, from time to time on any Business Day during the period from the date
hereof to the Revolving Credit Facility Termination Date, provided that (i) the
aggregate principal amount of Revolving Credit Loans at any time outstanding for
any Lender shall not exceed the
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difference between (A) such Lender's Revolving Credit Commitment at such time
less (B) such Lender's Pro Rata Share (calculated based on its Revolving Credit
Percentage) of the aggregate Letter of Credit Outstandings at such time
(exclusive of Reimbursement Obligations that are repaid with the proceeds of,
and simultaneously with the incurrence of, Revolving Credit Loans) and (ii) no
Borrowing of Revolving Credit Loans shall be made if, immediately after giving
effect thereto, the sum of (X) the aggregate principal amount of Revolving
Credit Loans outstanding at such time plus (Y) the aggregate Letter of Credit
Outstandings at such time would exceed the lesser of (A) the Total Revolving
Credit Commitment and (B) the Borrowing Base, and (iii) no Borrowing of
Revolving Credit Loans shall be permitted if, immediately after giving effect
thereto, a Default or Event of Default exists. Subject to and on the terms and
conditions of this Agreement, the Borrowers may borrow, repay and reborrow
Revolving Credit Loans. Furthermore, no advances under the Revolving Loan Credit
Facility shall be made if the Agent has not received a current Borrowing Base
Certificate in accordance with the applicable provisions of SECTION 5.1(k).
(b) The Loans shall, at the option of the Borrowers and subject to the
terms and conditions of this Agreement, be either Base Rate Loans or LIBOR Loans
(each such type of Loan, a "Type"), provided that all Loans comprising the same
Borrowing shall, unless otherwise specifically provided herein, be of the same
Type.
2.2. Borrowings.
(a) Whenever the Borrowers desire to make a Borrowing (other than
continuations or conversions of outstanding Loans pursuant to SECTION 2.9) under
the Revolving Credit Facility, the Borrowers will give the Agent written notice
(by telecopier or otherwise), prior to 11:00 a.m., Charlotte, North Carolina
time, at least three (3) Business Days prior to each Borrowing to be comprised
of LIBOR Loans and by 12:00 p.m., Charlotte, North Carolina time, at least one
(1) Business Day prior to each Borrowing to be comprised of Base Rate Loans,
except in the cause of Borrowings through any lock box or similar arrangement
for which no advance notice is required. Each such notice (each, a "Notice of
Borrowing") shall be irrevocable, shall be given in the form of EXHIBIT B-1 and
shall be appropriately completed to specify (i) the aggregate principal amount
and Type of the Loans to be made pursuant to such Borrowing (and, in the case of
a Borrowing of LIBOR Loans, the initial Interest Period to be applicable
thereto), (ii) the identity of the Borrower for whose benefit the Borrowing will
be made, and (iii) the requested date of the Borrowing (the "Borrowing Date"),
which shall be a Business Day.
Notwithstanding anything to the contrary contained herein:
(i) the aggregate principal amount of each Borrowing
hereunder, in the case of Borrowings comprised of LIBOR
Loans, shall not be less than $1,000,000 and, if
greater, shall be in an integral multiple of $1,000,000
in excess thereof;
(ii) if the Borrowers shall have failed to designate the Type
of Loans comprising a Borrowing, the Borrowers shall be
deemed to have requested a Borrowing comprised of Base
Rate Loans;
(iii) if the Borrowers shall have failed to select the
duration of the Interest Period to be applicable to any
Borrowing of LIBOR Loans, then the Borrowers shall be
deemed to have selected an Interest Period with a
duration of one (1) month; and
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(iv) no more than five LIBOR Loans may be outstanding at any
one time.
(b) Upon the receipt of a Notice of Borrowing, the Agent will promptly
notify each Lender with a Revolving Credit Commitment of the proposed Borrowing,
of such Lender's Pro Rata Share thereof and of the other matters specified in
the Notice of Borrowing. Each such Lender will make the amount of its Pro Rata
Share of such Borrowing available to the Agent at its office referred to in
SECTION 10.4, for the account of the Borrowers, in Dollars and in immediately
available funds, prior to 2:00 p.m., Charlotte, North Carolina time, on the
Borrowing Date. To the extent the relevant Lenders have made such amounts
available to the Agent as provided hereinabove, the Agent will make the
aggregate of such amounts available to the Borrowers' account at the Agent's
office and in like funds as received by the Agent, prior to 3:00 p.m.,
Charlotte, North Carolina time, on the Borrowing Date.
(c) Unless the Agent has received, prior to 12:30 pm, Charlotte, North
Carolina time, on any Borrowing Date, written notice from a Lender that such
Lender will not make available to the Agent its Pro Rata Share of the relevant
Borrowing, the Agent may assume that such Lender has made its Pro Rata Share of
such Borrowing available to the Agent on such Borrowing Date in accordance with
subsection (b) above, and the Agent may, in reliance upon such assumption, make
a corresponding amount available to the Borrowers on such Borrowing Date. If and
to the extent that such Lender shall not have made such Pro Rata Share available
to the Agent, and the Agent shall have made such corresponding amount available
to the Borrowers, such Lender, on the one hand, and the Borrowers, on the other,
severally agree to pay to the Agent forthwith on demand such corresponding
amount, together with interest thereon for each day from the date such amount is
made available to the Borrowers until the date such amount is repaid to the
Agent, (i) if recovered from such Lender, at the Federal Funds Rate. and (ii) if
recovered from the Borrowers, at the rate of interest applicable to Loans
comprising such Borrowing, as determined under SECTION 2.6. If such Lender shall
repay to the Agent such corresponding amount, such amount so repaid shall
constitute such Lender's Loan as part of such Borrowing for purposes of this
Agreement.
(d) The failure of any Lender to make any Loan required to be made by it
as part of any Borrowing shall not relieve any other Lender of its obligation
hereunder to make its Loan on the respective Borrowing Date, but no Lender shall
be responsible for the failure of any other Lender to make the Loan to be made
by such other Lender as part of any Borrowing.
(e) Notwithstanding any other provision contained herein or in any of
the other Loan Documents, any Lender that refuses to fund or otherwise defaults
in the funding of its Pro Rata Share of any Borrowings requested and permitted
to be made by the Borrowers hereunder shall not, for so long as such refusal has
not been withdrawn or such default has not been cured, have any rights of
consent or approval or any voting rights whatsoever with respect to any matter
hereunder or under any of the other Loan Documents that requires or permits the
consent, approval or action of the Lenders, or any of them, and the Commitments
and the Loans of any such Lender shall not be taken into account for purposes of
determining, at any time during the continuation of any such refusal or default,
the Required Lenders or the number or percentage of Lenders that shall be
required for the Lenders or any of them to take or approve, or direct the Agent
to take, any action hereunder.
2.3. Notes
(a) The Loans made by each Lender shall be evidenced by a Revolving
Credit Note appropriately completed in substantially the form of EXHIBIT A-2.
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(b) The Revolving Credit Note issued to each Lender with a Revolving
Credit Commitment shall (i) be executed by the Borrowers, jointly and severally,
(ii) be payable to the order of such Lender. (iii) be dated as of the Closing
Date (or, in the case of Revolving Credit Notes issued pursuant to an Assignment
and Acceptance, as of the date thereof), (iv) be in a stated principal amount
equal to such Lender's Revolving Credit Commitment, (v) bear interest in
accordance with the provisions of Section 2.6, as the same may be applicable to
the Revolving Credit Loans made by such Lender from time to time, and (vi) be
entitled to all of the benefits of this Agreement and the other Loan Documents
and subject to the provisions hereof and thereof.
(c) Each Lender will record on its internal records the amount of each
Loan made by it and each payment received by it in respect thereof and will, in
the event of any transfer of any of its Notes, either endorse on the reverse
side thereof the outstanding principal amount of the Loans evidenced thereby as
of the date of transfer or provide such information on Annex I to the Assignment
and Acceptance relating to such transfer; provided, however, that the failure of
any Lender to make any such recordation or provide any such information, or any
error in such recordation or information, shall not affect any Borrower's
obligations in respect of such Loans.
2.4. Reduction of Commitments.
(a) At any time and from time to time, upon at least five (5) Business
Days' prior written notice to the Agent, the Borrowers may terminate in whole or
reduce in part the Total Unutilized Revolving Credit Commitment, provided that
any such partial reduction shall be in an aggregate amount of not less than
$1,000,000 or integral multiples thereof. The amount of any termination or
reduction made under this subsection (a) may not thereafter be reinstated.
(b) Upon any mandatory prepayment of the Loans pursuant to SECTION
2,5(c), the Total Revolving Credit Commitment shall be reduced by an amount
equal to the amount of the mandatory prepayment.
(c) Each reduction of the Revolving Credit Commitment under this Section
shall be applied ratably to the Revolving Credit Commitments of the Lenders
according to their respective Percentages under the Revolving Credit Facility.
After any such reduction, the fee provided for in SECTIONS 2.7(a) shall be
calculated with respect to the reduced Commitments.
2.5. Payments; Voluntary, Mandatory.
(a) The Borrowers shall have the right from time to time to prepay the
Loans, in whole or in part, upon written notice to the Agent, provided that,
unless made together with all amounts required under SECTION 2.13 to be paid as
a consequence of such prepayment, a prepayment of a LIBOR Loan may be made only
on the last day of the Interest Period applicable thereto. Each such notice
shall specify (x) the proposed date of such prepayment and (y) the aggregate
principal amount and the Types of the Loans to be prepaid (and, in the case of
LIBOR Loans, the specific Borrowing or Borrowings pursuant to which made) and
shall be irrevocable and shall bind the Borrowers to make such prepayment on the
terms specified therein. Amounts prepaid under the Revolving Credit Facility
pursuant to this subsection (a) may be reborrowed, subject to the terms and
conditions of this Agreement.
(b) In the event that the sum of (i) the aggregate principal amount of
the Revolving Credit Loans outstanding on any date plus (ii) the aggregate
Letter of Credit Outstandings as of such date exceeds the lesser of the Total
Revolving Credit Commitment as of such date (after giving effect to any
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termination or reduction thereof as of such date) or the Borrowing Base as of
such date, the Borrowers, jointly and severally, will repay the principal amount
of the Revolving Credit Loans on such date in the amount of such excess;
provided that, (A) such payment shall be accompanied by all amounts required
under SECTION 2.13 if applied to a LIBOR Loan and such payment is not made on
the last day of the Interest Period applicable thereto, and (B) to the extent
such excess amount required to be repaid is greater than the aggregate principal
amount of the Revolving Credit Loans outstanding immediately prior to the
application of such repayment, the amount so repaid shall be retained by the
Agent and held in the Cash Collateral Account as security for the Borrowers'
Reimbursement Obligations, as more particularly described in SECTION 2.17(i).
(c) On the date of receipt by the Borrowers or any of their Subsidiaries
of any proceeds from any issuance or sale of equity securities or subordinated
debt (except to the Borrowers by any of their Subsidiaries), the Borrowers shall
make mandatory repayment of principal of the Loans in an amount equal to one
hundred percent (100%) of such proceeds (net of any underwriting discounts and
commissions and other reasonable costs associated with such issuance or sale).
(d) Each prepayment under subsections (a) (other than ordinary course
payments pursuant to the lockbox account of the Borrowers) and (b) above shall
be made together with accrued interest to the date of such payment on the
principal amount so paid.
(e) The Borrowers, jointly and severally, shall repay the Revolving
Credit Notes in full on the Revolving Credit Facility Termination Date.
2.6. Interest.
(a) The Borrowers, jointly and severally, will pay interest in respect
of the unpaid principal amount of each Loan, from the date of Borrowing thereof
until such principal amount shall be paid in full, (i) at the Adjusted Base
Rate, as in effect from time to time during such periods as such Loan is a Base
Rate Loan, or (ii) at the Adjusted LIBOR Rate, as in effect from time to time
during such periods as such Loan is a LIBOR Loan. Once elected, the Adjusted
LIBOR Rate is fixed for the entire Interest Period selected.
(b) Any principal amounts of the Loans not paid when due or principal
existing after the occurrence of an Event of Default, and, to the greatest
extent permitted by law, all interest accrued on the Loans and all other fees
and amounts hereunder not paid when due (whether at maturity, pursuant to
acceleration or otherwise), shall bear interest at a rate per annum equal to the
interest rate then applicable to such Loans (whether the Adjusted Base Rate or
the Adjusted LIBOR Rate) plus two percentage points (2.0%), and such default
interest shall be payable on demand. To the greatest extent permitted by law,
interest shall continue to accrue after the filing by or against any Borrower of
any petition seeking any relief in bankruptcy or under any act or law pertaining
to insolvency or debtor relief, whether state, federal or foreign.
(c) Accrued (and theretofore unpaid) interest shall be payable (j) in
respect of each Base Rate Loan, in arrears on the last Business Day of each
month, beginning with the last Business Day of October 1996, (ii) in respect of
each LIBOR Loan, in arrears on the last Business Day of the Interest Period
applicable thereto (subject to the provisions of clause (iv) in SECTION 2.8),
and (iii) in respect of any Loan, on the date of any repayment or prepayment (in
respect of the amount so repaid or prepaid), at maturity (whether pursuant to
acceleration or otherwise) and, after maturity, on demand.
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(d) Nothing contained in this Agreement or in any other Loan Document
shall be deemed to establish or require the payment of interest to any Lender at
a rate in excess of the maximum rate permitted by applicable law. If the amount
of interest payable for the account of any Lender on any interest payment date
would exceed the maximum amount permitted by applicable law to be charged by
such Lender, the amount of interest payable for its account on such interest
payment date shall be automatically reduced to such maximum permissible amount.
In the event of any such reduction affecting any Lender, if from time to time
thereafter the amount of interest payable for the account of such Lender on any
interest payment date would be less than the maximum amount permitted by
applicable law to be charged by such Lender, then the amount of interest payable
for its account on such subsequent interest payment date shall be automatically
increased to such maximum permissible amount, provided that at no time shall the
aggregate amount by which interest paid for the account of any Lender has been
increased pursuant to this sentence exceed the aggregate amount by which
interest paid for its account has theretofore been reduced pursuant to the
previous sentence.
(e) The Agent shall promptly notify the Borrowers and the Lenders upon
determining the interest rate for each Borrowing after its receipt of the
relevant Notice of Borrowing or Notice of Conversion/Continuation; provided,
however, that the failure of the Agent to provide the Borrowers or the Lenders
with any such notice shall neither affect any obligations of the Borrowers or
the Lenders hereunder nor result in any liability on the part of the Agent to
the Borrowers or any Lender. Each such determination (including each
determination of the Reserve Requirement in connection with a Borrowing of LIBOR
Loans) shall, absent manifest error, be final and conclusive and binding on all
parties hereto.
2.7. Fees. The Borrowers, jointly and severally, agree to pay:
(a) To the Agent, for the account of each Lender with a Revolving Credit
Commitment, a facility fee per annum for the period from the Closing Date to the
Revolving Credit Facility Termination Date at the rate of 0.375% per annum,
applied to the average daily Unutilized Revolving Credit Commitment of such
Lender, payable in arrears (i) on the last Business Day of each month, beginning
with the last Business Day of October 1996, and (ii) on the Revolving Credit
Facility Termination Date;
(b) To the Agent, for the account of each Lender with a Revolving Credit
Commitment, a letter of credit fee in respect of each Letter of Credit for the
period from the date of its issuance to the date of its termination, in the
amount of 1.00% per annum on the Stated Amount thereof, payable in advance;
(c) To the Issuing Bank, for its own account, a facing fee in respect of
each Letter of Credit for the period from the date of its issuance to the date
of its termination, at the rate of 0.125% per annum on the Stated Amount
thereof, payable in advance;
(d) To the Issuing Bank, for its own account, such commissions, issuance
fees, transfer fees and other fees and charges incurred in connection with the
issuance and administration of each Letter of Credit as are customarily charged
from time to time by the Issuing Bank for the performance of such services in
connection with similar letters of credit, or as may be otherwise agreed to by
the Issuing Bank, but without duplication of amounts payable under subsection
(c) above; and
(e) To the Agent, an agent fee, if any, in accordance with the fee
letter, if any.
2.8. Interest Periods. Concurrently with the giving of any Notice of
Borrowing or Notice of Conversion/Continuation in respect of any Borrowing
comprised of LIBOR Loans, the Borrowers shall have the right to elect, pursuant
to such notice, the interest period (each, an "Interest Period") to be
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applicable to such LIBOR Loans, which Interest Period shall, at the option of
the Borrowers, be a one (1), two (2), or three (3) month period (subject to
availability); provided, however, that:
(i) all LIBOR Loans comprising a single Borrowing shall at
all times have the same Interest Period;
(ii) the initial Interest Period for any LIBOR Loan shall
commence on the date of the Borrowing of such Loan
(including the date of any continuation of, or
conversion into, such LIBOR Loan), and each successive
Interest Period applicable to such LIBOR Loan shall
commence on the day on which the next preceding Interest
Period applicable thereto expires;
(iii) the Borrowers may not select any Interest Period that
expires after the Revolving Credit Facility Maturity
Date;
(iv) if any Interest Period otherwise would expire on a day
that is not a Business Day, such Interest Period shall
expire on the next succeeding Business Day unless such
next succeeding Business Day falls in another calendar
month, in which case such Interest Period shall expire
on the next preceding Business Day;
(v) if any Interest Period begins on a day for which there
is no numerically corresponding day in the calendar
month during which such Interest Period would otherwise
expire, such Interest Period shall expire on the last
Business Day of such calendar month; and
(vi) if, upon the expiration of any Interest Period
applicable to a Borrowing of LIBOR Loans, the Borrowers
shall have failed to elect a new Interest Period to be
applicable to such LIBOR Loans, then the Borrowers shall
be deemed to have elected to convert such LIBOR Loans
into Base Rate Loans as of the expiration of the then
current Interest Period applicable thereto.
2.9. Conversions and Continuations.
(a) The Borrowers shall have the right, on any Business Day, to elect
(y) to convert all (or a portion in an amount not less than, in the case of
LIBOR Loans, $1,000,000 or, if greater, an integral multiple of $1,000,000 in
excess thereof) of the outstanding principal amount of any Loans of one Type
made pursuant to one or more Borrowings under any Facility (and, in the case of
LIBOR Loans, having the same Interest Period) into a Borrowing or Borrowings of
Loans of the other Type, or (z) to continue all (or a portion, subject to the
restrictions as to amount set forth in clause (y) above) of the outstanding
principal amount of any LIBOR Loans made pursuant to one or more Borrowings (and
having the same Interest Period) for an additional Interest Period, provided
that (i) except as otherwise provided for in SECTION 2.11(d), LIBOR Loans may be
converted into Base Rate Loans only on the last day of the Interest Period
applicable thereto (and, in any event, if a LIBOR Loan is converted into a Base
Rate Loan on any day other than the last day of the Interest Period applicable
thereto, the Borrowers will pay, upon such conversion, all amounts required
under SECTION 2.13 to be paid as a consequence thereof), (ii) if any partial
conversion of LIBOR Loans into Base Rate Loans shall have reduced the
outstanding principal amount of the remaining LIBOR Loans made pursuant to a
single Borrowing (and thereby continued) to less than $1,000,000, such remaining
LIBOR Loans shall be converted immediately into Base Rate Loans and may not
thereafter be converted into or continued as LIBOR Loans unless the requirements
of clause (y) above are satisfied, (iii) no conversion of Base Rate Loans into
LIBOR Loans or continuation of
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LIBOR Loans shall be permitted during the continuance of a Default or Event of
Default and (iv) no conversion or continuation under this Section shall result
in a greater number of separate Interest Periods in respect of LIBOR Loans under
the Facility than is permitted under SECTION 2.2(a)(iv).
(b) The Borrowers shall make each such election by delivering written
notice to the Agent prior to 11:00 a.m., Charlotte, North Carolina time, at
least three (3) Business Days prior to the effective date of any conversion of
Base Rate Loans into, or continuation of, LIBOR Loans and prior to 11:00 a.m.,
Charlotte, North Carolina time on the effective date of any conversion of LIBOR
Loans into Base Rate Loans. Each such notice (each, a "Notice of
Conversion/Continuation") shall be irrevocable, shall be given in the form of
EXHIBIT B-2 and shall be appropriately completed to specify (x) the date of such
conversion or continuation, (y) in the case of a conversion into, or a
continuation of, LIBOR Loans, the Interest Period to be applicable thereto and
(z) the aggregate amount and Type of the Loans being converted or continued.
Upon the receipt of a Notice of Conversion/Continuation, the Agent will promptly
notify each Lender of the proposed conversion or continuation, of such Lender's
Pro Rata Share thereof and of the other matters specified in the Notice of
Conversion/Continuation. In the event that the Borrowers shall fail to deliver a
Notice of Conversion/Continuation as provided hereinabove with respect to any
Borrowing of LIBOR Loans, such LIBOR Loans shall automatically be converted to
Base Rate Loans upon the expiration of the then current Interest Period
applicable thereto.
2.10. Method of Payments; Computations.
(a) All payments by the Borrowers hereunder and under the Notes shall be
made without setoff, counterclaim or other defense, in Dollars and in
immediately available funds to the Agent, for the account of the Lenders (except
as otherwise provided in SECTIONS 2.7(c), 2.7(d), 2.17, 10.5 and 10.6 as to
payments required to be made directly to the Agent or the Issuing Bank (for
their own accounts), the Issuing Bank or the Lenders) at its office referred to
in SECTION 10.4, prior to 12:00 noon, Charlotte, North Carolina time, on the
date payment is due. Any payment made as required hereinabove, but after 12:00
noon, Charlotte, North Carolina time, shall be deemed to have been made on the
next succeeding Business Day. If any payment falls due on a day that is not a
Business Day, then such due date shall be extended to the next succeeding
Business Day (except that in the case of LIBOR Loans to which the provisions of
clause (iv) in SECTION 2.8 are applicable, such due date shall be the next
preceding Business Day), and such extension of time shall then be included in
the computation of payment of interest, fees or other applicable amounts.
(b) The Agent will distribute to the Lenders like amounts relating to
payments made to the . Agent for the account of such Lenders as follows: (i) if
the payment is received by 12:00 noon, Charlotte, North Carolina time, in
immediately available funds, the Agent will make available to each such Lender
on the same date, by wire transfer of immediately available funds, such Lender's
Pro Rata Share of such payment, and (ii) if such payment is received after 12:00
noon, Charlotte, North Carolina time, or in other' than immediately available
funds, the Agent will make available to each such Lender its Pro Rata Share of
such payment by wire transfer of immediately available funds on the next
succeeding Business Day (or in the case of uncollected funds, as soon as
practicable after collected). If the Agent shall not have made a required
distribution to the appropriate Lenders as required hereinabove after receiving
a payment for the account of such Lenders, the Agent will pay to each such
Lender, on demand, its Pro Rata Share of such payment with interest thereon at
the Federal Funds Rate for each day from the date such amount was required to be
disbursed by the Agent until the date repaid to such Lender. The Agent will
distribute to the Issuing Bank like amounts relating to payments made to the
Agent for the account of the Issuing Bank in the same manner, and subject to the
same terms and conditions, as set forth hereinabove with respect to
distributions of amounts to the Lenders.
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(c) Unless the Agent shall have received notice from the Borrowers prior
to the date on which any payment is due to any Lender hereunder that such
payment will not be made in full, the Agent may assume that the Borrowers have
made such payment in full to the Agent on such date, and the Agent may, in
reliance on such assumption, cause to be distributed to each Lender on such due
date an amount equal to the amount then due to each such Lender. If and to the
extent the Borrowers shall not have so made such payment in full to the Agent,
each such Lender shall repay to the Agent forthwith on demand such amount so
distributed to such Lender, together with interest thereon for each day from the
date such amount is so distributed to such Lender until the date repaid to the
Agent, at the Federal Funds Rate.
(d) Each Borrower hereby authorizes each Lender, if and to the extent
that any payment owed to such Lender is not made when due hereunder or under any
Note held by such Lender, to charge from time to time against any or all of the
accounts of such Borrower with such Lender any amount so due or to satisfy any
such payment due by advancing a Revolving Credit Loan in the amount of such
payment.
(e) With respect to each payment on the Loans hereunder, except as
specifically provided otherwise herein or in any of the other Loan Documents,
the Borrowers may designate by written notice to the Agent prior to or
concurrently with such payment the Types of Loans that are to be repaid or
prepaid and, in the case of LIBOR Loans, the specific Borrowing or Borrowings
under the respective Facility pursuant to which made, provided that (i) unless
made together with all amounts required under SECTION 2.13 to be paid as a
consequence thereof, a prepayment of a LIBOR Loan may be made only on the last
day of the Interest Period applicable thereto, (ii) if any partial prepayment of
LIBOR Loans made pursuant to any single Borrowing shall reduce the outstanding
principal amount of the remaining LIBOR Loans under such Borrowing to less than
$1,000,000, such remaining LIBOR Loans shall be converted immediately into Base
Rate Loans and (iii) each prepayment of Loans comprising a single Borrowing
shall be applied pro rata among such Loans. In the absence of any such
designation by the Borrowers, the Agent shall, subject to the foregoing, make
such designation in its sole discretion.
(f) All computations of interest and fees hereunder shall be made on the
basis of a year consisting of 360 days and the actual number of days (including
the first day, but excluding the last day) elapsed.
2.11. Increased Costs, Change in Circumstances, etc.
(a) If, at any time after the Closing Date and from time to time, the
adoption or modification of any applicable law, rule or regulation, or any
interpretation or administration thereof by any Governmental Authority or
central bank (whether or not having the force of law) charged with the
interpretation, administration or compliance of the Lenders with any of such
requirements, shall:
(i) subject any Lender to, or increase the net amount of,
any tax, impost, duty, charge or withholding with
respect to any amount received or to be received
hereunder in connection with LIBOR Loans (other than
taxes imposed on net income or profits of, or any branch
or franchise tax applicable to, such Lender or a Lending
Office of such Lender);
(ii) change the basis of taxation of payments to any Lender
in connection with LIBOR Loans (other than changes in
taxes on the net income or profits of, or any branch or
franchise tax applicable to, such Lender or a Lending
Office of such Lender);
(iii) impose, increase or render applicable any reserve (other
than the Reserve Requirement), capital adequacy, special
deposit or similar requirement against
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<PAGE> 36
assets of, deposits with or for the account of, or
loans, credit or commitments extended by, any Lender or
a Lending Office of such Lender; or
(iv) impose on any Lender or in the London interbank
Eurodollar market any other condition or requirement
affecting this Agreement or LIBOR Loans;
and the result of any of the foregoing is to increase the costs to any Lender of
agreeing to make, making, funding or maintaining any LIBOR Loans or to reduce
the yield or rate of return of such Lender on any LIBOR Loans to a level below
that which such Lender could have achieved but for the adoption or modification
of any such requirements, the Borrowers will, within fifteen (15) days after
delivery to the Borrowers by such Lender of written demand therefor (with a copy
thereof to the Agent), jointly and severally pay to such Lender such additional
amounts as shall compensate such Lender for such increase in costs or reduction
in return.
(b) If, at any time after the Closing Date and from time to time, any
Lender shall have determined that the adoption or modification of any applicable
federal, state or local law, rule or regulation regarding such Lender's required
level of capital (including any allocation of cash requirements or conditions,
but excluding federal, state or local income tax liability), or the
implementation of any such requirements previously adopted but not implemented
prior to the Closing Date, or any interpretation or administration thereof by
any Governmental Authority (whether or not having the force of law) charged with
the interpretation, administration or compliance of such Lender with any of such
requirements, has or would have the effect of reducing the rate of return on
such Lender's capital as a consequence of its Commitments, Loans or
participations in Letters of Credit hereunder to a level below that which such
Lender could have achieved but for such adoption, modification, implementation
or interpretation (taking into account such Lender's policies with respect to
capital adequacy), the Borrowers will, within fifteen (15) days after delivery
to the Borrowers by such Lender of written demand therefor (with a copy thereof
to the Agent), jointly and severally pay to such Lender such additional amounts
as will compensate such Lender for such reduction in return.
(c) If, on or prior to the first day of any Interest Period, (i) the
Agent shall have received written notice from any Lender of such Lender's
determination that Dollar deposits in the amount of such Lender's required LIBOR
Loan pursuant to such Borrowing are not generally available in the London
interbank Eurodollar market or that the rate at which such Dollar deposits are
being offered will not adequately and fairly reflect the cost to such Lender of
making or maintaining its LIBOR Loan during such Interest Period or (ii) the
Agent shall have determined that adequate and reasonable means do not exist for
ascertaining the applicable LIBOR Rate for such Interest Period, the Agent will
forthwith so notify the Borrowers and the Lenders, whereupon the obligation of
(y) in the case of clause (i) above, each such affected Lender, and (z) in the
case of clause (ii) above, all Lenders, in each case to make, to convert Base
Rate Loans into, or to continue, LIBOR Loans shall be suspended (including
pursuant to the Borrowing to which such Interest Period applies), and any Notice
of Borrowing or Notice of Conversion/Continuation given at any time thereafter
with respect to LIBOR Loans shall be deemed to be a request for Base Rate Loans
(but in the case of clause (i) above, only to the extent of such affected
Lender's Pro Rata Share thereof) until the Agent or the affected Lender, as the
case may be, shall have determined that the circumstances giving rise to such
suspension no longer exist (and the affected Lender, if making such
determination, shall have so notified the Agent), and the Agent shall have so
notified the Borrowers and the Lenders.
(d) Notwithstanding any other provision in this Agreement, if, at any
time after the Closing Date and from time to time, any Lender shall have
determined that the adoption or motivation of any applicable law, rule or
regulation, or any interpretation or administration thereof by any governmental
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Authority or central bank (whether or not having the force of law) charged with
the interpretation, administration or compliance of such Lender with any of such
requirements, has or would have the effect of making it unlawful for such Lender
to honor its obligation to make LIBOR Loans or to continue to make or maintain
LIBOR Loans, such Lender will forthwith so notify the Agent and the Borrowers,
whereupon (i) each of such Lender's outstanding LIBOR Loans shall automatically,
on the expiration date of the respective Interest Period applicable thereto or,
to the extent any such LIBOR Loan may not lawfully be maintained as a LIBOR Loan
until such expiration date, upon such notice, be converted into a Base Rate Loan
and (ii) the obligation of such Lender to make, to convert Base Rate Loans into,
or to continue, LIBOR Loans shall be suspended, and any Notice of Borrowing or
Notice of Conversion/Continuation given at any time thereafter with respect to
LIBOR Loans shall, as to such Lender, be deemed to be a request for Base Rate
Loans, until such Lender shall have determined that the circumstances giving
rise to such suspension no longer exist and shall have so notified the Agent,
and the Agent shall have so notified the Borrowers.
(e) Determinations by the Agent or any Lender for purposes of this
SECTION 2.11 of any increased costs, reduction in return, market contingencies,
illegality or any other matter shall, absent manifest error, be conclusive,
provided that such determinations are made in good faith. Each Lender agrees
that, upon the occurrence of any event giving rise to the operation of this
SECTION 2.11 with respect to such Lender, it will, if requested by the Borrowers
and to the extent permitted by law, endeavor in good faith to designate another
Lending Office for its LIBOR Loans, but only if such designation would make it
lawful for such Lender to continue to make or maintain LIBOR Loans hereunder;
provided that such designation is made on such terms that such Lender, in its
good faith determination, suffers no increased cost or economic, legal or
regulatory disadvantage, with the object of avoiding the consequence of the
event giving rise to the operation of this SECTION 2.11.
(f) Each demand for payment under this SECTION 2.11 shall be preceded by
a notice to the Borrowers of such anticipated demand, which notice shall specify
in reasonable detail the basis for such demand, but the failure to provide such
advance notice shall not relieve the Borrowers of any of their obligations
hereunder. No failure by the Agent or any Lender to demand payment of any
amounts payable under this Section shall constitute a waiver of its right to
demand payment of any additional amounts arising at any subsequent time. Nothing
in this Section shall be construed or so operate as to require the Borrowers to
pay any interest, fees, costs or charges in excess of that permitted by
applicable law.
2.12. Taxes.
(a) Any and all payments by the Borrowers hereunder or under any Note
shall be made, in accordance with the terms hereof and thereof, free and clear
of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto (other than net income and franchise taxes imposed on the Agent, the
Issuing Bank or any Lender) (y) by the jurisdiction under the laws of which the
Agent, the Issuing Bank or such Lender, as the case may be, is organized or any
political subdivision thereof and (z) in the case of each Lender, by the
jurisdiction in which any Lending Office of such Lender is located or any
political subdivision thereof (all such nonexcluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If the Borrowers shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder or under any Note to the Agent, the
Issuing Bank or any Lender, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section ), the Agent, the
Issuing Bank or such Lender, as the case may be, receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrowers
will make such deductions, and (iii) the
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Borrowers will pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
(b) The Borrowers will indemnify the Agent, the Issuing Bank and each
Lender for the full amount of Taxes (including, without limitation, any Taxes
imposed by any jurisdiction on amounts payable under this Section) paid
by the Agent, the Issuing Bank or such Lender, as the case may be, and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto. This indemnification shall be made within 30 days from the date
the Agent, the Issuing Bank or any Lender, as the case may be, makes written
demand therefor. Within thirty (30) days after the date of any payment of Taxes
pursuant to this Section , the Borrowers will furnish to the Agent, the Issuing
Bank or the relevant Lender, as the case may be, the original or a certified
copy of a receipt evidencing payment thereof. The Agent, the Issuing Bank and
each Lender will reimburse the Borrowers if the Agent, the Issuing Bank or such
Lender receives a refund for any Taxes paid by the Borrowers pursuant to this
SECTION 2.12(b). Such reimbursement will occur within thirty (30) days of
receipt by the Agent, the Issuing Bank or such Lender.
(c) If any Lender is a "foreign corporation, partnership or trust"
within the meaning of the Internal Revenue Code, and such Lender claims
exemption from United States withholding tax under Section 1441 or 1442 of the
Internal Revenue Code, such Lender will deliver to the Agent and the Borrowers:
(i) if such Lender claims an exemption from, or a reduction
of, withholding tax under a United States tax treaty,
properly completed IRS Forms 1001 and W-8 before the
payment of any interest in the first calendar year, and
before the payment of any interest in each third
succeeding calendar year, during which interest may be
paid to such Lender under this Agreement;
(ii) if such Lender claims that interest paid under this
Agreement is exempt from United States withholding tax
because it is effectively connected with a United States
trade or business of such Lender, two properly completed
and executed copies of IRS Form 4224 before the payment
of any interest is due in the first taxable year of such
Lender, and in each succeeding taxable year of such
Lender, during which interest may be paid to such Lender
under this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required under the
Internal Revenue Code or other laws of the United States
as a condition to exemption from, or reduction of,
United States withholding tax.
Each such Lender will promptly notify the Agent and the Borrowers of any
changes in circumstances that would modify or render invalid any claimed
exemption or reduction.
(d) If any Lender is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Lender
an amount equivalent to the applicable withholding tax after taking into account
such reduction. If the forms or other documentation required under subsection
(c) above are not delivered to the Agent, then the Agent may withhold from any
interest payment to such Lender not providing such forms or other documentation
an amount equivalent to the applicable withholding tax. For purposes of this
Section , a distribution hereunder by the Agent to or for the account of any
Lender shall be deemed a payment by the Borrowers.
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(e) If the IRS or any other Governmental Authority, domestic or foreign,
asserts a claim that the Agent did not properly withhold tax from amounts paid
to or for the account of any Lender (whether because the appropriate form was
not delivered or was not properly executed, because such Lender failed to notify
the Agent of a change in circumstances that rendered the exemption from, or
reduction of, withholding tax ineffective, or for any other reason), such Lender
shall indemnify the Agent fully for all amounts paid, directly or indirectly, by
the Agent as tax or otherwise, including penalties and interest, and including
any taxes imposed by any jurisdiction on the amounts payable to the Agent under
this subsection (e), together with all costs, expenses and reasonable attorneys'
fees incurred or paid in connection therewith.
(f) If at any time the Borrowers request any Lender to deliver any forms
or other documentation pursuant to subsection (c) above, then the Borrowers
shall, upon demand of such Lender, reimburse such Lender for any reasonable
costs or expenses incurred by such Lender in the preparation or delivery of such
forms or other documentation.
(g) Each Lender agrees that, if any Borrower is required to pay
additional amounts to any Lender pursuant to subsection (a) above, then such
Lender will, if requested by such Borrower and to the extent permitted by law,
endeavor in good faith to designate another Lending Office for its LIBOR Loans,
but only if such designation would make it lawful for such Lender to continue to
make or maintain LIBOR Loans hereunder; provided that such designation is made
on such terms that such Lender, in its good faith determination, suffers no
increased cost or economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of this
Section.
(h) Notwithstanding any other provision of this Agreement, the Borrower
will not be required to pay additional amounts under this Agreement to the
Agent, the Issuing Bank or any Lender with respect to withholding taxes imposed
on payments to a Lender if payments to such Lender were subject to withholding
taxes (other than at a 0% rate) at the time it became a Lender, taking into
account any applicable tax treaty.
2.13. Compensation. The Borrowers will compensate each Lender, upon its
written request (which request shall set forth the basis for requesting such
compensation and shall be copied to the Agent), for all losses, expenses and
liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits or other funds
required by such Lender to fund its LIBOR Loans) that such Lender may sustain
(i) if for any reason (other than a default by such Lender or the Agent) a
Borrowing of, or conversion of or into, LIBOR Loans does not occur on a date
specified therefor in a Notice of Borrowing or Notice of Conversion/
Continuation, (ii) if any repayment, prepayment or conversion of any of its
LIBOR Loans occurs on a date other than the last day of an Interest Period
applicable thereto, (iii) if any prepayment of any of its LIBOR Loans is not
made on any date specified in a notice of prepayment given by the Borrowers, or
(iv) as a consequence of any other failure by the Borrowers to make any payments
with respect to LIBOR Loans when due hereunder, including as a consequence of
acceleration of the maturity of such Loans pursuant to SECTION 8.1. In addition,
the Borrowers will pay to the Agent, for its own account, an administrative fee
of $250 concurrently with any payments made in respect of any single occurrence
pursuant to this Section . Calculation of all amounts payable to a Lender under
this Section shall be made as though such Lender had actually funded its
relevant LIBOR Loan through the purchase of a Eurodollar deposit bearing
interest at the LIBOR Rate in an amount equal to the amount of such LIBOR Loan,
having a maturity comparable to the relevant Interest Period and through the
transfer of such Eurodollar deposit from an offshore Lending Office of such
Lender to a Lending Office of such Lender in the United States; provided,
however, that each Lender may fund each of its LIBOR Loans in any manner it sees
fit and the foregoing assumption shall be utilized only for the calculation of
amounts payable under this Section.
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2.14. Use of Proceeds. The proceeds of the Loans shall be used by the
Borrowers solely (i) to pay certain transaction fees and expenses associated
with the Facility and the offering and sale of the Senior Secured Notes, (ii) to
provide for the working capital, capital expenditures and general corporate
requirements of the Borrowers and their Subsidiaries.
2.15. Recovery of Payments.
(a) Each Borrower agrees that to the extent any Borrower makes a payment
or payments to or for the account of the Agent, the Lenders or the Issuing Bank,
which payment or payments or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, receiver or any other party under any bankruptcy, insolvency or
similar state or federal law, common law or equitable cause, then, to the extent
of such payment or repayment, the Obligation intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
received.
(b) If any amounts distributed by the Agent to a Lender are subsequently
returned or repaid by the Agent to the Borrowers or their representatives or
successors in interest, whether by court order or by settlement approved by the
Lender in question, such Lender will, promptly upon receipt of notice thereof
from the Agent, pay the Agent such amount. If any such amounts are recovered by
the Agent from the Borrowers or their representatives or successors in interest,
the Agent shall redistribute such amounts to the Lenders on the same basis as
such amounts were originally distributed.
2.16. Pro Rata Borrowings.
(a) All Borrowings, continuations and conversions of Loans shall be made
by the Lenders pro rata on the basis of their respective Percentages, as
appropriate from time to time, rounded to the nearest penny.
(b) Each Lender agrees that if it shall receive any amount hereunder
(whether by voluntary payment, realization upon security, exercise of the right
of setoff or banker's lien, counterclaim or cross action, enforcement of any
right under the Loan Documents, or otherwise) applicable to the payment of any
of the Obligations that exceeds its Pro Rata Share of payments on account of
such Obligations then or therewith obtained by all the Lenders to which such
payments are required to have been made, such Lender shall forthwith purchase
from the other Lenders such participations in such Obligations as shall be
necessary to cause such purchasing Lender to share the excess payment or other
recovery ratably with each of them; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each such other Lender shall be rescinded and each
such other Lender shall repay to the purchasing Lender the purchase price to the
extent of such recovery together with an amount equal to such other Lender's
ratable share (according to the proportion of (i) the amount of such other
Lender's required repayment to (ii) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. Each Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to the provisions of this Section may, to the fullest extent permitted
by law, exercise any and all rights of payment (including, without limitation,
setoff, banker's lien or counterclaim) with respect to such participation as
fully as if such participant were a direct creditor of the Borrowers in the
amount of such participation.
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2.17. Letters of Credit.
(a) Subject to and upon the terms and conditions herein set forth, so
long as no Default or Event of Default has occurred and is continuing, the
Issuing Bank will, at any time and from time to time on and after the Closing
Date and prior to the Revolving Credit Facility Termination Date, and upon
request by any Borrower in accordance with the provisions of SECTION 2.17(b),
issue for the account of such Borrower one or more irrevocable standby letters
of credit denominated in Dollars and in a form customarily used or otherwise
approved by the Issuing Bank (together with all amendments, modifications and
supplements thereto, substitutions therefor and renewals and restatements
thereof, collectively, the "Letters of Credit"). The Stated Amount of each
Letter of Credit shall not be less than such amount as may be acceptable to the
Issuing Bank. Notwithstanding the foregoing:
(i) Except for Foreign Subsidiary Letters of Credit, no
Letter of Credit shall be issued the Stated Amount upon
issuance of which (i) when added to all other Letter of
Credit Outstandings, excluding Foreign Subsidiary
Letters of Credit, at such time, would exceed $5,000,000
or (ii) when added to all other Letter of Credit
Outstandings, including Foreign Subsidiary Letter of
Credit Outstandings, at such time and the aggregate
principal amount of all Revolving Credit Loans then
outstanding, would exceed the lesser of (A) the Total
Revolving Credit Commitment or (B) the Borrowing Base,
at such time;
(ii) No Letter of Credit shall be issued that by its terms
expires more than one (1) year after its date of
issuance or later than the seventh day prior to the
Revolving Credit Facility Maturity Date; provided,
however, that a Letter of Credit may, if requested by
the Borrowers, provide by its terms, and on terms
acceptable to the Issuing Bank, for renewal for
successive periods of one year or less (but not beyond
the seventh day prior to the Revolving Credit Facility
Maturity Date), unless and until the Issuing Bank shall
have delivered a notice of nonrenewal to the beneficiary
of such Letter of Credit;
(iii) The Issuing Bank shall be under no obligation to issue
any Letter of Credit if, at the time of such proposed
issuance, (A) any order, judgment or decree of any
Governmental Authority or arbitrator shall purport by
its terms to enjoin or restrain the Issuing Bank from
issuing such Letter of Credit, or any Requirement of Law
applicable to the Issuing Bank or any request or
directive (whether or not having the force of law) from
any Governmental Authority with jurisdiction over the
Issuing Bank shall prohibit, or request that the Issuing
Bank refrain from, the issuance of letters of credit
generally or such Letter of Credit in particular or
shall impose upon the Issuing Bank with respect to such
Letter of Credit any restriction or reserve or capital
requirement (for which the Issuing Bank is not otherwise
compensated) not in effect on the Closing Date, or any
unreimbursed loss, cost or expense that was not
applicable, in effect or known to the Issuing Bank as of
the Closing Date and that the Issuing Bank in good faith
deems material to it, or (B) the Issuing Bank shall have
actual knowledge, or shall have received notice from any
Lender, prior to the issuance of such Letter of Credit
that one or more of the conditions specified in SECTION
3.3 are not then satisfied or that the issuance of such
Letter of Credit would violate the provisions of
subsection (i) above; and
(iv) No Foreign Subsidiary Letter of Credit shall be issued
(A) the Stated Amount upon the issuance of which when
(1) added to all other Foreign Subsidiary Letter
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of Credit Outstandings at such time would exceed (a)
$5,000,000 during the time period from Closing to
December 31, 1998, and (b) zero dollars thereafter and,
(2) when added to all other Letter of Credit
Outstandings at such time and the aggregate principal
amount of all Revolving Credit Loans then outstanding
would exceed the lessor of (a) the Total Revolving
Credit Commitment or (b) the Borrowing Base, at such
time, and (B) unless (1) the Foreign Subsidiary Letter
of Credit is issued to a lender of a Foreign Subsidiary
to secure a loan to such Subsidiary and such lender
agrees that, to the extent the Issuing Bank makes a
payment to such lender under such Letter of Credit, the
Issuing Bank shall be subrogated to the rights of such
lender on such lender's loan to such Foreign Subsidiary,
or (1) the Foreign Subsidiary for whose benefit the
Letter of Credit is issued shall agree to undertake
jointly and severally with the Borrowers a Reimbursement
Obligation in connection with such Letter of Credit.
(b) Whenever any Borrower desires the issuance of a Letter of Credit,
such Borrower will notify the Issuing Bank (with copies to the Agent) in
writing, by 11:00 a.m., Charlotte, North Carolina time, at least three (3)
Business Days' (or such shorter period as is acceptable to the Issuing Bank for
any given case) prior to the requested date of issuance thereof. Each such
request (each, a "Letter of Credit Request") shall be irrevocable, shall be
given in the form of EXHIBIT B-3 and shall be appropriately completed to specify
(i) the proposed date of issuance (which shall be a Business Day), (ii) the
proposed Stated Amount and expiry date of the Letter of Credit, and (iii) the
name and address of the proposed beneficiary or beneficiaries of the Letter of
Credit. Such Borrower will also complete any application procedures and
documents customarily required by the Issuing Bank in connection with the
issuance of any Letter of Credit. The Agent will, promptly upon its receipt
thereof, notify each Lender of the Letter of Credit Request. Upon its issuance
of any Letter of Credit, the Issuing Bank will promptly notify each Lender of
such issuance and will notify each Lender with a Revolving Credit Commitment of
the amount of its participation therein under SECTION 2.17(c).
(c) Immediately upon the issuance of any Letter of Credit, the Issuing
Bank shall be deemed to have sold and transferred to each Lender with a
Revolving Credit Commitment, and each such Lender (each, in such capacity, an
"L/C Participant") shall be deemed irrevocably and unconditionally to have
purchased and received from the Issuing Bank, without recourse or warranty, an
undivided interest and participation, pro rata to the extent of its Revolving
Credit Percentage at such time, in such Letter of Credit, each drawing made
thereunder, and the obligations of the Borrowers under this Agreement with
respect thereto and any security therefor (including the Collateral) or guaranty
pertaining thereto; provided, however, that the fees and other charges relating
to Letters of Credit described in SECTIONS 2.7(c) and (d) shall be payable
directly to the Issuing Bank as provided therein, and the L/C Participants shall
have no right to receive any portion thereof. Upon any change in the Revolving
Credit Commitments of any of the Lenders pursuant to SECTION 10.5, with respect
to all outstanding Letters of Credit and Reimbursement Obligations there shall
be an automatic adjustment to the participations pursuant to this Section to
reflect the new Revolving Credit Percentages of the assigning Lender and the
Eligible Assignee.
(d) The Borrowers hereby jointly and severally agree to reimburse the
Issuing Bank by making payment to the Agent, for the account of the Issuing
Bank, in immediately available funds, for any payment made by the Issuing Bank
under any Letter of Credit (each such amount so paid until reimbursed, together
with interest thereon payable as provided hereinbelow, a "Reimbursement
Obligation") immediately after, and in any event on the date of, such payment,
together with interest on the amount so paid by the Issuing Bank, to the extent
not reimbursed prior to 2:00 p.m., Charlotte, North Carolina time, on the date
of such payment or disbursement, (i) for the period from the date of the
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respective payment to the date of receipt by the Borrowers from the Issuing Bank
of notice of such payment, at the Adjusted Base Rate as in effect from time to
time during such period, and (ii) for the period from the date of receipt by the
Borrowers from the Issuing Bank of notice of such payment to the date the
Reimbursement Obligation created thereby is satisfied, the Adjusted Base Rate as
in effect from time to time during such period plus two percentage points
(2.0%), such interest also to be payable on demand. The Issuing Bank will
provide the Agent and the Borrowers with prompt notice of any payment or
disbursement made under any Letter of Credit, although the failure to give, or
any delay in giving, any such notice shall not release, diminish or otherwise
affect the Borrowers' obligations under this Section or any other provision of
this Agreement. To the extent a Borrowing is available in accordance with the
Borrowing Base, each Borrower hereby authorizes and directs the Agent, the
Issuing Bank and the Lenders to satisfy any such Reimbursement Obligation by
advancing a Revolving Credit Loan in such amount. To the extent no such
Borrowing is available, the Borrowers shall immediately make payment to the
Agent, for the account of the Issuing Bank, in accordance with the terms
hereinabove.
(e) In the event that the Issuing Bank makes any payment under any
Letter of Credit and the Borrowers shall not have timely satisfied in full its
Reimbursement Obligation to the Issuing Bank pursuant to SECTION 2.17(d), and to
the extent that any amounts then held in the Cash Collateral Account established
pursuant to SECTION 2.17(i) shall be insufficient to satisfy such Reimbursement
Obligation in full, the Issuing Bank will promptly notify the Agent, and the
Agent will promptly notify each L/C Participant, of such failure. If the Agent
gives such notice prior to 11:00 a.m., Charlotte, North Carolina time, on any
Business Day to any L/C Participant, such L/C Participant will make available to
the Agent, for the account of the Issuing Bank, its Pro Rata Share (calculated
with respect to its Revolving Credit Percentage) of the amount of such payment
on such Business Day in immediately available funds. If the Agent gives such
notice after 11:00 a.m., Charlotte, North Carolina time, on any Business Day to
any such L/C Participant, such L/C Participant shall make its Pro Rata Share of
such amount available to the Agent on the next succeeding Business Day. If and
to the extent such L/C Participant shall not have so made its Pro Rata Share of
the amount of such payment available to the Agent, such L/C Participant agrees
to pay to the Agent, for the account of the Issuing Bank, forthwith on demand
such amount, together with interest thereon, for each day from such date until
the date such amount is paid to the Agent at the Federal Funds Rate. The failure
of any L/C Participant to make available to the Agent its Pro Rata Share of any
payment under any Letter of Credit shall not relieve any other L/C Participant
of its obligation hereunder to make available to the Agent its Pro Rata Share of
any payment under any Letter of Credit on the date required, as specified above,
but no L/C Participant shall be responsible for the failure of any other L/C
Participant to make available to the Agent such other L/C Participant's Pro Rata
Share of any such payment. Each such payment by an L/C Participant under this
SECTION 2.17(e) of its Pro Rata Share of an amount paid by the Issuing Bank
shall constitute a Revolving Credit Loan by such Lender (the Borrowers being
deemed to have given a timely Notice of Borrowing therefor) and shall be treated
as such for all purposes of this Agreement; provided that for purposes of
determining the available unused portion of the Total Revolving Credit
Commitment immediately prior to giving effect to the application of the proceeds
of such Revolving Credit Loans, the Reimbursement Obligation being satisfied
thereby shall be deemed not to be outstanding at such time.
(f) Whenever the Issuing Bank receives a payment in respect of a
Reimbursement Obligation as to which the Agent has received, for the account of
the Issuing Bank, any payments from the L/C Participants pursuant to SECTION
2.17(e), the Issuing Bank will promptly pay to the Agent, and the Agent will
promptly pay to each L/C Participant that has paid its Pro Rata Share thereof,
in immediately available funds, an amount equal to such L/C Participant's
ratable share (based on the proportionate amount funded by such L/C Participant
to the aggregate amount funded by all L/C Participants) of such Reimbursement
Obligation.
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(g) The Reimbursement Obligations of the Borrowers, and the obligations
of the L/C Participants to make payments to the Agent, for the account of the
Issuing Bank, with respect to Letters of Credit, shall be irrevocable, shall
remain in effect until the Issuing Bank shall have no further obligations to
make any payments or disbursements under any circumstances with respect to any
Letter of Credit, and, except to the extent resulting from any gross negligence
or willful misconduct on the part of the Issuing Bank, shall not be subject to
counterclaim, setoff or other defense or any other qualification or exception
whatsoever and shall be made in accordance with the terms and conditions of this
Agreement under all circumstances, including, without limitation, any of the
following circumstances:
(i) Any lack of validity or enforceability of this
Agreement, any of the other Loan Documents or any
documents or instruments relating to any Letter of
Credit;
(ii) Any change in the time, manner or place of payment of,
or in any other term of, all or any of the Obligations
in respect of any Letter of Credit or any other
amendment, modification or waiver of or any consent to
departure from any Letter of Credit or any documents or
instruments relating thereto, in each case whether or
not the Borrowers have notice or knowledge thereof;
(iii) The existence of any claim, setoff, defense or other
right that any Borrower may have at any time against a
beneficiary named in a Letter of Credit, any transferee
of any Letter of Credit (or any Person for whom any such
transferee may be acting), the Agent, the Issuing Bank,
any Lender or other Person, whether in connection with
this Agreement, any Letter of Credit, the transactions
contemplated hereby or any unrelated transactions
(including any underlying transaction between any
Borrower and the beneficiary named in any such Letter of
Credit);
(iv) Any draft, certificate or any other document presented
under the 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, any errors, omissions, interruptions or delays
in transmission or delivery of any messages, by mail,
telecopier or otherwise, or any errors in translation or
in interpretation of technical terms;
(v) Any defense based upon the failure of any drawing under
a Letter of Credit to conform to the terms of the Letter
of Credit (the Issuing Bank's sole obligation, in
determining whether to pay under any Letter of Credit,
being in good faith to confirm that any documents
required to be delivered under such Letter of Credit
have been delivered and that they appear on their face
to comply with the requirements of such Letter of
Credit), any nonapplication or misapplication by the
beneficiary or any transferee of the proceeds of such
drawing or any other act or omission of such beneficiary
or transferee in connection with such Letter of Credit;
(vi) The exchange, release, surrender or impairment of any
Collateral or other security for the Obligations;
(vii) The occurrence of any Default or Event of Default; or
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(viii) Any other circumstance or event whatsoever, including,
without limitation, any other circumstance that might
otherwise constitute a defense available to, or a
discharge of, any Borrower.
None of the foregoing shall impair, prevent or otherwise affect any of the
rights and powers granted to the Issuing Bank hereunder. Any action taken or
omitted to be taken by the Issuing Bank under or in connection with any Letter
of Credit, if taken or omitted in the absence of gross negligence or willful
misconduct, shall be binding upon the Borrowers and each L/C Participant and
shall not create or result in any liability of the Issuing Bank to any Borrower
or any L/C Participant.
(h) If at any time after the Closing Date the Issuing Bank or any L/C
Participant determines that the introduction of or any change in any applicable
law, rule, regulation, order, guideline or request or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by the Issuing Bank or
any L/C Participant with any request or directive by any such authority (whether
or not having the force of law) shall either (i) impose, modify or make
applicable any reserve, deposit, capital adequacy or similar requirement against
Letters of Credit issued by the Issuing Bank or participated in by any L/C
Participant or (ii) impose on the Issuing Bank or any L/C Participant any other
conditions relating, directly or indirectly, to this Agreement or any Letter of
Credit, and the result of any of the foregoing is to increase the cost to the
Issuing Bank or L/C Participant of issuing, maintaining or participating in any
Letter of Credit, or to reduce the amount of any sum received or receivable by
the Issuing Bank or such L/C Participant hereunder or reduce the rate of return
on its capital with respect to Letters of Credit, then the Borrowers will,
within fifteen (15) days after delivery to the Borrowers by the Issuing Bank or
such L/C Participant of written demand therefor (with a copy thereof to the
Agent), jointly and severally pay to the Issuing Bank or such L/C Participant
such additional amounts as shall compensate the Issuing Bank or such L/C
Participant for such increase in costs or reduction in return. The Issuing Bank
and each L/C Participant shall exercise reasonable diligence to mitigate any
such costs. A certificate submitted to the Borrowers by the Issuing Bank or such
L/C Participant, as the case may be (a copy of which certificate shall be sent
by the Issuing Bank or such L/C Participant to the Agent), setting forth the
basis for the determination of such additional amount or amounts necessary to
compensate the Issuing Bank or such L/C Participant as aforesaid, shall be
conclusive and binding on the Borrowers absent manifest error.
(i) At any time and from time to time (i) during the continuance of an
Event of Default, the Agent, at the direction, or with the consent, of the
Required Lenders, may require the Borrowers to deliver to the Agent such
additional amount of cash as is equal to the aggregate Stated Amount of all
Letters of Credit at any time outstanding (whether or not any beneficiary under
any Letter of Credit shall have drawn or be entitled at such time to draw
thereunder) and (ii) in the event of a repayment under SECTION 2.5(b), the Agent
will retain such amount as may then be required to be retained under the proviso
in SECTION 2.5(b,), such amount in each case under clauses (i) and (ii) above to
be held by the Agent in a non-interest bearing cash collateral account (the
"Cash Collateral Account") as security for, and for application to, the
Borrowers' Reimbursement Obligations. In the event of a drawing, and subsequent
payment by the Issuing Bank, under any Letter of Credit at any time during which
any amounts are held in the Cash Collateral Account, the Agent will deliver to
the Issuing Bank an amount equal to the Reimbursement Obligation created as a
result of such payment (or, if the amounts so held are less than such
Reimbursement Obligation, all of such amounts) to reimburse the Issuing Bank
therefor. Any amounts remaining in the Cash Collateral Account after the
expiration of all Letters of Credit and reimbursement in full of the Issuing
Bank for all of its obligations thereunder shall be held by the Agent, for the
benefit of the Borrowers, to be applied against the Obligations in such order as
the Agent may direct.
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(j) Notwithstanding any termination of the Commitments or repayment of
the Loans, or both, the obligations of the Borrowers under this SECTION 2.17
shall remain in full force and effect until the Issuing Bank and the L/C
Participants shall have no further obligations to make any payments or
disbursements under any circumstances with respect to any Letter of Credit.
2.18. Weekly Settlement. The Lenders and the Agent hereby agree that
notwithstanding the requirements of Section 2.10, the Agent shall distribute
each Lender's Pro Rata Share of all payments by the Borrowers during any payment
Period (as defined below) on the last day of such payment Period. For purposes
of this agreement, each "Payment Period" shall begin at 12:01 p.m. on the last
Business Day of a week and end at 12:00 noon on the last Business Day of the
following week.
ARTICLE III
CLOSING; CONDITIONS OF CLOSING AND BORROWING
3.1. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at such place as the parties hereto
shall mutually agree, at 10:00 a.m. on October 1, 1996, or at such other time as
the parties hereto shall mutually agree. The parties agree that the Loans have
been and shall be made in North Carolina and that the Loan Documents were
prepared and negotiated in North Carolina.
3.2. Conditions of Initial Loans and Advances. The obligation of the
Lenders to close this financing and to make the initial Loans under this
Agreement on the Closing Date are subject to the satisfaction of the following
conditions precedent:
3.2.1 Executed Loan Documents.
(a) Loan Documents. The Notes and all Loan Documents shall have been
duly authorized, executed and delivered to the appropriate Lenders by the
Borrowers, in form and substance satisfactory to the Lenders, shall be in full
force and effect and no Default shall exist thereunder, each Lender shall have
received its original Notes and a copy of each other Note, and the Agent shall
have received a copy of each Note.
(b) Security Agreement. The Security Agreement shall have been duly
authorized executed and delivered to the Agent and such Lender by the Borrowers
in form and substance satisfactory to the Lenders.
(c) Financing Statements. Financing Statements and all other filings or
recordations necessary to perfect the security interest of the Agent, on behalf
of the Lenders, in the Collateral shall have been filed, and the Agent shall
have received confirmation in a form acceptable to the Lenders that such
security interest constitutes a valid and perfected first priority security
interest therein, subject only to Permitted Liens.
3.2.2 Closing Certificates; etc.
(a) Certificates of the Borrowers. The Agent and each Lender shall have
received a certificate dated as of the Closing Date from the executive vice
president or the chief financial officer on
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behalf of each Borrower, in form and substance satisfactory to the Agent, to the
effect: (i) that all representations and warranties of such Borrower contained
in this Agreement and the other Loan Documents are true, correct and complete in
all material respects as of the Closing Date; (ii) that such Borrower is not in
violation of any of the covenants contained in this Agreement and the other Loan
Documents; (iii) that, after giving effect to the transactions contemplated
under this Agreement, no Default or Event of Default has occurred and is
continuing; and (iv) that such Borrower has satisfied each of the closing
conditions set forth in this ARTICLE III.
(b) Secretary's Certificates. The Agent and each Lender shall have
received a certificate dated as of the Closing Date of the secretary or
assistant secretary of each Borrower in form and substance satisfactory to the
Agent, certifying: (i) that attached thereto is a copy of the certificate or
articles of incorporation or organization or other organizational documents and
all amendments thereto of such corporation, certified as of a recent date by the
appropriate Governmental Authority in its jurisdiction of organization, and that
such organizational documents have not been amended since such date; (ii) that
attached thereto is a true and complete copy of the bylaws (or equivalent
regulations) of such corporation as in effect on the date of such certification;
(iii) that attached thereto is a true and complete copy of resolutions adopted
by the Board of Directors (or equivalent governing body) of such corporation,
authorizing the execution, delivery and performance of this Agreement and the
other Loan Documents, as applicable; and (iv) as to the incumbency and
genuineness of the signature of each officer of such corporation executing this
Agreement or any of the other Loan Documents.
(c) Certificates of Good Standing. The Agent and each Lender shall have
received (i) certificates as of a recent date of the good standing of each
Borrower under the laws of each such corporation's jurisdiction of organization
and each jurisdiction in which such corporations are qualified to conduct
business; and (ii) if available, a certificate, dated as of a recent date, of
the department of revenue or similar taxing authority of each of the foregoing
jurisdictions certifying that each Borrower has filed all required tax returns
and that each Borrower do not owe any delinquent taxes.
(d) Opinions of Counsel. The Agent and each Lender shall have received
the favorable opinion of: (i) the law firm of Rhoads & Sinon LLP, counsel to the
Borrowers, dated as of the Closing Date and addressed to the Agent, for the
benefit of the Agent and the Lenders, and (ii) such other opinions as the Agent
or any Lender may reasonably request, all of which shall be in form and
substance reasonably satisfactory to the Lenders.
(e) UCC Search. The Agent and each Lender shall have received the
results of a UCC search of all filings made against each Borrower and each
domestic Subsidiary under the Uniform Commercial Code as in effect in the states
in which any assets of each Borrower and each domestic Subsidiary are located,
indicating among other things that the Collateral is free and clear of any liens
or encumbrances except for Permitted Liens.
(f) Insurance. The Agent shall have received certificates of insurance
in form and substance reasonably satisfactory to the Agent upon the Collateral
and the business of each Borrower with mortgagee, additional insured and loss
payable endorsements required by SECTION 5.6.
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3.2.3 Real Estate Matters.
(a) Landlord Consents. A Landlord Consent with respect to each of the
Leased Properties shall have been duly authorized, executed and delivered to the
Agent by the tenant and the landlord with respect thereto, shall be in full
force and effect and no Default shall exist thereunder, shall be recorded and
filed in the appropriate real estate records in a manner acceptable to the
Agent, and the Agent shall have received a fully executed copy thereof.
3.2.4 Environmental Assessment. Each Borrower shall have delivered to
the Agent a Phase I environmental assessment report from a qualified
environmental consultant acceptable to the Agent, in form and substance
satisfactory to the Agent in Agent's reasonable discretion, indicating
appropriate inquiry into the present and previous ownership and use of the
Realty consistent with good commercial or customary practices.
3.2.5 Consents; No Adverse Change.
(a) Governmental and Third Party Approvals. All necessary approvals,
authorizations and consents, if any be required, of any Person and of all
Governmental Authorities (including courts) having jurisdiction with respect to
the Collateral and the transactions contemplated by this Agreement shall have
been obtained.
(b) No Injunction, Etc. No action, proceeding, investigation, regulation
or legislation, including but not limited to any bankruptcy, insolvency or
similar proceeding or claim, shall have been instituted, threatened in writing
or proposed before any court or other Governmental Authority to enjoin, restrain
or prohibit, or to obtain substantial damages in respect of the Borrowers or
their Subsidiaries, or that is related to or arises out of this Agreement or the
consummation of the transactions contemplated hereby or that, in the Required
Lenders' reasonable discretion, would make it inadvisable to consummate the
transactions contemplated by this Agreement.
(c) No Material Adverse Change. From and after December 31, 1995, there
shall not have occurred (i) any Material Adverse Change in the condition
(financial or otherwise), operations, properties, prospects or business of the
Borrowers or their Subsidiaries, or (ii) any event, condition or state of facts
that could reasonably be expected to have a Material Adverse Effect, other than
as specifically contemplated by the transactions contemplated under this
Agreement.
(d) No Event of Default. No Default or Event of Default shall have
occurred and be continuing.
3.2.6 Financial Matters.
(a) Financial Statements. The Agent and each Lender shall have received
the Financial Statements from the Borrowers, in form and substance satisfactory
to the Agent.
(b) Financial Condition Certificate. The Agent and each Lender shall
have received a Financial Condition Certificate, in form and substance attached
hereto as EXHIBIT H.
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(c) Payment at Closing. The Borrowers shall have paid to the Agent the
fees set forth in the commitment letter from First Union to the Borrowers dated
August 28, 1996, and required to be paid at Closing.
(d) Taxes. All taxes, fees and other charges in connection with the
execution, delivery, recording, filing and registration of any of the Loan
Documents shall have been paid by the Borrowers.
3.2.7 Miscellaneous.
(a) Disbursement Instructions. The Agent shall have received written
instructions from the Borrowers to the Agent directing the payment of any
proceeds of Loans made under this Agreement that are to be paid on the Closing
Date.
(b) Existing Indebtedness. All outstanding Indebtedness of the Old
Revolving Credit Facility and the Old Senior Secured Notes shall have been
repaid in full.
(c) Issuance of Senior Secured Notes. The Borrowers shall
contemporaneously with the Closing, (i) deliver copies of the executed indenture
and other documents evidencing and related to, and consummate, the Senior
Secured Notes Offering on terms and conditions satisfactory in form and
substance to the Agent, (ii) receive net cash proceeds from the issuance of the
Senior Secured Notes of not less than $95,600,000, and (c) apply the net cash
proceeds, to the extent necessary, to repay in full the Old Revolving Credit
Facility and the Old Senior Notes.
(d) Borrowing Base Availability. The Borrowing Base as of the Closing
Date shall, after giving effect to estimated Borrowings under the Revolving
Credit Facility on the Closing Date, permit additional Borrowings under the
Revolving Credit Facility of at least $15,000,000.
(e) Proceedings and Documents. The Agent and the Lenders shall have
received copies of all other documents (including insurance policies of the
Borrowers), certificates, opinions, instruments and other evidence as each may
reasonably request, in form and substance satisfactory to the Lenders, with
respect to the transactions contemplated by this Agreement and the taking of all
actions in connection therewith.
3.3. Conditions to All Loans and Advances. The obligation of the Lenders
to make any Loan hereunder (including any Loans made on the Closing Date, but
excluding conversions) is subject to the continued validity of all Loan
Documents and the satisfaction of the following conditions precedent on the
relevant Borrowing Date:
(a) Each of the representations and warranties made by the Borrowers
contained in ARTICLE IV hereof and in the other Loan Documents shall be true and
correct in all material respects on and as of such Borrowing Date with the same
effect as if made on and as of the Borrowing Date, unless such representation or
warranty relates by its terms to a prior date;
(b) No Default or Event of Default shall have occurred and be continuing
on the Borrowing Date or would result from the Loans to be made on such
Borrowing Date; and
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(c) The security interest in the Collateral previously pledged to the
Agent, for the benefit of the Lenders, pursuant to the Loan Documents, shall
remain in full force and effect.
3.4. Waiver of Conditions Precedent. If any Lender makes any Loan or
Advance hereunder prior to the fulfillment of any of the conditions precedent
set forth in this ARTICLE III, the making of such Loan or Advance shall
constitute only an extension of time for the fulfillment of such condition and
not a waiver thereof, and unless the Required Lenders indicate otherwise in
writing, the Borrowers shall thereafter use their best efforts to fulfill each
such condition promptly. No failure by the Borrowers to fulfill any such
condition precedent shall constitute a Default or an Event of Default hereunder,
except to the extent any such failure is continuing after the expiration of any
period within which such condition is specifically required to be fulfilled.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Agreement, to make the
Loans and to continue to make the Loans, the Borrowers jointly and severally
represent and warrant to the Agent, the Issuing Bank and each Lender as follows:
4.1. Corporate Organization and Power. Each Borrower and each Subsidiary
of a Borrower (a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization; (b) is
qualified to do business and is in good standing in every other jurisdiction
where the nature of its business or the ownership of its properties requires it
to be so qualified and where the failure to be so qualified would have a
Material Adverse Effect, which jurisdictions as of the Closing Date are set
forth on SCHEDULE 4.1; (c) except as set forth on SCHEDULE 4.1, as of the
Closing Date has no Subsidiaries or Affiliates (other than its officers,
directors and direct or indirect shareholders) and is not a partner or joint
venturer in any partnerships or joint ventures; (d) has the corporate power to
own and give a lien on and security interest in its respective Collateral and to
engage in the transactions contemplated hereby; and (e) has the full corporate
power, authority and legal right to execute and deliver this Agreement and the
other Loan Documents to which it is a party and to perform and observe the terms
and provisions thereof. No Borrower nor any Subsidiary has, during the preceding
five (5) years before the Closing Date, been known as or used any other
corporate, fictitious or trade names in the United States other than as set
forth on SCHEDULE 4.1.
4.2. Subsidiaries. SCHEDULE 4.1 contains a complete and accurate list of
the direct and indirect Subsidiaries of each Borrower as of the Closing Date,
showing, as to each Subsidiary, the number of shares of each class of capital
stock authorized and outstanding. All of such issued and outstanding shares of
capital stock of all of each Borrower's Subsidiaries have been duly authorized
and validly issued, are fully paid and nonassessable and are owned by the
applicable Borrower or a Subsidiary, free and clear of any liens, charges,
encumbrances, security interests, claims or restrictions of any nature
whatsoever, except for liens in favor of the Agent, for the benefit of the
Lenders, granted under the Loan Documents, and there are no other equity
securities of any Subsidiary issued and outstanding or reserved for any purpose.
4.3. Enforceability of Loan Documents; Compliance With Other
Instruments. Each of the Loan Documents to which any Borrower is a party, as the
case may be, has been duly authorized by all
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necessary corporate action on the part of such Borrower has been validly
executed and delivered by such Borrower and is the legal, valid and binding
obligation of such Borrower enforceable against such Borrower in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally or by general principles of equity. Except as set forth in
SCHEDULE 4.3, no Borrower nor any Subsidiary is in default in any material
respect with respect to any indenture, loan agreement, mortgage, lease, deed or
similar agreement related to the borrowing of monies to which it is a party or
by which it, or any of its property, is bound, where such default could
reasonably be expected to result in a Material Adverse Effect. Neither the
execution, delivery or performance of the Loan Documents by any Borrower, nor
compliance by the Borrowers therewith: (a) conflicts or will conflict with or
results or will result in any breach of, or constitutes or will constitute with
the passage of time or the giving of notice or both, a default under, (i) any
Requirement of Law or (ii) any agreement or instrument to which any Borrower is
a party or by which it, or any of its property, is bound except where such
conflict, default, breach or violation would not reasonably be expected to have
a Material Adverse Effect or (b) results or will result in the creation or
imposition of any lien, charge or encumbrance upon the properties of any
Borrower or any Subsidiary pursuant to any such agreement or instrument, except
for Permitted Liens where such lien, charge or encumbrance would not reasonably
be expected to have a Material Adverse Effect.
4.4. Use of Proceeds. The Borrowers' use of the proceeds of any Loans
made by the Lenders to the Borrowers pursuant to this Agreement are and will be
legal and proper corporate uses, duly authorized by the Board of Directors of
each Borrower, and such uses are and will be consistent in all material respects
with all applicable laws and states, as in effect from time to time.
4.5. Governmental Authorization. No authorization, consent or approval
of, or declaration or filing with, any Governmental Authority is required for
the valid execution, delivery and performance by any Borrower or Subsidiary of
the Loan Documents to which it is a party or the consummation by the Borrowers
and their Subsidiaries of the transactions contemplated hereby and thereby,
except for the filing and recording of the Financing Statements. Each Borrower
and each of its Subsidiaries has, and is in good standing with respect to, all
material governmental approvals, permits, certificates, inspections, consents
and franchises necessary to continue to conduct business as heretofore conducted
and to own or lease and operate its respective properties as now owned or leased
by it. None of such material approvals, permits, certificates, consents, or
franchises contains any term, provision, condition or limitation more burdensome
than such as are generally applicable to Persons engaged in the same or similar
business as the Borrowers and their Subsidiaries.
4.6. Litigation; Government Regulation. (a) Except as set forth on
SCHEDULE 4.6, there are no judgments, injunctions or similar orders or decrees,
and no actions, suits, investigations or proceedings pending or, to the
knowledge of the Borrowers, threatened in writing against or affecting any
Borrower or any Subsidiary, its assets or its business, or that question the
validity of this Agreement or any of the Loan Documents, at law or in equity
before any court, arbitrator or Governmental Authority, that would, if adversely
determined, have a Material Adverse Effect, and (b) no Borrower nor any
Subsidiary is in violation of or in default under any Requirement of Law where
such violation could have a Material Adverse Effect.
4.7. Taxes: Except as set forth on SCHEDULE 4.7, no Borrower nor any
Subsidiary is delinquent in the payment of any material taxes that have been
levied or assessed by any Governmental Authority against them or their assets
unless such tax is being contested in good faith and by proper proceedings and
the Borrowers have maintained adequate reserves with respect thereto in
accordance with
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Generally Accepted Accounting Principles (if required by GAAP to maintain such
reserves). Except as set forth on SCHEDULE 4.7, each Borrower and each
Subsidiary (i) has timely filed all tax returns that are required by law to be
filed, and has paid all taxes shown on said returns and all other assessments or
fees levied upon it or upon its properties to the extent that such taxes,
assessments or fees have become due, and if not due, such taxes have been
adequately provided for and sufficient reserves therefor established on its
books of account and (ii) has been current with respect to payment of all
required withholding taxes, social security taxes and other similar payroll
taxes. No material controversy in respect of income taxes is pending or, to the
knowledge of the officers of the Borrowers, threatened in writing against any
Borrower or any Subsidiary.
4.8. Event of Default. No Default or Event of Default has occurred and
is continuing
4.9. Margin Securities. (a) No Borrower nor any Subsidiary of any
Borrower owns any "margin stock" within the meaning of Regulation U. None of the
proceeds of the Loans will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin stock, maintaining, reducing or retiring any
Indebtedness that was originally incurred to purchase or carry margin stock or
for any other purpose that would violate Regulation G, Regulation U, Regulation
T or Regulation X or any other regulation of the Board of Governors of the
Federal Reserve System, as the same may be in effect from time to time, or for
any purpose that would violate the Exchange Act.
(b) None of the transactions contemplated by this Agreement (including,
without limitation, the use of the proceeds of the Loans) will violate or result
in a violation of Section 7 of the Exchange Act. No Borrower nor any Subsidiary
of any Borrower owns or intends to carry or purchase directly or indirectly any
"margin security" within the meaning of the Exchange Act.
4.10. Full Disclosure. None of the Loan Documents, or any certificate
furnished to the Agent or any Lender by or on behalf of the Borrowers or any
Subsidiary in connection with the Loan Documents, contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements contained therein or herein, in light of the circumstances under
which they were made, not misleading.
4.11. ERISA.
(a) SCHEDULE 4.11 lists all Employee Plans maintained or sponsored by
the Borrowers and their domestic Subsidiaries as of the Closing Date or to which
any Borrower or any domestic Subsidiary is obligated to contribute as of the
Closing Date.
(b) Each such Employee Plan is in compliance in all material respects
with the applicable provisions of ERISA, the Internal Revenue Code and other
federal or state law, including all requirements under the Internal Revenue Code
or ERISA for filing reports (which are true and correct in all material respects
as of the date filed) except to the extent that any non-compliance is not
reasonably expected to result in a Material Adverse Effect, and benefits have
been paid in accordance with the provisions of each such Employee Plan.
(c) The form of each Pension Plan intended to be qualified under Section
401 of the Internal Revenue Code ("Qualified Plan"), and the trusts created
thereunder are, in the opinion of the Borrowers, exempt from tax under the
provisions of Section 501 of the Internal Revenue Code, and to the knowledge
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of the Borrowers nothing has occurred that is reasonably expected to cause the
loss of such qualification or tax-exempt status.
(d) There is no outstanding liability under Title IV of ERISA with
respect to any Pension Plan maintained or sponsored by the Borrowers and their
Subsidiaries (as to which any Borrower or any Subsidiary is or is reasonably
expected to be liable), nor with respect to any Pension Plan to which any
Borrower or any Subsidiary (wherein any Borrower or any Subsidiary is or is
reasonably expected to be liable) contributes or is obligated to contribute.
(e) None of the Qualified Plans subject to Title IV of ERISA has any
material unfunded benefit liability (as to which any Borrower is or is
reasonably expected to be liable).
(f) Except under the Employee Plans disclosed in SCHEDULE 4.11, no
Employee Plan maintained or sponsored by any Borrower or its domestic
Subsidiaries provides medical or other welfare benefits or extends coverage
relating to such benefits beyond the date of a participant's termination of
employment with any Borrower or such Subsidiary, except to the extent required
by Section 4980B of the Internal Revenue Code or applicable state continuation
coverage law. The Borrowers and their domestic Subsidiaries have complied in all
material respects with the notice and continuation coverage requirements of
Section 4980B of the Internal Revenue Code.
(g) No ERISA Event has occurred or is reasonably expected to occur with
respect to any Plan maintained or sponsored by any Borrower and its Subsidiaries
or to which any Borrower or any Subsidiary is obligated to contribute.
(h) There are no pending or, to the knowledge of the Borrower,
threatened claims, actions or lawsuits, other than routine claims for benefits
in the usual and ordinary course, asserted or instituted against (i) any
Employee Plan maintained or sponsored by any Borrower and its Subsidiaries or
its assets, or (ii) any fiduciary with respect to any Employee Plan for which
any Borrower or any Subsidiary is liable, through indemnification obligations or
otherwise except to the extent that any such claims, actions or law suits are
not reasonably expected to result in a Material Adverse Effect.
(i) Except as disclosed on SCHEDULE 4.11, no Borrower nor any domestic
Subsidiary has incurred or, to the knowledge of the Borrowers, reasonably
expects to incur (i) any liability (and no event has occurred that, with the
giving of notice under Section 4219 of ERISA, would reasonably be expected to
result in such liability) under Section 4201 or 4243 of ERISA with respect to a
Multiemployer Plan or (ii) any liability under Title IV of ERISA (other than
premiums due and not delinquent under Section 4007 of ERISA) with respect to a
Plan, which could reasonably be expected to result in a Material Adverse Effect.
(j) No Borrower nor any Subsidiary has engaged in a non-exempt
prohibited transaction (as defined in Section 4975 of the Internal Revenue Code
or Section 406 of ERISA) in connection with any Pension Plan that has a
reasonable likelihood of having a Material Adverse Effect.
4.12. Financial Statements. (a) The Borrowers have heretofore furnished
to each Lender copies of the Financial Statements. The Financial Statements have
been prepared in accordance with Generally Accepted Accounting Principles
(subject, with respect to the unaudited Financial Statements, to the absence of
notes required by Generally Accepted Accounting Principles and to normal
year-end audit adjustments) and present fairly the financial position of each of
the Borrowers as of the respective
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dates thereof and the results of operations of each of the Borrowers for the
respective periods then ended. Except as fully reflected in the most recent
Financial Statements and the notes thereto, as of the Closing Date, and after
giving effect to the Loans to be made on the Closing Date and the other
transactions contemplated by the Loan Documents, there will be no material
liabilities or obligations with respect to each of the Borrowers of any nature
whatsoever (whether absolute, contingent or otherwise and whether or not due).
Since the date of the most recent Financial Statements, there has been no
Material Adverse Change, and, to the knowledge of the Borrowers, no Material
Adverse Change is threatened or reasonably likely to occur. No Borrower nor any
of its Subsidiaries has directly or indirectly declared, ordered, paid, made or
set apart any amounts or property for any dividend, share acquisition or other
distribution, or agreed to do so, except as permitted by SECTION 6.9.
(b) The Borrowers have prepared, and have heretofore furnished to each
Lender copies of, annual projected balance sheets and statements of income of
the Borrowers and their Subsidiaries for the 5-year period beginning January 1,
1996 (the "Projections"). In the opinion of the Borrowers' management, the
assumptions used in preparation of the Projections were reasonable when made and
are reasonable as of the Closing Date. The Projections have been prepared in
good faith by the executive and financial personnel of the Borrowers in light of
the historical financial performance of the Borrowers and their Subsidiaries and
the financial and operating condition of the Borrowers and the Subsidiaries at
the time prepared, give effect to the transactions contemplated by the Loan
Documents and represent, as of the Closing Date, a reasonable estimate of the
future performance and financial condition of the Borrowers and their
Subsidiaries, subject to the uncertainties and approximations inherent in any
projections and without representation or warranty that such projected
performance and financial condition will actually be achieved.
4.13. Solvency. Each Borrower and each Subsidiary (i) is Solvent and
(ii) after giving effect to the transactions contemplated under this Agreement,
will be Solvent.
4.14. Leased Properties. SCHEDULE 4.14 lists, as of the Closing Date,
(i) all real property leased by each Borrower or any of its Subsidiaries and
sets forth, with respect to each such lease of real property, the identity of
the landlord, the address and legal description of such real property, the
applicable lease term, the amount of annual lease payments and the use of the
real property leased, and (ii) all personal property leased by each Borrower or
any of its Subsidiaries requiring lease payments in excess of $100,000 per year,
including in each case the name of the lessors and a description of the
locations of such property. Each Borrower and each of its Subsidiaries enjoys
peaceful and undisturbed possession under all of its leases, and all such leases
are valid and subsisting and in full force and effect. At the Agent's request,
the Borrowers agree to deliver complete and accurate copies of all such leases
to the Agent and the Lenders.
4.15. Realty. SCHEDULE 4.15 lists all real property owned as of the
Closing Date by the Borrowers or any of their Subsidiaries. To the knowledge of
the Borrowers, no portion of any Realty is located either in a flood fringe area
or an unbuildable floodway area.
4.16. Principal Places of Business. SCHEDULE 4.16 lists, as of the
Closing Date, (i) the chief executive office and principal place of business
(including county or town designation), as provided in the Uniform Commercial
Code, of each Borrower and each of its domestic Subsidiaries, (ii) the locations
at which each Borrower and each of its domestic Subsidiaries maintains, or
presently intends to maintain, billing and related records relating to Accounts
Receivable, and (iii) all locations where inventory of the Borrower or any of
its domestic Subsidiaries is presently maintained.
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4.17. Assets for Conduct of Business. Each Borrower and each Subsidiary
possesses adequate assets, licenses, patents, copyrights, trademarks and trade
names to continue to conduct its business in all material respects as heretofore
conducted without any material conflict with the rights of other Persons.
4.18. Trade Relations. Except as disclosed on SCHEDULE 4.18, to the
knowledge of the Borrowers, there exists no actual or threatened termination,
cancellation or limitation of, or any adverse modification or change in, the
business relationship of any Borrower or any Subsidiary with any customer or any
group of customers whose purchases individually or in the aggregate are material
to the business of the Borrowers and their Subsidiaries, or with any material
supplier, and to the knowledge of the Borrowers there exists no present
condition or state of facts or circumstances that would materially adversely
affect the Borrowers or any Subsidiary or its business or prevent the Borrowers
or any Subsidiary from conducting their business after the consummation of the
transactions contemplated under this Agreement in substantially the same manner
in which it has heretofore been conducted.
4.19. Compliance With Laws. To the knowledge of the Borrowers, each
Borrower and each Subsidiary has duly complied in all material respects with,
and the Collateral, the business operations and leaseholds of each Borrower and
each Subsidiary are in material compliance with, all Requirements of Law,
including, without limitation, all federal and state securities laws where such
failure to comply could result in a Material Adverse Effect.
4.20. Environmental Matters.
(a) Except as set forth on SCHEDULE 4.20 attached hereto, (i) no
Hazardous Substances are stored or located on the Realty in violation of any
Environmental Law or so as to give rise to any liability or investigative,
remedial or corrective obligations under any Environmental Law, and no part of
the Realty, including the groundwater located thereon and thereunder, has been
contaminated by any such substance during the ownership or operation thereof by
the applicable Borrower or any of its applicable Subsidiaries, and, to the
knowledge of the Borrower, no part of the Realty, including the groundwater
located thereon and thereunder has been previously contaminated by any such
substance; (ii) no improvements on the Realty contain any friable asbestos or
substances containing asbestos; (iii) there have been no releases of such
Hazardous Substances in violation of any Environmental Law or so as to give rise
to any liability or investigative, remedial or corrective obligations under any
Environmental Law, by any Borrower or any of its Subsidiaries, or to the
Borrowers' knowledge by any other Person, on any Realty previously owned or
operated by any Borrower or any of its Subsidiaries; (iv) to the Borrowers'
knowledge, the foregoing statements are true and correct with respect to all of
the real property adjoining any of the Realty; (v) none of the Realty is located
on a site which, pursuant to any Environmental Law, has been placed on the
"National Priorities List" or "CERCLIS List" (or any similar state or provincial
list) of hazardous waste sites; (vi) there are no underground storage tanks
situated on the Realty and no underground storage tanks have ever been situated
on the Realty; (vii) to the knowledge of the Borrowers, no Borrower nor any
Subsidiary has ever sent Hazardous Substances to a site which, pursuant to any
Environmental Law, (1) has been placed on the "National Priorities List" or
"CERCLIS List" of hazardous waste sites (or any similar state or provincial
list) or (2) which is subject to a claim, an administrative order or other
request to take "removal" or "remedial" action (as defined under Environmental
Laws) or to pay for the costs of cleaning up such a site; and
(b) All activities and operations of the Borrowers and each of their
Subsidiaries meet in all material respects the requirements of all applicable
Environmental Laws of all Governmental Authorities
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having jurisdiction over the Borrowers or any of their Subsidiaries or their
properties and no Borrower nor any of their Subsidiaries is involved in any suit
or proceeding or has received any written notice from any governmental agency
with respect to a release of Hazardous Substances or has received written notice
of any claims from any person or entity relating to property damages or personal
injuries from exposure to Hazardous Substances.
4.21. Outstanding Borrowings. Except as disclosed on SCHEDULE 4.21, as
of the Closing Date, no Borrower nor any Subsidiary has Indebtedness for
borrowed money other than the Obligations and Indebtedness secured by Permitted
Liens.
4.22. Contracts; Labor Disputes. No Borrower nor any Subsidiary is a
party to any contract or agreement, or subject to any charge, corporate
restriction, judgment, injunction, decree, rule, regulation or order of any
court or Governmental Authority, that has or could reasonably be expected to
have a Material Adverse Effect. No Borrower nor any Subsidiary is a party to,
and there is not pending or, to the knowledge of the Borrowers, threatened in
writing, any labor dispute, strike, lock-out, grievance, slowdown, work stoppage
or walkout relating to any labor contract to which any Borrower or any
Subsidiary is a party or otherwise subject, that has or could reasonably be
expected to have a Material Adverse Effect. The Borrowers and each Subsidiary
have complied with, and will continue to comply with, the provisions of the Fair
Labor Standards Act of 1938, as amended, and no Borrower nor any Subsidiary, nor
any of its officers, directors or employees, has committed any unfair labor
practice, as defined in the National Labor Relations Act of 1947, as amended,
that has or could reasonably be expected to have a Material Adverse Effect.
4.23. Insurance. SCHEDULE 4.23 accurately summarizes all insurance
policies or programs of the Borrowers and their Subsidiaries in effect as of the
Closing Date, and indicates the insurer's name, policy number, expiration date,
amount of coverage, type of coverage, annual premiums, exclusions and
deductibles, and also indicates any self-insurance program that is in effect.
4.24. Ownership of Properties. Except as set forth on SCHEDULE 1.1(a),
(a) each of the Borrowers and their Subsidiaries has good and marketable title
to all Realty owned by it, holds interests as lessee under valid leases in full
force and effect with respect to all leased real and material personal property
used in connection with its business, and has good title to all of its other
properties and assets, including, without limitation, the assets reflected in
the most recent Financial Statements (except as sold or otherwise disposed of
since the date thereof in the ordinary course of business), in each case free
and clear of all Liens other than Permitted Liens; and (b) other than the
Financing Statements in favor of the Agent or in connection with Permitted
Liens, no financing statement that names any Borrower or any of its Subsidiaries
as debtor has been filed and is still in effect, and no Borrower nor any
Subsidiary has signed any other financing statement or any security agreement
authorizing any secured party thereunder to file any such financing statement.
4.25. First Priority. The provisions of this Agreement, together with
the other Loan Documents (whether executed and delivered prior to or on the
Closing Date or thereafter), are and will be effective to create in favor of the
Agent, for the benefit of the Lenders, upon the initial extension of credit
hereunder and the proper filing of all financing statements and other
recordations contemplated thereunder in the jurisdictions and locations
contemplated thereby, a valid and enforceable first priority perfected security
interest in and lien upon all right, title and interest of the Borrowers and
their Subsidiaries in the Collateral described therein, to the extent such
filings and possession may perfect such security and interests subject only to
Permitted Liens.
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4.26. Investment Company. No Borrower is an "investment company" or
"controlled by" an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
4.27. Stock of the Borrowers. As of the Closing, all outstanding capital
stock of each Borrower has been duly and validly authorized and issued, and all
such outstanding shares are fully paid and nonassessable and held of record as
set forth on SCHEDULE 4.1.
4.28. Single Business Enterprise. The Borrowers have historically
operated as, and intend to continue operating as, a single business enterprise.
Although separate entities, the Borrowers operate under a common business plan.
Each of the Borrowers will accordingly benefit from the financing arrangement
established by this Agreement.
4.29. Material Contracts. SCHEDULE 4.29 lists all contracts, agreements
and commitments of any of the Borrowers as of the Closing Date, whether written
or oral, that (i) extend beyond December 31, 1996 and involve the receipt or
payment of more than $100,000; (ii) relate to employment, labor or union
matters; or (iii) are material to the business, property, assets, operations or
condition, financial or otherwise, of any of the Borrowers. At the Agent's
request, the Borrowers agree to deliver complete and accurate copies of all such
material contracts to the Agent and the Lenders.
ARTICLE V
AFFIRMATIVE COVENANTS
Until payment in full of the Obligations and the termination of the
Lenders' obligation to make Loans, the Borrowers, jointly and severally,
covenant and agree that:
5.1. Financial and Business Information about the Borrowers. The
Borrowers shall deliver to the Agent and the Lenders:
(a) As soon as practicable and in any event within thirty (30) days
after the close of each month, beginning with the current month, an unaudited
consolidated and consolidating balance sheet of the Borrowers and their
Subsidiaries as of the close of each such month and unaudited consolidated and
consolidating statements of income, retained earnings and cash flows for the
Borrowers and their Subsidiaries for the month then ended, and that portion of
the fiscal year then ended, all in reasonable detail setting forth in
comparative form the corresponding figures for the preceding fiscal year and,
beginning January 1, 1997, budget for the same period in the current fiscal
year, all prepared in accordance with Generally Accepted Accounting Principles
for interim financial statements (subject to the absence of notes required by
Generally Accepted Accounting Principles and subject to year-end audit
adjustment) applied on a basis consistent with that of the preceding month or
containing disclosure of the effect on the financial position or results of
operations of any change in the application of accounting principles and
practices during the month, certified by the executive vice president, treasurer
or controller of the Borrowers to be true and accurate in all material respects;
(b) As soon as practicable and in any event within forty-five (45) days
after the close of each of fiscal quarter of the Borrowers, beginning with the
current fiscal quarter, an unaudited consolidated and consolidating balance
sheet of the Borrowers and their Subsidiaries as of the close of such fiscal
quarter and unaudited consolidated and consolidating statements of income,
retained earnings and cash
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flows for the Borrowers and their Subsidiaries for the fiscal quarter then ended
and for that portion of the fiscal year then ended, all in reasonable detail
setting forth in comparative form the corresponding figures for the preceding
fiscal year and, beginning January 1, 1997, budget for the same period in the
current fiscal year, all prepared in accordance with Generally Accepted
Accounting Principles for interim financial statements (subject to the absence
of notes required by Generally Accepted Accounting Principles and subject to
year-end audit adjustment) applied on a basis consistent with that of the
preceding quarter or containing disclosure of the effect on the financial
position or results of operation of any change in the application of accounting
principles and practices during the quarter, certified by the executive vice
president, treasurer or controller of the Borrower to be true and accurate in
all material respects;
(c) As soon as practicable and in any event within ninety (90) days
after the close of each fiscal year of the Borrowers, beginning with the current
fiscal year, an audited consolidated balance sheet of the Borrowers and their
Subsidiaries as of the close of such fiscal year and audited consolidated
statements of income, retained earnings and cash flows for the Borrowers and
their Subsidiaries for the fiscal year then ended, including the notes to each,
all in reasonable detail setting forth in comparative form the corresponding
figures for the preceding fiscal year, prepared by KPMG Peat Marwick LLP or
another nationally-recognized independent certified public accountant in
accordance with Generally Accepted Accounting Principles applied on a basis
consistent with that of the preceding year or containing disclosure of the
effect on the financial position or results of operation of any change in the
application of accounting principles and practices during the year, accompanied
by a report thereon by such certified public accountant containing an opinion
that is not qualified with respect to scope limitations imposed by the Borrowers
or their Subsidiaries or with respect to accounting principles followed by the
Borrowers or their Subsidiaries not in accordance with Generally Accepted
Accounting Principles;
(d) Concurrently with the delivery of the financial statements described
in subsection (c) above, a certificate addressed to the Agent and the Lenders
from the independent certified public accountant that in making its audit of the
financial statements of the Borrowers and their Subsidiaries, it obtained no
knowledge of the occurrence or existence of any Default or Event of Default, or
a statement specifying the nature and period of existence of any such Default or
Event of Default disclosed by its audit; provided, however, that such accountant
shall not be liable to anyone by reason of its failure to obtain knowledge of
any Default or Event of Default that would not customarily be disclosed in the
course of an audit conducted in accordance with Generally Accepted Auditing
Standards;
(e) Concurrently with the delivery of the financial statements described
in subsections (a), (b) and (c) above, a certificate from the Borrowers and each
Borrower's senior financial officer or chief executive officer certifying to the
Lenders that, to the best of such person's knowledge after appropriate inquiry
and, in the case of the delivery of the financial statements described in
subsections (b) and (c) above, after review of this Agreement, no Default or
Event of Default has occurred or specifying any such Default or Event of De
fault, together with a Compliance Certificate, in form satisfactory to the
Required Lenders, reflecting the computation of the financial covenants set
forth in ARTICLE VI as of the end of the period covered by such financial
statements;
(f) As soon as practicable and in any event within thirty (30) days
after the close of each fiscal year of the Borrowers, beginning with the close
of the current fiscal year, an annual operating budget and capital budget and
projected annual financial statements (each prepared on a monthly basis) for the
Borrowers and their Subsidiaries, consisting of consolidated and consolidating
balance sheets, statements of income and cash flows, accompanied by a
certificate from the Borrowers and each Borrower's chief executive officer or
senior financial officer to the effect that the budgets and financial
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<PAGE> 59
projections have been prepared in good faith and are reasonable estimates of the
financial condition and operations of the Borrowers and their Subsidiaries for
such period;
(g) Within ten (10) days after issuance, copies of each report, document
or other correspondence that any Borrower shall from time to time render to or
file with any Governmental Authority (other than sales tax reports, employee
withholding reports, state tax reports, federal and state tax returns and
similar routine filings, reports or correspondence), including reports and other
documents filed with the Securities Exchange Commission, and all press releases
issued by any Borrower excluding promotional materials and ads for trade;
(h) Within ten (10) days after any Borrower's receipt thereof, copies of
any management letter or other communication from certified public accountants,
consulting report or any other similar business report management may request of
any Person from time to time, other than routine reports received in the
ordinary course of business;
(i) Within fifteen (15) days after the end of each month, in form and
detail acceptable to the Agent, a consolidated and consolidating aging of the
Accounts Receivable of the Borrowers as of the end of such month, certified by
the senior financial officer, treasurer or the controller of each Borrower to be
correct in all material respects;
(j) Within fifteen (15) days after the end of each month, in form and
detail acceptable to the Agent, an Inventory Report of the Inventory of each
Borrower as of the end of such month, certified by the senior financial officer,
treasurer or the controller of each Borrower to be correct in all material
respects;
(k) Within fifteen (15) days after the end of each month, a Borrowing
Base Certificate as of the end of such month, certified by the senior financial
officer, treasurer or the controller of each Borrower to be correct; and
(l) Upon the Agent's or any Lender's request, such other information
about the Collateral or the financial condition and operations of the Borrowers
and their Subsidiaries as the Agent or any Lender may from time to time
reasonably request.
5.2. Notice of Certain Events. The Borrowers shall promptly, but in no
event later than ten (10) days after obtaining knowledge thereof, give written
notice to the Agent and the Lenders of:
(a) any litigation or proceeding brought against any Borrower or any
Subsidiary that could reasonably be expected to have a Material Adverse Effect,
whether or not the claim is considered by the Borrowers to be covered by
insurance;
(b) any notice of a violation received by any Borrower or any Subsidiary
from any Governmental Authority that, if such violation were established, could
reasonably be expected to have a Material Adverse Effect;
(c) any labor controversy that has resulted in a strike or slowdown or
other work action that could reasonably be expected to have a Material Adverse
Effect;
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(d) any judgment in excess of $200,000, or any attachment, lien, levy or
order that may be placed on or assessed against or threatened against any
Borrower or any Subsidiary or any of the Collateral, except for Permitted Liens;
(e) any Default or Event of Default;
(f) any information relating to the filing by or against any Account
Debtor whose aggregate outstanding Accounts at such time exceed $200,000 of any
petition seeking liquidation, reorganization, arrangement or readjustment of
debts of such Account Debtor or for any other relief under the Bankruptcy Code
or under any act or law pertaining to insolvency or debtor relief, whether
state, federal or foreign;
(g) any default or event of default under any agreement or instrument to
which any Borrower or any Subsidiary is a party or by which it or any of its
property is bound, including the Senior Secured Notes the termination of which
could reasonably be expected to have a Material Adverse effect;
(h) any delay or delays in the performance by any Borrower or any
Subsidiary any of its obligations to any its Account Debtors that would
reasonably by expected to have a Material Adverse Effect;
(i) any information relating to a Material Adverse Change in the
creditworthiness of a material Account Debtor; and
(i) any other matter that in the reasonable judgment of the Borrowers
would be expected to result in a Material Adverse Change.
5.3. Corporate Existence and Maintenance of Properties, Licenses. Each
of the Borrowers shall, and shall cause each of its Subsidiaries to:
(a) Maintain and preserve in full force and effect its corporate
existence except as otherwise permitted by SECTION 6.1, and all material rights,
privileges and franchises; provided however that the Borrowers may permit the
dissolution of any of their Subsidiaries (and any such subsidiary may suffer
such dissolution) if, at the time of such dissolution, such Subsidiary has no
assets, engages in no business and otherwise has no activities other than
activities related to the maintenance of its corporate existence and good
standing;
(b) Conduct its business in accordance with sound business practices,
keep its properties in good working order and condition (normal wear and tear
excepted), and from time to time make all needed repairs to, renewals of or
replacements of its properties (except to the extent that any of such properties
are obsolete or are being replaced) so that the efficiency of its business
operations shall be fully maintained and preserved; and
(c) File or cause to be filed in a timely manner all reports,
applications, estimates and licenses that shall be required by any Governmental
Authority and that, if not timely filed, could reasonably be expected to have a
Material Adverse Effect.
5.4. Payment of Indebtedness; Performance of Other Obligations. The
Borrowers shall, and shall cause each of their Subsidiaries to, pay all
Indebtedness at maturity, all lawful claims that such
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Borrower or such Subsidiary is obligated to pay, that are due and that, if
unpaid, might by law become a lien upon property of such Borrower or such
Subsidiary, and all other obligations in accordance with customary trade
practices, and comply with all acts, rules, regulations and orders of any
legislative, administrative or judicial body or official applicable to the
Collateral or any part thereof or to the operation of the business of such
Borrower or such Subsidiary unless noncompliance is not reasonably likely to
result in a Material Adverse Effect. Each of the Borrowers shall, and shall
cause each of its Subsidiaries to, observe and remain in compliance with all
laws, ordinances, governmental rules and regulations to which it is subject and
obtain all licenses, permits, franchises or other governmental authorizations
necessary to the ownership of its respective properties or the conduct of its
respective businesses, and all covenants and conditions of all agreements and
instruments to which any Borrower or any Subsidiary is a party, which failure to
comply or failure to obtain could reasonably be expected to have a Material
Adverse Effect.
5.5. Payment of Trade Accounts Payable, etc. Each of the Borrowers
shall, and shall cause each of its Subsidiaries to, pay in accordance with
customary' trade practices and in the ordinary course of its business all of its
trade accounts that are payable or accrued as of the Closing Date, and, upon
request, shall deliver promptly to the Agent evidence reasonably satisfactory to
the Agent of such payment.
5.6. Insurance. (a) Each of the Borrowers shall, and shall cause each of
its Subsidiaries to, maintain and pay for insurance upon all of its assets,
including the Collateral, wherever located, and all real property owned or
leased by any Borrower or any Subsidiary' covering casualty, hazard, public
liability, product liability, business interruption, boiler, fidelity and such
other risks, and in such amounts and with such insurance companies as would be
carried by a reasonably prudent operator in a similar business (and in any event
in such amounts as shall be adequate to cover the Collateral), and deliver
certificates of such insurance to the Agent with satisfactory loss payable
endorsements naming the Agent as loss payee, additional insured and mortgagee
thereunder, as appropriate.
(b) Each such policy of insurance shall contain a standard loss payee
clause and shall require the insurer to give not less than thirty (30) days'
prior written notice to the Agent before any cancellation of the policies for
any reason whatsoever. Each Borrower hereby directs all insurers under policies
of property and casualty insurance on the physical assets constituting the
Collateral to pay all proceeds payable thereunder in excess of $100,000 directly
to the Agent. The Agent, on behalf of the Lenders, shall hold all such proceeds
for the account of the Borrowers. So long as no payment Default or payment Event
of Default has occurred and is continuing, the Agent shall, at the Borrowers'
option, disburse such proceeds as payment for the purpose of replacing or
repairing destroyed or damaged assets, as and when required to be paid and upon
presentation of evidence satisfactory to the Agent of such required payments and
such other documents as the Agent may reasonably request, or shall apply such
proceeds in whole or in pan as a prepayment of the Loans, in such order as the
Borrowers may determine. Upon and during the continuance of a Default or Event
of Default, the Agent may, and at the direction of the Required Lenders shall,
apply such proceeds as a prepayment of the Revolving Credit Loans. Each Borrower
hereby irrevocably makes, constitutes and appoints the Agent at all times during
the continuance of an Event of Default and after acceleration of the
Obligations, its true and lawful attorney (and agent-in-fact) for the purpose of
making, settling and adjusting claims under such policies of insurance,
endorsing its name on any check, draft, instrument or other item or payment for
the proceeds of such policies of insurance and for making all determinations and
decisions with respect to such policies of insurance.
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(c) If any Borrower or any Subsidiary fails to obtain and maintain any
of the policies of insurance required to be maintained hereunder or to pay any
premium in whole or in part, the Agent may, without waiving or releasing any
obligation or Default by the Borrowers hereunder, at the Borrowers' expense, but
without any obligation to do so, procure such policies or pay such premiums on
behalf of the Lenders. All sums disbursed by the Agent, for the benefit of the
Lenders, including reasonable attorneys' fees, court costs, expenses and other
charges related thereto, shall be payable by the Borrowers, jointly and
severally, to the Agent on demand and shall be additional Obligations under the
Credit Agreement, secured by the Collateral,
(d) The Borrowers shall deliver to the Agent, promptly as rendered, true
copies of all claims and monthly reports made in any reporting forms to
insurance companies. Not less than 30 days prior to the expiration date of the
insurance policies required to be maintained by the Borrowers or their
Subsidiaries, the Borrowers shall deliver to the Agent one or more certificates
of insurance evidencing renewal of the insurance coverage required hereunder
plus such other evidence of payment of premiums therefor as the Agent may
request. As soon as practicable after the Closing Date, the Borrowers shall
deliver to the Agent certified copies of the original policies of all insurance
on the Collateral.
(e) Upon the reasonable request of the Agent from time to time, the
Borrowers shall deliver to the Agent evidence that the insurance required to be
maintained pursuant to this Agreement is in effect.
5.7. Maintenance of Books and Records; Inspection. Each Borrower shall,
and shall cause each of its Subsidiaries to, maintain adequate books, accounts
and records and prepare all financial statements required under this Agreement
in accordance with Generally Accepted Accounting Principles. The Borrowers shall
permit any employee or representative of the Agent or any Lender to visit and
inspect any of the properties of the Borrowers and their Subsidiaries to examine
and audit each Borrower's and their Subsidiaries' books of account, records,
reports and other papers, to make copies and extracts therefrom, and to discuss
the affairs, finances and accounts of the Borrowers and their Subsidiaries with
its officers and, upon notice to the Borrowers, its independent public
accountants (and by this provision each Borrower authorizes said accountants to
discuss its finances and affairs and to provide the Agent or any Lender with
access to such accountants' work papers), all at such reasonable times and as
often as may be reasonably requested.
5.8. Compliance with ERISA. The Borrowers ,shall, and shall cause their
Subsidiaries to: (i) make timely payment of contributions required to meet the
minimum funding standards set forth in ERISA with respect to any Plan; (ii) not
take any action or fail to take action the result of which action or inaction
would reasonably be expected to be a material liability of any Borrower or any
Subsidiary to the Pension Benefit Guaranty Corporation or to a Multiemployer
Plan; and (iii) notify the Agent as soon as practicable of any ERISA Event and
of any additional act or condition arising in connection with any Pension Plan
that the Borrowers believe constitutes grounds for the termination thereof by
the Pension Benefit Guaranty Corporation or for the appointment by the
appropriate United States District Court of a trustee to administer such plan.
The Borrowers shall not, and shall not permit their Subsidiaries to, participate
in any Prohibited Transaction that would reasonably be expected to subject any
Borrower or any Subsidiary to any material civil penalty under ERISA or material
tax under the Internal Revenue Code. The Borrowers shall, and shall cause their
Subsidiaries to, furnish to the Agent upon the Agent's request such additional
information about any Employee Plan or other material employee benefit plan as
may be reasonably requested by the Agent.
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5.9. COBRA. The Employee Plans of the Borrowers and their Subsidiaries
shall be operated in such a manner that no Borrower nor any Subsidiary will be
reasonably expected to incur any material tax liability under Section 4980B of
the Internal Revenue Code or any material liability to any qualified beneficiary
as defined in Section 4980B.
5.10. Payment of Taxes. Each of the Borrowers shall, and shall cause
each of its Subsidiaries to, pay and discharge all material taxes, assessments
and governmental charges or levies imposed upon it, including, without
limitation, taxes, assessments, or charges or levies relating to its payroll tax
liability or income or profits, or upon any properties belonging to it, prior to
the date on which penalties would attach thereto, and all lawful claims (other
than claims secured by Permitted Liens) that, if unpaid, might become a lien or
charge upon any of its properties; provided, however, that the Borrowers and
their Subsidiaries shall not be required to pay any such tax, assessment,
charge, levy or claim that is being contested in good faith and by proper
proceedings if the Borrowers have maintained adequate reserves with respect
thereto in accordance with (and if required by) Generally Accepted Accounting
Principles. The Borrowers shall promptly notify the Agent of any notice received
from the Internal Revenue Service or other taxing authority regarding such
delinquent taxes and shall furthermore promptly deliver a copy of such notice to
the Agent.
5.11. Compliance with Statutes, etc. Each of the Borrowers shall, and
shall cause each of its Subsidiaries to, comply in all material respects with
all material applicable statutes, regulations and orders of, and all applicable
restrictions imposed by, all governmental bodies, domestic or foreign, in
respect of the conduct of its business and the ownership of its property
(including applicable Environmental Laws and statutes and regulations) where the
failure to comply would have a Material Adverse Effect.
5.12. Name Change. Each Borrower shall notify the Agent at least thirty
(30) days prior to the effective date of any change of its name or the name of
any of its Subsidiaries, and prior to such effective date any such Borrower or
Subsidiary' shall have executed any required amended or new Financing Statements
and other Loan Documents necessary to maintain and continue the perfected
security interest of the Agent, for the benefit of the Lenders, in all of its
Collateral and shall have taken such other actions and executed such documents
as the Agent shall reasonably require.
5.13. Compliance with Environmental Laws. The Borrowers shall take all
measures reasonably necessary and to the extent consistent with prudent business
practices to fully comply with the Environmental Laws.
5.14. Lockbox Arrangement. The Borrowers shall establish and maintain a
lockbox/ACH service with such bank or banks as may be acceptable to the Agent.
Accounts established in connection with this service shall be subject to the
sole control of the Agent, for the credit of the Lenders and the Agent, for the
credit of the Lenders, shall have the right at all times in its sole discretion
to apply all or a part of the monies in said account to payment of the
Obligations. The Agent, at the request of the Required Lenders, may in its sole
discretion release to the Borrowers, all or any part of the monies held in the
respective accounts. After a lockbox/ACH service is established by a Borrower,
whenever such Borrower or any of its Affiliates (other than another Borrower
maintaining a lockbox/ACH service at the Agent's request and the Foreign
Subsidiaries, shareholders, directors, officers, employees or agents) shall
receive any monies, checks, notes, drafts or any other items of payment:
(i) Such Borrower shall hold all such items of payment in
trust for Agent, on behalf of the Lenders, and as the
property of Agent, for
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the credit of Lenders, separate from the funds of such Borrower or any Affiliate
of the Borrower, and no later than the first Business Day following the receipt
thereof, the Borrower shall forward or cause to be forwarded the same to the
lockbox/ACH service for application to the Revolving Credit Loans;
(ii) Such Borrower shall forward to the Agent upon request, on a daily basis,
deposit slips related to all such items of payment received by such Borrower or
any Affiliate of such Borrower and, if required by the Agent, copies of such
checks and other items, together with a statement showing the application of
that portion of such items of payment relating to payment on Accounts Receivable
to outstanding Accounts Receivable and a collection report with regard thereto
in form and substance satisfactory to the Agent;
(iii) All such items of payment shall be the sole and exclusive property of the
Agent, for the credit of the Lenders, immediately upon the earlier of receipt of
such items by the Agent or any Lender or the receipt of such items by such
Borrower or any Affiliate of such Borrower; provided, however, that no such item
received by the Agent or any Lender shall constitute payment to the Agent, for
credit of the Lenders, unless such item is actually collected by the Agent, for
the credit of the Lenders' depository bank and such collection is finally
credited to the Lenders' account; and
(iv) Neither the Agent nor any Lender assumes any responsibility for such
lockbox/ACH service arrangement, including without limitation any claim of
accord and satisfaction or release with respect to deposits accepted by any bank
thereunder.
5.15. Further Assurances. The Borrowers shall, and shall cause each of
their Subsidiaries to, make, execute, endorse, acknowledge and deliver to the
Agent and the Lenders any amendments, restatements, modifications or supplements
hereto and any other agreements, instruments or documents, and take any and all
such other actions, as may from time to time be reasonably requested by the
Agent or the Required Lenders to effect, confirm or further assure or protect
and preserve the interests, rights and remedies of the Lenders and the Agent
under this Agreement and the other Loan Documents.
ARTICLE VI
NEGATIVE COVENANTS
Until payment in full of the Obligations and the termination of the
Lenders' obligation to make Loans, the Borrowers jointly and severally covenant
and agree that the Borrowers will not, and will not permit their Subsidiaries
to:
6.1. Merger and Dissolution. Merge or consolidate with or into any other
Person, liquidate, wind up or dissolve, or sell, lease or dispose of, in a
single transaction or a series of
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related transactions, all or a substantial portion of the assets of any Borrower
or any domestic Subsidiary; provided, however, (i) a Borrower or a Subsidiary
may merge or consolidate with another Person so long as a Borrower is the
surviving corporation and (ii) a Foreign Subsidiary may merge into another
Foreign Subsidiary.
6.2. Acquisitions. Except as permitted by SECTION 6.1 above or 6.8
below, consummate any transaction or series of related transactions after the
date hereof by which any Borrower or any Subsidiary (i) acquires all or a
substantial part of the assets of a going business or division of any Person,
whether through purchase of assets, merger or otherwise; (ii) directly or
indirectly acquires control of at least a majority in voting power of the
securities of any Person; or (iii) directly or indirectly acquires control of a
5% or more ownership interest in any partnership, limited liability company or
joint venture, except acquisitions by a Borrower of the assets, stock or other
ownership interest of another Borrower.
6.3. Indebtedness. Directly or indirectly issue, assume, create, incur
or suffer to exist any Indebtedness except for: (i) the Obligations; (ii) the
Senior Secured Notes; (iii) business expenses, trade accounts payable or accrued
by the Borrowers or their Subsidiaries in the ordinary course of their
businesses (provided that the same shall be paid substantially when due in
accordance with customary trade terms unless contested by appropriate
proceedings), and other obligations and liabilities other than for borrowed
money incurred by the Borrowers or their Subsidiaries in the ordinary course of
their businesses; (iv) Indebtedness secured by Permitted Liens; (v) Indebtedness
under Swap Agreements with a Lender that are reasonably satisfactory in form and
substance to the Required Lenders, (vi) Indebtedness between a Borrower and
another Borrower; (vii) Intercompany Loans, provided that the aggregate amount
of Intercompany Loans does not exceed (A) $15,000,000 during the time period
from the date of this Agreement to December 31, 1997, (B) $7,500,000 thereafter
to June 30, 1998, (C) $5,000,000 thereafter to December 31, 1998 and (D) zero
dollars thereafter; (viii) Indebtedness incurred pursuant to Capital Leases
including Capital Lease Obligations relating thereto of up to $5,000,000 in the
aggregate; (ix) Contingent Obligations permitted pursuant to SECTION 6.5; (x)
endorsements in the ordinary course of business of the Borrowers and their
Subsidiaries; (xi) Indebtedness permitted pursuant to SECTION 6.8 below; (xii)
Indebtedness for money borrowed (other than Intercompany Notes) of the Foreign
Subsidiaries in the aggregate principal amount not to exceed $20,000,000 at any
time; and (xiii) other Indebtedness which individually or in the aggregate does
not exceed $250,000.
6.4. Liens and Encumbrances. Create, assume or suffer to exist any Lien,
except Liens granted to the Agent for the benefit of the Lenders and Permitted
Liens.
6.5. Contingent Obligations. Except as disclosed on SCHEDULE 6.5,
create, incur, assume or suffer to exist any Contingent Obligation other than:
(i) endorsements of instruments or items of payment for
deposit or collection in the ordinary course of
business;
(ii) Contingent Obligations incurred pursuant to the
guaranties listed on SCHEDULE 6.5;
(iii) obligations under Letters of Credit issued under SECTION
2.17;
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(iv) guarantees by a Borrower or any of its Subsidiaries of
any other Indebtedness permitted under SECTION 6.3.
6.6. Disposition of Assets. Sell, lease, transfer, convey or otherwise
dispose of any of their assets or property, including without limitation the
Collateral, other than (i) the sale of Inventory in the ordinary course of
business; (ii) the sale or trade-in of Equipment for replacement Equipment in
the ordinary course of a Borrower's business; (iii) the sale, trade-in or other
disposition of Equipment no longer used or useful in the business of the
Borrowers and their Subsidiaries not in excess of $250,000 annually for all such
dispositions pursuant to this clause (iii) whether or not in the ordinary course
of business; (iv) sales, transfers, leases, conveyances or other dispositions of
assets to Borrowers; (v) the sale or disposition of Investments expressly
permitted to be held hereunder; (vi) the sale by Felchar Manufacturing
Corporation of approximately 3.03 acres of real property, buildings and
improvements owned by it in Norwich, New York (the "Norwich Property"); or (vii)
the sale of stock or assets of the Borrowers' European Subsidiaries in
connection with the consolidation or closing of such European Subsidiaries. To
the extent any Collateral is sold as permitted by this Section , such Collateral
shall be sold free and clear of the liens created by the Loan Documents, and the
A shall be authorized to take any actions that it deems appropriate in order to
effect the forego.
6.7. Transactions With Related Persons. Except as otherwise permitted by
SECTIONS 6.2, 6.3, 6.4 and 6.8, directly or indirectly (a) make any loan or
advance to, or purchase, assume or guarantee any Indebtedness to or from, any of
their officers, directors, stockholders or Affiliates, or to or from any member
of the immediate family of any of their officers, directors, stockholders or
Affiliates, or subcontract any operations to any Affiliate, except for travel or
other reasonable expense advances to employees in the ordinary course of
business; or enter into any transaction with any Affiliate (including the
purchase of any selling, general, management or administrative services from an
Affiliate), except for ordinary course of business and officer relocation loans
and except pursuant to the reasonable requirements of the businesses of the
Borrowers and on terms substantially no less favorable to the Borrowers than
those that the Borrowers would obtain in a comparable arms-length transaction
with a Person not an Affiliate of the Borrowers or (b) sell or transfer on
credit of motors or other parts to a Foreign Subsidiary, except for such sales
made on 90-day credit terms to a Foreign Subsidiary when (i) the Borrowers'
aggregate credit exposure at any time on all such sales to Foreign Subsidiaries
does not exceed $3,500,000 (based on standard transfer costs) and (ii) no
Foreign Subsidiary is in default on payment due on such sales.
6.8. Restricted Investments. Purchase, own, invest in or otherwise
acquire, directly or indirectly, any Stock, evidence of indebtedness, or other
obligation or security or any interest whatsoever in any other Person, or make
or permit to exist any loans, advances or extensions of credit to, or any
investment in cash or by delivery of property in, any Person (collectively,
"Investments"), except for: (i) investments in Cash Investments; (ii) loans and
advances to employees for reasonable travel and business expenses in the
ordinary course of business; (iii) prepaid expenses incurred in the ordinary
course of business; (iv) trade accounts receivable created in the ordinary
course of business; and (v) investments in existence as of the Closing Date in
corporations or other entities that are Subsidiaries as of the Closing Date;
(vi) investment after the Closing Date in entities that become Subsidiaries
after the Closing Date and that become a Borrower accordance with SECTION 6.16
hereof; (vii) loans to or investments in any Subsidiary with total equity and or
assets of less than $25,000; (viii) investments by the Borrowers under
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any Swap Agreement which meets the requirements of SECTION 5.14, provided that
the notional amount of all Swap Agreements at any time shall not exceed the
aggregate amount of the Commitments at such time; (ix) any other investments
approved in writing from time to time by the Required Lenders; and (x)
indebtedness permitted by SECTION 6.3 hereinabove.
6.9. Restrictions on Dividends. Declare or pay any dividends (other than
dividends payable solely in their own Stock) upon any of their Stock, or
purchase, redeem, retire, or otherwise acquire, directly or indirectly, any
shares of their Stock or any option, warrant or other right to acquire shares of
their Stock, or make any distribution of cash, property or assets among the
holders of shares of their Stock; provided, however, that any Borrower or any of
its Subsidiaries may do any of the foregoing if a recipient of the proceeds of
any of the foregoing otherwise prohibited activities is a Borrower.
6.10. Capital Expenditures. Make or incur any Capital Expenditure if,
after giving effect thereto, the aggregate amount of all such Capital
Expenditures (excluding any Capital Expenditures involving the use of insurance
proceeds to replace, rebuild or repair damaged or destroyed assets to the extent
of such proceeds and applicable deductibles or the limits of applicable
deductibles if no insurance proceeds were received on account of such damage or
destruction) shall exceed $2,000,000 for the 1996 fiscal year, $3,500,000 for
each of the 1997 and 1998 fiscal years and $4,000,000 for each fiscal year
thereafter.
6.11. Leases. Enter into any Operating Leases; provided, however, that
the Borrowers may maintain and renew existing Operating Leases; and, provided
further, that any of the Borrowers may enter into new Operating Leases provided
the required payments under all such leases (whether now existing or hereafter
arising) shall not exceed $3,000,000 in the aggregate for any fiscal year.
6.12. Interest Coverage Ratio. Permit the ratio of EBITDA (measured for
the four consecutive quarters ending on the measurement date) to Interest
Expense at the end of any fiscal quarter to be less than (i) 1.80 to 1.00 from
the Closing Date through the fiscal quarter ending September 30, 1997, (ii) 2.00
to 1.00 thereafter through the fiscal quarter ending September 30, 1998, (iii)
2.25 to 1.00 through the fiscal quarter ending September 30, 1999 and (iv) 2.50
to 1.00 through the end of any fiscal quarter thereafter. For purposes of this
covenant, Interest Expense shall be calculated as follows: (a) Interest Expense
for the last fiscal quarter of 1996 will be annualized by multiplying such
amount by 4, (b) Interest Expense for the first fiscal quarter of 1997 will be
annualized by multiplying the Interest Expense for the last fiscal quarter of
1996 and first fiscal quarter of 1997 by 2, (c) Interest Expense for the second
fiscal quarter of 1996 will be annualized by multiplying the Interest Expense
for the last fiscal quarter of 1996 and the first two fiscal quarters of 1997 by
1.333%, and (d) thereafter, Interest Expense shall be measured for the four
consecutive fiscal quarters ending on the measurement date.
6.13. Funded Debt/EBITDA Ratio. Permit the ratio of Funded Debt to
EBITDA (measured for the four consecutive quarters ending on the measurement
date) to be greater than (i) 4.85 to 1.00 from the Closing Date through the
fiscal quarter ending September 30, 1997, (ii) 4.25 to 1.00 thereafter through
the fiscal quarter ending September 30, 1998, (iii) 3.50 to 1.00 at the end of
any fiscal quarter thereafter.
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6.14. Sale and Leaseback. Enter Into any arrangement with any Person
providing for the leasing by any Borrower or any Subsidiary of any asset that
has been sold or transferred by any Borrower or any Subsidiary to such Person.
6.15. Hazardous Substances. (i) Violate any Environmental Law if such
violation could reasonably be expected to have a Material Adverse Effect or (ii)
permit any Hazardous Substances to be brought onto any of the Realty or any
other property owned, leased or operated by any Borrower or any Subsidiary
(unless such Hazardous Substance is necessary for the conduct of the Borrower's
or such Subsidiary's business as it exists on the Closing Date or any new
business permitted under SECTION 6.16 hereunder), if the presence of such
Hazardous Substance could reasonably be expected to result in a Material Adverse
Effect. If any Hazardous Substance is brought or found thereon or therein,
except as may be permitted above, the Borrowers, at no expense to the Agent or
the Lenders, shall take or cause to be taken all required environmental
response, removal, corrective or remedial actions in accordance with all
Environmental Laws. The Borrowers shall promptly give written notice to the
Agent of receipt of any written notice of violation or noncompliance, order or
request for information from any Governmental Authority with respect to any
Environmental Law, and shall promptly remedy any breach of any Environmental Law
by Borrowers or their Subsidiaries that could be reasonably expected to result
in a Material Adverse Effect. The Agent shall have the right to enter upon the
Realty or other property owned, leased or operated by any Borrower or any
Subsidiary, or any part thereof (through its employees and/or agents), to verify
compliance by Borrowers and their Subsidiaries with the terms of this Agreement
and to conduct such environmental assessments and audits as Agent shall deem
advisable to facilitate such verification at the expense of the Borrowers;
provided, however, EACH BORROWER HEREBY ACKNOWLEDGES THAT ALL HAZARDOUS MATERIAL
HANDLING PRACTICES AND ENVIRONMENTAL PRACTICES AND PROCEDURES ARE THE SOLE
RESPONSIBILITY OF THE BORROWERS, AND THE BORROWERS HAVE FULL DECISION-MAKING
POWER WITH RESPECT THERETO. EACH BORROWER FURTHER ACKNOWLEDGES THAT NEITHER THE
AGENT NOR ANY LENDER IS AN ENVIRONMENTAL CONSULTANT, ENGINEER, INVESTIGATOR OR
INSPECTOR OF ANY TYPE WHATSOEVER. NO ACT (OR DECISION NOT TO ACT) OF THE AGENT
OR ANY LENDER RELATED TO THIS AGREEMENT OR ANY LOAN DOCUMENT SHALL GIVE RISE TO
ANY OBLIGATION OR LIABILITY ON THE PART OF THE AGENT OR ANY LENDER WITH RESPECT
TO ENVIRONMENTAL MATTERS. IN NO EVENT SHALL ANY INFORMATION OBTAINED FROM THE
AGENT OR ANY LENDER OR THEIR RESPECTIVE AGENTS PURSUANT TO THIS AGREEMENT OR ANY
LOAN DOCUMENT CONCERNING THE ENVIRONMENTAL CONDITION OF THE REALTY OR OTHER
PROPERTY BE CONSIDERED BY THE BORROWERS OR ANY SUBSIDIARY (OR ANY OTHER
RECIPIENT OF SAID INFORMATION) AS CONSTITUTING LEGAL OR ENVIRONMENTAL
CONSULTING, ENGINEERING, INVESTIGATING OR INSPECTING ADVICE, AND NO BORROWER NOR
ANY SUBSIDIARY (NOR ANY OTHER RECIPIENT OF SAID INFORMATION) SHALL RELY ON SAID
INFORMATION. THE RESPONSIBILITY FOR COMPLIANCE WITH ENVIRONMENTAL LAWS RESTS
SOLELY WITH THE BORROWERS AND THEIR SUBSIDIARIES.
6.16. Subsidiaries or Partnerships. Except as otherwise permitted by the
terms of this Agreement, (a) become a partner or joint venturer in any
partnership or joint venture or (b) create or acquire any new Subsidiary.
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6.17. New Business. Engage in any business other than the business in
which they are currently engaged or a business reasonably related thereto, or
make any material change in their business objectives.
6.18. Fiscal Year. Change their fiscal year from a fiscal year ending
December 31 unless (i) the Borrowers give the Agent written notice of its
intention to change such fiscal year at least sixty (60) days prior thereto, and
(ii) the Borrowers, the Agent and the Lenders shall have amended this Agreement
to make any changes in the financial covenants and other terms and conditions of
this Agreement, to the extent necessary in the Lenders' reasonable determination
to reflect the new fiscal year end.
6.19. Amendments; Prepayments of Debt, Etc. (a) Amend in any respect
their certificates or articles of incorporation except in connection with the
transactions permitted pursuant to this Agreement; or (b) except with respect to
the Indebtedness created under the Loan Documents, (i) amend or modify (or
permit the amendment or modification of) any of the terms or provisions of any
Indebtedness, including the Senior Secured Notes, for money borrowed or any
agreement related thereto or (ii) make any voluntary or optional prepayment or
redemption or acquisition for value of (including, without limitation, by way of
depositing with any trustee with respect thereto money or securities before due
for the purpose of paying when due), or exchange, any Indebtedness, including
without limitation, the Senior Secured Notes; provided, however, the Borrowers
may make prepayments of their indebtedness under the Senior Secured Notes after
September 30, 1997 and so long as there neither exists at the time of, nor
results from, such prepayment: (w) any Default or Event of Default, (x) any
Borrowing under the Revolving Credit Facility, (y) Letter of Credit Outstandings
in an aggregate amount greater than $5,000,000, no portion of which shall be
attributable to Foreign Subsidiary Letters of Credit, or (z) Intercompany Loans,
excluding Foreign Subsidiary Letters of Credit, in an aggregate amount greater
than $5,000,000, and provided further that the Borrowers send to the Agent and
the Lenders, at least 15 days prior to such prepayment, written notice of such
prepayment, accompanied by a certificate from the Borrowers and each Borrower's
chief executive officer or senior financial officer to the effect that each of
the conditions of this SECTION 6.19 to the prepayment of any indebtedness under
the Senior Secured Notes has been met.
6.20. Location of Assets. Maintain any Inventory at any location other
than the locations set forth on SCHEDULE 4.16.
6.21. Receivables Documents. Remove the billing and related records
relating to Accounts Receivable from the locations set forth on SCHEDULE 4.16.
ARTICLE VII
EVENTS OF DEFAULT
7.1. Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
(a) The Borrowers fail to pay when due any principal, interest or fees
on the Obligations;
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(b) The Borrowers fail or neglect to observe, perform or comply with any
term, provision, condition or covenant contained in (i) SECTIONS 2.14, 5.3(a),
5.6 or 5.12 or any of the Sections of ARTICLE VI of this Agreement, or (ii)
SECTIONS 5.1 or 5.2 within ten (10) days after notice from the Agent thereof;
provided that the Agent shall only be required to give notice of any Default
under each of SECTION 5.1 and 5.2 one time and thereafter no further cure
periods will be required or available for future Defaults under such Sections.
(c) Any Borrower or any Subsidiary fails or neglects to observe, perform
or comply with any term, provision, condition or covenant contained in this
Credit Agreement except those enumerated in subsections (a) or (b) above, and
the same is not cured to the Required Lenders' satisfaction within thirty (30)
days after the Borrowers acquire knowledge thereof;
(d) If any representation or warranty made by or on behalf of any of the
Borrowers or any Subsidiary in this Agreement, in the other Loan Documents or
any certificate, instrument or document delivered in connection therewith, or in
any agreement now existing or hereafter executed between any Borrower or any
Subsidiary and the Agent or any Lender in connection with this Agreement or the
other Loan Documents, shall prove to have been false or incorrect in any
material respect at the time as of which such representation or warranty was
made;
(e) The occurrence of any default or event of default on the part of any
Borrower or any Subsidiary (including specifically, but without limitation,
defaults due to non-payment) under the terms of any agreement, document or
instrument pursuant to which such Borrower or such Subsidiary has incurred any
Indebtedness for money borrowed in excess of $500,000, including without
limitation, the Senior Secured Notes, which default would permit acceleration of
such Indebtedness;
(f) The occurrence of any event of default (after giving effect to
applicable cure periods) under any of the other Loan Documents or in any other
agreement now existing or hereafter executed evidencing or securing any of the
Obligations;
(g) The filing by any Borrower or any Subsidiary of any voluntary
petition seeking liquidation, reorganization, arrangement, readjustment of debts
or for any other relief under the Bankruptcy Code or under any other act or law
pertaining to insolvency or debtor relief, whether state, federal or foreign,
now or hereafter existing;
(h) The filing against any Borrower or any Subsidiary of any involuntary
petition seeking liquidation, reorganization, arrangement, readjustment of debts
or for any other relief under the Bankruptcy Code or under any other act or law
pertaining to insolvency or debtor relief, whether state, federal or foreign,
now or hereafter existing, which petition is not dismissed within sixty (60)
days of the date of filing;
(i) Any Borrower or any Subsidiary ceases to be Solvent, or ceases to
conduct its business substantially as now conducted or is enjoined, restrained
or in any way prevented by court order from conducting all or any material part
of its business affairs;
(j) The entry of a judgment in an amount greater than $200,000 or the
issuance of a warrant of attachment, execution or similar process against any
Borrower or any Subsidiary or any of such Borrower's or Subsidiary's respective
assets, which shall not be dismissed, stayed, discharged or bonded within sixty
(60) days;
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(k) A notice of lien, levy or assessment in excess of $200,000 is filed
of record with respect to all or any portion of the assets of any Borrower or
any Subsidiary by the United States, or any department, agency or
instrumentality thereof, or by any other Governmental Authority, including,
without limitation, the Pension Benefit Guaranty Corporation, or if any taxes or
debts in excess of $200,000 owing at any time or times hereafter to any one of
them becomes a lien or encumbrance upon the Collateral or any other assets of
any Borrower or any Subsidiary in each case and the same is not dismissed,
released or discharged within thirty (30) days after the same becomes a lien or
encumbrance or, in the case of ad valorem taxes, prior to the last day when
payment may be made without material penalty;
(l) A custodian, trustee, receiver or assignee for the benefit of
creditors is appointed or takes possession of all or any material portion of the
Collateral or any other assets of any Borrower or any Subsidiary;
(m) The occurrence of any of the following events, if such event is
reasonably expected to result in a Material Adverse Effect: (i) the happening of
a Reportable Event (notice of which is not waived by the Pension Benefit
Guaranty Corporation) with respect to any Pension Plan; (ii) the termination of
any Pension Plan in a "distress termination" under the provisions of Section
4041 of ERISA; (iii) the appointment of a trustee by an appropriate United
States District Court to administer any Pension Plan; (iv) the institution of
any proceedings by the Pension Benefit Guaranty Corporation to terminate any
Pension Plan or to appoint a trustee to administer any such plan; and (v) the
failure of the Borrowers to notify the Agent promptly upon receipt by the
Borrowers of any notice by the Pension Benefit Guaranty Corporation of the
institution of any proceeding or any other actions by the Pension Benefit
Guaranty Corporation that are reasonably expected to result in the termination
of any such plan;
(n) The occurrence of any material uninsured damage to or material
uninsured loss, theft or destruction of all or substantially all of the
Collateral and other assets of the Borrowers;
(o) A Change of Control shall occur;
(p) All of Matthew Miller and Jonathan Miller shall cease to act in
their current capacities with Shop Vac or shall cease to manage the business
operations of Shop Vac; or
(q) A Material Adverse Change.
ARTICLE VIII
RIGHTS AND REMEDIES AFTER EVENT OF DEFAULT
8.1. Remedies: Termination of Commitments, Acceleration, etc. Upon and
at any time after the occurrence and during the continuance of any Event of
Default, the Agent shall at the direction, or may with the consent, of the
Required Lenders, take any or all of the following actions at the same or
different times:
(a) Declare the Commitments of each Lender, and the Issuing Bank's
obligation to issue Letters of Credit, to be terminated, whereupon the same
shall terminate (provided that, upon the occurrence of an Event of Default
pursuant to SECTIONS 7.1(1), (j) or (k), all of the
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Commitments, together with the Issuing Bank's obligation to issue Letters of
Credit, shall automatically be terminated);
(b) Declare all or any part of the outstanding principal amount of the
Loans, all unpaid interest accrued thereon, and all other amounts payable under
this Agreement, the Notes and the other Loan Documents to be immediately due and
payable, whereupon such outstanding principal amounts, accrued interest and
other such amounts shall become immediately due and payable without presentment,
demand, protest, notice of intent to accelerate or other notice or legal process
of any kind, all of which are hereby knowingly and expressly waived by each
Borrower (provided that, upon the occurrence of an Event of Default pursuant to
SECTIONS 7.1(g), (h) or (m), all of such outstanding principal amounts, accrued
interest and other such amounts shall automatically become immediately due and
payable);
(c) Direct the Borrowers to deliver (and each Borrower hereby agrees,
upon receipt of notice of such direction from the Agent, to deliver) to the
Agent from time to time such additional amount of cash as is equal to the
aggregate Stated Amount of all Letters of Credit then outstanding (whether or
not any beneficiary under any Letter of Credit shall have drawn or be entitled
at such time to draw thereunder), such amount to be held by the Agent in the
Cash Collateral Account as security for the Borrowers' Reimbursement Obligations
as described in SECTION 2.17(i); and
(d) Exercise all rights and remedies available to it under this
Agreement, the other Loan Documents and applicable law,
8.2. Right of Set-off. The Agent and each Lender may, and are hereby
authorized by each Borrower, at any time and from time to time, to the fullest
extent permitted by applicable law, without advance notice to the Borrowers (any
such notice being expressly waived by each Borrower) and irrespective of demand
for payment, to set off and apply any and all deposits (general or special, time
or demand, provisional or final) at any time held in other than a fiduciary
account and any other indebtedness at any time owing by such Lender to or for
the credit or the account of any Borrower against any or all of the Obligations
now or hereafter existing, whether or not such Obligations have matured. The
Agent agrees to notify the Borrowers after any such setoff or application,
provided that the failure to give such notice shall not affect the validity of
such set-off and application.
8.3. Rights and Remedies Cumulative; Non-Waiver; etc. The enumeration of
the Agent's and the Lenders' rights and remedies set forth in this Agreement is
not intended to be exhaustive, and the exercise by the Agent or any Lender of
any right or remedy shall not preclude the exercise of any other rights or
remedies, all of which shall be cumulative, and shall be in addition to any
other right or remedy given hereunder, under the Loan Documents or under any
other agreement between the Borrowers or any Subsidiary and the Agent or the
Lenders or that may now or hereafter exist in law or in equity or by suit or
otherwise. No delay or failure to take action on the part of the Agent or any
Lender in exercising any right, power or privilege shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude other or further exercise thereof or the exercise of any
other right, power or privilege or shall be construed to be a waiver of any
Event of Default. No course of dealing between the Borrowers or any Subsidiary
and the Agent or the Lenders or their agents or employees shall be effective to
change, modify or discharge any provision of this Agreement or any of the other
Loan Documents or to constitute a waiver of any Event of Default.
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ARTICLE IX
THE AGENT
9.1. Appointment. The Lenders and the Issuing Bank (for purposes of this
Article, any reference to the Lenders or any Lender shall be deemed also to
include a reference to the Issuing Bank) hereby designate and appoint First
Union as Agent to act as specified herein and in the other Loan Documents. Each
Lender hereby authorizes, and each holder of any Note by the acceptance of such
Note shall be deemed to authorize, the Agent to take such action as agent on its
behalf under the provisions of this Agreement and the other Loan Documents and
any other instruments and agreements referred to herein or therein, and to
exercise such powers and to perform such duties hereunder and thereunder, as are
specifically delegated to or required of the Agent by the terms hereof or
thereof and such other powers as are reasonably incidental thereto. The Agent
may execute any of its duties under this Agreement or any other Loan Document by
or through agents or attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact that it selects with
reasonable care.
9.2. Nature of Duties. The Agent shall have no duties or
responsibilities other than those expressly set forth in this Agreement and the
other Loan Documents. Neither the Agent nor any of its officers, directors,
employees or agents shall be liable for any action taken or omitted by it or
them as such hereunder or under any other Loan Document or in connection
herewith or therewith, unless caused by its or their gross negligence or willful
misconduct. The duties of the Agent shall be mechanical and administrative in
nature; the Agent shall not have by reason of this Agreement or any other Loan
Document a fiduciary relationship in respect of any Lender or the holder of any
Note; and nothing in this Agreement or any other Loan Document, express or
implied, is intended to or shall be so construed as to impose upon the Agent any
obligations or liabilities in respect of this Agreement or any other Loan
Document except as expressly set forth herein or therein:
9.3. Absence of Reliance on the Agent.
(a) Each Lender acknowledges that neither the Agent nor any of its
officers, directors, employees or agents has made any representation or warranty
to it and that no act by the Agent hereinafter taken, including any review of
the affairs of the Borrowers and their Subsidiaries, shall be deemed to
constitute any representation or warranty by the Agent to any Lender.
(b) Each Lender acknowledges that, independently and without reliance
upon the Agent or any other Lender and based on such documents and information
as it has deemed and may deem appropriate, (i) it has made its own appraisal of
and investigation into the business, prospects, operations, properties,
financial and other condition and creditworthiness of the Borrowers and their
Subsidiaries in connection with its decision to enter into this Agreement and
extend credit to the Borrowers hereunder, and (ii) it will continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
hereunder.
(c) Except as expressly provided in this Agreement, the Agent shall have
no duty or responsibility, either initially or on a continuing basis, to provide
any Lender or the holder of any
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Note with any credit or other information concerning the business, prospects,
operations, properties, financial or other condition or creditworthiness of the
Borrowers, their Subsidiaries or any other Person that may come into its
possession, whether before the making of the initial Loans, the participation in
the initial Letters of Credit, or at any time or times thereafter.
(d) The Agent shall not be responsible to any Lender or the holder of
any Note for any recitals, statements, information, representations or
warranties herein or in any other Loan Document or in any document, instrument,
certificate or other writing delivered in connection herewith or therewith or
for the execution, effectiveness, genuineness, validity, enforceability,
perfection, priority or sufficiency of this Agreement or any other Loan Document
or the financial condition of the Borrowers, their Subsidiaries or any other
Person, or be required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of this Agreement or
any other Loan Document, or the financial condition of the Borrowers, their
Subsidiaries or any other Person or the existence or possible existence of any
Default or Event of Default.
(e) The Agent shall be under no obligation or duty to take any action
under this Agreement or any other Loan Document if taking such action (i) would
subject the Agent to a tax in any jurisdiction where it is not then subject to a
tax, (ii) would require the Agent to qualify to do business in any jurisdiction
where it is not then so qualified, unless the Agent receives security or
indemnity satisfactory to it against any tax or other liability in connection
with such qualification or resulting from the taking of such action in
connection therewith, or (iii) would subject the Agent to in personam
jurisdiction in any location where it is not then so subject.
9.4. Certain Rights of the Agent. If the Agent shall request
instructions from the Required Lenders with respect to any act or action
(including failure to act) in connection with this Agreement or any other Loan
Document, the Agent shall be entitled to refrain from such act or taking such
action unless and until it shall have received such instructions, and the Agent
shall incur no liability by reason of so refraining. The Agent shall not be
obligated to take any action hereunder or under any other Loan Document (i) if
such action would, in the reasonable opinion of the Agent, be contrary to
applicable law or this Agreement or the other Loan Documents, (ii) if it shall
not receive such advice or concurrence of the Required Lenders as it reasonably
deems appropriate or (iii) if it shall not first be indemnified to its
satisfaction by the Lenders requesting such action against any and all liability
and expense that may be incurred by it by reason of taking or continuing to take
any such action. Without limiting the foregoing, no Lender or holder of any Note
shall have any right of action whatsoever against the Agent as a result of the
Agent's acting or refraining from acting hereunder or under any other Loan
Document in accordance with the instructions of the Required Lenders.
9.5. Notice of Default. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default, other than any
Default or Event of Default arising out of the failure to pay any principal,
interest, fees or other amounts payable to the Agent for the account of the
Lenders, unless the Agent has received written notice from the Borrowers or a
Lender describing such Default or Event of Default and stating that such notice
is a "notice of default." In the event that the Agent receives such a notice,
the Agent shall give notice thereof to the Lenders as soon as reasonably
practicable; provided, however, that if any such notice has also been furnished
to the Lenders, the Agent shall have no obligation to notify the Lenders with
respect thereto. Each Lender shall promptly give the Agent such a notice upon
its actual knowledge of a Default or an Event of Default; provided, however,
that the failure of
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any Lender to deliver such notice in the absence of gross negligence or willful
misconduct shall not affect its rights hereunder or under the other Loan
Documents.
9.6. Reliance by Agent. The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any note, writing, resolution, notice,
statement, consent, certificate, telex, teletype or facsimile message, order or
other documentary, teletransmission or telephone message believed by it in good
faith to be genuine and correct and to have been signed, sent or made by the
proper Person. The Agent may consult with legal counsel (including counsel for
the Borrowers), independent public accountants and other experts selected by it
with respect to all matters pertaining to this Agreement and the other Loan
Documents and its duties hereunder and thereunder and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
9.7. Indemnification. To the extent the Agent is not reimbursed by or on
behalf of the Borrowers, and without limiting the obligation of the Borrowers to
do so, the Lenders will reimburse and indemnify the Agent, in proportion to
their respective percentages as used in determining the Required Lenders, from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses (including attorneys' fees and
expenses) or disbursements of any kind or nature whatsoever that may at any time
(including at any time following the indefeasible repayment in full of the
Loans) be imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of this Agreement or any other Loan Document or the
transactions contemplated hereby or thereby or any action taken or omitted by
the Agent under or in connection with any of the foregoing, and in particular
will reimburse the Agent for out-of-pocket expenses promptly upon demand by the
Agent therefor; provided, however, that no Lender shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements finally determined by a court
of competent jurisdiction and not subject to any appeal (or pursuant to
arbitration as set forth in SECTION 10.3(b)) to have resulted from the Agent's
gross negligence or willful misconduct.
9.8. The Agent in its Individual Capacity. With respect to its
Commitments, the Loans made by it and the Notes issued to it, the Agent shall
have the same rights and powers under the Loan Documents as any other Lender or
holder of a Note and may exercise the same as though it were not performing the
agency duties specified herein; and the terms "Lenders," "Required Lenders,"
"holders of Notes" and any similar terms shall, unless the context clearly
otherwise, indicates, include the Agent in its individual capacity. The Agent
may accept deposits from, lend money to and generally engage in any kind of
banking, trust, financial advisory or other business with the Borrowers or any
of their Subsidiaries or any of their respective Affiliates as if it were not
performing the agency duties specified herein, and may accept fees and other
consideration from the Borrowers for services in connection with this Agreement
and otherwise without having to account for the same to the Lenders.
9.9. Holders. The Agent may deem and treat the payee of any Note as the
holder thereof for all purposes hereof unless and until a written notice of the
assignment, transfer or endorsement thereof, as the case may be, shall have been
filed with the Agent. Any request, authority or consent of any Person that, at
the time of making such request or giving such authority or consent, is the
holder of any Note, shall be conclusive and binding on any subsequent holder,
transferee, assignee or endorsee, as the case may be, of such Note or of any
Note or Notes issued in exchange therefor.
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9.10. Successor Agent. The Agent may resign at any time upon sixty (60)
days' prior written notice to the Borrowers and the Lenders. The Agent may be
removed with or without cause by the Required Lenders (and, so long as no
Default or Event of Default has occurred and is continuing, with the consent of
the Borrowers, which consent shall not be unreasonably withheld), at any time
upon sixty (60) days' prior written notice to the Borrowers and the Agent. Such
resignation or removal, as the case may be, shall take effect upon the
appointment of a successor Agent as provided hereinbelow. Upon any such notice
of resignation or removal (and, in the case of removal, upon the consent of the
Borrowers, if required as provided hereinabove), the Required Lenders (so long
as no Default or Event of Default has occurred and is continuing, with the
consent of the Borrowers, which consent shall not be unreasonably withheld) will
appoint from among the Lenders a successor Agent. If no successor Agent shall
have been appointed within such sixty-day period, the Agent may appoint, after
consulting with the Lenders and the Borrowers, a successor agent from among the
Lenders, who shall serve as Agent until such time, if any, as the Required
Lenders shall have appointed a successor Agent as provided hereinabove. Upon the
written acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder and under
the other Loan Documents. After any retiring Agent's resignation as Agent, the
provisions of this Article shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent.
9.11. Collateral Matters.
(a) The Agent is hereby authorized on behalf of all the Lenders, without
the necessity of any notice to or further consent from the Lenders, from time to
time (but without any obligation) to take any action with respect to the
Collateral that may be necessary to perfect and maintain perfected the liens
upon the Collateral granted pursuant to the Loan Documents.
(b) The Lenders hereby irrevocably authorize the Agent, at its option
and in its discretion, to release any lien granted to or held by the Agent upon
any Collateral (i) upon termination of the Commitments and indefeasible payment
in full of all Obligations, (ii) constituting property sold or to be sold or
disposed of as part of or in connection with a disposition permitted hereunder,
(iii) constituting property in which neither the Borrowers nor any Subsidiary
owned any interest at the time such lien was granted or at any time thereafter
or (iv) if approved, authorized or ratified in writing by the Lenders or the
Required Lenders, as may be required with respect to any such release in
accordance with SECTION 10.8(b). Upon request by the Agent at any time, the
Lenders will confirm in writing the Agent's authority to release Collateral
pursuant to this subsection (b).
ARTICLE X
MISCELLANEOUS
10.1. Survival. The representations and warranties made by or on behalf
of any Borrower or any Subsidiary in this Agreement and in each other Loan
Document shall survive the execution and delivery of this Agreement and each
such other Loan Document. Notwithstanding any other provision herein or anything
provided or implied by law to the contrary, no termination or cancellation
(regardless of cause or procedure) of the Commitments,
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this Agreement or any of the other Loan Documents shall in any way affect or
impair the rights and obligations of the parties hereto with respect to any of
the provisions of (i) SECTION 10.3, (ii) SECTION 2.15 or (iii) this Agreement
and the other Loan Documents relating to indemnification or payment of costs and
expenses, including, without limitation, all of the provisions of SECTIONS
2.11(a), 2.41(b), 2,12, 2.13, 2.17(b), 9.7, 10.6 and 10.7, and, in each case,
such provisions shall survive any such termination or cancellation and the
making and repayment of the Loans.
10.2. Governing Low, Consent to Jurisdiction. THIS AGREEMENT HAS BEEN
EXECUTED, DELIVERED AM) ACCEPTED AT, AND SHALL BE DEEMED TO HAVE BEEN MADE IN,
NORTH CAROLINA AM) SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE
PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO
CONFLICTS OF LAW PROVISIONS) OF THE STATE OF NORTH CAROLINA; PROVIDED THAT EACH
LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT OR, IF NO
SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICES FOR
DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE,
PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT GOVERNED
THEREBY, THE INTERNAL LAWS OF THE STATE OF NORTh CAROLINA. AS PART OF THE
CONSIDERATION FOR NEW VALUE THIS DAY RECEIVED, EACH BORROWER HEREBY CONSENTS TO
THE JURISDICTION OF ANY STATE COURT WITHIN MECKLENBURG COUNTY, NORTH CAROLINA OR
ANY FEDERAL COURT LOCATED WITHIN THE WESTERN DISTRICT OF THE STATE OF NORTH
CAROLINA FOR ANY PROCEEDING INSTITUTED HEREUNDER OR UNDER ANY OF THE OTHER LOAN
DOCUMENTS, OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS, OR ANY PROCEEDING TO WHICH THE AGENT, THE ISSUING BANK,
ANY LENDER OR ANY BORROWER IS A PARTY, INCLUDING ANY ACTIONS BASED UPON, ARISING
OUT OF, OR IN CONNECTION WITH ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENT (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE ISSUING BANK,
ANY LENDER OR ANY BORROWER. EACH BORROWER IRREVOCABLY AGREES TO BE BOUND
(SUBJECT TO ANY AVAILABLE RIGHT OF APPEAL) BY ANY JUDGMENT RENDERED OR RELIEF
GRANTED THEREBY AND FURTHER WAIVES ANY OBJECTION THAT IT MAY HAVE BASED ON LACK
OF JURISDICTION OR IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY
SUCH PROCEEDING. EACH BORROWER CONSENTS THAT ALL SERVICE OF PROCESS BE MADE BY
REGISTERED OR CERTIFIED MAIL DIRECTED TO IT AT ITS ADDRESS SET FORTH
HEREINBELOW, AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE
EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE UNITED
STATES MAILS, PROPER POSTAGE PREPAID AND PROPERLY ADDRESSED. NOTHING IN THIS
SECTION SHALL AFFECT THE RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR AFFECT THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST
ANY BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
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10.3. Waiver of Jury Trial. (a) EACH BORROWER AND, BY ITS ACCEPTANCE OF
THE BENEFITS HEREOF, THE AGENT, THE ISSUING BANK AND EACH LENDER, HEREBY WAIVE,
TO THE EXTENT PERMITTED BY APPLICABLE LAW THEIR RESPECTIVE RIGHTS TO TRIAL BY
JURY OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY PROCEEDING TO WHICH THE
AGENT, THE ISSUING BANK, ANY LENDER OR ANY BORROWER IS A PARTY, INCLUDING ANY
ACTIONS BASED UPON, ARISING OUT OF, OR IN CONNECTION WITH ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENT,
THE ISSUING BANK, ANY LENDER OR ANY BORROWER. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including,
without limitation, contract claims, tort claims, breach of duty claims and all
other common law and statutory claims. The Borrowers and, by its acceptance of
the benefits hereof, each of the Agent, the Issuing Bank and the Lenders, (i)
acknowledge that this waiver is a material inducement to enter into a
business relationship, that it has relied on this waiver in entering into this
Agreement or ???? the benefits hereof, as the case may be, and that it will
continue to rely on this waiver its ??? related future dealings with the other
parties hereto, and (ii) further warrants and represents that it has reviewed
this waiver with its legal counsel and that, based upon such review, it
knowingly and voluntarily waives its jury trial rights to the extent permitted
by applicable law. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, MODIFICATIONS OR SUPPLEMENTS TO OR RESTATEMENTS OF THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
(b) IN THE EVENT THAT THE WAIVER OF JURY TRIAL HEREIN SHALL BE
DETERMINED TO BE INVALID OR UNENFORCEABLE AS A MATTER OF LAW WITH RESPECT TO ANY
PARTY, THE PROVISIONS OF THIS SECTION 10.3(b) SHALL APPLY. Upon demand of any
party hereto, whether made before or after institution of any judicial
proceeding, any judicial proceeding, any dispute, claim or controversy arising
out of, connected with or relating to this Agreement and other Loan Documents
("Disputes") between or among the parties to this Agreement shall be resolved by
binding arbitration as provided herein. Institution of a judicial proceeding by
a party does not waive the right of that party to demand arbitration hereunder.
Disputes may include, without limitation, tort claims, counterclaims, disputes
as to whether a matter is subject to arbitration, claims brought as class
actions, claims arising from Loan Documents executed in the future, or claims
arising out of or connected with the transaction reflected by this Agreement.
Arbitration shall be conducted under the governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All
arbitration hearings shall be conducted in Mecklenburg County, North Carolina.
The expedited procedures set forth in Rule 51 et seq. of the Arbitration Rules
shall be applicable to claims of less that $1,000,000. All applicable statutes
of limitation shall apply to any Dispute. A judgement upon the award may be
entered in any court having jurisdiction. The panel from which all arbitrators
are selected shall be comprised of licensed attorneys. The single arbitrator
selected for expedited procedure shall be a retired
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judge from the highest court of general jurisdiction, state or federal, of the
state where the hearing will be conducted or if such person is not available to
serve, the single arbitrator may be a licensed attorney. Notwithstanding the
foregoing, this arbitration provision does not apply to disputes under or
related to swap agreements.
Notwithstanding the preceding binding arbitration provisions, Agent, the
Lenders and the Borrowers agree to preserve, without diminution, certain
remedies that any party hereto may employ or exercise freely, independently or
in connection with an arbitration proceeding or after an arbitration action is
brought. Agent, the Lenders and the Borrowers shall have the right to proceed in
any count of proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) all rights to foreclose against any real
or personal property or other security by exercising a power of sale granted
under Loan Documents or under applicable law or by judicial foreclosure and
sale, including a proceeding to confirm the sale; (ii) all rights of self-help
including peaceful occupation of real property and collection of rents, set-off,
and peaceful possession of personal property; (iii) obtain provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an involuntary bankruptcy
proceeding and (iv) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
Agent, the Lenders and the Borrowers agree that they shall not have a remedy of
punitive or exemplary damages against the other in any Dispute and hereby waive
any right or claim to punitive or exemplary damages they have now or which may
arise in the future in connection with any Dispute whether the Dispute is
resolved by arbitration or judicially.
10.4. Notice. All notices and other communications provided for
hereunder shall be in writing (including telegraphic, telex, facsimile
transmission or cable communication) and mailed, telegraphed, telexed,
telecopied, cabled or delivered to the party to be notified at the following
addresses:
If to the Borrowers: Shop Vac Corporation
2323 Reach Road
Williamsport, Pennsylvania 17701
Attention: W. Earl Stogner
Executive Vice President
Telephone: (717) 326-0502
Telecopy: (717) 326-0422
with a copy to: Rhoads & Sinon, LLP
One South Market Square
Dauphin Building, 12th Floor
Harrisburg, Pennsylvania 17108-1146
Attention: John P. Manbeck
Telephone: (717) 233-5731
Telecopy: (717) 232-1459
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If to the Agent
or the Issuing Bank: First Union National Bank of
North Carolina
Leveraged Finance Group
One First Union Center, DC-5
301 South College Street
Charlotte, North Carolina 28288-0737
Attention: Jorge Gonzalez
Telephone: (704) 383-8461
Telecopy: (704) 374-3300
with copies to: First Union Corporation
Leveraged Finance Group
One First Union Center, DC-5
301 South College Street
Charlotte, North Carolina 28288-0737
Attention: Mark B. Felker
Telephone: (704) 374-7074
Telecopy: (704) 374-3300
and
Robinson, Bradshaw & Hinson, P.A.
101 North Tryon Street
1900 Independence Center
Charlotte, North Carolina 28246
Attention: Stokely G. Caldwell, Jr.
Telephone: (704) 377-2536
Telecopy: (704) 378-4000
If to any Lender: At the address set forth on its signature page hereto
or to such other address as any party may designate for itself by like notice to
all other parties hereto. All such notices and communications shall be deemed to
have been given (i) if mailed as provided above by any method other than
overnight delivery service, on the third Business Day after deposit in the
mails, (ii) if mailed by overnight delivery service, telegraphed, telexed,
telecopied or cabled, when delivered for overnight delivery, delivered to the
telegraph company, confirmed by telex answerback, transmitted by telecopier or
delivered to the cable company, respectively, or (iii) if delivered by hand,
upon delivery; provided that notices and communications to the Agent shall not
be effective until received by the Agent. Each Borrower hereby appoints and
authorizes Shop Vac Corporation to act as the Borrowers' representative for the
purpose of receiving and delivering notices, including without limitation
notices set forth in EXHIBITS B-1, B-2, B-3, D, E, F, G and H, and to act on
behalf of all Borrowers hereunder. Notice to Shop Vac Corporation shall be
deemed to be notice to all Borrowers.
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10.5. Assignments, Participations.
(a) With the prior consent of the Agent and the Borrowers, which consent
shall not be unreasonably withheld, each Lender may assign to one or more other
Persons all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitments, the
outstanding Loans made by it and the Note or Notes held by it); provided,
however, that (i) each such assignment shall be of an equal, pro rata percentage
of such Lender's rights and obligations (including its Commitments) under each
Facility, (ii) except in the case of an assignment to an Affiliate of such
Lender or a Person that, immediately prior to such assignment, was a Lender, the
amount of the Commitments of such assigning Lender being assigned pursuant to
each such assignment (determined as of the date of the Assignment and Acceptance
with respect to each such assignment) shall in no event be less than the lesser
of (y) the aggregate Commitments of such Lender immediately prior to such
assignment or (z) $5,000,000, (iii) each such assignment shall be to an Eligible
Assignee, and (iv) the parties to each such assignment will execute and deliver
to the Agent, for its acceptance and recording in the Register, an Assignment
and Acceptance, together with any Note or Notes subject to such assignment, and
will pay a processing fee of $3,000 to the Agent for its own account. Upon such
execution, delivery, acceptance and recording of the Assignment and Acceptance,
from and after the effective date specified therein (a) the assignee thereunder
shall be deemed a party hereto and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment and Acceptance,
shall have the rights and obligations of such Lender hereunder with respect
thereto, and (b) the assigning Lender shall, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations under
this Agreement (and, in the case of an Assignment and Acceptance covering all or
the remaining portion of such assigning Lender's rights and obligations under
this Agreement, such Lender shall cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the
assigning Lender and the assignee thereunder confirm to and agree, with each
other and with the other parties hereto, as follows: (i) other than as may be
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any other Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
Loan Document or any other instrument or document furnished hereto or pursuant
thereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrowers or any of their Subsidiaries or the performance o observance by the
Borrowers or any of their Subsidiaries of any of their respective obligations
under this Agreement or any other Loan Document or any other instrument or
document furnished pursuant hereto or thereto; (iii) such assignee confirms that
it has received a copy of this Agreement, together with copies of the Financial
Statements and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into this Agreement; (iv)
such assignee will, independently and without reliance upon the Agent, the
assigning Lender 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 decisions in taking or not taking action under this Agreement; (v) such
assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers and discretion under this Agreement and the other Loan
Documents and any other instruments and agreements referred to herein or
therein, and to exercise such powers and to perform such
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duties hereunder and thereunder, as are specifically delegated to or required of
the Agent by the terms hereof or thereof and such other powers as are reasonably
incidental thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all of the obligations that by the terms of this
Agreement are required to be performed by it as a Lender.
(c) The Agent will maintain a copy of each Assignment and Acceptance
delivered to and accepted by it and a register for the recordation of the names
and addresses of the Lenders and the Commitments of, and principal amount of the
Loans owing to, each Lender from time to time (the "Register"). The entries in
the Register shall be conclusive and binding for all purposes, absent manifest
error, and the Borrowers, the Agent, the Issuing Bank and the Lenders may treat
each Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrowers, the Issuing Bank or any Lender at any reasonable time and from
time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee, together with any Note or Notes subject to
such assignment, the Agent will, if such Assignment and Acceptance has been
completed and is in substantially the form of EXHIBIT D, (i) accept such
Assignment and Acceptance, (ii) record the information contained therein in the
Register and (iii) give notice thereof to the Borrowers. Within five (5)
Business Days after its receipt of such notice, the Borrowers, at their own
expense, will execute and deliver to the Agent in exchange for the surrendered
Note or Notes a new Note or Notes to the order of such assignee in an amount
equal to the Commitment or Commitments assumed by it pursuant to such Assignment
and Acceptance and, to the extent the assigning Lender has retained its
Commitments hereunder, a new Note or Notes to the order of the assigning Lender
in an amount equal to the Commitment or Commitments retained by it hereunder.
Such new Note or Notes shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Note or Notes, shall be dated the
effective date of such Assignment and Acceptance and shall otherwise be in
substantially the forms of EXHIBITS A-1 and A-2, as appropriate.
(e) Each Lender may sell to one or more other Persons participations in
any portion comprising less than all of its rights and obligations under this
Agreement (including, without limitation, a portion of its Commitments, the
outstanding Loans made by it and the Note or Notes held by it); provided,
however, that (i) such Lender's obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible for the performance
of such obligations, (iii) the Borrowers, the Issuing Bank, the Agent and the
other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement, (iv)
any such participation shall be in an amount of not less than $5,000,000, (v) no
Lender shall sell any participation that, when taken together with all other
participations, if any, sold by such Lender, covers all of such Lender's rights
and obligations under this Agreement (including, without limitation, all of its
Commitments, the outstanding Loans made by it and the Note or Notes held by it),
(vi) each such participation shall be of an equal, pro rata percentage of such
Lender's rights and obligations (including its Commitments) under each Facility,
and (vii) no Lender shall permit any participant to have any voting rights or
any right to control the vote of such Lender with respect to any amendment,
modification, waiver, consent or other action hereunder or under any other Loan
Document except as to actions of the type described in SECTION 10.8(a). In the
case of a participation, the participant shall not have any rights under this
Agreement or any of the other Loan Documents, the participant's rights against
the granting Lender in respect of such participation to be those set
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forth in the participation agreement, and all amounts payable by the Borrowers
hereunder shall be determined as if such Lender had not sold such participation;
provided, however, that each such participant shall have the rights of a Lender
for purposes of SECTIONS 2.11(a), 2.11(b), 2.12, 2.13 and 8.2, and shall be
entitled to the benefits thereto, to the extent that the Lender selling such
participation would be entitled to such benefits if the participation had not
been sold.
(f) With the prior consent of the Required Lenders and the Borrowers,
which consent shall not be unreasonably withheld, the Issuing Bank may assign
all, but not less than all, of its rights and obligations as Issuing Bank under
this Agreement, including, without limitation, its commitment to issue Letters
of Credit, to any Eligible Assignee, and upon acceptance of such assignment, the
successor Issuing Bank shall succeed to such rights and obligations and the
assigning Issuing Bank shall be discharged therefrom.
(g) The Agent, the Issuing Bank and each Lender may, in connection with
any assignment or participation or proposed assignment or participation pursuant
to this Section , disclose to the assignee or participant, or proposed assignee
or participant, any information relating to the Borrowers and their Subsidiaries
furnished to it by or on behalf of any other party hereto, provided that such
assignee or participant or proposed assignee or participant agrees in writing to
the Agent, the Issuing Bank or such Lender, as the case may be, to keep such
information confidential to the same extent required of the Lenders under
SECTION 10.17.
10.6. Fees and Expenses. Whether or not the transactions contemplated by
this Agreement shall be consummated, the Borrowers shall be jointly and
severally obligated:
(a) to pay or reimburse the Agent upon demand and after notice in
accordance with SECTION 10.4 for all reasonable and documented expenses
(including, without limitation, reasonable attorneys' fees, but excluding
salaries of the Agent's regularly employed personnel and overhead) incurred or
paid by the Agent in connection with: (i) the preparation, execution, delivery,
interpretation, modification, amendment or termination of this Agreement or the
other Loan Documents or any consent or waiver requested by the Borrowers
hereunder or thereunder; (ii) charges for appraisers, examiners, environmental
consultants, auditors or similar Persons whom the Agent may, if then authorized
to do so hereunder, engage with respect to rendering opinions concerning the
financial condition of the Borrowers and their Subsidiaries; and (iii) any
commercially reasonable attempt to inspect, verify, protect, preserve, collect,
sell, liquidate or otherwise dispose of the Collateral or any other assets of
any of the Borrowers, including without limitation, the Agent's normal and
customary Collateral audits;
(b) to pay or reimburse the Agent and each Lender upon demand and after
notice in accordance with SECTION 10.4 for all reasonable and documented
expenses (including, without limitation, reasonable attorneys' fees, but
excluding salaries of the Agent's or such Lender's regularly employed personnel
and overhead) incurred or paid by the Agent or such Lender in connection with:
(i) any litigation, contest, dispute, suit or proceeding or action (whether
instituted by the Agent, the Lenders, or any of them, the Borrowers or any other
Person) in any way relating to this Agreement or the other Loan Documents or to
any Borrower's or any Subsidiary's affairs (other than a dispute solely between
or among the Lenders); (ii) any attempt by the Agent or such Lender to enforce
any of its rights against the Borrowers or any other Person that may be
obligated to the Agent or such Lender by virtue of this Agreement or the other
Loan Documents: and (iii) any refinancing or restructuring of the credit
arrangement
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provided under this Agreement in the nature of a "work-out" or in any insolvency
or bankruptcy proceeding;
(c) to pay and hold the Agent and each Lender harmless from and against
any and all liability and loss with respect to or resulting from the nonpayment
or delayed payment of any and all intangibles, documentary stamp and other
similar taxes, fees and excises, if any, including any interest and penalties,
that may be, or be determined to be, payable in connection with the transactions
contemplated by this Agreement and the other Loan Documents or in any
modification hereof or thereof; and
(d) to pay and hold the Agent and each Lender harmless from and against
any and all finder's or brokerage fees and commissions that may be payable in
connection with the transactions contemplated by this Agreement and the other
Loan Documents, other than any fees or commissions of finders or brokers engaged
by the Agent or any Lender.
10.7. Indemnification. From and at all times after the date of this
Agreement, and in addition to the costs and expenses payable under SECTION 10.6
and all of the Agent's and the Lenders' other rights and remedies against the
Borrowers, the Borrowers jointly and severally agree to indemnify and hold
harmless the Agent, the Issuing Bank and each Lender and each of their
directors, officers, employees, agents and Affiliates (each, an "Indemnified
Person") against any and all claims, losses, damages, liabilities, costs and
expenses of any kind or nature whatsoever, including, without limitation,
attorneys' fees, costs and expenses (collectively, "Indemnified Costs") incurred
by or asserted against any such Indemnified Person from and after the date
hereof, whether direct, indirect or consequential, as a result of or arising
from or in any way relating to any suit, action or proceeding (including any
inquiry or investigation) by any Person, whether threatened or initiated,
asserting a claim for any legal or equitable remedy under any statute or
regulation, including, without limitation, any federal or state securities laws,
or under any common law or equitable cause or otherwise, arising from or in
connection with the negotiation, preparation, execution, performance or
enforcement of this Agreement or the other Loan Documents or any of the
transactions contemplated herein or therein, and including, without limitation,
Environmental Claims, whether or not such Indemnified Person is a party to any
such action, proceeding or suit or the target of any such inquiry or
investigation; provided, however, that no Indemnified Person shall have the
right to be indemnified hereunder for any Indemnified Costs resulting primarily
from the gross negligence or willful misconduct of such Indemnified Person (as
finally determined by a court of competent jurisdiction or pursuant to
arbitration as set forth in SECTION 10.3). All of the foregoing losses, damages,
costs and expenses of any Indemnified Person shall be payable by the Borrowers,
as and when incurred and upon demand, and shall be additional Obligations
hereunder. In the event that the foregoing indemnity is unavailable or
insufficient to hold each Indemnified Person harmless, then the Borrowers will
contribute to amounts paid or payable by such Indemnified Persons in respect of
their losses, claims, damages or liabilities in such proportions as
appropriately reflect the relative benefits received by and fault of the
Borrowers and such Indemnified Persons in connection with the matters as to
which such losses, claims, damages or liabilities relate and other equitable
considerations.
10.8. Amendments, Waivers, Etc. Except as may be otherwise specifically
set forth in this Agreement or the other Loan Documents, neither this Agreement
nor any other Loan Document nor any provision hereof or thereof may be amended,
modified, waived, discharged or terminated, and no consent to any departure by
the Borrowers from any provision hereof or
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thereof may be given, except in a writing signed by the Required Lenders;
provided, however, that:
(a) no such amendment, modification, waiver, discharge, termination or
consent shall, without the consent of each Lender holding Obligations directly
affected thereby, (i) reduce the principal amount of, or rate of interest on,
any Loan, or reduce any fees or other Obligations (other than fees payable to
the Agent for its own account) or any obligations of any Person now or hereafter
primarily or contingently liable with respect to the Obligations or (ii)
postpone any date fixed for any payment of principal, interest (other than
additional interest payable under SECTION 2.6(b) during the continuance of an
Event of Default), fees (other than fees payable to the Agent for its own
account) or any other Obligations;
(b) no such amendment, modification, waiver, discharge, termination or
consent shall, without the consent of all Lenders, (i) increase the Commitments
of any Lender (it being understood that a waiver of any Default or Event of
Default or of any mandatory reduction in either Total Commitment shall not
constitute such an increase), (ii) change the definition of "Required Lenders"
or otherwise change the number or percentage of Lenders that shall be required
for the Lenders or any of them to take or approve, or direct the Agent to take,
any action hereunder, (iii) amend, modify or waive any of the provisions for
extending, or take action to extend, the term of the Revolving Credit Facility
(iv) affect the obligation of the Lenders having Revolving Credit Commitments to
become L/C Participants, (v) amend any provision of this Section , (vi) release
all or substantially all of the Collateral or (vii) consent to the assignment or
transfer by the Borrowers, or by any other Person now or hereafter primarily or
contingently liable with respect to the Obligations, of any of its rights and
obligations under this Agreement or any of the other Loan Documents;
(c) no provision relating to the rights or obligations of the Issuing
Bank under this Agreement or any of the other Loan Documents may be amended,
modified or waived without the consent of the Issuing Bank; and
(d) no provision relating to the rights or obligations of the Agent
under this Agreement or any of the other Loan Documents may be amended, modified
or waived without the consent of the Agent.
10.9. Rights and Remedies Cumulative, Non-waiver, etc. The enumeration
of the Agent's and the Lenders' rights and remedies set forth in this Agreement
and the other Loan Documents is not intended to be exhaustive, and the exercise
by the Agent or any Lender of any right or remedy shall not preclude the
exercise of any other rights or remedies, all of which shall be cumulative, and
shall be in addition to any other right or remedy given hereunder, under the
other Loan Documents or under any other agreement between the Borrowers and the
Lenders, or any of them (or the Agent on their behalf), or that may now or
hereafter exist in law or in equity or by suit or otherwise. No delay or failure
to take action on the part of the Agent or any Lender in exercising any right,
power or privilege shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or privilege preclude other or further
exercise thereof or the exercise of any other right, power or privilege or shall
be construed to be a waiver of any Event of Default. No course of dealing
between any of the Borrowers and the Agent or the Lenders or their agents or
employees shall be effective to change, modify or discharge any provision of
this Agreement or to constitute a waiver of any Event of Default. No notice to
or demand upon the Borrowers in any case shall entitle the Borrowers to any
other or further notice
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or demand in similar or other circumstances or constitute a waiver of the right
of the Agent or any Lender to exercise any right or remedy or take any other or
further action in any circumstances without notice or demand.
10.10. Binding Effect, Assignment. All of the terms of this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the
respective successors and assigns of the Borrower, the Agent, the Issuing Bank
and each Lender; provided, however, that (i) assignments may be made only if
permitted, and on the terms set forth in this Agreement, (ii) the Borrowers may
not sell, assign or transfer this Agreement or any portion hereof or thereof,
including, without limitation, any of its rights, title, interests, remedies,
powers and duties hereunder or thereunder and (iii) any assignees and
participants of the Lenders and any successor Issuing Bank shall have such
rights and obligations with respect to this Agreement and the other Loan
Documents as are provided for in and pursuant to SECTION 10.5.
10.11. Severability. To the extent any provision of this Agreement is
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
10.12. Entire Agreement. THIS AGREEMENT AND THE DOCUMENTS AND
INSTRUMENTS EXECUTED AND DELIVERED CONTEMPORANEOUSLY HEREWITH EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO AND SUPERSEDE ALL PRIOR
AGREEMENTS AND UNDERSTANDINGS OF SUCH PERSONS, VERBAL OR WRITTEN, RELATING TO
THE SUBJECT MATTER HEREOF, EXCEPT FOR ANY PRIOR ARRANGEMENTS MADE WITH RESPECT
TO PAYMENT BY THE BORROWERS OF (OR ANY INDEMNIFICATION FOR) ANY FEES, COSTS OR
EXPENSES PAYABLE TO OR INCURRED (OR TO BE INCURRED) BY OR ON BEHALF OF THE
AGENT, THE ISSUING BANK OR ANY LENDER, THE PROVISIONS OF WHICH PRIOR
ARRANGEMENTS ARE HEREBY INCORPORATED INTO THIS AGREEMENT BY THIS REFERENCE. THIS
AGREEMENT, THE NOTES, THE OTHER LOAN DOCUMENTS AND THE INSTRUMENTS AND DOCUMENTS
EXECUTED IN CONNECTION HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
10.13. Interpretation. The captions to the various sections and
subsections of this Agreement have been inserted for convenience only and shall
not limit or affect any of the terms hereof. Unless the context otherwise
requires, words in the singular include the plural and words in the plural
include the singular, and the use of any gender shall be applicable to all
genders.
10.14. Counterparts; Effectiveness. This Agreement may be executed in
any number of counterparts and by different parties hereto on separate
counterparts, each of which, when so executed and delivered, shall be an
original, but all of which shall together constitute one and the same
instrument. This Agreement shall become effective upon the execution of a
counterpart hereof by each of the parties hereto.
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10.15. Conflict of Terms. The Exhibits and Schedules hereto and the
other Loan Documents are incorporated in this Agreement by this reference
thereto. Except as otherwise provided in this Agreement and except as otherwise
provided in the other Loan Documents, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision of the other
Loan Documents, the provision contained in this Agreement shall control.
10.16. Injunctive Relief. The Borrowers recognize that in the event they
fail to perform, observe or discharge any of their obligations or liabilities
under this Agreement, any remedy of law may prove to be inadequate relief to the
Agent and the Lenders. The Borrowers therefore agree that the Agent and the
Lenders, if the Agent so requests, shall be entitled to temporary and permanent
injunctive relief without the necessity of proving actual damages in any case
where a remedy at law, in the reasonable opinion of the Required Lenders, may
prove to be inadequate relief.
10.17. Confidentiality. Each Lender agrees to take normal and reasonable
precautions and exercise due care to maintain the confidentiality of all
non-public confidential information provided in connection with this Agreement
or any other Loan Document and agrees and undertakes that it shall not use any
such information for any purpose or in any manner other than pursuant to the
terms contemplated by this Agreement. Any Lender may disclose such information
(i) to any bank regulatory authority at the request of or in connection with an
examination of such Lender by any such authority, (ii) pursuant to subpoena or
other court process, (iii) when required to do so in accordance with the
provisions of any applicable law to such Persons to whom such disclosure is so
required, (iv) at the express direction of any agency of any State of the United
States of America or of any other jurisdiction in which such Lender conducts its
business, to such agency, (v) to such Lender's independent auditors and other
professional advisors that have a reasonable need or basis for access thereto;
provided they agree to maintain confidentiality and (vi) in order to protect or
enforce their rights hereunder.
10.18. The Borrowers as Co-Obligors.
(a) The Borrowers are accepting the joint and several liability provided
for hereunder in consideration of the financial accommodations provided and to
be provided by the Lenders under this Agreement for the mutual benefit, directly
and indirectly, of the Borrowers and in consideration of each of the
undertakings of each Borrower herein to accept joint and several liability for
their mutual benefit, for the Obligations of each of the other of them.
(b) The Borrowers, jointly and severally as hereinafter described,
hereby irrevocably and unconditionally accept, not merely as surety but also as
co-debtors, joint and several liability with respect to the payment and
performance of all of the Obligations under all of the Loan Documents, it being
the intention of the parties hereto that all the Obligations shall be the joint
and several obligations of all the Borrowers without preference or distinction
among them, except for those obligations expressly set forth as only applying to
a single Borrower.
(c) If and to the extent that any Borrower shall fail to make any
payment with respect to any of the Obligations owed by it as and when due or to
perform any of such Obligations in accordance with the terms thereof, then in
each such event each of the other Borrowers will, forthwith upon demand by the
Lenders, make such payment with respect to, or perform, such obligation pursuant
to the terms thereof.
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<PAGE> 88
(d) Each Borrower hereby acknowledges and consents to all provisions of
each Loan Document. In connection with its obligations under this SECTION 10.18,
each Borrower hereby waives notice of acceptance of the joint and several
liability contained in this SECTION 10.18, notice of any and all Loans made or
of any financial accommodations extended to any Borrower by the Lenders under
any Loan Document, notice of the occurrence of any Default or any Event of
Default or of any demand upon any Borrower for any payment under this Agreement
or any other Loan Documents whether in respect of any Loans or any other
obligation owing hereunder or thereunder, notice of any action at any time taken
or omitted by the Lenders under or in respect of any Loan Document or any of the
Obligations and, generally, all demands, notices, protests and other formalities
of every kind in connection with the joint and several liability contained in
this SECTION 10.18, the other provisions of this Agreement or any provisions of
the other Loan Documents. In connection with its obligations under this SECTION
10.18, each Borrower hereby assents to, and waives notice of, any extension or
postponement of the time for the payment of any of the Obligations, the
acceptance of any partial payment thereon, any waiver, consent or other action
or acquiescence by the Lenders at any time or times in respect of any Default by
any Borrower in the performance or satisfaction of any term, covenant, condition
or provision of any Loan Document, any and all other indulgences whatsoever by
the Lenders in respect of any of the Obligations, and the taking, addition,
substitution or release, in whole or in part, at any time or times, of any
security for any of the Obligations or the addition, substitution or release, in
whole or in part, of any Person or Persons primarily or secondarily liable in
respect of any of the Obligations. Each of the Borrowers also waives: (I) any
right to require the Lenders to (A) proceed against any other person, including
any other Borrower, or (B) pursue any other remedy; and (II) any defense arising
by reason of (A) any disability or other defense of any Borrower, or any other
Person, (B) the cessation from any cause whatsoever, other than payment or
performance in full, of any of the obligations of the Borrowers, or any other
Person, or (C) any act or omission by the Lenders which directly or indirectly
results in or aids the discharge of any Borrower or any Obligation hereunder by
operation of law or otherwise. The obligations of each Borrower under this
SECTION 10.18 shall not be diminished or rendered unenforceable by any winding
up, reorganization, arrangement, liquidation, reconstruction or similar
proceeding with respect to any Borrower or the Lenders. The joint and several
liability of each Borrower in this SECTION 10.18 shall continue in full force
and effect notwithstanding any absorption, merger, amalgamation or any other
change whatsoever in the name, charter, membership, constitution or place of
formation of any Borrower, or any Lender. Each of the Borrowers agrees that each
of the waivers set forth above are made with such Borrower's full knowledge of
their significance and consequences, and such Borrower agrees that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any of said waivers are determined to be contrary to any applicable law
or public policy, such waivers shall be effective only to the extent permitted
by law.
10.19. Post-Closing Matters. The Borrowers will, and will cause each of
their Subsidiaries to, use their reasonable efforts to assist the Agent in the
syndication of the Facilities and the resultant addition of Lenders after the
Closing Date.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their corporate names by their duly authorized corporate officers as
of the date first above written.
SHOP VAC CORPORATION
[CORPORATE SEAL] By: /s/ W. Earl Stogner
----------------------------
W. Earl Stogner, Executive Vice President
ATTEST:
/s/ John P. Manbeck
- ---------------------------
John P. Manbeck,
Assistant Secretary
FELCHAR MANUFACTURING CORPORATION
[CORPORATE SEAL) By: /s/ W. Earl Stogner
----------------------------
W. Earl Stogner, Executive Vice President
ATTEST:
/s/ John P. Manbeck
- ---------------------------
John P. Manbeck,
Assistant Secretary
(signatures continued)
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<PAGE> 90
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, AS AGENT
By: /s/ Jorge Gonzalez
----------------------------------
Jorge Gonzalez, Senior Vice President
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By: /s/ Jorge Gonzalez
----------------------------------
Jorge Gonzalez, Senior Vice President
Revolving Credit Commitment: 25,000,000
Address:
First Union National Bank
of North Carolina
Leveraged Finance Group
One First Union Center, DC-5
301 South College Street
Charlotte, North Carolina 28288-0737
Attention: Jorge Gonzalez
Telephone: (704) 383-8461
Telecopy: (704) 374-3300
Wiring Instructions:
First Union National Bank
of North Carolina
Charlotte, North Carolina
ABA #053000219
For further credit to:
FUCC Charlotte
Attn: Loan Operations
Account #2070482789126
Regarding: Shop Vac Corporation
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<PAGE> 1
Exhibit 10.2
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") is made and entered
into as of October 1, 1996 by Jonathan Miller, Matthew Miller, the Jonathan
Miller Family Limited Partnership, the Matthew Miller Family Limited Partnership
and the Matthew Miller 1984 Children's Trust (individually, a "Pledgor";
collectively, the "Pledgors") in favor of Marine Midland Bank, a New York,
banking corporation ("Marine Midland"), having an office at 140 Broadway, New
York, New York 10005, as collateral agent (the "Collateral Agent") for the
holders (the "Holders") of Shop Vac Corporation's 10 5/8% Senior Secured Notes
due 2003 (together with any notes issued in replacement thereof or in exchange
or substitution therefor, the "Notes"). Capitalized terms used and not defined
herein shall have the meanings given to such terms in the Indenture referred to
below.
W I T N E S S E T H:
WHEREAS, the Pledgors are the legal and beneficial owners of
all of the issued and outstanding shares of capital stock set forth on Schedule
I hereto (the "Pledged Shares") of Shop Vac Corporation, a New Jersey
corporation (the "Issuer");
WHEREAS, the Issuer and Marine Midland, as trustee, have
entered into that certain indenture dated as of October 1, 1996 (as amended,
amended and restated, supplemented or otherwise modified from time to time, the
"Indenture"), pursuant to which the Issuer issued $100 million in aggregate
principal amount of Notes;
WHEREAS, the Pledgors own 100% of the capital stock of Issuer,
and it is to the advantage of each Pledgor that the Holders purchase the Notes
from the Issuer;
WHEREAS, the terms of the Indenture require that the Pledgors
(i) pledge to the Collateral Agent for the ratable benefit of the Holders, and
grant to the Collateral Agent for the ratable benefit of the Holders a security
interest in, the Pledged Collateral (as defined herein) and (ii) execute and
deliver this Agreement in order to secure the payment and performance by the
Issuer of all of the Obligations of the Issuer under the Indenture and the Notes
(the "Obligations"); and
WHEREAS, notwithstanding anything herein to the contrary, this
Agreement provides solely for the pledge of certain Pledged Collateral by the
Pledgors as security for the Obligations, and under no circumstances shall the
Pledgors have any liabilities, with respect to the Indenture, the Notes or this
Agreement or any related agreements or transactions, monetary or otherwise,
other than to the extent of the Pledged Collateral.
AGREEMENT
NOW, THEREFORE, in consideration of the premises, and in order
to induce the Holders of Notes to purchase the Notes, the Pledgors hereby agree
with the Collateral Agent for its benefit and the ratable benefit of the Holders
as follows:
<PAGE> 2
2
SECTION 1. Pledge. Each Pledgor hereby pledges to the
Collateral Agent for its benefit and for the ratable benefit of the Holders, and
grants to the Collateral Agent for the ratable benefit of the Holders, a
continuing first priority security interest in all of its right, title and
interest in the following collateral (the "Pledged Collateral"):
(a) the Pledged Shares and the certificates representing the
Pledged Shares, and all products and proceeds of any of the Pledged
Shares, including, without limitation, all dividends, cash, options,
warrants, rights, instruments, subscriptions and other property or
proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged
Shares or any of the foregoing; and
(b) all additional equity interests in the Issuer from time to
time acquired by the Pledgors in any manner, and the certificates or
other instruments representing such additional equity interests (any
such additional equity interests and other items shall constitute part
of the Pledged Shares under and as defined in this Agreement), and all
products and proceeds of any of the foregoing, including, without
limitation, all dividends, cash, options, warrants, rights,
instruments, subscriptions, and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the foregoing.
Notwithstanding anything to the contrary in this Agreement,
the liability of the Pledgors (including without limitation any liability for
any costs or expenses arising hereunder) shall be limited to their respective
interests in the Pledged Collateral encumbered by this Pledge Agreement. This
Agreement does not confer upon the Collateral Agent any right to proceed against
the other assets of the Pledgors or against the Pledgors personally in order to
collect the Obligations secured by the Pledged Collateral pledged hereby, but
only to pursue the remedies provided hereby with respect to the Pledged
Collateral.
SECTION 2. Security for Obligations. This Agreement secures
the prompt and complete payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of all Obligations of the Issuer under
the Indenture and the Notes (including, without limitation, interest and any
other Obligations accruing after the date of any filing by the Issuer of any
petition in bankruptcy or the commencement of any bankruptcy, insolvency or
similar proceeding with respect to the Issuer).
SECTION 3. Delivery of Pledged Collateral. Each Pledgor hereby
agrees that all certificates or instruments representing or evidencing the
Pledged Collateral shall be immediately delivered to and held at all times by
the Collateral Agent pursuant hereto in the State of New York and shall be in
suitable form for transfer by delivery, or issued in the name of such Pledgor
and accompanied by instruments of transfer or assignment duly executed in blank
and undated, and in either case having attached thereto all requisite federal or
state stock transfer tax stamps, all in form and substance satisfactory to the
Collateral Agent.
SECTION 4. Representations and Warranties. Each Pledgor
represents and warrants that:
<PAGE> 3
3
(a) Such Pledgor has the legal right to execute and deliver
and to grant the security interest in the Pledged Collateral pursuant
to this Agreement, and the execution, delivery and performance of this
Agreement do not contravene, or constitute a default under, any
provision of applicable law or regulation of such Pledgor or of any
agreement, judgment, injunction, order, decree or other instrument
binding upon such Pledgor, or result in the creation or imposition of
any Lien on any assets of such Pledgor, other than the Lien
contemplated hereby.
(b) The Pledged Shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(c) The Pledged Shares constitute all of the issued and
outstanding capital stock of the Issuer and constitute all of the
shares of capital stock of the Issuer beneficially owned by such
Pledgor.
(d) Such Pledgor is the legal, record and beneficial owner of
the Pledged Collateral, free and clear of any Lien or claims of any
Person except for the security interest created by this Agreement.
(e) The Pledgor has full power and authority to enter into
this Agreement and has the right to vote, pledge and grant a security
interest in the Pledged Collateral as provided by this Agreement.
(f) This Agreement has been duly executed and delivered by
such Pledgor and constitutes a legal, valid and binding obligation of
such Pledgor, enforceable against such Pledgor in accordance with its
terms.
(g) Upon the delivery to the Collateral Agent of the Pledged
Collateral, the pledge of the Pledged Collateral pursuant to this
Agreement creates a valid and perfected first priority security
interest in the Pledged Collateral, securing the payment of the
Obligations for the benefit of the Collateral Agent and the Holders,
and enforceable as such against all creditors of such Pledgor and any
Persons purporting to purchase any of the Pledged Collateral from such
Pledgor.
(h) Other than the consent dated as of September __, 1996
executed by all parties to the Shareholders' Agreement dated July 21,
1987 and amended August 1, 1991, among Jonathan Miller, Matthew Miller,
The Jonathan Miller Family Partnership, The Matthew Miller Family
Partnership and the Matthew Miller 1984 Children's Trust, no consent of
any other Person and no consent, authorization, approval, or other
action by, and no notice to or filing with, any governmental authority
or regulatory body is required either (i) for the pledge by such
Pledgor of the Pledged Collateral pursuant to this Agreement or for the
execution, delivery or performance of this Agreement by such Pledgor or
(ii) for the exercise by the Collateral Agent of the voting or other
rights provided for in this Agreement or the remedies in respect of the
Pledged Collateral pursuant to this Agreement (except as may be
required in connection with such disposition by laws affecting the
offering and sale of securities).
<PAGE> 4
4
(i) No litigation, investigation or proceeding of or before
any arbitrator or governmental authority is pending or, to the best
knowledge of such Pledgor, threatened by or against such Pledgor or
against any of such Pledgor's properties or revenues with respect to
this Agreement or any of the transactions contemplated hereby.
(j) The pledge of the Pledged Collateral pursuant to this
Agreement is not prohibited by any applicable law or governmental
regulation, release, interpretation or opinion of the Board of
Governors of the Federal Reserve System or other regulatory agency
(including, without limitation, Regulations G, T, U and X of the Board
of Governors of the Federal Reserve System).
(k) All information set forth herein relating to the Pledged
Collateral is accurate and complete in all respects.
SECTION 5. Further Assurance. Each Pledgor will at all times
cause the security interests granted pursuant to this Agreement to constitute
valid perfected first priority security interests in the Pledged Collateral,
enforceable as such against all creditors of such Pledgor and (except as
otherwise specifically provided herein) any Persons purporting to purchase any
Pledged Collateral from such Pledgor. Each Pledgor will, promptly upon request
by the Collateral Agent, execute and deliver or cause to be executed and
delivered, or use its best efforts to procure, all stock powers, proxies, tax
stamps, assignments, instruments and other documents, all in form and substance
satisfactory to the Collateral Agent, deliver any instruments to the Collateral
Agent and take any other actions that are necessary or, in the reasonable
opinion of the Collateral Agent, desirable to perfect, continue the perfection
of, or protect the first priority of the Collateral Agent's security interest
in, the Pledged Collateral, to protect the Pledged Collateral against the
rights, claims, or interests of third persons, to enable the Collateral Agent to
exercise or enforce its rights and remedies hereunder, or otherwise to effect
the purposes of this Agreement, including the filing of any financing or
continuation statements. Each Pledgor also hereby authorizes the Collateral
Agent to file any financing or continuation statements with respect to the
Pledged Collateral without the signature of such Pledgor to the extent permitted
by applicable law. The Pledgors will cause the Issuer to pay all costs incurred
in connection with any of the foregoing.
SECTION 6. Voting Rights; Dividends; Etc.
(a) So long as no Event of Default shall have occurred and be
continuing with respect to which a Default Notice has been delivered to
the Collateral Agent in accordance with Section 12(e) hereof, the
Pledgors shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Pledged Shares or any part thereof
for any purpose not inconsistent with the terms of this Agreement or
the Indenture; provided, however, that the Pledgors shall not exercise
or shall refrain from exercising any such right if such action would
have a material adverse effect on the value of the Pledged Collateral
or any part thereof or be inconsistent with or violate any provisions
of this Agreement or the Indenture.
<PAGE> 5
5
(b) So long as no Event of Default shall have occurred and be
continuing with respect to which a Default Notice has been delivered to
the Collateral Agent in accordance with Section 12(e) hereof, and
subject to the other terms and conditions of the Indenture, each
Pledgor shall be entitled to receive, and to utilize (subject to the
provisions of the Indenture) free and clear of the Lien of this
Agreement, all regular and ordinary cash dividends paid from time to
time in respect of the Pledged Collateral.
(c) Any and all (i) dividends and other distributions (other
than cash dividends permitted under Section 6(b) hereof) received,
receivable or otherwise distributed in respect of, or in exchange for,
any Pledged Collateral, (ii) dividends and other distributions paid or
payable in cash in respect of any Pledged Collateral in connection with
a partial or total liquidation or dissolution or in connection with a
reduction of capital, capital surplus or paid-in-surplus, and (iii)
cash paid, payable or otherwise distributed in redemption of, or in
exchange for, any Pledged Collateral, shall in each case be forthwith
delivered to the Collateral Agent to hold as Pledged Collateral and
shall, if received by any Pledgor, be received in trust for the benefit
of the Collateral Agent and the Holders, be segregated from the other
property and funds of such Pledgor and be forthwith delivered to the
Collateral Agent as Pledged Collateral in the same form as so received
(with any necessary endorsements).
(d) The Collateral Agent shall execute and deliver (or cause
to be executed and delivered) to the Pledgors all such proxies and
other instruments as the Pledgors may reasonably request for the
purpose of enabling the Pledgors to exercise the voting and other
rights that it is entitled to exercise pursuant to Sections 6(a) and
6(b) above.
(e) Upon the occurrence and during the continuance of an Event
of Default with respect to which a Default Notice has been delivered to
the Collateral Agent in accordance with Section 12(e) hereof, (i) all
rights of the Pledgors to exercise the voting and other consensual
rights that it would otherwise be entitled to exercise pursuant to
Section 6(a) shall cease, and all such rights shall thereupon become
vested in the Collateral Agent, which, to the extent permitted by law,
shall thereupon have the sole right to exercise such voting and other
consensual rights, and (ii) all dividends and other distributions
payable in respect of the Pledged Collateral shall be paid to the
Collateral Agent and each Pledgor's right to receive such cash payments
pursuant to Section 6(b) hereof shall immediately cease.
(f) Upon the occurrence and during the continuance of an Event
of Default with respect to which a Default Notice has been delivered to
the Collateral Agent in accordance with Section 12(e) hereof, each
Pledgor shall execute and deliver (or cause to be executed and
delivered) to the Collateral Agent all such proxies and other
instruments as the Collateral Agent may reasonably request for the
purpose of enabling the Collateral Agent to exercise the voting and
other rights that it is entitled to exercise pursuant to Section 6(e)
above.
(g) All payments of dividends and other distributions that are
received by any Pledgor contrary to the provisions of this Section 6
shall be received in trust for the
<PAGE> 6
6
benefit of the Collateral Agent and the Holders, shall be segregated
from the other property or funds of such Pledgor and shall be forthwith
delivered to the Collateral Agent as Pledged Collateral in the same
form as so received (with any necessary endorsements).
SECTION 7. Covenants. Each Pledgor hereby covenants and agrees
with the Collateral Agent and the Holders, that from and after the date of this
Agreement and until the Obligations have been paid in full, as follows:
(a) Each Pledgor agrees that such Pledgor will not (i) sell,
assign, transfer, convey or otherwise dispose of, or grant any option or warrant
with respect to, any interest in any of the Pledged Collateral without the prior
written consent of the Collateral Agent at the direction of the Trustee, (ii)
create or permit to exist any Lien upon or with respect to any of the Pledged
Collateral, except for the security interest granted under this Agreement, and
at all times will be the sole beneficial owner of the Pledged Collateral, (iii)
enter into any agreement or understanding that purports to or that may restrict
or inhibit the Collateral Agent's rights or remedies hereunder, including,
without limitation, the Collateral Agent's right to sell or otherwise dispose of
the Pledged Collateral, or (iv) take any action, or permit the taking of any
action by the Issuer, with respect to the Pledged Collateral, the taking of
which would result in a violation of the Indenture or this Agreement.
(b) Each Pledgor agrees that immediately upon becoming the
beneficial owner of other equity interests of the Issuer (including as a result
of any permitted merger or consolidation of the Issuer with or into another
entity) it will pledge and deliver to the Collateral Agent for its benefit and
the ratable benefit of the Holders and grant to the Collateral Agent for its
benefit and the ratable benefit of the Holders a continuing first priority
security interest in such other equity interests (as well as instruments of
transfer or assignment duly executed in blank and undated and any necessary
stock transfer tax stamps, all in form and substance satisfactory to the
Collateral Agent). Each Pledgor further agrees to deliver to the Collateral
Agent a certificate executed by such Pledgor describing such additional equity
interests and certifying that the same have been duly pledged and delivered to
the Collateral Agent hereunder.
SECTION 8. Power of Attorney. In addition to all of the powers
granted to the Collateral Agent pursuant to Section 10.06 of the Indenture, each
Pledgor hereby appoints and constitutes the Collateral Agent as such Pledgor's
attorney-in-fact to exercise all of the following powers upon and at any time
after the occurrence of an Event of Default with respect to which a Default
Notice has been delivered to the Collateral Agent in accordance with Section
12(e) hereof: (i) collection of proceeds of any Pledged Collateral; (ii)
conveyance of any item of Pledged Collateral to any purchaser thereof; (iii)
giving of any notices or recording of any Liens under Section 5 hereof; (iv)
making of any payments or taking any acts under Section 9 hereof and (v) paying
or discharging taxes or Liens levied or placed upon or threatened against the
Pledged Collateral, the legality or validity thereof and the amounts necessary
to discharge the same to be determined by the Collateral Agent in its sole
discretion. The Collateral Agent's authority hereunder shall include, without
limitation, the authority to execute and give receipt for any certificate of
ownership or any document, transfer title to any item of Pledged Collateral,
sign any Pledgor's name on all financing
<PAGE> 7
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statements or any other documents deemed necessary or appropriate to preserve,
protect or perfect the security interest in the Pledged Collateral and to file
the same, prepare, file and sign any Pledgor's name on any notice of Lien, and
prepare, file and sign any Pledgor's name on a proof of claim in bankruptcy or
similar document against any customer of the Pledgors, and to take any other
actions arising from or incident to the powers granted to the Collateral Agent
in this Agreement. This power of attorney is coupled with an interest and is
irrevocable by the Pledgors.
SECTION 9. Collateral Agent May Perform. If any Pledgor fails
to perform any agreement contained herein, the Collateral Agent may itself
perform, or cause performance of, such agreement, and the reasonable expenses of
the Collateral Agent incurred in connection therewith shall be payable by the
Issuer pursuant to Section 14 hereof.
SECTION 10. No Assumption of Duties; Reasonable Care. The
rights and powers granted to the Collateral Agent hereunder are being granted in
order to preserve and protect the security interest of the Collateral Agent and
the Holders in and to the Pledged Collateral granted hereby and shall not be
interpreted to, and shall not, impose any duties on the Collateral Agent in
connection therewith. The Collateral Agent shall be deemed to have exercised
reasonable care in the custody and preservation of the Pledged Collateral in its
possession if the Pledged Collateral is accorded treatment substantially equal
to that which the Collateral Agent accords its own property, it being understood
that the Collateral Agent shall not have any responsibility for (i) ascertaining
or taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relative to any Pledged Collateral, whether or not the
Collateral Agent has or is deemed to have knowledge of such matters, or (ii)
taking any necessary steps to preserve rights against any parties with respect
to any Pledged Collateral.
SECTION 11. Subsequent Changes Affecting Collateral. Each
Pledgor represents to the Collateral Agent and each Holder that such Pledgor has
made its own arrangements for keeping informed of changes or potential changes
affecting the Pledged Collateral (including, but not limited to, rights to
convert, rights to subscribe, payment of dividends, payments of interest and/or
principal, reorganization or other exchanges, tender offers and voting rights),
and such Pledgor agrees that the Collateral Agent and the Holders shall have no
responsibility or liability for informing such Pledgor of any such changes or
potential changes or for taking any action or omitting to take any action with
respect thereto. Each Pledgor covenants that it will not, without the prior
written consent of the Collateral Agent as directed in writing by the Trustee,
vote to enable, or take any other action to permit, the Issuer to issue any
capital stock or other securities or to sell or otherwise dispose of, or grant
any option with respect to, any of the Pledged Collateral or create or permit to
exist any Lien upon or with respect to any of the Pledged Collateral, except for
the security interests granted under this Agreement. Each Pledgor will defend
the right, title and interest of the Collateral Agent and the Holders in and to
the Pledged Collateral against the claims and demands of all Persons.
SECTION 12. Remedies Upon Default.
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(a) If any Event of Default under the Indenture shall
have occurred and be continuing with respect to which a Default Notice
has been delivered to the Collateral Agent in accordance with Section
12(e) hereof, the Collateral Agent shall have, in addition to all other
rights given by law or by this Agreement, all of the rights and
remedies with respect to the Pledged Collateral of a secured party
under the Uniform Commercial Code (the "UCC") as in effect in the State
of New York at that time. The Collateral Agent may, subject to the
provision of Section 12(e) below, without notice and at its option,
transfer or register, and each Pledgor shall register or cause to be
registered upon request therefor by the Collateral Agent, the Pledged
Collateral or any part thereof on the books of the Issuer into the name
of the Collateral Agent or the Collateral Agent's nominee(s), with or
without any indication that such Pledged Collateral is subject to the
security interest hereunder. In addition, with respect to any Pledged
Collateral that shall then be in or shall thereafter come into the
possession or custody of the Collateral Agent, the Collateral Agent
may, subject to the provisions of Section 12(e) below, sell or cause
the same to be sold at any broker's board or at public or private sale,
in one or more sales or lots, at such price or prices as the Collateral
Agent may deem best, for cash or on credit or for future delivery,
without assumption of any credit risk. The purchaser of any or all
Pledged Collateral so sold shall thereafter hold the same absolutely,
free from any claim, encumbrance or right of any kind whatsoever.
Unless any of the Pledged Collateral threatens to decline speedily in
value or is or becomes of a type sold on a recognized market, the
Collateral Agent will give each Pledgor reasonable notice of the time
and place of any public sale thereof, or of the time after which any
private sale or other intended disposition is to be made. Any sale of
the Pledged Collateral conducted in conformity with reasonable
commercial practices of banks, insurance companies, commercial finance
companies, or other financial institutions disposing of property
similar to the Pledged Collateral shall be deemed to be commercially
reasonable. Any requirements of reasonable notice shall be met if such
notice is mailed to the Pledgors as provided below in Section 18.1, at
least ten days before the time of the sale or disposition. Any other
requirement of notice, demand or advertisement for sale is, to the
extent permitted by law, waived. The Collateral Agent or any Holder of
Notes may, in its own name or in the name of a designee or nominee, buy
any of the Pledged Collateral at any public sale and, if permitted by
applicable law, at any private sale. All expenses (including court
costs and reasonable attorneys' fees and disbursements) of, or incident
to, the enforcement of any of the provisions hereof shall be
recoverable from the proceeds of the sale or other disposition of the
Pledged Collateral.
(b) If, subject to the provisions of Section 12(e)
below, the Collateral Agent shall determine to exercise its right to
sell any or all of the Pledged Shares pursuant to Section 12(a) above,
and if in the opinion of counsel for the Collateral Agent it is
necessary, or if in the opinion of the Collateral Agent it is
advisable, to have the Pledged Shares or that portion thereof to be
sold, registered under the provisions of the Securities Act of 1933, as
amended (the "Securities Act"), the Pledgors will cause the Issuer to
(i) execute and deliver, and cause its directors and officers to
execute and deliver, all at the Issuers' expense, all such instruments
and documents, and to do or cause to be done all such other acts and
things as may be
<PAGE> 9
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necessary or, in the opinion of the Collateral Agent, advisable to
register such Pledged Shares under the provisions of the Securities
Act, (ii) cause the registration statement relating thereto to become
effective and to remain effective for a period of 180 days from the
date of the first public offering of such Pledged Shares, or that
portion thereof to be sold and (iii) make all amendments thereto and/or
to the related prospectus that, in the opinion of the Collateral Agent,
are necessary or advisable, all in conformity with the requirements of
the Securities Act and the rules and regulations of the Securities and
Exchange Commission applicable thereto. Each Pledgor agrees to cause
the Issuer to comply with the provisions of the securities or "Blue
Sky" laws of any jurisdiction that the Collateral Agent shall designate
for the sale of the Pledged Shares and to make available to the
Issuers' security holders, as soon as practicable, an earnings
statement (which need not be audited) that will satisfy the provisions
of Section 11(a) of the Securities Act. Each Pledgor will cause the
Issuer to furnish to the Collateral Agent such number of copies as the
Collateral Agent may reasonably request of each preliminary and final
prospectus, to notify the Collateral Agent promptly of the happening of
any event as a result of which any then effective prospectus includes
an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of then existing circumstances, and
to cause the Collateral Agent to be furnished with such number of
copies as the Collateral Agent may request of such supplement to or
amendment of such prospectus. Each Pledgor will cause the Issuer, to
the maximum extent permitted by law, to indemnify, defend and hold
harmless the Collateral Agent and the Holders from and against all
losses, liabilities, expenses or claims (including reasonable legal
expenses and the reasonable costs of investigation) that the Collateral
Agent or any Holder may incur under the Securities Act or otherwise,
insofar as such losses, liabilities, expenses or claims arise out of or
are based upon any alleged untrue statement of a material fact
contained in such registration statement (or any amendment thereto) or
in any preliminary or final prospectus (or any amendment or supplement
thereto), or arise out of or are based upon any alleged omission to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading, except to the extent that
any such losses, liabilities, expenses or claims arise solely out of or
are based upon any such alleged untrue statement made or such alleged
omission to state a material fact included or excluded on the written
direction of the Collateral Agent. Each Pledgor will cause the Issuer
to bear all costs and expenses of carrying out its obligations
hereunder.
(c) In view of the fact that federal and state
securities laws may impose certain restrictions on the method by which
a sale of the Pledged Collateral may be effected after an Event of
Default, each Pledgor agrees that upon the occurrence or existence of
any Event of Default, the Collateral Agent may, from time to time,
attempt to sell all or any part of the Pledged Collateral by means of a
private placement, restricting the prospective purchasers to those who
will represent and agree that they are purchasing for investment only
and not for distribution. In so doing, the Collateral Agent may solicit
offers to buy the Pledged Collateral, or any part of it, for cash, from
a limited number of investors who might be interested in purchasing the
Pledged Collateral. Each Pledgor acknowledges and agrees that any such
private sale
<PAGE> 10
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may result in prices and terms less favorable than if such sale were a
public sale and, notwithstanding such circumstances, agrees that any
such private sale shall be deemed to have been made in a commercially
reasonable manner. The Collateral Agent shall be under no obligation to
delay a sale of any of the Pledged Collateral for the period of time
necessary to permit the Issuer to register such securities for public
sale under the Securities Act, or under applicable state securities
laws, even if the Issuer agrees to do so.
(d) Each Pledgor further agrees to use its best
efforts to do or cause to be done all such other acts as may be
necessary to make such sale or sales of all or any portion of the
Pledged Collateral pursuant to this Section 12 valid and binding and in
compliance with any and all other applicable requirements of law. Each
Pledgor further agrees that a breach of any of the covenants contained
in this Section 12 will cause irreparable injury to the Collateral
Agent and the Holders, that the Collateral Agent and the Holders have
no adequate remedy at law in respect of such breach and, as a
consequence, that each and every covenant contained in this Section 12
shall be specifically enforceable against such Pledgor, and such
Pledgor hereby waives and agrees not to assert any defenses against an
action for specific performance of such covenants except for a defense
that no Default or Event of Default has occurred under the Indenture.
(e) The Collateral Agent shall not commence or
otherwise take any action or proceeding pursuant to this Section 12 or
to realize upon any or all of the Collateral unless and until the
Trustee, on behalf of the Holders of at least 25% in aggregate
principal amount of the then outstanding Notes, shall have notified the
Collateral Agent in writing of the occurrence of an Event of Default
with respect to the Notes (a "Default Notice") and shall have directed
the Collateral Agent in writing to commence to enforce this Agreement
and/or to realize upon any or all of the Collateral. Upon receipt by
the Collateral Agent of any such notice and direction, the Collateral
Agent shall (i) promptly send copies thereof to all Holders and (ii)
seek to enforce this Agreement and to realize upon the Collateral.
After any such notice and direction has been given, the holders of more
than 50% of the sum of the then outstanding Obligations pursuant to the
Indenture and the Notes (collectively, the "Majority Holders"), shall
have the right to give written directions to the Collateral Agent as to
the time, place and manner of the taking of such actions, and the
Collateral Agent shall be required to seek to follow such directions;
provided that, at the time of delivery of such notice, the Majority
Holders shall provide the Collateral Agent with a written calculation
establishing their status as the Majority Holders; provided, further,
that the Collateral Agent, prior to acting on such notice, shall
request, and may rely upon, a statement from the Trustee confirming the
amounts outstanding under the Indenture; provided, further, that in the
absence of such notice and direction, 45 days after receipt of the
Default Notice, the Collateral Agent shall have the right to take such
actions as it deems necessary, advisable or appropriate; provided,
further, that each Holder of Notes agrees, by its acceptance of any
Note or Notes, as the case may be, that if at any time of determination
such Holder of Notes is a Majority Holder, such Holder of Notes shall
exercise its rights pursuant to this sentence in good faith for the
benefit of all of the Holders; and provided further that
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the Majority Holders may give written directions to the Collateral
Agent to cease or materially curtail its efforts seeking to enforce
this Agreement or to cease or materially curtail its efforts seeking to
realize upon any or all of the Collateral. Upon the receipt by the
Collateral Agent of any such direction to so cease, the Collateral
Agent shall be required to seek to do so, subject to the rights of the
Trustee on behalf of the Holders to give another written notice and
direction of the type referred to above.
SECTION 13. Irrevocable Authorization and Instruction to the
Issuer. Each Pledgor hereby authorizes and instructs the Issuer to comply with
any instruction received by the Issuer from the Collateral Agent that (i) states
that an Event of Default has occurred and (ii) is otherwise in accordance with
the terms of this Agreement, without any other or further instructions from such
Pledgor, and such Pledgor agrees that the Issuer shall be fully protected in so
complying.
SECTION 14. Fees and Expenses. Each Pledgor will cause the
Issuer, upon demand, to pay to the Collateral Agent the amount of any and all
reasonable fees and expenses (including, without limitation, the reasonable fees
and disbursements of its counsel, of any investment banking firm, accountants,
business broker or other selling agent and of any other such experts and agents
retained by the Collateral Agent, including the allocated costs of inside
counsel) that the Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Pledged
Collateral, (iii) the exercise or enforcement of any of the rights of the
Collateral Agent and the Holders hereunder or (iv) the failure by any Pledgor to
perform or observe any of the provisions hereof.
SECTION 15. Interest Absolute. All rights of the Collateral
Agent and the Holders and the security interests created hereunder, and all
obligations of the Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the Indenture or
any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to any departure from the
Indenture;
(c) any exchange, surrender, release or non-perfection of any
other collateral, or any release or amendment or waiver of or consent
to departure from any guarantee, for all or any of the Obligations; or
(d) any other circumstance that might otherwise constitute a
defense available to, or a discharge of, any Pledgor in respect of the
Obligations or of this Agreement.
SECTION 16. Application of Proceeds. Upon the occurrence and
during the continuance of an Event of Default with respect to which a Default
Notice has been delivered to the Collateral Agent in accordance with Section
12(e) hereof, the proceeds of any sale of,
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or other realization upon, all or any part of the Pledged Collateral and any
cash held by the Collateral Agent shall be applied by the Collateral Agent in
the following order of priorities:
first, to payment of the expenses of such sale or other
realization, including reasonable compensation to agents and counsel
for the Collateral Agent, and all expenses, liabilities and advances
incurred or made by the Collateral Agent in connection therewith, and
any other unreimbursed fees and expenses for which the Collateral Agent
is to be reimbursed pursuant to Section 14 hereof;
second, to the ratable payment (based on the principal amount
of Notes deemed by the Indenture to be outstanding at the time of
distribution) of accrued but unpaid interest on such outstanding Notes;
third, to the ratable payment (based on the principal amount
of Notes deemed by the Indenture to be outstanding at the time of
distribution) of unpaid principal of such outstanding Notes;
fourth, to the ratable payment (based on the principal amount
of Notes deemed by the Indenture to be outstanding at the time of
distribution) of all other Obligations, until all Obligations shall
have been paid in full; and
finally, to payment to the Pledgors or their successors, heirs
or assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds.
SECTION 17. Uncertificated Securities. Notwithstanding
anything to the contrary contained herein, if any Pledged Shares (whether now
owned or hereafter acquired) are uncertificated Pledged Shares, the Pledgors
shall promptly notify the Collateral Agent, and shall promptly take all actions
required to perfect the security interest of the Collateral Agent under
applicable law (including, in any event, under Sections 8-313 and 8-321 of the
New York Uniform Commercial Code). Each Pledgor further agrees to take such
actions as the Collateral Agent deems necessary or desirable to effect the
foregoing and to permit the Collateral Agent to exercise any of its rights and
remedies hereunder, and agrees to provide an Opinion of Counsel satisfactory to
the Pledgee with respect to any such pledge of uncertificated Pledged Shares
promptly upon request of the Collateral Agent.
SECTION 18. Miscellaneous Provisions.
18.1 Notices. All notices, approvals, consents or other
communications required or desired to be given hereunder shall be in the form
and manner as set forth on Schedule II hereto.
18.2 Certificate and Opinion as to Conditions Precedent. Upon
any request or application by any Pledgor to the Collateral Agent to release any
Collateral, such Pledgor shall deliver to the Collateral Agent an Officer's
Certificate and/or an Opinion of Counsel in accordance with the requirements of
Sections 10.03, 10.04 and 10.05 of the Indenture.
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18.3 No Adverse Interpretation of Other Agreements. This
Agreement may not be used to interpret another pledge, security or debt
agreement of any Pledgor, the Issuer or any subsidiary thereof. No such pledge,
security or debt agreement may be used to interpret this Agreement.
18.4 Severability. The provisions of this Agreement are
severable, and if any clause or provision shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
18.5 Limited Recourse Obligation. Notwithstanding anything
herein to the contrary, this Agreement provides solely for the pledge of certain
Pledged Collateral by the Pledgors as security for the Obligations, and under no
circumstances shall the Pledgors have any liabilities, with respect to the
Indenture, the Notes or this Agreement or any related agreements or
transactions, monetary or otherwise, other than to the extent of the Pledged
Collateral. In addition, no director, officer, employee, stockholder or
affiliate, as such, of the Issuer shall have any liability for any obligations
of any Pledgor under this Agreement or for any claim based on, in respect of or
by reason of such obligations or their creation. Each Holder of Notes, by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Notes.
18.6 Headings. The headings of the Articles and Sections of
this Agreement have been inserted for convenience of reference only, are not to
be considered a part hereof and shall in no way modify or restrict any of the
terms or provisions hereof.
18.7 Counterpart Originals. This Agreement may be signed in
two or more counterparts. Each signed copy shall be an original, but all of them
together represent one and the same agreement. Each counterpart may be executed
and delivered by telecopy, if such delivery is promptly followed by the original
manually signed copy sent by overnight courier.
18.8 Benefits of Agreement. Nothing in this Agreement, express
or implied, shall give to any Person, other than the parties hereto and their
successors hereunder, and the Holders, any benefit or any legal or equitable
right, remedy or claim under this Agreement.
18.9 Amendments, Waivers and Consents. Any amendment or waiver
of any provision of this Agreement and any consent to any departure by any
Pledgor from any provision of this Agreement shall be effective only if made or
given in compliance with all of the terms and provisions of the Indenture
necessary for amendments or waivers of, or consents to any departure by any
Pledgor from any provision of the Indenture and neither the Collateral Agent nor
any Holder shall be deemed, by any act, delay, indulgence, omission or
otherwise, to have waived any right or remedy hereunder or to have acquiesced in
any Default or Event of Default or in any breach of any of the terms and
conditions hereof. Failure of the Collateral Agent or any Holder to exercise, or
delay in exercising, any right, power or privilege hereunder shall not operate
as a waiver thereof. No single or partial exercise of any right, power or
privilege hereunder shall preclude any other or further
<PAGE> 14
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exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Collateral Agent or any Holder of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy that the
Collateral Agent or such Holder would otherwise have on any future occasion. The
rights and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
18.10 Interpretation of Agreement. Time is of the essence in
each provision of this Agreement of which time is an element. All terms not
defined herein or in the Indenture shall have the meaning set forth in the
applicable UCC, except where the context otherwise requires. To the extent a
term or provision of this Agreement conflicts with the Indenture and is not
dealt with herein with more specificity, the Indenture shall control with
respect to the subject matter of such term or provision. Acceptance of or
acquiescence in a course of performance rendered under this Agreement shall not
be relevant to determine the meaning of this Agreement even though the accepting
or acquiescing party had knowledge of the nature of the performance and
opportunity for objection.
18.11 Continuing Security Interest; Transfer of Notes. This
Agreement shall create a continuing security interest in the Pledged Collateral
and shall (i) remain in full force and effect until the payment in full of all
the Obligations and all the fees and expenses owing to the Collateral Agent,
(ii) be binding upon each Pledgor, their successors, heirs and assigns, and
(iii) inure, together with the rights and remedies of the Collateral Agent
hereunder, to the benefit of the Collateral Agent, the Holders and their
respective successors, transferees and assigns.
18.12 Reinstatement. This Agreement shall continue to be
effective or be reinstated if at any time any amount received by the Collateral
Agent or any Holder in respect of the Obligations is rescinded or must otherwise
be restored or returned by the Collateral Agent or any Holder upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the Issuer
or upon the appointment of any receiver, intervenor, conservator, trustee or
similar official for the Issuer or any substantial part of its assets, or
otherwise, all as though such payments had not been made.
18.13 Survival of Provisions. All representations, warranties
and covenants of each Pledgor and the Issuer, as the case may be, contained
herein shall survive the execution and delivery of this Agreement (including the
Issuer's obligations under Section 14 hereof), and shall terminate only upon the
full and final payment and performance by the Issuer of the Obligations.
18.14 Waivers. Each Pledgor waives presentment and demand for
payment of any of the Obligations, protest and notice of dishonor or default
with respect to any of the Obligations, and all other notices to which such
Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
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18.15 Authority of the Collateral Agent.
(a) The Collateral Agent shall have and be entitled to
exercise all powers hereunder that are specifically granted to the Collateral
Agent by the terms hereof, together with such powers as are reasonably incident
thereto. The Collateral Agent may perform any of its duties hereunder or in
connection with the Pledged Collateral by or through agents or employees and
shall be entitled to retain counsel and to act in reliance upon the advice of
counsel concerning all such matters. Neither the Collateral Agent nor any
director, officer, employee, attorney or agent of the Collateral Agent shall be
responsible for the validity, effectiveness or sufficiency hereof or of any
document or security furnished pursuant hereto. The Collateral Agent and its
directors, officers, employees, attorneys and agents shall be entitled to rely
on any communication, instrument or document believed by it or them to be
genuine and correct and to have been signed or sent by the proper person or
persons. The Pledgors agree to cause the Issuer to indemnify and hold harmless
the Collateral Agent, each Holder and any other Person from and against any and
all costs, expenses (including the reasonable fees and disbursements of counsel,
accountants, experts or such other professionals as the Collateral Agent deems
necessary, advisable or appropriate (including the allocated costs of inside
counsel)), claims and liabilities incurred by the Collateral Agent, each Holder
or such Person hereunder, unless such claim or liability shall be due to willful
misconduct or gross negligence on the part of the Collateral Agent, such Holder
or such Person. To the maximum extent permitted by applicable law, each Pledgor
waives all claims, damages, and demands against the Collateral Agent arising out
of the repossession, retention, or sale of the Collateral pursuant to the
written instruction of the Trustee, except such which may arise out of the gross
negligence or willful misconduct of the Collateral Agent. Until the Collateral
Agent is able to effect a sale, lease, or other disposition of the Collateral,
the Collateral Agent shall have the right to use or operate the Collateral, or
any part thereof, to the extent that it deems appropriate for the purpose of
preserving the Collateral or its value or for any other purpose deemed
appropriate by the Collateral Agent. The Collateral Agent shall have no
obligation to maintain or preserve the rights of the Pledgors as against third
parties with respect to the Collateral while the Collateral is in the possession
of the Collateral Agent. The Collateral Agent shall use reasonable care with
respect to the Collateral in its possession or under its control. The Collateral
Agent shall not have any other duty as to the Collateral in its possession or
control or in the possession or control of any agent or nominee of the
Collateral Agent, or any income thereon or as to the preservation of rights
against prior parties or any other rights pertaining thereto. Upon request of
the Pledgors, the Collateral Agent shall account for any monies received by the
Collateral Agent in respect of any foreclosure on or disposition of the
Collateral.
(b) Each Pledgor acknowledges that the rights and
responsibilities of the Collateral Agent under this Agreement with respect to
any action taken by the Collateral Agent or the exercise or non-exercise by the
Collateral Agent of any option, right, request, judgment or other right or
remedy provided for herein or resulting or arising out of this Agreement shall,
as among the Collateral Agent and the Holders of Notes, be governed by this
Agreement and by such other agreements with respect thereto as may exist from
time to time among them, but, as between the Collateral Agent and the Pledgors,
the Collateral Agent shall be conclusively presumed to be acting as agent for
the Holders with full and valid
<PAGE> 16
16
authority so to act or refrain from acting, and the Pledgors shall not be
obligated or entitled to make any inquiry respecting such authority.
18.16 Resignation or Removal of the Collateral Agent. Until
such time as the Obligations shall have been paid in full, the Collateral Agent
may at any time, by giving written notice to the Pledgors and the Trustee,
resign and be discharged of the responsibilities hereby created, such
resignation to become effective upon (i) the appointment of a successor
Collateral Agent and (ii) the acceptance of such appointment by such successor
Collateral Agent. As promptly as practicable after the giving of any such
notice, the Majority Holders shall appoint a successor Collateral Agent, which
successor Collateral Agent shall be reasonably acceptable to the Pledgors. If no
successor Collateral Agent shall be appointed and shall have accepted such
appointment within 60 days after the Collateral Agent gives the aforesaid notice
of resignation, the Collateral Agent may apply to any court of competent
jurisdiction to appoint a successor Collateral Agent to act until such time, if
any, as a successor shall have been appointed as provided in this Section 18.16.
Any successor so appointed by such court shall immediately and without further
act be superseded by any successor Collateral Agent appointed by the Majority
Holders as provided in this Section 18.16. Simultaneously with its replacement
as Collateral Agent hereunder, the Collateral Agent so replaced shall deliver to
its successor all documents, instruments, certificates and other items of
whatever kind (including, without limitation, the certificates and instruments
evidencing the Pledged Collateral and all instruments of transfer or assignment)
held by it pursuant to the terms hereof. The Collateral Agent that has resigned
shall be entitled to fees, costs and expenses to the extent incurred or arising,
or relating to events occurring, before its resignation or removal.
18.17 Termination of Agreement.
Subject to the provisions of Section 18.12 hereof, this
Agreement shall terminate upon full and final payment and performance of the
Obligations (and upon receipt by the Collateral Agent of the Pledgors' written
certification that all such Obligations have been satisfied) and payment in full
of all fees and expenses owing by the Issuer to the Collateral Agent. At such
time, the Collateral Agent shall, at the request of the Pledgors, reassign and
redeliver to the Pledgors all of the Pledged Collateral hereunder that has not
been sold, disposed of, retained or applied by the Collateral Agent in
accordance with the terms hereof. Such reassignment and redelivery shall be
without warranty by or recourse to the Collateral Agent, except as to the
absence of any prior assignments by the Collateral Agent of its interest in the
Pledged Collateral, and shall be at the expense of the Pledgors.
18.18 Final Expression. This Agreement, together with any
other agreement executed in connection herewith, is intended by the parties as a
final expression of their Agreement and is intended as a complete and exclusive
statement of the terms and conditions thereof.
18.19 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER
OF JURY TRIAL; WAIVER OF DAMAGES.
<PAGE> 17
17
(i) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED UNDER
THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE
PLEDGORS, THE COLLATERAL AGENT, AND THE HOLDERS IN CONNECTION WITH THIS
AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE
RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF
LAWS PROVISIONS) AND DECISIONS OF THE STATE OF NEW YORK.
(ii) EXCEPT AS PROVIDED IN THE NEXT PARAGRAPH AND IN PARAGRAPH
(vi) BELOW, THE PLEDGORS, THE COLLATERAL AGENT AND THE HOLDERS AGREE THAT ALL
DISPUTES BETWEEN OR AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE
RESOLVED ONLY BY STATE OR FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, BUT THE
PLEDGORS, THE COLLATERAL AGENT AND THE HOLDERS ACKNOWLEDGE THAT ANY APPEALS FROM
THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW
YORK. EACH PLEDGOR WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE
LOCATION OF THE COURT CONSIDERING THE DISPUTE INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS.
(iii) EACH PLEDGOR AGREES THAT THE COLLATERAL AGENT SHALL, IN
ITS OWN NAME OR IN THE NAME AND ON BEHALF OF ANY HOLDER, HAVE THE RIGHT, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST SUCH PLEDGOR OR SUCH
PLEDGOR'S PROPERTY IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH
TO ENABLE THE COLLATERAL AGENT TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE COLLATERAL AGENT. EACH
PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY
PROCEEDING BROUGHT BY THE COLLATERAL AGENT TO REALIZE ON SUCH PROPERTY, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE COLLATERAL AGENT. EACH
PLEDGOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN
WHICH THE COLLATERAL AGENT HAS COMMENCED A PROCEEDING DESCRIBED IN THIS
PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR
BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(iv) EACH PLEDGOR, THE COLLATERAL AGENT AND THE HOLDERS WAIVE
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
<PAGE> 18
18
AGREEMENT. INSTEAD, ANY DISPUTES RESOLVED IN COURT WILL BE
RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
(v) EACH PLEDGOR HEREBY IRREVOCABLY DESIGNATES THE REGISTERED
AGENT OF THE PLEDGOR AS THE DESIGNEE, APPOINTEE AND AGENT OF THE PLEDGOR TO
RECEIVE, FOR AND ON BEHALF OF SUCH PLEDGOR, SERVICE OF PROCESS IN ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT. IT IS UNDERSTOOD THAT
NOTICE AND A COPY OF SUCH PROCESS SERVED ON SUCH AGENT, WILL BE FORWARDED
PROMPTLY TO SUCH PLEDGOR, BUT THE FAILURE OF EACH PLEDGOR TO RECEIVE SUCH NOTICE
AND COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. EACH PLEDGOR
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PLEDGOR AT ITS
ADDRESS SET FORTH ON SCHEDULE II HERETO, SUCH SERVICE TO BECOME EFFECTIVE FIVE
(5) BUSINESS DAYS AFTER SUCH MAILING.
(vi) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE COLLATERAL
AGENT OR ANY SECURED CREDITOR TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE PLEDGORS
IN ANY OTHER JURISDICTION.
(vii) EACH PLEDGOR HEREBY AGREES THAT NEITHER THE COLLATERAL
AGENT NOR ANY HOLDER SHALL HAVE ANY LIABILITY TO SUCH PLEDGOR (WHETHER SOUNDING
IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY SUCH PLEDGOR IN
CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE TRANSACTIONS
CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS AGREEMENT, OR ANY ACT,
OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY
A FINAL AND NONAPPEALABLE JUDGMENT OF A COURT THAT IS BINDING ON THE COLLATERAL
AGENT OR SUCH SECURED CREDITOR, AS THE CASE MAY BE, THAT SUCH LOSSES WERE THE
RESULT OF ACTS OR OMISSIONS ON THE PART OF THE COLLATERAL AGENT OR SUCH SECURED
CREDITOR, AS THE CASE MAY BE, CONSTITUTING GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
(viii) EACH PLEDGOR WAIVES ALL RIGHTS OF NOTICE AND HEARING OF
ANY KIND PRIOR TO THE EXERCISE BY THE COLLATERAL AGENT OR ANY HOLDER OF ITS
RIGHTS DURING THE CONTINUANCE OF A DEFAULT OR AN EVENT OF DEFAULT TO REPOSSESS
THE COLLATERAL WITH JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON THE
COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS. EACH PLEDGOR WAIVES THE
POSTING OF ANY BOND OTHERWISE REQUIRED OF THE COLLATERAL AGENT OR ANY SECURED
CREDITOR IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO OBTAIN
POSSESSION OF, REPLEVY, ATTACH OR LEVY UPON COLLATERAL OR OTHER SECURITY FOR THE
OBLIGATIONS, TO ENFORCE ANY
<PAGE> 19
19
JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE COLLATERAL AGENT OR ANY
SECURED CREDITOR, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING
ORDER OR PRELIMINARY OR PERMANENT INJUNCTION THIS AGREEMENT OR ANY OTHER
AGREEMENT OR DOCUMENT AMONG THE PLEDGORS, THE COLLATERAL AGENT AND THE HOLDERS.
Section 18.20 Acknowledgments. Each Pledgor hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Agreement;
(b) neither the Collateral Agent nor any Holder has any
fiduciary relationship to the Pledgors, and the relationship between the
Collateral Agent and the Holders, on the one hand, and the Pledgors, on
the other hand, is solely that of a secured party and a creditor; and
(c) no joint venture exists among the Holders or among the
Pledgors and the Holders.
<PAGE> 20
20
IN WITNESS WHEREOF, the Pledgors and the Collateral Agent have each
caused this Agreement to be duly executed and delivered as of the date first
above written.
JONATHAN MILLER
By: /s/ Jonathan Miller
----------------------------------
Name:
Title:
MATTHEW MILLER
By:
----------------------------------
Name:
Title:
JONATHAN MILLER FAMILY LIMITED
PARTNERSHIP
By: /s/ Jonathan Miller
----------------------------------
Name:
Title:
MATTHEW MILLER FAMILY LIMITED
PARTNERSHIP
By:
----------------------------------
Name:
Title:
<PAGE> 21
IN WITNESS WHEREOF, the Pledgors and the Collateral Agent have each
caused this Agreement to be duly executed and delivered as of the date first
above written.
JONATHAN MILLER
--------------------------------(SEAL)
MATTHEW MILLER
/s/ Matthew Miller
---------------------------------(SEAL)
JONATHAN MILLER FAMILY LIMITED
PARTNERSHIP
By: Jonathan Miller, Inc.
Managing General Partner
By:
------------------------------
Name: Jonathan Miller
Title: President
MATTHEW MILLER FAMILY LIMITED
PARTNERSHIP
By: /s/ Matthew Miller
---------------------------------
Name: Matthew Miller
Title: Managing General Partner
MATTHEW MILLER 1984 CHILDREN'S TRUST
By: /s/ Matthew Miller
---------------------------------
Name: Matthew Miller
Title: Trustee
<PAGE> 22
21
MATTHEW MILLER 1984 CHILDREN'S
TRUST
By:
----------------------------------
Name:
Title:
MARINE MIDLAND BANK, as Collateral Agent:
By: /s/ Peter S. Wolfrath
----------------------------------
Name: Peter S. Wolfrath
Title: Assistant Vice President
Accepted and acknowledged as of
the date first above written:
MARINE MIDLAND BANK
as Trustee under the Indenture
By: /s/ Peter S. Wolfrath
----------------------------------
Name: Peter S. Wolfrath
Title: Assistant Vice President
<PAGE> 23
SCHEDULE I
PLEDGED SHARES:
<TABLE>
<CAPTION>
Certificate Owner Number of % of Outstanding Issue Date
No. ----- Shares ---------------- ----------
- --- ------
<S> <C> <C> <C> <C>
A1 Jonathan Miller 2,053 0.313% 12/29/92
A2 Matthew Miller 2,053 0.313% 12/29/92
A13 Matthew Miller, Trustee, Matthew Miller 1984 207.5 0.032% 11/18/93
Children's Trust
A15 Jonathan Miller Family Limited Partnership 383.75 0.058% 11/18/93
A16 Jonathan Miller Family Limited Partnership 383.75 0.058% 11/18/93
A17 Jonathan Miller Family Limited Partnership 111 0.017% 11/18/93
A18 Jonathan Miller Family Limited Partnership 111 0.017% 11/18/93
A19 Jonathan Miller Family Limited Partnership 207.5 0.032% 11/18/93
A20 Matthew Miller Family Limited Partnership 383.75 0.058% 11/30/93
A21 Matthew Miller Family Limited Partnership 383.75 0.058% 11/30/93
A22 Matthew Miller Family Limited Partnership 74 0.011% 11/30/93
A23 Matthew Miller Family Limited Partnership 74 0.011% 11/30/93
A24 Matthew Miller Family Limited Partnership 74 0.011% 11/30/93
- ---------------------------------------------------------------------------------------------------------------
--------
B13 Matthew Miller, Trustee, Matthew Miller 1984 20,750 3.161% 12/29/92
Children's Trust
B30 Jonathan Miller Family Limited Partnership 3,263 0.497% 11/18/93
B31 Jonathan Miller Family Limited Partnership 197,031 30.012% 11/18/93
B32 Jonathan Miller Family Limited Partnership 38,375 5.845% 11/18/93
B33 Jonathan Miller Family Limited Partnership 38,375 5.845% 11/18/93
B34 Jonathan Miller Family Limited Partnership 13,603 2.072% 11/18/93
B35 Jonathan Miller Family Limited Partnership 13,603 2.072% 11/18/93
B36 Jonathan Miller Family Limited Partnership 20,750 3.151% 11/18/93
B37 Matthew Miller Family Limited Partnership 38,375 5.845% 11/30/93
B38 Matthew Miller Family Limited Partnership 197,869 30.140% 11/30/93
B39 Matthew Miller Family Limited Partnership 38,375 5.845% 11/30/93
B40 Matthew Miller Family Limited Partnership 7,718 1.176% 11/30/93
B41 Matthew Miller Family Limited Partnership 7,718 1.176% 11/30/93
B42 Matthew Miller Family Limited Partnership 14,195 2.162% 11/30/93
</TABLE>
<PAGE> 24
SCHEDULE II
Jonathan Miller
28 Woodhill Road
Tenafly, NJ 07670
Matthew Miller
63 Brampton Grove
London NW4 4AH
England
Matthew Miller, Trustee
Matthew Miller 1984 Children's Trust
63 Brampton Grove
London NW4 4AH
England
Jonathan Miller Family Limited Partnership
Jonathan Miller, Inc., General Partner
Jonathan Miller, President
28 Woodhill Road
Tenafly, NJ 07670
Matthew Miller Family Limited Partnership
Matthew Miller, General Partner
63 Brampton Grove
London NW4 4AH
England
Collateral Agent
Marine Midland Bank
Corporate Trust Services
140 Broadway
New York, New York 10005-1180
<PAGE> 1
Exhibit 10.3
$100,000,000
SHOP VAC CORPORATION
10-5/8% Senior Secured Notes due 2003
PURCHASE AGREEMENT
September 25, 1996
Lehman Brothers Inc.
First Union Capital Markets Corp.
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
SHOP VAC CORPORATION, a New Jersey corporation (the
"Company"), proposes to issue and sell to you, as the initial purchasers (the
"Initial Purchasers"), $100,000,000 aggregate principal amount of its 10-5/8%
Senior Secured Notes Due 2003 (the "Notes"). The Notes will be issued pursuant
to an Indenture to be dated as of October 1, 1996 (the "Indenture"), between the
Company and Marine Midland Bank, as trustee.
The Notes will be offered and sold to you without being
registered under the Securities Act of 1933, as amended (the "Securities Act"),
in reliance on an exemption therefrom. The Company has prepared a preliminary
offering memorandum, dated September 25, 1996 the "Preliminary Offering
Memorandum"), and will prepare a final offering memorandum dated the date hereof
(the "Final Offering Memorandum" and, together with the Preliminary Offering
Memorandum, the "Offering Memorandum"), setting forth or including a description
of the terms of the Notes, the terms of the offering, a description of the
Company and any material developments relating to the Company occurring after
June 30, 1996. Copies of the Preliminary Offering Memorandum have been, and
copies of the Final Offering Memorandum will be, delivered by the Company to the
Initial Purchasers pursuant to the terms of this Agreement. Any references
herein to the Preliminary Offering Memorandum, the Final Offering Memorandum and
the Offering Memorandum shall be deemed to include all amendments and
supplements thereto and all documents incorporated therein by reference. The
Company hereby confirms that it has authorized the use of the Offering
Memorandum in connection with the offering and resale of the Notes by you in
accordance with Section 3 hereof.
The Initial Purchasers and their direct and indirect
transferees will be entitled to the benefits of the Registration
<PAGE> 2
2
Rights Agreement, substantially in the form attached hereto as Exhibit A,
pursuant to which the Company will agree to use its best efforts to commence an
offer to exchange the Notes for securities which have been registered under the
Securities Act, and which are identical in all material respects to the Notes,
or to cause a shelf registration statement to become effective under the
Securities Act and to remain effective for the period designated in such
Registration Rights Agreement.
In connection with the offering and sale of the Notes,
Jonathan Miller & Matthew Miller together with certain family partnerships and
trusts will enter into a pledge agreement (the "Pledge Agreement") providing for
the first priority pledge by each such pledgor to the Collateral Agent of all of
their capital stock of the Company.
Section 1. Representations and Warranties. The
Company represents and warrants to you and agrees that:
(a) Each of the Preliminary Offering Memorandum and the Final
Offering Memorandum, as of its respective date, did not, and the Final Offering
Memorandum as of the Closing Date (as defined below), will not, contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein not misleading; provided, however, that
the Company makes no representation or warranty as to information contained in
or omitted from the Preliminary Offering Memorandum or the Final Offering
Memorandum, as amended or supplemented, in reliance upon and in conformity with
written information furnished to the Company by or on behalf of any of the
Initial Purchasers specifically for inclusion in the Preliminary Offering
Memorandum or the Final Offering Memorandum.
(b) It is not required by applicable law or regulation in
connection with the offer, sale and delivery of the Notes to you in the manner
contemplated by this Agreement to register the Notes under the Securities Act or
to qualify the Indenture in respect of the Notes under the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act").
(c) The Company and each of its subsidiaries (as defined in
Section 16 hereof) have been duly organized or duly formed, as the case may be,
and are validly existing as corporations in good standing under the laws of
their respective jurisdictions of organization, are duly qualified to do
business and are in good standing as foreign corporations in each jurisdiction
in which their respective ownership or lease of property or the conduct of their
respective businesses requires such qualification, and have all power and
authority necessary to own or hold their respective properties and to conduct
the businesses in which they are engaged in the manner described in the Final
Offering Memorandum, except where any failure to be so qualified or in good
standing would not reasonably be expected to have a material adverse effect on
the consolidated financial
<PAGE> 3
3
position, results of operations, business or prospects of the Company and its
subsidiaries taken as a whole ("Material Adverse Effect"); and (other than
Felchar Manufacturing Corporation ("Felchar"), Shop Vac Properties
International, Ltd., Goblin Ireland, Ltd. and Goblin Limited (UK)) none of the
subsidiaries of the Company is a "significant subsidiary", as such term is
defined in Rule 405 of the Rules and Regulations.
(d) The Company has an authorized capitalization as set forth
in the Final Offering Memorandum, and all of the issued shares of capital stock
of the Company have been duly and validly authorized and issued, are fully paid
and non-assessable, and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued and
are fully paid and non-assessable and (except for directors' qualifying shares
or as set forth in the Final Offering Memorandum) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances, equities
or claims.
(e) The Company has all of the requisite corporate power and
authority to execute and deliver this Agreement, the Registration Rights
Agreement, the Indenture (collectively, the "Transaction Documents") and the
Notes and to perform its obligations thereunder.
(f) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company enforceable against the Company in accordance with its terms.
(g) The Registration Rights Agreement has been duly
authorized, and when duly executed by the proper officers of the Company and
delivered by the Company will constitute a valid and binding agreement of the
Company enforceable against the Company in accordance with its terms.
(h) The Indenture has been duly authorized, and when duly
executed by the proper officers of the Company (assuming due execution and
delivery by the Trustee) and delivered by the Company will constitute a valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms.
(i) The Notes have been duly authorized, and, when duly
executed, authenticated, issued and delivered as provided in the Indenture and
paid for as provided herein, will be duly and validly issued and outstanding,
and will constitute valid and binding obligations of the Company entitled to the
benefits of the Indenture and enforceable in accordance with their terms.
(j) The Notes, the Indenture, the Registration Rights
Agreement and the Pledge Agreement conform in all material respects to the
descriptions thereof contained in the Final Offering Memorandum.
<PAGE> 4
4
(k) The execution, delivery and performance of each of the
Transaction Documents, the issuance, authentication, sale and delivery of the
Notes, and compliance with the terms thereof, and the consummation by the
Company of the transactions contemplated thereby will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries is
bound or to which any of the property or assets of the Company or any of its
subsidiaries is subject, except for such conflicts, breaches, violations or
defaults which have been cured or waived or which would not reasonably be
expected to have a Material Adverse Effect, nor will such actions result in any
violation of the provisions of the charter or by-laws of the Company or any of
its subsidiaries or any applicable statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the Company or
any of its subsidiaries or any of their properties or assets, except for such
violations that would not reasonably be expected to have a Material Adverse
Effect; and except such consents, approvals, authorizations, registrations or
qualifications as may be required under the applicable state securities laws in
connection with the purchase and distribution of the Notes by the Initial
Purchasers or as described in the Final Offering Memorandum, no consent,
approval, authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the execution, delivery and
performance of each of the Transaction Documents, the issuance, authentication,
sale and delivery of the Notes, and compliance with the terms thereof, and the
consummation by the Company of the transactions contemplated thereby.
(l) Since June 30, 1996, neither the Company nor any of its
subsidiaries has sustained any material loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Final Offering
Memorandum; and, since such date, there has not been any material change in the
capital stock or long-term debt of the Company or any of its subsidiaries (other
than scheduled redemptions or payments) or any material adverse change, or any
development involving a prospective material adverse change, in or affecting the
management, financial position, stockholders' equity or results of operations of
the Company and its subsidiaries taken as a whole otherwise than as set forth or
contemplated in the Final Offering Memorandum.
(m) The financial statements (including the related notes)
included in the Final Offering Memorandum present fairly , in all material
respects, the financial condition and results of operations of the entities
purported to be shown thereby, at the dates and for the periods indicated, and
have been prepared in
<PAGE> 5
5
conformity with generally accepted accounting principles applied on a consistent
basis throughout the periods involved, except as otherwise disclosed therein.
(n) KPMG Peat Marwick LLP ("KPMG"), who has certified certain
financial statements of the Company, whose reports appear in the Offering
Memorandum and who have delivered the initial letters referred to in Section
7(i) hereof, is an independent public accountant with respect to the Company
under Rule 101 of AICPA's Code of Professional Conduct and its interpretations
and rulings.
(o) The Company and each of its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are described in the Final
Offering Memorandum or such as do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be
made of such property by the Company and its subsidiaries or such as would not
reasonably be expected to have a Material Adverse Effect; and all real property
and buildings held under lease by the Company and its subsidiaries are held by
them under valid, subsisting and enforceable leases, with such exceptions as
would not reasonably be expected to have a Material Adverse Effect.
(p) The Company and each of its subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is customary
for companies engaged in similar businesses in similar industries.
(q) Except as disclosed in the Final Offering Memorandum, the
Company possesses such certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies necessary to
conduct the business now operated by them, except where the failure to possess
such certificates, authorizations or permits would not be reasonably expected to
have a Material Adverse Effect and the Company has not received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit which, singularly or in the aggregate, if the subject of
an unfavorable decision, ruling, or finding, would reasonably be expected to
have a Material Adverse Effect.
(r) Except as disclosed in the Final Offering Memorandum, the
Company and each of its subsidiaries own or possess adequate rights to use all
material patents, patent applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations, copyrights and licenses
necessary for the conduct of their respective businesses and have no reason to
believe that the conduct of their respective businesses will conflict with, and
have not received any notice of any claim of conflict with, any such rights of
<PAGE> 6
6
others, except such as would not have a Material Adverse Effect.
(s) Except as described in the Final Offering Memorandum,
there are no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property or assets of the
Company or any of its subsidiaries is the subject which, if determined adversely
to the Company or any of its subsidiaries, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect; and to the best of the
Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(t) No labor disturbance by the employees of the Company or
any of its subsidiaries exists or, to the knowledge of the Company, is imminent
which might be expected to have a Material Adverse Effect.
(u) Except as disclosed in the Final Offering Memorandum, (i)
the Company and each of its domestic subsidiaries are in compliance in all
material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder ("ERISA"); (ii) no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) for which the Company would have any liability; (iii) the
Company and each of its domestic subsidiaries have not incurred and do not
expect to incur liability under (x) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (y) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and (iv) each "pension
plan" for which the Company or any of its domestic subsidiaries would have any
liability that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.
(v) The Company has filed all federal, foreign, state and
local income and franchise tax returns required to be filed through the date
hereof and has paid all taxes due thereon, and no tax deficiency has been
determined adversely to the Company or any of its subsidiaries which has had
(nor does the Company have any knowledge of any tax deficiency which, if
determined adversely to the Company or any of its subsidiaries, might reasonably
be expected to have) a Material Adverse Effect.
(w) Since the date as of which information is given in the
Final Offering Memorandum through the date hereof, and except as may otherwise
be disclosed in the Final Offering Memorandum, the Company and its subsidiaries
have not (i) issued or granted any securities (other than under plans,
agreements and
<PAGE> 7
7
arrangements disclosed in, and in effect on the date of, the Final Offering
Memorandum), (ii) incurred any liability or obligation, direct or contingent,
other than liabilities and obligations which were incurred in the ordinary
course of business, (iii) entered into any transaction not in the ordinary
course of business or (iv) declared or paid any dividend on their respective
capital stock.
(x) Neither the Company nor any of its subsidiaries (i) is in
violation of its charter or by-laws, (ii) is in default in any material respect,
and no event has occurred which, with notice or lapse of time or both, would
constitute such a default, in the due performance or observance of any term,
covenant or condition contained in any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which it is a party or by which it
is bound or to which any of its properties or assets is subject or (iii) is in
violation in any material respect of any applicable law, ordinance, governmental
rule, regulation or court decree to which it or its property or assets may be
subject or has failed to obtain any license, permit, certificate, franchise or
other governmental authorization or permit necessary to the ownership of its
property or to the conduct of its business, except as may be described in the
Final Offering Memorandum or as would not reasonably be expected to have a
Material Adverse Effect.
(y) Neither the Company nor any of its subsidiaries, nor to
the best of the Company's knowledge, any director, officer, agent, employee or
other person associated with or acting on behalf of the Company or any of its
subsidiaries, has (i) used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expense relating to political activity;
(ii) made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment.
(z) Except as otherwise disclosed in the Final Offering
Memorandum, (i) there has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the Company or any of its
subsidiaries (or, to the knowledge of the Company, any of their predecessors in
interest) at, upon or from any of the property now or previously owned or leased
by the Company or its subsidiaries in violation of any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit or which would
require remedial action under any applicable law, ordinance, rule, regulation,
order, judgment, decree or permit, except for any violation or remedial action
which would not have, or could not be reasonably likely to have, singularly or
in the aggregate with all such violations and remedial actions, a Material
Adverse Effect; and
<PAGE> 8
8
(ii) there has been no material spill, discharge, leak, emission, injection,
escape, dumping or release of any kind onto such property or into the
environment surrounding such property of any toxic wastes, medical wastes, solid
wastes, hazardous wastes or hazardous substances due to or caused by the Company
or any of its subsidiaries or with respect to which the Company or any of its
subsidiaries have knowledge, except for any such spill, discharge, leak,
emission, injection, escape, dumping or release which would not have or would
not be reasonably likely to have, singularly or in the aggregate with all such
spills, discharges, leaks, emissions, injections, escapes, dumpings and
releases, a Material Adverse Effect; and the terms "hazardous wastes," "toxic
wastes," "hazardous substances" and "medical wastes" shall have the meanings
specified in any applicable local, state, federal and foreign laws or
regulations with respect to environmental protection.
(aa) Neither the Company nor any subsidiary is an "investment
company" within the meaning of such term under the Investment Company Act of
1940, as amended (the "Investment Company Act") and the rules and regulations of
the Commission thereunder.
(ab) No securities of the same class (within the meaning of
Rule 144A(d)(3) under the Securities Act) as the Notes are listed on any
national securities exchange registered under Section 6 of the Exchange Act or
quoted on an automated inter-dealer quotation system.
(ac) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D under the Securities Act ("Regulation D")) of the Company
has directly, or through any agent (provided that no representation is made as
to the Initial Purchasers or any person acting on their behalf), (i) sold,
offered for sale, solicited offers to buy or otherwise negotiated in respect of,
any security (as defined in the Securities Act) which is or will be integrated
with the offering and sale of the Notes in a manner that would require the
registration of the Notes under the Securities Act or (ii) engaged in any form
of general solicitation or general advertising (within the meaning of Regulation
D) in connection with the offering of the Notes.
(ad) Neither the Company nor its affiliates has taken, and the
Company will not take, directly or indirectly, any action designed to, or that
might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Notes.
Section 2. Purchase of the Notes by the Initial Purchasers.
(a) On the basis of the representations and warranties herein contained, and
subject to the terms and conditions herein set forth, the Company agrees to sell
to you, and each of you, severally and not jointly, agrees to purchase from the
Company, the principal amount of the Notes as set forth
<PAGE> 9
9
opposite each Initial Purchaser's name in Schedule 1 hereto, at a purchase price
equal to 96.5% of their principal amount.
(b) The Company shall not be obligated to deliver any of the
Notes, except upon payment for all of the Notes to be purchased as hereinafter
provided.
Section 3. Sale and Resale of the Notes by the Initial
Purchasers. You have advised the Company that you propose to offer the Notes for
resale upon the terms and conditions set forth in this Agreement and in the
Final Offering Memorandum. You hereby represent and warrant to, and agree with,
the Company that you (i) are purchasing the Notes pursuant to a private sale
exempt from registration under the Securities Act, (ii) will not solicit offers
for, or offer or sell, the Notes by means of any form of general solicitation or
general advertising or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act, and (iii) will solicit offers for
the Notes only from, and will offer, sell or deliver the Notes, as part of their
initial offering, only to (A) persons whom you reasonably believe to be
qualified institutional buyers ("Qualified Institutional Buyers") as defined in
Rule 144A under the Securities Act, as such rule may be amended from time to
time ("Rule 144A") or, if any such person is buying for one or more
institutional accounts for which such person is acting as fiduciary or agent,
only when such person has represented to you that each such account is a
Qualified Institutional Buyer, to whom notice has been given that such sale or
delivery is being made in reliance on Rule 144A and (B) in each case, in
transactions under Rule 144A and to a limited number of other institutional
accredited investors ("Accredited Investors") as defined in Rule 501(a)(1)(2),
(3) or (7) under Regulation D who execute letters of representation in the form
included as Annex A to the Final Offering Memorandum in private sales exempt
from registration under the Securities Act.
Section 4. Delivery of and Payment for the Notes. (a) Payment
of the purchase price for, and delivery of, the Notes shall be made at the
offices of Simpson Thacher & Bartlett, New York, New York or at such other place
as shall be agreed upon by the Company and you, at 9:30 a.m. (New York time), on
October 1, 1996 or at such other time or date as you and the Company shall
determine (such date and time of payment and delivery being herein called the
"Closing Date").
(b) On the Closing Date, payment shall be made to the Company
in same-day funds by wire transfer to such account or accounts as the Company
shall specify prior to the Closing Date or by such means as the parties hereto
shall agree prior to the Closing Date against delivery to you of the
certificates evidencing the Notes. Upon delivery, the Notes shall be registered
in such names and in such denominations as the Initial Purchasers shall request
in writing not less than two full business days prior to the Closing Date. For
the purpose of
<PAGE> 10
10
expediting the checking and packaging of certificates evidencing the Notes, the
Company agrees to make such certificates available for inspection at least 24
hours prior to the Closing Date.
Section 5. Further Agreements of the Company. The
Company agrees:
(a) To furnish to you, without charge, as many copies of the
Offering Memorandum and any supplements and amendments thereto as you may
reasonably request.
(b) Prior to making any amendment or supplement to the
Offering Memorandum, the Company shall furnish a copy thereof to the Initial
Purchasers and counsel to the Initial Purchasers and will not effect any such
amendment or supplement to which the Initial Purchasers shall reasonably object
by notice to the Company after a reasonable period to review, which shall not in
any case be longer than five business days after receipt of such copy.
(c) If, at any time prior to completion of the distribution of
the Notes by you to purchasers, any event shall occur or condition exist as a
result of which it is necessary, in the opinion of counsel for you or counsel
for the Company, to amend or supplement the Offering Memorandum in order that
the Offering Memorandum will not include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein not misleading in light of the circumstances existing at the time it is
delivered to a purchaser, or if it is necessary to amend or supplement the
Offering Memorandum to comply with applicable law, to promptly prepare such
amendment or supplement as may be necessary to correct such untrue statement or
omission or so that the Offering Memorandum, as so amended or supplemented, will
comply with applicable law and to furnish you such number of copies as you may
reasonably request.
(d) So long as the Notes are outstanding and are "Restricted
Securities" within the meaning of Rule 144(a)(3) under the Securities Act, to
furnish to holders of the Notes and prospective purchasers of Notes designated
by such holders, upon request of such holders or such prospective purchasers,
the information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
(e) For a period of five years following the Closing Date, to
furnish to you copies of any annual reports, quarterly reports and current
reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other
similar forms as may be designated by the Commission, and such other documents,
reports and information as shall be furnished by the Company to the Trustee or
to the holders of the Notes pursuant to the Indenture.
<PAGE> 11
11
(f) To use its best efforts to qualify the Notes for sale
under the securities or Blue Sky laws of such jurisdictions as you reasonably
designate and to continue such qualifications in effect so long as required for
the distribution of the Notes. The Company will also arrange for the
determination of the eligibility for investment of the Notes under the laws of
such jurisdictions as you reasonably request. Notwithstanding the foregoing, the
Company shall not be obligated to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified or to file a general consent to
service of process in any jurisdiction.
(g) To use its best efforts to permit the Notes to be
designated Private Offerings, Resales and Trading through Automated Linkages
Market ("PORTAL") securities in accordance with the rules and regulations
adopted by the National Association of Securities Dealers, Inc. relating to
trading in the PORTAL Market and to permit the Notes to be eligible for
clearance and settlement through The Depository Trust Company (the "DTC").
(h) Except following the effectiveness of the Registration
Statement (as defined in the Registration Rights Agreement), not to, and will
cause its affiliates not to, solicit any offer to buy or offer to sell the Notes
by means of any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act) or in any manner
involving a public offering within the meaning of Section 4(2) of the Securities
Act.
(i) Not to, and will cause its affiliates not to, sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in the Securities Act) in a transaction that could be
integrated with the sale of the Notes in a manner that would require the
registration under the Securities Act of the Notes.
(j) To apply the net proceeds from the sale of the
Notes as set forth in the Final Offering Memorandum.
(k) To use its best efforts to take such steps as shall be
necessary to ensure that neither the Company nor any subsidiary shall become an
"investment company" within the meaning of such term under the Investment
Company Act and the rules and regulations of the Commission thereunder.
Section 6. Payment of Expenses. The Company agrees to pay (a)
the costs in connection with the authorization, issuance, sale and delivery of
the Notes and any taxes payable in that connection, (b) the costs incident to
the preparation and printing of the Offering Memorandum and any amendments or
supplements thereto, (c) the costs of distributing the Offering Memorandum and
any amendments or supplements thereto, (d) the costs incident to the
preparation, printing and delivery of the
<PAGE> 12
12
certificates representing the Notes, including stamp duties and stock transfer
taxes, if any, payable upon issuance of any of the Notes, (e) the fees and
disbursements of the Company's counsel and accountants, (f) any fees charged by
rating agencies for rating the Notes, (g) the reasonable fees and expenses of
qualifying the Notes under securities laws of the several jurisdictions as
provided in Section 5(f) and of preparing, printing and distributing a Blue Sky
memorandum (including, without limitation, related legal fees of Simpson Thacher
& Bartlett, counsel to the Initial Purchasers), (i) the fees and expenses of the
Trustee, the Collateral Agent and any paying agent, (including, without
limitation, related fees and expenses of any counsel for such parties), (h) all
expenses and listing fees incurred in connection with the application for
quotation of the Notes on the PORTAL Market and (j) all other reasonable costs
and expenses incident to the performance of the Company's obligations hereunder
which are not otherwise specifically provided for in this Section. In addition,
the Company shall reimburse the Initial Purchasers for the reasonable expenses
(other than related legal fees of Simpson Thacher & Bartlett, counsel to the
Initial Purchasers) as shall have been incurred by them in connection with the
purchase and the initial resale of the Notes, and upon demand the Company shall
pay the full amount thereof to the Initial Purchasers.
Section 7. Conditions of Initial Purchasers' Obligations. Your
respective obligations hereunder are subject to the accuracy, in all material
respects, when made and on the Closing Date, of the representations and
warranties of the Company contained herein, to the performance by the Company,
in all material respects, of its obligations hereunder, and to each of the
following additional terms and conditions:
(a) No Initial Purchaser shall have discovered and disclosed
to the Company on or prior to the Closing Date that the Final Offering
Memorandum or any amendment or supplement thereto contains an untrue statement
of a fact which, in the opinion of Simpson Thacher & Bartlett, counsel for the
Initial Purchaser, is material or omits to state a fact which, in the opinion of
such counsel is material and is required to be stated therein or is necessary to
make the statements therein not misleading.
(b) All consents, waivers and approvals necessary for the
consummation of the transactions contemplated by the Transaction Documents shall
have been obtained and shall be in full force and effect on the Closing Date.
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of each of the Transaction Documents,
the Notes and Offering Memorandum, and all other legal matters relating to the
Transaction Documents and the transactions contemplated thereby shall be
reasonably satisfactory in all material respects to counsel for the Initial
Purchasers, and the Company shall have furnished to such counsel
<PAGE> 13
13
all documents and information that they may reasonably request to enable them to
pass upon such matters.
(d) Latham & Watkins shall have furnished to the Initial
Purchasers their written opinion, as counsel to the Company, addressed to you
and dated the Closing Date, in form and substance reasonably satisfactory to the
Initial Purchasers, to the effect that:
(i) The Company is validly existing as a corporation in
good standing under the laws of the State of New Jersey, and Felchar
Manufacturing Corporation is validly existing as a corporation in good
standing under the laws of the State of New York;
(ii) The Notes, the Indenture, the Registration Rights
Agreement and the Pledge Agreement conform in all material respects to
the descriptions thereof contained in the Final Offering Memorandum;
(iii) This Agreement has been duly authorized, executed
and delivered by the Company;
(iv) The Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms;
(v) Assuming that (i) each of the non-individual
Pledgors is duly organized, validly existing and in good standing under
the laws of the applicable jurisdictions, (ii) each of the Pledgors has
full power, authority and capacity to authorize, execute, deliver and
perform the Pledge Agreement, (iii) the execution, delivery and
performance of the Pledge Agreement has been duly authorized by all
necessary action on the part of each of the Pledgors and (iv) the
Pledge Agreement has been duly executed and delivered by each of the
Pledgors, the Pledge Agreement constitutes a valid and binding
obligation of each of such Pledgors, enforceable against each of them
in accordance with its terms;
(vi) Upon delivery pursuant to the Pledge Agreement to
the Collateral Agent of the certificates representing the shares of
common stock of the Company listed on Schedule I to the Pledge
Agreement (the "Pledged Shares"), along with stock powers duly indorsed
in blank, and assuming (i) the Collateral Agent took possession, and
continuously maintains possession, of the certificates representing the
Pledged Shares in the State of New York and (ii) the Collateral Agent
is taking such Pledged Shares in good faith without notice of any
adverse claim, the security interest created in favor of the Collateral
Agent under the Pledge Agreement
<PAGE> 14
14
in the Pledged Shares constitutes a valid and perfected security
interest as security for the Obligations (as defined in the Pledge
Agreement), subject to no equal or prior claim in favor of any other
person. No filings or recordings are required in order to perfect the
security interests created under the Pledge Agreement in such Pledged
Shares;
(vii) The Indenture has been duly authorized, executed
and delivered by the Company and constitutes a valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms.
(viii) The Notes have been duly authorized, executed and
issued by the Company and, when duly authenticated in accordance with
the Indenture and delivered to and paid for in accordance with this
Agreement, will constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms and will
be entitled to the benefits of the Indenture.
(ix) The execution and delivery of each of the
Transaction Documents, the issuance, authentication, sale and delivery
of the Notes, the creation of a security interest pursuant to the
Pledge Agreement and the repayment of certain existing indebtedness as
contemplated by the Final Offering Memorandum (collectively, the
"Subject Transactions") will not result in a breach or violation of any
of the terms or provisions of, or constitute a default under, (x) any
of the agreements which have been identified to such counsel by the
Company as being all the agreements to which the Company or any of its
subsidiaries is party which are material to the financial condition or
results of operations of the Company or (y) orders, judgments and
decrees which have been identified to such counsel by the Company as
being all of the orders, judgments and decrees that are material to the
financial condition or results of operations of the Company, other than
breaches or violations that have been cured or waived or that would not
reasonably be expected to have a Material Adverse Effect, nor will such
actions result in any violation of the provisions of the charter or
by-laws of the Company or any applicable federal or New York statute,
rule or regulation. The opinion expressed in this paragraph (ix) may be
limited to those laws that in such counsel's experience are typically
applicable to transactions such as those contemplated by this
Agreement. In interpreting the specified agreements referred to above,
such counsel may assume that all such agreements are governed by the
laws of the State of New York.
(x) No consent, approval, authorization, order,
registration or qualification of or with any Federal or New York
governmental agency or body is required in connection
<PAGE> 15
15
with the Subject Transactions, except for such consents, approvals,
authorizations, registrations or qualifications as may be required
under federal, state securities or Blue Sky laws in connection with the
purchase and distribution of the Notes by the Initial Purchasers. The
opinion expressed in this paragraph (x) may be limited to those laws
that in such counsel's experience are typically applicable to
transactions such as those contemplated by this Agreement.
(xi) Neither the Company nor any subsidiary is an
"investment company" within the meaning of such term under the
Investment Company Act of 1940.
(xii) No registration under the Securities Act of the
Notes and no qualification of the Indenture under the Trust Indenture
Act of 1939, as amended, is required in connection with the sale of the
Notes to the Initial Purchases as contemplated by this Agreement or by
the Initial Purchasers in compliance with the conditions for initial
resales set forth in the Final Offering Memorandum.
In rendering such opinion, such counsel may state that their opinion is limited
to matters governed by the Federal laws of the United States of America and the
laws of the State of New York. In addition, with respect to clauses (iv), (v),
(vii), and (viii) of this subsection 7(d), such opinion may state that their
opinion is subject to the following exceptions, limitations and qualifications:
(u) the effects of bankruptcy, insolvency, reorganization, moratorium and other
similar laws now or hereafter in effect relating to or affecting the rights and
remedies of creditors; (v) the effect of general principles of equity, whether
enforcement is considered in a proceeding in equity or at law, and the
discretion of the court before which any proceeding therefor may be brought; (w)
state that they express no opinion concerning the enforceability of the waiver
rights and defenses contained in Section 4.06 of the Indenture; (x) state that
they express no opinion with respect to the specific performance provisions of
the Registration Rights Agreement; and (y) the unenforceability under certain
circumstances under law or court decisions of provisions providing for the
indemnification or contribution to a party with respect to a liability where
such indemnification or contribution is contrary to public policy. Such counsel
shall also have furnished to the Initial Purchasers a written statement,
addressed to the Initial Purchasers and dated the Closing Date, in form and
substance reasonably satisfactory to the Initial Purchasers, to the effect that
(x) such counsel has acted as counsel to the Company and in connection with the
preparation of the Offering Memorandum, and (y) based on the foregoing, no facts
have come to the attention of such counsel which lead them to believe that the
Final Offering Memorandum, as of its date and as of the Closing Date, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in
<PAGE> 16
16
light of the circumstances under which they were made, not
misleading.
(e) Rhoads & Sinon LLP shall have furnished to the Initial
Purchasers their written opinion, as counsel to the Company, addressed to you
and dated the Closing Date, in form and substance satisfactory to the Initial
Purchasers, to the effect that:
(i) The Company is validly existing as a corporation in
good standing under the laws of the State of New Jersey and it has all
corporate power and authority necessary to own or hold its property and
conduct the business in which it is engaged, and is duly qualified to
do business and is in good standing as a foreign corporation in the
Commonwealth of Pennsylvania, and, to our knowledge, in each other
state of the United States in which its ownership or lease of property
or the conduct of its business requires such qualification, except
where any failure to be so qualified or in good standing would not
reasonably be expected to have a Material Adverse Effect.
(ii) Shop Vac Properties International, Ltd. ("Shop Vac
Properties") is validly existing as a corporation in good standing
under the laws of the State of Delaware and it has all corporate power
and authority necessary to own or hold its property and conduct its
business in which it is currently engaged and, to our knowledge, is not
required to be qualified as a foreign corporation in any state of the
United States, except where any failure to be so qualified or in good
standing would not reasonably be expected to have a Material Adverse
Effect.
(iii) The authorized capital stock of the Company
consists of 20,000 shares of Class A Common Stock with no par value and
1,000,000 shares of Class B Common Stock with no par value, and all of
the issued and outstanding shares of the capital stock of the Company
have been duly and validly authorized and issued and are fully paid and
non-assessable.
(iv) The issued and outstanding shares of capital stock
of Shop Vac Properties and, to such counsel's knowledge, each other
United States subsidiary of the Company, have been duly and validly
authorized and issued and are fully paid and non-assessable.
(v) Each of the Transaction Documents has been duly
authorized, executed and delivered by the Company.
(vi) The Notes have been duly authorized, executed and
delivered by the Company.
<PAGE> 17
17
(vii) The Pledge Agreement has been duly authorized,
executed and delivered by the shareholders of the Company parties
thereto.
(viii) The execution and delivery by the Company of each
of the Transaction Documents, the issuance, authentication, sale and
delivery of the Notes pursuant to the Indenture, the creation of a
security interest pursuant to the Pledge Agreement and the repayment of
certain existing indebtedness as contemplated by the Final Offering
Memorandum (collectively, the "Subject Transactions") will not conflict
with or result in a breach or violation of the charter or bylaws of the
Company or, to such counsel's knowledge, any subsidiary of the Company,
or any applicable provision of the laws of the Commonwealth of
Pennsylvania, the New Jersey Business Corporation Act or the New Jersey
Revised Uniform Limited Partnership Law (1976), or, to our knowledge,
any order, rule or regulation known to such counsel of any Pennsylvania
court or government agency or body. The opinion expressed in this
paragraph may be limited to the laws that in such counsel's experience
are typically applicable to transactions such as those contemplated by
this Agreement.
(ix) No consent, approval, authorization, order,
registration or qualification of or with any Pennsylvania governmental
agency or body or, to such counsel's knowledge, any Pennsylvania court
is required in connection with the Subject Transactions, except such
consent, approvals, authorizations, registrations or qualifications as
may be required under state securities laws or Blue Sky laws in
connection with the purchase and distribution of the Notes by the
Initial Purchasers and such counsel may express no opinion on the
application or effect of such state securities laws or Blue Sky Laws in
connection with the transactions contemplated herein. The opinion
expressed in this paragraph (ix) may be limited to laws that in such
counsel's experience are typically applicable to transactions such as
those contemplated by the Purchase Agreement.
(x) To the best of such counsel's knowledge, except as
set forth in the Final Offering Memorandum (including, without
limitation, under the caption "Environmental") there are no legal or
governmental proceedings pending or threatened to which the Company or
any of its subsidiaries is a party or of which any property or assets
of the Company or any of its subsidiaries is subject which, if
determined adversely to the Company or its subsidiaries, is expected to
have a Material Adverse Effect. As to judgements concerning
materiality, such counsel may rely on representations of the Company.
<PAGE> 18
18
In rendering such opinion, such counsel may (i) state that their opinion is
limited to matters governed by the corporation and limited partnership laws of
the State of New Jersey, the corporate law of the State of Delaware and the
Commonwealth of Pennsylvania; (ii) rely as to matters of fact upon statements,
representations and certificates of officers or other representatives of the
Company; and (iii) representations and certificates of the Pledgors or
representatives of the Pledgors.
(f) A. & L. Goodbody shall have furnished to the Initial
Purchasers their written opinion, as Irish counsel to the Company, addressed to
you and dated the Closing Date, in form and substance satisfactory to the
Initial Purchasers, to the effect that: (i) Goblin Ireland, Ltd. ("Goblin"),
which is a subsidiary of the Company, has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the Republic of
Ireland, and is currently registered as a private company limited by shares on
the register maintained by the Registrar of Companies in Dublin and (ii) no
license, permit or other authority is required to be issued by the Government of
the Republic of Ireland or any local authority in the Republic of Ireland to
enable Goblin to conduct the business in which it is engaged.
(g) Simpson Thacher & Bartlett shall have furnished to the
Initial Purchasers their written opinion, as counsel to the Initial Purchasers
and dated the Closing Date, in form and substance reasonably satisfactory to the
Initial Purchasers, with respect to the validity of the Notes and the Indenture,
to the Offering Memorandum and to other related matters as the Initial
Purchasers may reasonably require, and the Company shall have furnished to such
counsel such documents and information as they reasonably request for the
purpose of enabling them to pass upon such matters.
(h) The Company shall have furnished to the Initial Purchasers
a certificate, dated the Closing Date, of its Chairman of the Board, its
President or a Vice President and its Chief Financial Officer stating that:
(i) The representations, warranties and agreements of
the Company in Section 1 are true and correct in all material respects
as of the Closing Date; the Company has complied in all material
respects with all its agreements contained herein to be satisfied on or
prior to the Closing Date; and the conditions set forth in Section 7
have been fulfilled; and
(ii) They have carefully examined the Final Offering
Memorandum and, in their opinion (A) as of the date hereof, the Final
Offering Memorandum did not include any untrue statement of a material
fact and did not omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
(B) since
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19
such date no event has occurred which should have been set forth in a
supplement or amendment to the Final Offering Memorandum.
(i) With respect to the letter of KPMG delivered to the
Initial Purchasers concurrently with the execution of this Agreement (the
"initial letter"), the Company shall have furnished to the Initial Purchasers
the letter (the "bring-down letter") of such accountant, addressed to the
Initial Purchasers and dated the Closing Date (i) confirming that it is an
independent public accountant within the meaning of the Securities Act and is in
compliance with the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating,
as of the date of the bring-down letter (or, with respect to matters involving
changes or developments since the respective dates as of which specified
financial information is given in the Final Offering Memorandum, as of a date
not more than five days prior to the date of such bring-down letter), the
conclusions and findings of such firm with respect to the financial information
and other matters covered by its initial letter and (iii) confirming in all
material respects the conclusions and findings set forth in its initial letter.
(j) The Initial Purchasers shall have received on the date
hereof the Registration Rights Agreement executed by the Company.
(k) The Collateral Agent shall have received on or prior to
the Closing Date the Pledge Agreement and related documents, each dated on or
about such day and each executed by the parties thereto, substantially in the
form of Exhibit C to the Indenture and in sufficient copies for the Initial
Purchasers.
(l) The Initial Purchasers shall have received payoff letters,
in form and substance satisfactory to them, from (i) the lenders under the Old
Revolving Credit Facility (as defined in the Preliminary Offering Memorandum)
and (ii) the holders of the Old Senior Notes (as defined in the Preliminary
Offering Memorandum).
(m) The Company shall have entered into the New Revolving
Credit Facility (as defined in the Preliminary Offering Memorandum) and the
Initial Purchasers shall have received all documents entered into in connection
with such credit facility, which documents shall be in form and substance
satisfactory to the Initial Purchasers.
(n) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial statements
included in the Final Offering Memorandum any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by
<PAGE> 20
20
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Final Offering
Memorandum as of the date hereof or (ii) since such date there shall not have
been any change in the capital stock or long-term debt of the Company or any of
its subsidiaries or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole, otherwise than as set forth or contemplated in
the Final Offering Memorandum as of the date hereof, the effect of which, in any
case described in clause (i) or (ii), is, in the judgment of the Initial
Purchasers, so material and adverse as to make it impracticable or inadvisable
to proceed with the offering of the delivery of the Notes on the terms and in
the manner contemplated in the Final Offering Memorandum.
(o) Subsequent to the execution and delivery of this Agreement
(i) no downgrading shall have occurred in the rating accorded the Company's debt
securities by any "nationally recognized statistical rating organization", as
that term is defined by the Commission for purposes of Rule 436(g)(2) of the
Rules and Regulations and (ii) no such organization shall have publicly
announced that it has under surveillance or review, with possible negative
implications, its rating of any of the Company's debt securities.
(p) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (a) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or in
the over-the-counter market, or trading in any securities of the Company on any
exchange or in the over-the-counter market, shall have been suspended or minimum
prices shall have been established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body or governmental
authority having jurisdiction, (b) a banking moratorium shall have been declared
by Federal or state authorities, (c) the United States shall have become engaged
in hostilities, there shall have been an escalation in hostilities involving the
United States or there shall have been a declaration of a national emergency or
war by the United States or (d) there shall have occurred such a material
adverse change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the United States
shall be such) as to make it, in the judgment of a majority in interest of the
several Initial Purchasers, impracticable or inadvisable to proceed with the
public offering or delivery of the Notes on the terms and in the manner
contemplated in the Final Offering Memorandum.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in
<PAGE> 21
21
form and substance reasonably satisfactory to counsel of the
Initial Purchasers.
Section 8. Indemnification and Contribution. (a) The Company
shall indemnify and hold harmless each Initial Purchaser, its officers and
employees and each person, if any, who controls any Initial Purchaser within the
meaning of the Securities Act, from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof (including, but
not limited to, any loss, claim, damage, liability or action relating to
purchases and sales of Notes), to which such Initial Purchaser, officer,
employee or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Offering Memorandum or the Final
Offering Memorandum, or in any amendment or supplement thereto, or (B) in any
blue sky application or other document prepared or executed by the Company (or
based upon any written information furnished by the Company) specifically for
the purpose of qualifying any or all of the Notes under the securities laws of
any state or other jurisdiction (any such application, document or information
being hereinafter called a "Blue Sky Application"), (ii) the omission or alleged
omission to state in any Preliminary Offering Memorandum or the Final Offering
Memorandum, or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to make
the statements therein not misleading, and shall reimburse each Initial
Purchaser and each such officer, employee and controlling person promptly upon
demand for any legal or other expenses reasonably incurred by that Initial
Purchaser, officer, employee or controlling person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of, or is based upon,
any untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Offering Memorandum or the Final Offering Memorandum, or
in any such amendment or supplement, or in any Blue Sky Application in reliance
upon and in conformity with the written information furnished to the Company by
or on behalf of any Initial Purchaser specifically for inclusion therein; and
provided further that as to any Preliminary Offering Memorandum this indemnity
agreement shall not inure to the benefit of any Initial Purchaser, its officers
or employees or any person controlling such Initial Purchaser on account of any
loss, claim, damage, liability or action arising from the sale of the Notes to
any person by such Initial Purchaser if such Initial Purchaser failed to send or
give a copy of the Final Offering Memorandum, as the same may be amended or
supplemented, to that person within the time required by the Securities Act, and
the untrue statement or alleged untrue statement of any material fact or
omission or alleged omission to
<PAGE> 22
22
state a material fact in such Preliminary Offering Memorandum was corrected in
the Final Offering Memorandum, unless such failure resulted from non-compliance
by the Company with Section . The foregoing indemnity agreement is in addition
to any liability which the Company may otherwise have to any Initial Purchaser
or to any officer, employee or controlling person of that Initial Purchaser.
(b) Each Initial Purchaser, severally and not jointly, shall
indemnify and hold harmless the Company, its officers and employees, each of its
directors (including any person who, with his or her consent is named in the
Final Offering Memorandum as about to become a director of the Company) and each
person, if any, who controls the Company within the meaning of the Securities
Act, from and against any loss, claim, damage or liability, joint or several, or
any action in respect thereof, to which the Company or any such director,
officer or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Offering Memorandum or the Final
Offering Memorandum, or in any amendment or supplement thereto, or (B) in any
Blue Sky Application or (ii) the omission or alleged omission to state in any
Preliminary Offering Memorandum or the Final Offering Memorandum, or in any
amendment or supplement thereto, or in any Blue Sky Application any material
fact required to be stated therein or necessary to make the statements therein
not misleading, but in each case only to the extent that the untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with the written information furnished to the Company by
or on behalf of that Initial Purchaser specifically for inclusion therein, and
shall reimburse the Company and any such director, officer or controlling person
for any legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred. The foregoing indemnity agreement is in
addition to any liability which any Initial Purchaser may otherwise have to the
Company or any such director, officer or controlling person.
(c) Promptly after receipt by an indemnified party under this
Section of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which
<PAGE> 23
23
it may have to an indemnified party otherwise than under this Section 8. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Initial Purchasers shall have the right to employ counsel to represent
jointly the Initial Purchasers and their respective officers, employees and
controlling persons who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the Initial Purchasers against the
Company under this Section 8 if, in the reasonable judgment of the Initial
Purchasers, it is advisable for the Initial Purchasers, officers, employees and
controlling persons to be jointly represented by separate counsel, and in that
event the fees and expenses of such separate counsel shall be paid by the
Company, it being understood however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (other than the reasonable fees and
expenses of local counsel retained in connection with such action or actions) at
any one time for all such indemnified parties. Each indemnified party, as a
condition of the indemnity agreements contained in Section 8, shall use its best
efforts to cooperate with the indemnifying party in the defense of any such
action or claim. No indemnifying party shall (i) without the prior written
consent of the indemnified parties (which consent shall not be unreasonably
withheld), settle or compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
appropriate release of each indemnified party from all liability arising out of
such claim, action, suit or proceeding, which release shall be in form and
substance satisfactory to each indemnified party, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment of the plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless any indemnified party
from and against any loss of liability by reason of such settlement or judgment.
<PAGE> 24
24
(d) If the indemnification provided for in this Section 8
shall for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a) or 8(b) in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and the Initial Purchasers on the other
from the offering of the Notes or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the Initial
Purchasers on the other with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect thereof,
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Initial Purchasers on the other
with respect to such offering shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Notes purchased under this
Agreement (before deducting expenses) received by the Company, on the one hand,
and the total discounts and commissions received by the Initial Purchasers with
respect to the Notes purchased under this Agreement, on the other hand, bear to
the total gross proceeds from the offering of the Notes under this Agreement, in
each case as set forth in the table on the cover page of the Final Offering
Memorandum. The relative fault shall be determined by reference to whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Initial Purchasers, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Initial Purchasers agree that it
would not be just and equitable if contributions pursuant to this Section 8(d)
were to be determined by pro rata allocation (even if the Initial Purchasers
were treated as one entity for such purpose) or by any other method of
allocation which does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party as a
result of the loss, claim, damage or liability, or action in respect thereof,
referred to above in this Section 8(d) shall be deemed to include, for purposes
of this Section 8(d), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 8(d), no Initial
Purchaser shall be required to contribute any amount in excess of the amount by
which the total price at which the Notes sold and distributed by it was offered
to purchasers exceeds the amount of any damages which such Initial Purchaser has
otherwise paid or become liable to pay by reason of any untrue or alleged untrue
<PAGE> 25
25
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Initial Purchasers' obligations to contribute
as provided in this Section 8(d) are several in proportion to their respective
obligations and not joint.
(e) The Initial Purchasers severally confirm that the
statements with respect to the offering of the Notes set forth on the cover page
of, and under the caption "Plan of Distribution" in, the Final Offering
Memorandum are correct and constitute the only information furnished in writing
to the Company by or on behalf of the Initial Purchasers specifically for
inclusion in the Final Offering Memorandum.
Section 9. Termination.
(a) The obligations of the Initial Purchasers hereunder may be
terminated by them by notice given to and received by the Company prior to
delivery of and payment for the Notes if, prior to that time, any of the events
described in Sections 7(n), 7(o) or 7(p) shall have occurred or if the Initial
Purchasers shall decline to purchase the Notes for any reason permitted under
this Agreement.
(b) If the Company shall fail to tender the Notes for delivery
to the Initial Purchasers for any reason permitted under this Agreement or the
Initial Purchasers shall decline to purchase the Notes for any reason permitted
under this Agreement (other than pursuant to Section 7(p)), the Company shall
reimburse the Initial Purchasers for the reasonable fees and expenses of their
counsel and for such other out-of-pocket expenses as shall have been incurred by
them in connection with this Agreement and the proposed purchase of the Notes,
and upon demand the Company shall pay the full amount thereof to the Initial
Purchasers.
Section 10. Notices. All statements, requests,
notices and agreements hereunder shall be in writing, and:
(a) if to the Initial Purchasers, shall be
delivered or sent by mail, telex or facsimile
transmission to them c/o Lehman Brothers Inc., Three
World Financial Center, New York, New York 10285,
Attention: Syndicate Registration Department;
(b) if to the Company, shall be delivered or sent
by mail, telex or facsimile transmission to the address
of the Company set forth in the Final Offering
Memorandum, Attention: W. Earl Stogner, Executive Vice
President and Chief Financial Officer (Fax: (717) 326-
0422), with a copy to Latham & Watkins, 885 Third
<PAGE> 26
26
Avenue, New York, New York 10022, Attention: Kirk A.
Davenport II.
provided, however, that any notice to an Initial Purchaser pursuant to Section
8(c) shall be delivered or sent by mail, telex or facsimile transmission to such
Initial Purchaser at, if to Lehman Brothers Inc., Three World Financial Center,
New York, New York 10285, Attention: Syndicate Registration Department; and if
to First Union Capital Markets Corp., 301 South College Street, TW-10,
Charlotte, NC 28288-0604, Attention: High Yield Origination. Any such
statements, requests, notices or agreements shall take effect at the time of
receipt thereof. The Company shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Initial Purchasers
by Lehman Brothers Inc.
Section 11. Persons Entitled to Benefit of Agreement. This
Agreement shall inure to the benefit of and be binding upon the Initial
Purchasers, the Company and their respective successors. This Agreement and the
terms and provisions hereof are for the sole benefit of only those persons,
except that (a) the representations, warranties, indemnities and agreements of
the Company contained in this Agreement shall also be deemed to be for the
benefit of any affiliates of the Initial Purchaser participating in an offering
made pursuant to Regulation S and the person or persons, if any, who control any
Initial Purchaser within the meaning of Section 15 of the Securities Act and
each director, officer, employee or agent of the Initial Purchasers and (b) the
indemnity agreement of the Initial Purchasers contained in Section 8(b) of this
Agreement shall be deemed to be for the benefit of directors of the Company,
officers of the Company and any person controlling the Company within the
meaning of Section 15 of the Securities Act. Nothing in this Agreement is
intended or shall be construed to give any person, other than the persons
referred to in this Section 11, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
Section 12. Survival. The respective indemnities,
representations, warranties and agreements of the Company and the Initial
Purchasers contained in this Agreement or made by or on behalf on them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Notes and shall remain in full force and effect, regardless of
any investigation made by or on behalf of any of them or any person controlling
any of them.
Section 13. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of New York without regard to the principles of conflicts
of laws thereof.
Section 14. Amendments. No amendment or waiver of any
provision of this Agreement, nor any consent or approval to any
<PAGE> 27
27
departure therefrom, shall in any event be effective unless the same shall be in
writing and signed by the parties hereto.
Section 15. Submission To Jurisdiction. The Company
hereby irrevocably and unconditionally:
(a) submits itself and its property in any legal action or
proceeding relating to this Agreement, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive jurisdiction of the courts of
the State of New York and the courts of the United States of America for the
Southern District of New York, and appellate courts thereof, and consents and
agrees to such action or proceeding being brought in such courts as you may
elect;
(b) 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 to notify the Initial Purchasers promptly by
registered or certified mail if any such agent in the city of New York shall
cease to act as agent, and, in such event, promptly to designate another agent
in the City of New York to receive service in place of such agent and deliver to
the Initial Purchasers written evidence of such substitute agent's acceptance of
such designation;
(d) agrees as an alternate means of service to service of
process in any such legal action or proceeding by mailing of copies thereof (by
registered or certified mail, if practicable) postage prepaid, or by telex, to
the then active agent or the Company at the address of the Company as set forth
in Section 9 or at such other address of which you shall have been notified
pursuant thereto, and agrees that failure to receive such copy or notice shall
not affect or impair the validity of such service or of any judgment rendered in
any action or proceeding based thereon except to the extent that the Company has
been materially prejudiced by such failure; and
(e) agrees that nothing herein shall affect your right to
effect service of process in any other manner permitted by law, and that you
shall have the right to bring any legal proceedings (including a proceeding for
enforcement of a judgment entered by any of the aforementioned courts) against
the Company in such courts or in any other court or jurisdiction in accordance
with applicable law.
Section 16. Definition of Terms. For purposes of this
Agreement, (a) "business day" means any day on which the New York
Stock Exchange, Inc. is open for trading, and (b) "subsidiary"
has the meaning set forth in Rule 405 under the Securities Act.
<PAGE> 28
Section 17. Counterparts. This Agreement may be executed in
one or more counterparts and, if executed in more than one counterpart, the
executed counterparts shall each be deemed to be an original but all such
counterparts shall together constitute one and the same instrument.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument will become a binding agreement among the Company and
you in accordance with its terms.
Very truly yours,
SHOP VAC CORPORATION
By: /s/ W. Earl Stogner
------------------------------------
Name: W. Earl Stogner
Title: Executive Vice President and
Chief Financial Officer
Confirmed and accepted as of
the date first above
written:
LEHMAN BROTHERS INC.
By: /s/ Charles B. Walker
______________________________
Name:Charles B. Walker
Title: Senior Vice President
FIRST UNION CAPITAL MARKETS CORP.
By: /s/ R. Owen Williams
______________________________
Name:R. Owen Williams
Title: Managing Director
<PAGE> 29
Schedule 1
<TABLE>
<CAPTION>
Principal Amount
of Notes to
Initial Purchasers Be Purchased
- ------------------ ------------
<S> <C>
Lehman Brothers Inc. $ 70,000,000
First Union Capital Markets Corp. $ 30,000,000
------------
$100,000,000
============
</TABLE>
<PAGE> 1
EXHIBIT 10.4
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT is made on the 21st day of July, 1987
between Shop-Vac Corporation (hereafter "Shop-Vac"), a New Jersey corporation,
Martin Miller, as Trustee, Jonathan Miller, individually and as Trustee, and
Matthew Miller, individually and as Trustee (hereafter "Shareholders").
WHEREAS, Jonathan Miller and Matthew Miller are the owners of issued
and outstanding stock of Shop-Vac; and
WHEREAS, Martin Miller is the Trustee of a Trust created by his late
wife which holds issued and outstanding stock of Shop-Vac; and
WHEREAS, the nature and extent of the Shareholders' interests are set
out in Appendix "A"; and
WHEREAS, Jonathan Miller and Matthew Miller desire to retain
proportionate ownership interests in Shop-Vac for themselves and their issue;
and
WHEREAS, the Shareholders are officers and employees of Shop-Vac; and
WHEREAS, the Shareholders and Shop-Vac desire to ensure stability and
continuity in the management and control of Shop-Vac; and
WHEREAS, the parties desire to arrange the future ownership interests
of Shop-Vac so as to reward other officers and employees and to otherwise
advance the interests of Shop-Vac; and
WHEREAS, the parties believe that certain provisions concerning stock
redemption, restriction of stock transfer, and unanimous approval for certain
extraordinary events are in the best interests of Shop-Vac;
NOW, THEREFORE, it is agreed, for good and valuable consideration, as
follows:
1. DEFINITIONS
1.1 Shop-Vac. The term "Shop-Vac" shall refer to the Shop-Vac Corporation, a New
Jersey corporation, with principal offices at 2323 Reach Road, Williamsport,
Pennsylvania, and shall include any and all successors to all or substantially
all of the assets and business of the Shop-Vac Corporation.
1.2. Shareholders. The term "Shareholders" shall refer to Martin Miller, as
Trustee of certain trusts set out in Appendix "A", to Jonathan Miller,
individually and as Trustee of certain Trusts
-1-
<PAGE> 2
set out in Appendix and to Matthew Miller, individually and as Trustee of
certain Trusts set out in Appendix .
1.3 Parties. The term "parties" shall mean all of the parties to this Agreement.
Those parties include Shop-Vac and the Shareholders.
1.4 Successor Shareholders. The term "Successor Shareholders" shall refer to
those individuals, trustees, or other entities that hereafter acquire any
ownership interest in the stock of Shop-Vac as a result of a transfer of said
stock from the Shareholders or from other Successor Shareholders.
1.5 Transfer. The term "transfer" shall refer to the complete or partial
transfer or encumbrance of any ownership interest in the shares of stock of
Shop-Vac as a result of:
A. A contractual agreement;
B. A testamentary bequest;
C. An inter vivos gift;
D. A trust distribution; or
E. The operation of law including but not limited to the
law of intestacy.
Provided, however, that the term "transfer" shall not include any transaction in
which Martin Miller, Jonathan Miller, Matthew Miller, and Shop-Vac together
execute a Voting Trust Agreement.
1.6 Martin Miller. The term "Martin Miller" shall refer to Martin Miller acting
in his individual capacity.
1.7 Jonathan Miller. The term "Jonathan Miller" shall refer to Jonathan Miller
acting in his individual capacity.
1.8 Matthew Miller. The term "Matthew Miller" shall refer to Matthew Miller
acting in his individual capacity.
1.9 Disability or Incapacity. The terms "disability or incapacity" shall refer
solely to mental disability or incapacity and shall require a finding and
determination that a Shareholder is non compos mentis by the Order of a court of
competent jurisdiction which makes reference to this Agreement.
2. CREATION AND TERMINATION
2.1 Creation. The effective date of this Agreement is July 21, 1987.
2.2 Termination. The termination date of this Agreement shall be the earliest
of:
A. The cessation, liquidation, or dissolution of Shop-Vac; or
-2-
<PAGE> 3
B. The effective date of a written agreement providing for such
termination and executed by Shop-Vac and all living
Shareholders and Successor Shareholders.
3. REDEMPTION
3.1 Death of Shareholder.
A. Upon the death of a Shareholder, the issue of said Shareholder shall
have an option to purchase, from the Shareholder's estate or representative, in
equal amounts, any or all of the shares of Shop-Vac held by the Shareholder
immediately prior to his death. If the issue do not elect to purchase the entire
number of said shares, then the surviving brother of said Shareholder, if any,
shall have an option to purchase, from the Shareholder's estate or
representative, any of the shares not already purchased by the issue, held by
the Shareholder immediately prior to his death. If the surviving brother does
not elect to purchase the remaining number of said shares, then Shop-Vac shall
have an option to purchase, from the Shareholder's estate or representative, any
of the shares not already purchased by the deceased Shareholder's issue or
surviving brother, held by the Shareholder immediately prior to his death. If
Shop-Vac does not elect to purchase the remaining number of said shares, then
the issue of said surviving brother shall have an option to purchase, from the
Shareholder's estate or representative, in equal amounts, any of the shares not
already purchased, held by the Shareholder immediately prior to his death.
B. Any purchase made pursuant to an option created under Section 3.1(A)
shall be at a price computed under Section 6 and with terms of payment as
established by Section 7.
C. Any purchase made pursuant to an option created under Section 3.1(A)
shall be made no later than one (1) year from the date of death of the
Shareholder.
D. Notwithstanding the purchase option granted by Section 3.1(A) to
Shop-Vac for the purchase of its own stock, the estate or representative of the
Shareholder shall not be required to sell or transfer to Shop-Vac any amount of
shares in excess of the maximum required by Internal Revenue Code Section 303,
as amended, or a lesser amount, if necessary, to preserve the installment
payment benefits provided under Internal Revenue Code Section 6166, as amended.
3.2 Death of a Successor Shareholder. Upon the death of a Successor Shareholder,
Shop-Vac shall have an option to purchase, from the Successor Shareholder's
estate or representative, any or all of the shares of Shop-Vac held by the
Shareholder immediately prior to his death. Any purchase made pursuant to this
Section shall be made no later than one (1) year from the date of death
-3-
<PAGE> 4
of the successor Shareholder, shall be at a price computed under Section 6, and
shall be with terms of payment as established by Section 7.
3.3 Exception. The provisions of Section 3.1 shall not apply
on:
A. The death of Jonathan Miller or Matthew Miller, when
B. The death causes the outright transfer of Shop-Vac stock to
any or all of the issue of Jonathan Miller or Matthew Miller;
or
C. The death of the Shareholder causes the transfer of Shop-Vac
stock to a trust provided that said trust designates any or
all of the issue of Jonathan Miller or Matthew Miller as the
immediate income beneficiaries and eventual remainder
beneficiaries; or
D. The death of the Shareholder causes the transfer of Shop-Vac
stock to a trust provided that said trust designates the
spouse of Jonathan Miller or Matthew Miller as the lifetime
income beneficiary, and designates any or all of the issue of
Jonathan Miller or Matthew Miller as the eventual remainder
beneficiaries.
3.4 Employment of Issue of Deceased Shareholder. Upon the death, disability, or
incapacity of Jonathan Miller or Matthew Miller, should any of their issue
desire to be employed by Shop-Vac, then Shop-Vac will, in good faith, use its
best efforts to enter into a reasonable employment arrangement with said issue,
in light of all circumstances then existing, utilizing the optimum talents of
said issue.
3.5 Disability or Incapacity of Shareholder.
A. Upon the disability or incapacity of Jonathan Miller or Matthew
Miller, the parties understand that the ownership rights of said Jonathan Miller
or Matthew Miller, in his shares of common stock of Shop-Vac, may be transferred
by operation of law to a guardian, conservator, or other legal representative.
B. Upon such disability or incapacity, Jonathan Miller and Matthew
Miller hereby direct their guardian, conservator, or other legal representative
to yield and assign the right to vote any shares of Shop-Vac stock, to his
surviving able brother, by executing such proxies, voting trust agreements, or
other documents as the surviving able brother may reasonably require.
3.6 Dividends. If the death, disability, or incapacity of the Shareholder causes
the transfer of Shop-Vac stock pursuant to Sections 3.3 or 3.5, then the parties
agree to employ their best efforts to secure the declaration and distribution,
in the fiscal
-4-
<PAGE> 5
years following the death, disability, or incapacity of the Shareholder, of cash
dividends payable to the holders of Shop-Vac's common stock in an overall amount
that is equal to ten percent (10%) of Shop-Vac's net income after taxes for that
fiscal year. Any declaration and distribution of cash dividends shall be made,
however, only as long as it does not violate the terms of any applicable bank
covenants, other financial agreements executed by Shop-Vac, or relevant
provisions of law.
4. TRANSFER RESTRICTIONS
4.1 Consent Required. The parties agree that a Shareholder or Successor
Shareholder may transfer an interest in Shop-Vac stock if and only if said
Shareholder or Successor Shareholder has received prior written consent to the
transfer from all other Shareholders and Successor Shareholders.
4.2 First Refusal. A. If any Shareholder or Successor Shareholder desires to
transfer shares of Shop-Vac stock but has not received prior written consent to
the transfer pursuant to Section 4.1 within a reasonable period of time, then
said Shareholder or Successor Shareholder shall so notify Shop-Vac and all other
Shareholders and Successor Shareholders in writing. The notice shall set forth
the name of the prospective Successor Shareholder, the number of shares of stock
involved, and the terms of such intended disposition. The notice shall be
accompanied by a written statement, acknowledging the terms and agreeing to
execute a counterpart of this Agreement pursuant to Section 7.5, signed by the
prospective Successor Shareholder.
B. For a period of sixty (60) days after the mailing of such notice,
Shop-Vac shall have the option to purchase all of the stock of the disposing
Shareholder or Successor Shareholder or, at its option, to purchase so much of
the stock as shall have been designated in the notice.
C. If Shop-Vac fails to exercise such option, the other Shareholders and
Successor Shareholders shall have the option to purchase all of the stock of the
disposing Shareholder or Successor Shareholder or, at their option, so much
thereof as shall have been designated in the notice, in amounts proportionate to
their respective holdings, within sixty (60) days after the termination of
Shop-Vac's option to purchase. Any shares not so purchased by one Shareholder or
Successor Shareholder may be purchased by the other Shareholders or Successor
Shareholders in amounts proportionate to their holdings.
D. The purchase price of each share of Shop-Vac stock transferred under
Subsections B or C above shall be computed in accordance with Section 6 and the
terms of payment shall be as stated in Section 7, or as may be otherwise
mutually agreed between the disposing Shareholder or Successor Shareholder and
-5-
<PAGE> 6
the purchaser.
E. Any option that is created for Shop-Vac under this Section may be
exercised by the affirmative vote of a majority of Shop-Vac's Board of
Directors.
F. If neither Shop-Vac nor the other Shareholders or Successor
Shareholders elect to exercise the options granted under this Section , then the
disposing Shareholder or Successor Shareholder shall be free to transfer his
stock in accordance with his notice to Shop-Vac and the Shareholders and
Successor Shareholders. If the disposing Shareholder or Successor Shareholder
shall fail, however, to make such disposition within sixty (60) days following
the expiration of the options provided by this Section , then his shares shall
again become subject to all of the provisions of this Section .
4.3 Exception. The provisions of Sections 4.1 and 4.2 shall not
apply if the disposing Shareholder is Jonathan Miller or Matthew
Miller and:
A. The disposing Shareholder seeks to effect the outright
transfer of Shop-Vac stock to any or all of his issue, or to
effect the transfer of said stock to a trust designating any
or all of his issue as its immediate income beneficiaries and
eventual remainder beneficiaries; or
C. The disposing Shareholder seeks to effect the transfer of
Shop-Vac stock to a trust designating his spouse as its
lifetime income beneficiary and designating any or all of his
issue as the eventual remainder beneficiaries.
4.4 Applicability. The terms of this Agreement shall apply to every share of
Shop-Vac stock, whether said stock is transferred to a Successor Shareholder or
remains in the possession of a Shareholder, for the duration of this Agreement.
4.5 Endorsement. Within ninety (90) days from the effective date of this
Agreement, the Shareholders agree to tender their shares of Shop-Vac stock to
Shop-Vac, and Shop-Vac agrees to reissue said stock, so that the following
endorsement may be placed on each certificate of stock:
"NOTICE is hereby given that the sale, encumbrance, disposition, or other
transfer of the shares of stock represented by this Certificate are subject to a
Shareholders Agreement dated July 21, 1987 and filed with the Secretary of
Shop-Vac Corporation."
The parties also agree that all stock issued after the effective date of this
Agreement shall bear the same endorsement.
-6-
<PAGE> 7
5. EXTRAORDINARY EVENTS
5.1 General. Martin Miller, Jonathan Miller, and Matthew Miller, as
Shareholders, each agree that they will consider or act on the following
extraordinary transactions, in their capacities as an individual, a trustee, an
officer or an employee of Shop-Vac, if and only if they have secured the prior
written consent of their two fellow Shareholders:
A. The sale, lease, mortgage, pledge, or any other transfer or
encumbrance of substantially all of the assets of Shop-Vac;
B. The recapitalization, public trading registration, or other
material alteration to the structure and nature of the capital
stack of Shop-Vac;
C. The consolidation, reorganization, merger, dissolution, or
other material alteration to the corporate structure of
Shop-Vac;
D. The amendment of the Restated Certificate of Incorporation or
By-laws of Shop-Vac; or
E. The amendment of the Restated Employment Agreement dated
January 15, 1987 by and between Martin Miller, Matthew Miller,
Jonathan Miller, and Shop-Vac Corporation.
5.2 Consent of Remaining Shareholder. Upon the death, incapacity, or disability
of one of the Shareholders, the remaining Shareholders may participate in the
extraordinary transactions enumerated in Section 5.1 if and only if they both
consent, in writing, to such transaction.
6. VALUATION
6.1 General. The purchase price for a share of Shop-Vac stock shall be computed
under the terms of this Section.
6.2 Preferred Method. The Shareholders and Successor Shareholders shall attempt,
during the month of April of each year, to execute a Certificate of Value in
substantially the same form as that set forth in Appendix "B". The value to be
used in such Certificate shall be the amount determined by all of the
Shareholders and Successor Shareholders to be the then fair market value of each
share of stock. If a Certificate of Value has been executed within one (1) year
of the event giving rise to purchase hereunder, then the value found therein
shall be the purchase price for a share of Shop-Vac stock.
6.3 Alternate Method. If all of the Shareholders and Successor Shareholders are
unable to execute a Certificate of Value during
-7-
<PAGE> 8
the month of April of any year, then Shop-Vac shall commission a written report
by an independent appraising company that determines the current value of each
share of stock based on the most recent financial results, business prospects,
and other relevant information. If the Shareholders and Successor Shareholders
are unable to unanimously select an independent appraising company to prepare
such a report by the last day of July of each year, then Shop-Vac shall
commission Management Planning, Inc., 190 Nassau Street, Princeton, New Jersey
08540 to prepare the report which shall be issued within ninety (90) days, and
thereupon distributed to all Shareholders and Successor Shareholders. If an
appraisal report has been prepared and distributed to all Shareholders and
Successor Shareholders within one (1) year of the event giving rise to purchase
hereunder, then the value found therein shall be the purchase price for a share
of Shop-Vac stock.
7. METHOD OF PAYMENT
7.1 General. The method of payment for a purchase of Shop-Vac stock required by
this Agreement shall be arranged under the terms of this Section.
7.2 Principal Amount. The principal amount of the payment to be made to the
disposing shareholder or his representative by Shop-Vac, the Shareholders, or
the Successor Shareholders, shall be equal to the purchase price for a share of
Shop-Vac stock under Section 6 multiplied by the number of shares subject to
transfer.
7.3 Promissory Note. The principal amount shall be evidenced by an installment
promissory note made by the purchaser. The terms of the note shall be as
follows:
A. The note shall require one hundred twenty (120) equal monthly
installment payments.
B. The first payment shall be made within one hundred twenty
(120) days after the occurrence of the event which required
the purchase of the shares.
C. The note shall provide for the payment of simple interest on
the unpaid principal balance at the greater rate of (i) ten
percent [10%] per year or (ii) the Applicable Federal Rate in
effect under Internal Revenue Code Section 1274 on the date of
the event which required the purchase of the shares.
D. The note shall also authorize confession of judgment upon
default, and shall permit the prepayment or anticipation of
payments, from time to time, without penalty, and the holder
of the note shall have the right to require acceleration of
payment in amounts
-8-
<PAGE> 9
sufficient to pay any estate tax, in installments as may be
required under Internal Revenue Code Section 6166,
attributable to inclusion of the Shop-Vac stock in the gross
estate of the disposing Shareholder or Successor Shareholder.
7.4 Exchange. At the time of the first payment, the disposing Shareholder,
Successor Shareholder, or his representative shall endorse the shares of
Shop-Vac to the purchaser and deliver the shares of Shop-Vac stock, free and
clear of all liens and encumbrances, but subject to the terms and restrictions
of this Agreement, to the Secretary of the Corporation to be held in escrow as
security pending final payment as required hereunder, and the purchaser shall
make the first payment and deliver the promissory note to the seller. If the
purchaser is not in default on the terms of payment, then the purchaser shall
have the right to dividends, if any, and the right to vote the shares of stock.
If the purchaser is in default, then the disposing Shareholder, Successor
Shareholder, or his representative shall reacquire the right to vote the stock
and the right to receive dividends. The Secretary of the Corporation shall, as
Escrow Agent, deliver the shares to the purchaser at the time the final payment
is made hereunder.
7.5 Execution of Counterpart. At the time of the first payment, the purchaser
shall execute a counterpart of this Agreement.
8. INSURANCE
8.1 General. Shop-Vac may apply for life insurance and disability insurance, in
which the named insured is a Shareholder or Successor Shareholder and the
beneficiary is Shop-Vac, whenever such insurance may, in Shop-Vac's opinion, be
an appropriate method for funding its purchase obligations under this Agreement.
8.2 Ownership. Shop-Vac shall pay all premiums on such insurance policies and
shall be the sole owner of such policies.
8.3 Cooperation. The parties agree that they shall employ their best efforts to
cooperate in the issuance of any such insurance policies.
9. GENERAL
9.1 Law. This Agreement shall be governed by the laws of the State of New
Jersey.
9.2 Enforcement. The parties to this Agreement or a Successor Shareholder may
seek to enforce or construe its terms in, and only in, a court of competent
jurisdiction of the State of New Jersey. The parties agree that the court may
issue ex parte
-9-
<PAGE> 10
temporary injunctive relief to preserve the status quo and prevent irreparable
injury pending the determination of any dispute under this Agreement.
9.3 Prior Agreements. Any prior agreement, including but not limited to the one
executed by certain parties hereto on November 13, 1984, concerning the subject
matter of this Agreement, are hereby rescinded and superseded by this Agreement.
9.4 Successors. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, legal representatives, executors,
administrators, successors, and assigns.
9.5 Notices. The Shareholders and Successor Shareholders shall be deemed to
receive notice of any material which is sent to them by registered mail at the
address last appearing on Shop-Vac's stock transfer records. Shop-Vac shall be
deemed to receive notice of any material which is sent to it by registered mail
at its principal place of business in Williamsport, Pennsylvania.
9.6 Counterparts. This Agreement may be executed in any number of counterparts.
Each of these counterparts shall be taken to be an original.
9.7 Waiver. No waiver of any provision of this Agreement shall be valid unless
it is in writing and is signed by the party against whom charged.
9.8 Amendment. The provisions of this Agreement may only be modified by a signed
written agreement that is executed by all of the competent and living parties
hereto and by all Successor Shareholders.
IN WITNESS WHEREOF, the parties have signed this Agreement.
[SEAL] SHOP-VAC CORPORATION
By: /s/ William C. Reynolds
-------------------------------
Executive Vice President
ATTEST:
/s/ Ruth A. Holt /s/ Martin Miller
- --------------------------------- -------------------------------
Assistant Secretary Martin Miller
/s/ Jonathan Miller
-------------------------------
Jonathan Miller
-10-
<PAGE> 11
/s/ Matthew Miller
------------------------------
Matthew Miller
-11-
<PAGE> 12
COMMONWEALTH OF PENNSYLVANIA :
COUNTY OF LYCOMING : SS.:
:
Be it remembered that on the 21 day of July, 1987, before me, the
subscriber, a notary public, personally appeared RUTH A. HOLT to me known, who
being by me duly sworn, on her oath does depose and make proof to my
satisfaction that she is the Assistant Secretary of and well knows the seal of
Shop-Vac Corporation; that the seal affixed to the above Shareholders Agreement
is the seal of said Corporation and is affixed thereto by authority of its Board
of Directors; that William C. Reynolds was at the time of the execution thereof
the Executive Vice President of said Corporation; that she saw the said William
C. Reynolds affix said seal thereto, sign and deliver said Agreement and hear
him declare that he signed, sealed, and delivered the same as the voluntary act
of said Corporation, by virtue of said authority; and that this deponent signed
her name thereto, at the same time, as a subscribing witness.
/s/ Ruth A. Holt
--------------------------------------
Assistant Secretary
Subscribed and sworn to
before me on the 21 day
of July, 1987.
/s/ Gail P. Burnhart
- --------------------------------------
Notary Public
Gail p. Burnhart, Notary Public
Williamsport Lycoming County
My Commission Expires Dec. 5, 1989
Member Pennsylvania Association of Notaries
-12-
<PAGE> 13
STATE OF NEW YORK :
: SS.:
COUNTY OF NEW YORK:
Be it remembered that on this 20th day of July, 1987, before me, the
subscriber, an attorney-at-law of the State of New Jersey, personally appeared
Martin Miller, who, I am satisfied, is the person named in and who executed the
foregoing Shareholders Agreement; and he acknowledged that he signed, sealed,
and delivered the same as his act and deed.
/s/ Robert N. , Jr.
--------------------------------------
Attorney-at-Law of
the State of New Jersey
STATE OF NEW YORK :
: SS.:
COUNTY OF NEW YORK :
Be it remembered that on this 20th day of July, 1987, before me, the
subscriber, an attorney-at law of the State of New Jersey, personally appeared
Jonathan Miller, who, I am satisfied, is the person named in and who executed
the foregoing Shareholders Agreement; and he acknowledged that he signed,
sealed, and delivered the same as his act and deed.
/s/ Robert N. , Jr.
--------------------------------------
Attorney-at-Law of
the State of New Jersey
COUNTRY OF ENGLAND :
: SS.:
COUNTY OF _____________ :
Be it remembered that on this fifth day of August, 1987, before me, the
subscriber, a representative of the government of the United States, personally
appeared Matthew Miller, who, I am satisfied, is the person named in and who
executed the foregoing Shareholders Agreement; and he acknowledged that he
signed, sealed, and delivered the same as his act and deed.
/s/ J. Taylor Blanton
-------------------------------
(Name) (Title)
J. Taylor Blanton
Council of
the United States of America
London, England
-13-
<PAGE> 14
APPENDIX A
Allocation of Issued and Outstanding Stock
of Shop-Vac Corporation
<TABLE>
<CAPTION>
Shareholder # of Shares Type of Shares
- ----------- ----------- --------------
<S> <C> <C>
Martin Miller, as Trustee
of Florence Miller Inter
Vivos Trust 3941 Common Stock
Jonathan Miller 850 Common Stock
Matthew Miller 850 Common Stock
Jonathan Miller & Matthew
Miller, as Trustees of
Grantor Income Trust 444 Common Stock
Jonathan Miller, as
Trustee of Jonathan Miller
Children's Trust 207.5 Common Stock
Matthew Miller, as
Trustee of Matthew Miller
Children's Trust 207.5 Common Stock
</TABLE>
-14-
<PAGE> 15
APPENDIX B
Certificate of Value
WE, the undersigned, do hereby certify that the value of each share of the
common stock of Shop-Vac Corporation as of the day of April, 19 , is
$______________ per share.
--------------------------------
Shareholder
--------------------------------
Shareholder
--------------------------------
Shareholder
(SEAL) SHOP-VAC CORPORATION
By:
--------------------------------
(Title)
ATTEST:
- -------------------------
Assistant Secretary
-15-
<PAGE> 16
AMENDMENT TO SHAREHOLDERS AGREEMENT
This AMENDMENT TO SHAREHOLDERS AGREEMENT is made on the 1st day of
August, 1991 between Shop-Vac Corporation (hereinafter "Shop-Vac"), a New Jersey
corporation, Martin Miller, Individually, Jonathan Miller, Individually, as
Trustee and as Custodian, and Matthew Miller, Individually, as Trustee and as
Custodian.
WHEREAS, Jonathan Miller and Matthew Miller are the owners of issued
and outstanding stock of Shop-Vac;
WHEREAS, Martin Miller was formerly Trustee of a Trust created by his
late wife which holds issued and outstanding stock of Shop-Vac, but, with his
resignation as Trustee of such Trust, no longer holds, either individually or in
a fiduciary capacity, a legal or beneficial interest in Shop-Vac;
WHEREAS, the parties hereto were the signatories to an original
Shareholders Agreement dated July 21, 1987 (hereinafter "Original Shareholders
Agreement");
WHEREAS, since the execution of the Original Shareholders Agreement,
the stock ownership of Shop-Vac Corporation has substantially changed, with the
result being that the current stock ownership is now as indicated in Appendix A
attached hereto; and
WHEREAS, the parties to this Agreement pursuant to Article 9, Section 8
amend the Original Shareholders Agreement by unanimous signed written agreement.
NOW, THEREFORE, it is agreed for good and valuable consideration, as
follows:
1. Article 1, Section 2 of the Original Shareholders Agreement is hereby deleted
and in lieu of the stricken language, it shall read:
1.2 Shareholders. The term "Shareholders" shall refer to Jonathan Miller,
Individually, as Trustee of certain Trusts, and as Custodian as set out in
Appendix A hereto, and to Matthew Miller, Individually, as Trustee of
certain Trusts, and as Custodian as set out in Appendix A hereto.
2. Article 1, Section 8 of the Original Shareholders Agreement is hereby
deleted.
<PAGE> 17
3. The language contained in Article 5 of the Original Shareholders Agreement is
hereby deleted and in lieu of the stricken language, it shall read:
5. Extraordinary Events
5.1 General. Jonathan Miller and Matthew Miller, as Shareholders, each
agree that they will consider or act on the following extraordinary
transactions, in their capacities as an individual, a trustee, a custodian, an
officer or an employee of Shop-Vac, if and only if they have secured the prior
written consent of their fellow Shareholder:
A. The sale, lease, mortgage, pledge or any other transfer or
encumbrance of substantially all of the assets of Shop-Vac;
B. The recapitalization, public trading registration or other material
alteration to the structure and nature of the capital stock of
Shop-Vac;
C. The consolidation, reorganization, merger, dissolution or other
material alteration to the corporate structure of Shop-Vac;
D. The amendment of the Restated Certificate of Incorporation or
By-Laws of Shop-Vac; or
E. The amendment of the Restated Employment Agreements dated January
15, 1987, by and between Martin Miller, Matthew Miller, Jonathan
Miller and Shop-Vac Corporation.
4. In all other events, the terms of the Original Shareholders Agreement
remain in effect and legally binding upon the signatories.
<PAGE> 18
IN WITNESS WHEREOF, the parties have signed this Agreement.
[SEAL] SHOP-VAC CORPORATION
By: /s/ Unreadable
---------------------------------
President
ATTEST:
/s/ Unreadable /s/ Martin Miller
- ------------------------------- ---------------------------------
Unreadable Martin Miller, Individually
/s/ Jonathon Miller
---------------------------------
Jonathan Miller, Individually,
as Trustee, and Custodian
/s/ Matthew Miller
---------------------------------
Matthew Miller, Individually,
as Trustee, and as Custodian
/s/ Unreadable
Unreadable Text
<PAGE> 19
APPENDIX A
ALLOCATION OF ISSUED AND OUTSTANDING
------------------------------------
STOCK OF SHOP-VAC CORPORATION
-----------------------------
<TABLE>
<S> <C>
Total Shares Issued and Outstanding: 6,500
Treasury Shares: 375.2
Holders of Record No. of Shares
- ----------------- -------------
Jonathan Miller 2053
Jonathan Miller, as
UGMA Custodian for 767.5
his minor children
Jonathan Miller, as
Trustee of the Jonathan 207.5
Miller Children's Trust
Matthew Miller 2053
Matthew Miller, as
UGMA Custodian for 767.5
his minor children
Matthew Miller, as
Trustee of the Matthew 207.5
Miller Children's Trust
Jonathan Miller and
Matthew Miller as Trustees 444
of Residuary Trust under
Will of Florence Miller
-------------
TOTAL 6500
</TABLE>
<PAGE> 20
CONSENT TO TRANSFER
The undersigned shareholders of Shop Vac Corporation, in accordance
with Section 4.1 of the Shareholders Agreement dated July 21, 1987, between Shop
Vac Corporation and Martin Miller, as Trustee, Jonathan Miller, individually and
as Trustee, and Matthew Miller, individually and as Trustee, as amended by
Agreement dated August 1, 1991, hereby consent to the transfer of shares of Shop
Vac Corporation stock by any of the undersigned to either the Jonathan Miller
Family Limited Partnership or the Matthew Miller Family Limited Partnership,
this consent effective as of November 18, 1993.
Witness:
/s/ unreadable /s/ Jonathon Miller
- -------------------------------- -----------------------------------------
Jonathan Miller
/s/ unreadable /s/ Charles M. Miller
- -------------------------------- -----------------------------------------
Charles M. Miller
/s/ unreadable /s/ Matthew Miller
- -------------------------------- -----------------------------------------
Matthew Miller, as Custodian
f/b/o Felice A. Miller
/s/ unreadable /s/ Matthew Miller
- -------------------------------- -----------------------------------------
Matthew Miller, Co-Trustee
of Irrevocable Trust dated
12/6/91 f/b/o Charles M. Miller
/s/ unreadable /s/ Matthew Miller
- -------------------------------- -----------------------------------------
Matthew Miller, Co-Trustee
of Irrevocable Trust dated
12/6/91 f/b/o Felice A. Miller
<PAGE> 21
Attest: FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
/s/ Unreadable By: /s/ Unreadable
- -------------------------------- --------------------------------------
Asst. Secretary (Vice) President
Co-Trustee of Irrevocable Trust
dated 12/6/91 f/b/o Charles M.
Miller
Attest: FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
/s/ Unreadable By: /s/ Unreadable
- -------------------------------- --------------------------------------
Asst. Secretary (Vice) President
Co-Trustee of Irrevocable Trust
dated 12/6/91 f/b/o Felice A.
Miller
Witness:
/s/ Unreadable /s/ Jonathan Miller
- -------------------------------- --------------------------------------
Jonathan Miller, Trustee of
Jonathan Miller 1984 Children's
Trust
/s/ Unreadable /s/ Matthew Miller
- -------------------------------- --------------------------------------
Matthew Miller
/s/ Unreadable /s/ Jonathan Miller
- -------------------------------- --------------------------------------
Jonathan Miller, as Custodian
f/b/o Sarah Miller
/s/ Unreadable /s/ Jonathan Miller
- -------------------------------- --------------------------------------
Jonathan Miller, as Custodian
f/b/o Joshua Miller
<PAGE> 22
/s/ Unreadable /s/ Jonathan Miller
- -------------------------------- --------------------------------------
Jonathan Miller, Co-Trustee
of Irrevocable Trust dated
12/6/91 f/b/o Sarah Miller
/s/ Unreadable /s/ Jonathan Miller
- -------------------------------- --------------------------------------
Jonathan Miller, Co-Trustee
of Irrevocable Trust dated
12/6/91 f/b/o Joshua Miller
/s/ Unreadable /s/ Jonathan Miller
- -------------------------------- --------------------------------------
Jonathan Miller, Co-Trustee
of Irrevocable Trust dated
12/6/91 f/b/o David Miller
Attest: FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
/s/ Unreadable By: /s/ Unreadable
- -------------------------------- --------------------------------------
Asst. Secretary (Vice) President
Co-Trustee of Irrevocable Trust
dated 12/6/91 f/b/o Sarah Miller
Attest: FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
/s/ Unreadable By: /s/ Unreadable
- -------------------------------- --------------------------------------
Asst. Secretary (Vice) President
Co-Trustee of Irrevocable Trust
dated 12/6/91 f/b/o Joshua Miller
<PAGE> 23
Attest: FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
/s/ Unreadable By: /s/ Unreadable
- -------------------------------- --------------------------------------
Asst. Secretary (Vice President)
Co-Trustee of Irrevocable Trust
dated 12/6/91 f/b/o David Miller
Witness:
/s/ Unreadable /s/ Matthew Miller
- -------------------------------- --------------------------------------
Matthew Miller, Trustee of
Matthew Miller 1984 Children's
Trust
<PAGE> 1
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made and entered into this 14th day of
March, 1996, by and between SHOP VAC CORPORATION, a corporation organized
and existing under the laws of the State of New Jersey having its principal
place of business at 2323 Reach Road, Williamsport, Pennsylvania (hereinafter
referred to as "Corporation") and JONATHAN MILLER, an individual residing at 26
Woodhill Road, Tenafly, NJ 07670 (hereinafter referred to as "Executive").
WITNESSETH:
WHEREAS, Executive is now serving as Chairman, President and Chief
Executive Officer of the Corporation; and
WHEREAS, in order to induce the Executive to continue in employment
with the Corporation, the Corporation and the Executive desire to enter into an
Agreement setting the terms of Executive's continued employment by Corporation
and providing for certain payments to be made by Corporation to Executive under
certain specific conditions.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, and intending to be legally bound, the parties hereto do hereby agree as
follows:
1. Status of Employment. During the Term of his employment hereunder,
Executive will continue to perform the duties and responsibilities of Chairman,
President and Chief Executive Officer of the Corporation. Executive agrees that
except when prevented by illness, he will at all times faithfully,
industriously, and to the best of his ability, experience and talents, perform
all of the duties that may be required of and from him by Corporation in the
aforesaid capacity or capacities, pursuant to the express and implicit terms
hereof, and that he will devote all of his working hours and his best efforts to
the performance of his duties hereunder, and that he will not, during his
employment by Corporation, become engaged in any other business activity unless
approved by the Board of Directors of the Corporation. Executive agrees that
during the Term he will maintain a work schedule necessary to carry out the
duties and responsibilities of his position.
<PAGE> 2
2. Term of Employment.
(a) Corporation agrees to employ Executive upon the terms and
conditions of this Employment Agreement, and Executive agrees to so serve, for a
three year term commencing March 1, 1996. The term of this Agreement will
automatically renew each March 1 for an additional three year period unless,
prior to the preceding December 1 within the then current term, either party
shall give written notice of nonrenewal to the other party, in which event this
Agreement shall terminate at the end of the three year period then in effect.
For example, the initial Term of this Agreement is March 1, 1996 through
February 28, 1999. On March 1, 1997, the term of this Agreement extends to
February 29, 2000, unless one of the parties provides written notice of its/his
intent not to renew the Agreement prior to December 1, 1996. The three year
period which is at any point in time then in effect is sometimes hereinafter
referred to as the "Term".
(b) If notice of nonrenewal is given pursuant to (a) of this
Section 2, Executive's employment right hereunder shall automatically terminate
at the close of business on the last day of the then current Term. From and
after the date of this Agreement and prior to the expiration of Executive's
employment hereunder in accordance with the preceding sentence, termination of
Executive's employment may only occur in accordance with paragraphs (c) or (d)
of this Section 2 or in accordance with Section 8 hereof.
(c) Executive shall have the right, at any time, for any
reason during the Term hereof and whether with or without cause, to terminate
his employment hereunder by giving at least thirty (30) days prior written
notice to the Corporation of the effective date of the termination, and as of
such effective date Executive's employment with the Corporation shall cease.
Unless such termination by the Executive is pursuant to Section 8(a) or 8(b)
hereof, in the event of a termination by the Executive pursuant to this Section
2(c), no severance payments or other compensation or fringe benefits are payable
during any period subsequent to the effective date of the termination, except
for base salary and unused vacation days earned by Executive to the date of
termination. If during the Term Executive's employment hereunder is terminated
in accordance with Section 8(a) or Section 8(b) hereof, Executive shall be
entitled to the compensation specified in Section 8 in lieu of the compensation
set forth in this Section 2(c).
(d) Corporation may terminate Executive at any time for good
cause, as determined in good faith by the Board of Directors of the Corporation.
For purposes of this Agreement, good
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<PAGE> 3
cause shall include, but not be limited to, commission of malfeasance in office
constituting dishonesty, conviction of a crime involving moral turpitude or
breach of fiduciary duty owed the Corporation. For purposes of this Agreement,
good cause shall also include the willful failure of the Executive to perform in
accordance with the reasonable directives of the Board of Directors of the
Corporation after at least two (2) written warnings and within ninety (90) days
following the second warning the Executive does not improve his performance to a
level which is satisfactory to the Corporation. In the event of termination
pursuant to this Section 2 (d), Executive shall not be entitled to any pay or
benefits from the Corporation, except as required by law.
3. Compensation.
(a) Base Salary. As reasonable compensation for all services
rendered by Executive to the Corporation as a full-time employee during the Term
of his employment hereunder, Executive shall be entitled to receive from the
Corporation, subject to withholding and other applicable employment taxes and
payroll deductions, an annual base salary equal to Eight Hundred Thousand
Dollars ($800,000); and provided, that, during the Term, Executive's base salary
for any calendar year shall be subject to increase by the Corporation, with the
approval of the Board of Directors of the Corporation, based on merit review,
taking into account Executive's performance, responsibilities and any increase
in the cost of living.
(b) Incentive Compensation. It is the intention of the parties
that, in addition to the base salary as described above, Executive shall have
the opportunity to earn additional compensation on an incentive basis. During
the Term of his employment hereunder, Executive shall be eligible to participate
in incentive compensation plans and performance bonuses on the same basis as
other executives, with achievable incentive compensation and bonus awards
subject to the discretion of the Board of Directors of the Corporation.
4. Benefits. During the Term of Executive's employment
hereunder, the Corporation will provide for Executive the following benefits:
(a) Executive shall be entitled to participate in
Corporation's employee benefit and fringe benefit plans available to other
executives, subject, however, to the terms and conditions of those plans and
further subject to any limitations and/or
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<PAGE> 4
qualification conditions imposed on Corporation's employee benefit plans by the
Internal Revenue Code of 1986, as amended.
(b) Executive shall be entitled to twenty-five (25)
days of vacation during each calendar year period, with the specific dates of
vacation days to be mutually agreed upon in advance with the Chief Executive
Officer of the Corporation. Vacation days unused at the end of a calendar may be
carried over and used in a succeeding calendar year. To the extent any vacation
days are unused at the termination of this Agreement, Executive shall be
compensated therefore at the daily rate of his then base salary.
5. Expense Reimbursement. During the Term of his employment
hereunder, Executive shall be entitled to be reimbursed by the Corporation for
such expenses incurred by Executive in furtherance of the Corporation's
business, including reasonable travel and entertainment expenses, as well as
other similar business expenses, subject to reasonable and appropriate
guidelines to be established from time to time by the Board of Directors of the
Corporation for executives of the Corporation. However, for any expense to be
reimbursable, Executive shall be required to maintain such records and account
to the corporation in such manner as may be required under the provisions of the
Internal Revenue Code and any regulations adopted thereunder.
6. Automobile. Corporation shall provide Executive with an
automobile for Executive to use in his position with the Corporation.
Corporation shall pay all reasonable costs of operation of the automobile which
relate to Executive's use of the automobile in furtherance of his position with
the Corporation. The type and model of automobile to be provided to Executive
shall be a type and model acceptable to Executive and the Corporation. Upon
termination of Executive's employment hereunder, other than by the Corporation
for cause, the Corporation shall cause title to the automobile then being used
by Executive to be transferred to the Executive free and clear of any liens or
encumbrances.
7. Country Club. During Executive's employment hereunder,
Executive shall be provided by the Corporation with annual membership dues to
the Williamsport Country Club and the Marco Polo Club in New York City.
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8. Certain Terminations.
(a) If prior to the expiration of the Term and prior to the
occurrence of a Change in Control, as defined hereafter, the Executive's
employment is terminated (i) by the Corporation without cause or (ii) by
Executive for good reason if, (x) the nature and scope of Executive's duties or
responsibilities with the Corporation are materially reduced from that which he
enjoyed immediately prior thereto, (y) the Corporation's notice of nonrenewal of
this Agreement, or (z) the Corporation should materially breach this Agreement
in any way and fail to correct such breach within 30 days of receipt of a
written notice from Executive specifying the breach and stating that he intends
to terminate his employment hereunder pursuant to this Section 8(a) unless such
breach is cured within 30 days, then Executive shall have no further liability
hereunder and shall receive as liquidated damages, at the election of the
Executive, either:
(i) continuation, for a period of three (3) years following
such termination, (A) of Executive's Cash Compensation, paid in
accordance with the Corporation's normal payroll schedule, and (B) of
life, disability, and accident and health insurance coverages,
reasonably comparable to all available group life, disability and
accident and health insurance coverages in effect for Executive on
the date of termination, offset by any coverages from any subsequent
employment, provided, however, that Executive shall continue to be
responsible for the cost of available insurance coverages following
the termination hereunder to the same extent that he was responsible
for the cost of the insurance coverages prior to such termination;
and provided, further, that Executive shall have no duty to mitigate
his damages hereunder or to seek other employment; or
(ii) (A) a single payment equal to the total Cash
Compensation payable pursuant to (i) (A), above, discounted to
present value calculated at the Applicable Interest Rate (as defined
in paragraph (d) of this Section 8), and (B) continuation, for a
period of three (3) years following such termination, of life,
disability, and accident and health insurance coverages, reasonably
comparable to all available group life, disability and accident and
health insurance coverages in effect for Executive on the date of
termination, offset by any coverage from any subsequent employment,
provided, however, that Executive shall continue to be responsible
for the cost of available insurance coverages following
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<PAGE> 6
such termination to the same extent that he was responsible for the
cost of the insurance coverages prior to such termination; and
provided, further, that Executive shall have no duty to mitigate his
damages hereunder or to seek other employment.
(b) Any of the following events occurring during the Term and
after the date of any Change in Control (as defined in paragraph (d) below)
which occurs during the Term (as defined in Section 2(a) hereof) shall
constitute a "Termination Pursuant to a Change in Control":
(i) Executive's employment is terminated by the Corporation or an
acquiror without cause, or
(ii) One of the following events occurs and Executive thereafter
terminates his employment:
(A) the nature and scope of Executive's duties or
responsibilities with the Corporation or acquiror are
materially reduced from that which he enjoyed immediately
prior to the Change in Control (other than as a result of a
termination for cause); or
(B) Executive's then current base salary is reduced or
material benefits provided in this Agreement (excluding the
reduction or curtailment of benefits which affect all
similarly situated employees), are eliminated; or
(C) Executive is assigned, without his consent, to a
principal place of employment which is more than two hundred
(200) miles from 26 Woodhill Road, Tenafly, New Jersey.
(c) Upon any Termination Pursuant to a Change in Control (as
defined in paragraph (b) above), Executive shall have no further liability
hereunder, and shall be entitled, at the election of the Executive, to either of
the following:
(i) continuation for a period of three (3) years from the date
of the Termination Pursuant to a Change in Control (A) of Executive's
Cash Compensation, paid in accordance with the Corporation's normal
payroll schedule; and (B) of life, disability, and accident and health
insurance coverages, reasonably comparable to all
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<PAGE> 7
available group life, disability and accident and health
insurance coverages in effect for Executive on the date of
termination, offset by any coverage from any subsequent
employment; provided, however, that Executive shall continue to
be responsible for the cost of available insurance coverages
following his termination to the same extent that he was
responsible for the cost of the insurance coverages prior to the
Termination Pursuant to a Change in Control; and provided,
further, that Executive shall have no duty to mitigate his
damages hereunder or to seek other employment; or
(ii) (A) a single payment equal to the total Cash Compensation
payable over the required period of salary continuation
specified in (i) (A) above, discounted to present value
calculated at the Applicable Interest Rate, and (B)
continuation, for the same period as would be required pursuant
to (i) (B) above, of life, disability, and accident and health
insurance coverages, reasonably comparable to all available
group life, disability and accident and health insurance
coverages in effect for Executive on the date of termination,
offset by any coverages from any subsequent employment,
provided, however, that Executive shall continue to be
responsible for the cost of available insurance coverages
following his termination to the same extent that he was
responsible for the cost of the insurance coverages prior to the
Termination Pursuant to a Change in Control; and provided,
further, that Executive shall have no duty to mitigate his
damages hereunder or to seek other employment.
(d) Definitions. As used in this Section:
(i) "Cash Compensation" shall mean Executive's annual base
salary in effect at the time of a termination, plus any bonus or
incentive compensation earned by Executive for the calendar year
immediately preceding the date of the termination.
(ii) "Applicable Interest Rate" shall mean the weekly average
yield on United States Treasury securities adjusted to a
constant maturity of three (3) years, as made available by the
Federal Reserve Board, effective on the date of any termination.
(iii) "Change in Control" shall mean the occurrence of, or
execution of agreements providing for, a merger,
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consolidation, acquisition, reorganization, sale of all or
substantially all of the assets or other similar event, or a
"Significant Stock Acquisition", of the Corporation; provided,
however, that any merger, consolidation, acquisition or
reorganization, or execution of an agreement providing for any
of the foregoing transactions, involving Corporation as a
constituent corporation in the transaction if, upon the
effectiveness of such transaction, Corporation is a surviving
corporation and there has not been, or, in the case of the
execution of an agreement therefore, there is not contemplated
in such agreement, a change in a majority of Corporation's Board
of Directors shall not constitute a "Change in Control" for
purposes of this Section 8. For purposes of this Agreement, a
"Significant Stock Acquisition" of the Corporation shall have
occurred if, at any time during the Term, more than 35% of the
votes attributed to the Corporation's outstanding equity
securities shall be acquired by any corporation, person or group
other than Corporation or another wholly-owned subsidiary of
Corporation. "Group" shall mean persons who act in concert as
described in Section 13(d) (2) of the Securities Exchange Act of
1934, as amended.
(e) Benefits Exclusive. The Executive acknowledges that, in the
event of termination of Executive's employment during the Term of his employment
hereunder pursuant to paragraph (a) or (b) of this Section 8, the payments and
benefits to be made or provided to Executive pursuant to this Section 8 are to
be in full satisfaction of the Corporation's obligations to Executive under this
Employment Agreement and, in such an event, Executive shall not be entitled to
any other payments or benefits, whether pursuant to this Agreement or otherwise,
except as otherwise required by applicable law.
9. Waiver. Failure by either party to insist upon strict compliance
with any of the terms, covenants or conditions hereof shall not be deemed a
waiver of such terms, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any time or from time to time
be deemed a waiver or relinquishment of such right or power at any other time or
times.
10. Notices. All notices required or permitted by this Employment
Agreement shall be in writing and shall be deemed to
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<PAGE> 9
have been given upon delivery in person or upon deposit in certified or
registered United States mail, return receipt requested, postage prepaid, to the
following address of the party to whom notice is being given or to such other
address of which notice shall have been given pursuant to this paragraph:
To Executive: Jonathan Miller
26 Woodhill Road
Tenafly, NJ 07670
To Corporation: Shop Vac Corporation
2323 Reach Road
P.O. Box 3307
Williamsport, PA 17701-0307
11. Binding Effect. All of the terms, provisions and conditions of this
Employment Agreement shall be binding upon, inure to the benefit of, and be
enforceable by the parties hereto and their respective successors and assigns.
12. Governing Law and Severability. This Employment Agreement shall be
construed, interpreted and applied according to the laws of the Commonwealth of
Pennsylvania. All covenants and provisions contained herein, and any part
thereof, are severable, and in the event that any such covenant or provision, or
any part thereof, shall be held to be invalid by a court of competent
jurisdiction, this Employment Agreement shall be interpreted as if such invalid
covenant or provision, or part thereof, was not contained herein.
13. Entire Agreement. This Employment Agreement contains the entire
agreement of the parties hereto with respect to the employment of Executive by
the Corporation and will supersede all prior agreements. This Employment
Agreement may not be modified or amended, in whole or in part, except by an
instrument in writing signed by all of the parties hereto.
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<PAGE> 10
IN WITNESS WHEREOF, the following parties have caused their signatures
and seals to be hereunto affixed to this Employment Agreement as of the day
first above written.
ATTEST: SHOP VAC CORPORATION
/s/ Ruth Holt By: /s/ W. Earl Stogner
- --------------------------------- --------------------------------------
Secretary Executive Vice President and
(SEAL) Chief Financial Officer
WITNESS: EXECUTIVE:
/s/ David A Grill /s/ Jonathan Miller
- --------------------------------- --------------------------------------
Jonathan Miller (SEAL)
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<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made and entered into this 14th day of March,
1996, by and between SHOP VAC CORPORATION, a corporation organized and existing
under the laws of the State of New Jersey having its principal place of business
at 2323 Reach Road, Williamsport, Pennsylvania (hereinafter referred to as
"Corporation") and MATTHEW MILLER, an individual residing at 63 Brampton Grove,
London (hereinafter referred to as "Executive").
WITNESSETH:
WHEREAS, Executive is now serving as Vice Chairman and President of the
European Group of the Corporation; and
WHEREAS, in order to induce the Executive to continue in employment
with the Corporation, the Corporation and the Executive desire to enter into an
Agreement setting the terms of Executive's continued employment by Corporation
and providing for certain payments to be made by Corporation to Executive under
certain specific conditions.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, and intending to be legally bound, the parties hereto do hereby agree as
follows:
1. Status of Employment. During the Term of his employment hereunder,
Executive will continue to perform the duties and responsibilities of Vice
Chairman and President of the European Group of the Corporation. Executive
agrees that except when prevented by illness, he will at all times faithfully,
industriously, and to the best of his ability, experience and talents, perform
all of the duties that may be required of and from him by Corporation in the
aforesaid capacity or capacities, pursuant to the express and implicit terms
hereof, and that he will devote all of his working hours and his best efforts to
the performance of his duties hereunder, and that he will not, during his
employment by Corporation, become engaged in any other business activity unless
approved by the Board of Directors of the Corporation. Executive agrees that
during the Term he will maintain a work schedule necessary to carry out the
duties and responsibilities of his position.
<PAGE> 2
2. Term of Employment.
(a) Corporation agrees to employ Executive upon the terms
and conditions of this Employment Agreement, and Executive agrees to so serve,
for a three year term commencing March 1, 1996. The term of this Agreement will
automatically renew each March 1 for an additional three year period unless,
prior to the preceding December 1 within the then current term, either party
shall give written notice of nonrenewal to the other party, in which event this
Agreement shall terminate at the end of the three year period then in effect.
For example, the initial Term of this Agreement is March 1, 1996 through
February 28, 1999. On March 1, 1997, the term of this Agreement extends to
February 29, 2000, unless one of the parties provides written notice of its/his
intent not to renew the Agreement prior to December 1, 1996. The three year
period which is at any point in time then in effect is sometimes hereinafter
referred to as the "Term".
(b) If notice of nonrenewal is given pursuant to (a) of this
Section 2, Executive's employment right hereunder shall automatically terminate
at the close of business on the last day of the then current Term. From and
after the date of this Agreement and prior to the expiration of Executive's
employment hereunder in accordance with the preceding sentence, termination of
Executive's employment may only occur in accordance with paragraphs (c) or (d)
of this Section 2 or in accordance with Section 7 hereof.
(c) Executive shall have the right, at any time, for any
reason during the Term hereof and whether with or without cause, to terminate
his employment hereunder by giving at least thirty (30) days prior written
notice to the Corporation of the effective date of the termination, and as of
such effective date Executive's employment with the Corporation shall cease.
Unless such termination by the Executive is pursuant to Section 7(a) or 7(b)
hereof, in the event of a termination by the Executive pursuant to this Section
2(c), no severance payments or other compensation or fringe benefits are payable
during any period subsequent to the effective date of the termination, except
for base salary and unused vacation days earned by Executive to the date of
termination. If during the Term Executive's employment hereunder is terminated
in accordance with Section 7(a) or Section 7(b) hereof, Executive shall be
entitled to the compensation specified in Section 7 in lieu of the compensation
set forth in this Section 2(c).
(d) Corporation may terminate Executive at any time for good
cause, as determined in good faith by the Board of Directors of the Corporation.
For purposes of this Agreement, good
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<PAGE> 3
cause shall include, but not be limited to, commission of malfeasance in office
constituting dishonesty, conviction of a crime involving moral turpitude or
breach of fiduciary duty owed the Corporation. For purposes of this Agreement,
good cause shall also include the willful failure of the Executive to perform in
accordance with the reasonable directives of the Board of Directors of the
Corporation after at least two (2) written warnings and within ninety (90) days
following the second warning the Executive does not improve his performance to a
level which is satisfactory to the Corporation. In the event of termination
pursuant to this Section 2(d), Executive shall not be entitled to any pay or
benefits from the Corporation, except as required by law.
3. Compensation.
(a) Base Salary. As reasonable compensation for all services
rendered by Executive to the Corporation as a full-time employee during the Term
of his employment hereunder, Executive shall be entitled to receive from the
Corporation, subject to withholding and other applicable employment taxes and
payroll deductions, an annual base salary equal to Eight Hundred Thousand
Dollars ($800,000); and provided, that, during the Term, Executive's base salary
for any calendar year shall be subject to increase by the Corporation, with the
approval of the Board of Directors of the Corporation, based on merit review,
taking into account Executive's performance, responsibilities and any increase
in the cost of living.
(b) Incentive Compensation. It is the intention of the
parties that, in addition to the base salary as described above, Executive shall
have the opportunity to earn additional compensation on an incentive basis.
During the Term of his employment hereunder, Executive shall be eligible to
participate in incentive compensation plans and performance bonuses on the same
basis as other executives, with achievable incentive compensation and bonus
awards subject to the discretion of the Board of Directors of the Corporation.
4. Benefits. During the Term of Executive's employment hereunder, the
Corporation will provide for Executive the following benefits:
(a) Executive shall be entitled to participate in
Corporation's employee benefit and fringe benefit plans available to other
executives, subject, however, to the terms and conditions of those plans and
further subject to any limitations and/or
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<PAGE> 4
qualification conditions imposed on Corporation's employee benefit plans by the
Internal Revenue Code of 1986, as amended.
(b) Executive shall be entitled to twenty-five (25) days of
vacation during each calendar year period, with the specific dates of vacation
days to be mutually agreed upon in advance with the Chief Executive Officer of
the Corporation. Vacation days unused at the end of a calendar may be carried
over and used in a succeeding calendar year. To the extent any vacation days are
unused at the termination of this Agreement, Executive shall be compensated
therefore at the daily rate of his then base salary.
5. Expense Reimbursement. During the Term of his employment hereunder,
Executive shall be entitled to be reimbursed by the Corporation for such
expenses incurred by Executive in furtherance of the Corporation's business,
including reasonable travel and entertainment expenses, as well as other similar
business expenses, subject to reasonable and appropriate guidelines to be
established from time to time by the Board of Directors of the Corporation for
executives of the Corporation. However, for any expense to be reimbursable,
Executive shall be required to maintain such records and account to the
corporation in such manner as may be required under the provisions of the
Internal Revenue Code and any regulations adopted thereunder.
6. Automobile. Corporation shall provide Executive with an automobile
for Executive to use in his position with the Corporation. Corporation shall pay
all reasonable costs of operation of the automobile which relate to Executive's
use of the automobile in furtherance of his position with the Corporation. The
type and model of automobile to be provided to Executive shall be a type and
model acceptable to Executive and the Corporation. Upon termination of
Executive's employment hereunder, other than by the Corporation for cause, the
Corporation shall cause title to the automobile then being used by Executive to
be transferred to the Executive free and clear of any liens or encumbrances.
7. Certain Terminations.
(a) If prior to the expiration of the Term and prior to the occurrence
of a Change in Control, as defined hereafter, the Executive's employment is
terminated (i) by the Corporation without cause or (ii) by Executive for good
reason if, (x) the nature and scope of Executive's duties or responsibilities
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<PAGE> 5
with the Corporation are materially reduced from that which he enjoyed
immediately prior thereto, (y) the Corporation's notice of nonrenewal of this
Agreement, or (z) the Corporation should materially breach this Agreement in any
way and fail to correct such breach within 30 days of receipt of a written
notice from Executive specifying the breach and stating that he intends to
terminate his employment hereunder pursuant to this Section 7(a) unless such
breach is cured within 30 days, then Executive shall have no further liability
hereunder and shall receive as liquidated damages, at the election of the
Executive, either:
(i) continuation, for a period of three (3) years
following such termination, (A) of Executive's Cash
Compensation, paid in accordance with the Corporation's
normal payroll schedule, and (B) of life, disability, and
accident and health insurance coverages, reasonably
comparable to all available group life, disability and
accident and health insurance coverages in effect for
Executive on the date of termination, offset by any
coverages from any subsequent employment, provided, however,
that Executive shall continue to be responsible for the cost
of available insurance coverages following the termination
hereunder to the same extent that he was responsible for the
cost of the insurance coverages prior to such termination;
and provided, further, that Executive shall have no duty to
mitigate his damages hereunder or to seek other employment;
or
(ii) (A) a single payment equal to the total Cash
Compensation payable pursuant to (i)(A), above, discounted
to present value calculated at the Applicable Interest Rate
(as defined in paragraph (d) of this Section 7), and (B)
continuation, for a period of three (3) years following such
termination, of life, disability, and accident and health
insurance coverages, reasonably comparable to all available
group life, disability and accident and health insurance
coverages in effect for Executive on the date of
termination, offset by any coverage from any subsequent
employment, provided, however, that Executive shall continue
to be responsible for the cost of available insurance
coverages following such termination to the same extent that
he was responsible for the cost of the insurance coverages
prior to such termination; and provided, further, that
Executive shall have no duty to mitigate his damages
hereunder or to seek other employment.
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<PAGE> 6
(b) Any of the following events occurring during the Term and after the
date of any Change in Control (as defined in paragraph (d) below) which occurs
during the Term (as defined in Section 2(a) hereof) shall constitute a
"Termination Pursuant to a Change in Control":
(i) Executive's employment is terminated by the Corporation or
an acquiror without cause, or
(ii) One of the following events occurs and Executive
thereafter terminates his employment:
(A) the nature and scope of Executive's duties
or responsibilities with the Corporation or acquiror are
materially reduced from that which he enjoyed immediately
prior to the Change in Control (other than as a result of a
termination for cause); or
(B) Executive's then current base salary is
reduced or material benefits provided in this Agreement
(excluding the reduction or curtailment of benefits which
affect all similarly situated employees), are eliminated; or
(C) Executive is assigned, without his consent,
to a principal place of employment which is more than two
hundred (200) miles from 63 Brampton Grove, London, U.K.
(c) Upon any Termination Pursuant to a Change in Control (as
defined in paragraph (b) above), Executive shall have no further liability
hereunder, and shall be entitled, at the election of the Executive, to either of
the following:
(i) continuation for a period of three (3) years from
the date of the Termination Pursuant to a Change in Control (A) of
Executive's Cash Compensation, paid in accordance with the
Corporation's normal payroll schedule; and (B) of life, disability,
and accident and health insurance coverages, reasonably comparable to
all available group life, disability and accident and health insurance
coverages in effect for Executive on the date of termination, offset
by any coverage from any subsequent employment; provided, however,
that Executive shall continue to be responsible for the cost of
available insurance coverages following his termination
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<PAGE> 7
to the same extent that he was responsible for the cost of the
insurance coverages prior to the Termination Pursuant to a Change in
Control; and provided, further, that Executive shall have no duty to
mitigate his damages hereunder or to seek other employment; or
(ii) (A) a single payment equal to the total Cash Compensation
payable over the required period of salary continuation specified in
(i) (A) above, discounted to present value calculated at the
Applicable Interest Rate, and (B) continuation, for the same period as
would be required pursuant to (i) (B) above, of life, disability, and
accident and health insurance coverages, reasonably comparable to all
available group life, disability and accident and health insurance
coverages in effect for Executive on the date of termination, offset
by any coverages from any subsequent employment, provided, however,
that Executive shall continue to be responsible for the cost of
available insurance coverages following his termination to the same
extent that he was responsible for the cost of the insurance coverages
prior to the Termination Pursuant to a Change in Control; and
provided, further, that Executive shall have no duty to mitigate his
damages hereunder or to seek other employment.
(d) Definitions. As used in this Section:
(i) "Cash Compensation" shall mean Executive's annual base
salary in effect at the time of a termination, plus any bonus or
incentive compensation earned by Executive for the calendar year
immediately preceding the date of the termination.
(ii) "Applicable Interest Rate" shall mean the weekly average
yield on United States Treasury securities adjusted to a constant
maturity of three (3) years, as made available by the Federal Reserve
Board, effective on the date of any termination.
(iii) "Change in Control" shall mean the occurrence of, or
execution of agreements providing for, a merger, consolidation,
acquisition, reorganization, sale of all or substantially all of the
assets or other similar event, or a "Significant Stock Acquisition",
of the Corporation; provided, however, that any merger, consolidation,
acquisition or reorganization, or execution of an agreement providing
for any of the
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foregoing transactions, involving Corporation as a constituent
corporation in the transaction if, upon the effectiveness of such
transaction, Corporation is a surviving corporation and there has not
been, or, in the case of the execution of an agreement therefore,
there is not contemplated in such agreement, a change in a majority of
Corporation's Board of Directors shall not constitute a "Change in
Control" for purposes of this Section 7. For purposes of this
Agreement, a "Significant Stock Acquisition" of the Corporation shall
have occurred if, at any time during the Term, more than 35% of the
votes attributed to the Corporation's outstanding equity securities
shall be acquired by any corporation, person or group other than
Corporation or another wholly-owned subsidiary of Corporation. "Group"
shall mean persons who act in concert as described in Section 13(d)
(2) of the Securities Exchange Act of 1934, as amended.
(e) Benefits Exclusive. The Executive acknowledges that, in the
event of termination of Executive's employment during the Term of his employment
hereunder pursuant to paragraph (a) or (b) of this Section 7, the payments and
benefits to be made or provided to Executive pursuant to this Section 7 are to
be in full satisfaction of the Corporation's obligations to Executive under this
Employment Agreement and, in such an event, Executive shall not be entitled to
any other payments or benefits, whether pursuant to this Agreement or otherwise,
except as otherwise required by applicable law.
8. Waiver. Failure by either party to insist upon strict compliance
with any of the terms, covenants or conditions hereof shall not be deemed a
waiver of such terms, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any time or from time to time
be deemed a waiver or relinquishment of such right or power at any other time or
times.
9. Notices. All notices required or permitted by this Employment
Agreement shall be in writing and shall be deemed to have been given upon
delivery in person or upon deposit in certified or registered United States
mail, return receipt requested, postage prepaid, to the following address of the
party to whom notice is being given or to such other address of which notice
shall have been given pursuant to this paragraph:
- 8 -
<PAGE> 9
To Executive: Matthew Miller
63 Brampton Grove
London NW4 4AH
UK
To Corporation: Shop Vac Corporation
2323 Reach Road
P.O. Box 3307
Williamsport, PA 17701-0307
10. Binding Effect. All of the terms, provisions and conditions of this
Employment Agreement shall be binding upon, inure to the benefit of, and be
enforceable by the parties hereto and their respective successors and assigns.
11. Governing Law and Severability. This Employment Agreement shall be
construed, interpreted and applied according to the laws of the Commonwealth of
Pennsylvania. All covenants and provisions contained herein, and any part
thereof, are severable, and in the event that any such covenant or provision, or
any part thereof, shall be held to be invalid by a court of competent
jurisdiction, this Employment Agreement shall be interpreted as if such invalid
covenant or provision, or part thereof, was not contained herein.
12. Entire Agreement. This Employment Agreement contains the entire
agreement of the parties hereto with respect to the employment of Executive by
the Corporation and will supersede all prior agreements. This Employment
Agreement may not be modified or amended, in whole or in part, except by an
instrument in writing signed by all of the parties hereto.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the following parties have caused their signatures
and seals to be hereunto affixed to this Employment Agreement as of the day
first above written.
ATTEST: SHOP VAC CORPORATION
/s/ Ruth Holt /s/ Jonathan Miller
- ------------------------------- By:-------------------------------
Secretary President and Chief Executive
Officer
(SEAL)
WITNESS: EXECUTIVE:
/s/ David A. Grill /s/ Matthew Miller
- ------------------------------- ----------------------------(SEAL)
Matthew Miller
- 10 -
<PAGE> 1
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made and entered into this 14th day of
March,1996, by and between SHOP VAC CORPORATION, a corporation organized and
existing under the laws of the State of New Jersey having its principal place of
business at 2323 Reach Road, Williamsport, Pennsylvania (hereinafter referred to
as "Corporation") and W. EARL STOGNER, an individual residing at 430 Golf View
Drive, Lewisburg, Pennsylvania (hereinafter referred to as "Executive").
WITNESSETH:
WHEREAS, Executive is now serving as Executive Vice President and Chief
Financial Officer of the Corporation; and
WHEREAS, in order to induce the Executive to continue in employment
with the Corporation, the Corporation and the Executive desire to enter into an
Agreement setting the terms of Executive's continued employment by Corporation
and providing for certain payments to be made by Corporation to Executive under
certain specific conditions.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, and intending to be legally bound, the parties hereto do hereby agree as
follows:
1. Status of Employment. During the Term of his employment hereunder,
Executive will continue to perform the duties and responsibilities of Executive
Vice President and Chief Financial Officer of the Corporation. Executive agrees
that except when prevented by illness, he will at all times faithfully,
industriously, and to the best of his ability, experience and talents, perform
all of the duties that may be required of and from him by Corporation in the
aforesaid capacity or capacities, pursuant to the express and implicit terms
hereof, and that he will devote all of his working hours and his best efforts to
the performance of his duties hereunder, and that he will not, during his
employment by Corporation, become engaged in any other business activity unless
approved by the Board of Directors of the Corporation. Executive agrees that
during the Term he will maintain a work schedule necessary to carry out the
duties and responsibilities of his position.
<PAGE> 2
2. Term of Employment.
(a) Corporation agrees to employ Executive upon the terms
and conditions of this Employment Agreement, and Executive agrees to so serve,
for a three year term commencing March 1, 1996. The term of this Agreement will
automatically renew each March 1 for an additional three year period unless,
prior to the preceding December 1 within the then current term, either party
shall give written notice of nonrenewal to the other party, in which event this
Agreement shall terminate at the end of the three year period then in effect.
For example, the initial Term of this Agreement is March 1, 1996 through
February 28, 1999. On March 1, 1997, the term of this Agreement extends to
February 29, 2000, unless one of the parties provides written notice of its/his
intent not to renew the Agreement prior to December 1, 1996. The three year
period which is at any point in time then in effect is sometimes hereinafter
referred to as the "Term".
(b) If notice of nonrenewal is given pursuant to (a) of this
Section 2, Executive's employment right hereunder shall automatically terminate
at the close of business on the last day of the then current Term. From and
after the date of this Agreement and prior to the expiration of Executive's
employment hereunder in accordance with the preceding sentence, termination of
Executive's employment may only occur in accordance with paragraphs (c) or (d)
of this Section 2 or in accordance with Section 8 hereof.
(c) Executive shall have the right, at any time, for any
reason during the Term hereof and whether with or without cause, to terminate
his employment hereunder by giving at least thirty (30) days prior written
notice to the Corporation of the effective date of the termination, and as of
such effective date Executive's employment with the Corporation shall cease.
Unless such termination by the Executive is pursuant to Section 8(a) or 8(b)
hereof, in the event of a termination by the Executive pursuant to this Section
2(c), no severance payments or other compensation or fringe benefits are payable
during any period subsequent to the effective date of the termination, except
for base salary and unused vacation days earned by Executive to the date of
termination. If during the Term Executive's employment hereunder is terminated
in accordance with Section 8(a) or Section 8(b) hereof, Executive shall be
entitled to the compensation specified in Section 8 in lieu of the compensation
set forth in this Section 2(c).
(d) Corporation may terminate Executive at any time for good
cause, as determined in good faith by the Board of Directors of the Corporation.
For purposes of this Agreement, good cause shall include, but not be limited to,
commission of malfeasance in office constituting dishonesty, conviction of a
<PAGE> 3
crime involving moral turpitude or breach of fiduciary duty owed the
Corporation. For purposes of this Agreement, good cause shall also include the
willful failure of the Executive to perform in accordance with the reasonable
directives of the Board of Directors of the Corporation after at least two (2)
written warnings and within ninety (90) days following the second warning the
Executive does not improve his performance to a level which is satisfactory to
the Corporation. In the event of termination pursuant to this Section 2 (d),
Executive shall not be entitled to any pay or benefits from the Corporation,
except as required by law.
3. Compensation.
(a) Base Salary. As reasonable compensation for all services
rendered by Executive to the Corporation as a full-time employee during the Term
of his employment hereunder, Executive shall be entitled to receive from the
Corporation, subject to withholding and other applicable employment taxes and
payroll deductions, an annual base salary equal to Six Hundred Seventy-Five
Thousand Dollars ($675,000); and provided, that, during the Term, Executive's
base salary for any calendar year shall be subject to increase by the
Corporation, with the approval of the Board of Directors of the Corporation,
based on merit review, taking into account Executive's performance,
responsibilities and any increase in the cost of living.
(b) Incentive Compensation. It is the intention of the parties
that, in addition to the base salary as described above, Executive shall have
the opportunity to earn additional compensation on an incentive basis. During
the Term of his employment hereunder, Executive shall be eligible to participate
in incentive compensation plans and performance bonuses on the same basis as
other executives, with achievable incentive compensation and bonus awards
subject to the discretion of the Board of Directors of the Corporation.
4. Benefits: During the Term of Executive's employment hereunder, the
Corporation will provide for Executive the following benefits:
(a) Executive shall be entitled to participate in
Corporation's employee benefit and fringe benefit plans available to other
executives, subject, however, to the terms and conditions of those plans and
further subject to any limitations and/or qualification conditions imposed on
Corporation's employee benefit plans by the Internal Revenue Code of 1966, as
amended.
<PAGE> 4
(b) Executive shall be entitled to twenty-five (25) days of
vacation during each calendar year period, with the specific dates of vacation
days to be mutually agreed upon in advance with the Chief Executive Officer of
the Corporation. Vacation days unused at the end of a calendar may be carried
over and used in a succeeding calendar year. To the extent any vacation days are
unused at the termination of this Agreement, Executive shall be compensated
therefore at the daily rate of his then base salary.
5. Expense Reimbursement. During the Term of his employment hereunder,
Executive shall be entitled to be reimbursed by the Corporation for such
expenses incurred by Executive in furtherance of the Corporation's business,
including reasonable travel and entertainment expenses, as well as other similar
business expenses, subject to reasonable and appropriate guidelines to be
established from time to time by the Board of Directors of the Corporation for
executives of the Corporation. However, for any expense to be reimbursable,
Executive shall be required to maintain such records and account to the
corporation in such manner as may be required under the provisions of the
Internal Revenue Code and any regulations adopted thereunder.
6. Automobile. Corporation shall provide Executive with an automobile
for Executive to use in his position with the Corporation. Corporation shall pay
all reasonable costs of operation of the automobile which relate to Executive's
use of the automobile in furtherance of his position with the Corporation. The
type and model of automobile to be provided to Executive shall be a type and
model acceptable to Executive and the Corporation. Upon termination of
Executive's employment hereunder, other than by the Corporation for cause, the
Corporation shall cause title to the automobile then being used by Executive to
be transferred to the Executive free and clear of any liens or encumbrances.
7. Country Club. During Executive's employment hereunder, Executive
shall be provided by the Corporation with annual membership dues to the
Williamsport Country Club.
<PAGE> 5
8. Certain Terminations.
(a) If prior to the expiration of the Term and prior to the
occurrence of a Change in Control, as defined hereafter, the Executive's
employment is terminated (i) by the Corporation without cause or (ii) by
Executive for good reason if, (x) the nature and scope of Executive's duties or
responsibilities with the Corporation are materially reduced from that which he
enjoyed immediately prior thereto, (y) the Corporation's notice of nonrenewal of
this Agreement, or (z) the Corporation should materially breach this Agreement
in any way and fail to correct such breach within 30 days of receipt of a
written notice from Executive specifying the breach and stating that he intends
to terminate his employment hereunder pursuant to this Section 8(a) unless such
breach is cured within 30 days, then Executive shall have no further liability
hereunder and shall receive as liquidated damages, at the election of the
Executive, either:
(i) continuation, for a period of three (3) years
following such termination, (A) of Executive's Cash Compensation, paid
in accordance with the Corporation's normal payroll schedule, and (B)
of life, disability, and accident and health insurance coverages,
reasonably comparable to all available group life, disability and
accident and health insurance coverages in effect for Executive on the
date of termination, offset by any coverages from any subsequent
employment, provided, however, that Executive shall continue to be
responsible for the cost of available insurance coverages following
the termination hereunder to the same extent that he was responsible
for the cost of the insurance coverages prior to such termination; and
provided, further, that Executive shall have no duty to mitigate his
damages hereunder or to seek other employment; or
(ii) (A) a single payment equal to the total Cash
Compensation payable pursuant to (i) (A), above, discounted to present
value calculated at the Applicable Interest Rate (as defined in
paragraph (d) of this Section 8), and (B) continuation, for a period
of three (3) years following such termination, of life, disability,
and accident and health insurance coverages, reasonably comparable to
all available group life, disability and accident and health insurance
coverages in effect for Executive on the date of termination, offset
by any coverage from any subsequent employment, provided, however,
that Executive shall continue to be responsible for the cost of
available insurance coverages following such termination to the same
extent that he was
<PAGE> 6
responsible for the cost of the insurance coverages prior to such
termination; and provided, further, that Executive shall have no duty
to mitigate his damages hereunder or to seek other employment.
(b) Any of the following events occurring during the Term and
after the date of any Change in Control (as defined in paragraph (d) below)
which occurs during the Term (as defined in Section 2(a) hereof) shall
constitute a "Termination Pursuant to a Change in Control":
(i) Executive's employment is terminated by the Corporation or an
acquiror without cause, or
(ii) One of the following events occurs and Executive thereafter
terminates his employment:
(A) the nature and scope of Executive's duties or
responsibilities with the Corporation or acquiror are
materially reduced from that which he enjoyed immediately
prior to the Change in Control (other than as a result of a
termination for cause); or
(B) Executive's then current base salary is reduced
or material benefits provided in this Agreement (excluding
the reduction or curtailment of benefits which affect all
similarly situated employees), are eliminated; or
(C) Executive is assigned, without his consent, to
a principal place of employment which is more than
twenty-five (25) miles from 430 Golf View Drive, Lewisburg,
Pennsylvania.
(c) Upon any Termination Pursuant to a Change in Control (as
defined in paragraph (b) above), Executive shall have no further liability
hereunder, and shall be entitled, at the election of the Executive, to either of
the following:
(i) continuation for a period of three (3) years from the date
of the Termination Pursuant to a Change in Control (A) of Executive's
Cash Compensation, paid in accordance with the Corporation's normal
payroll schedule; and (B) of life, disability, and accident and health
insurance coverages, reasonably comparable to all available group
life, disability and accident and health insurance coverages in effect
for Executive on the date of termination, offset by any coverage from
any
<PAGE> 7
subsequent employment; provided, however, that Executive shall
continue to be responsible for the cost of available insurance
coverages following his termination to the same extent that he was
responsible for the cost of the insurance coverages prior to the
Termination Pursuant to a Change in Control; and provided, further,
that Executive shall have no duty to mitigate his damages hereunder or
to seek other employment; or
(ii) (A) a single payment equal to the total Cash Compensation
payable over the required period of salary continuation specified in
(i) (A) above, discounted to present value calculated at the
Applicable Interest Rate, and (B) continuation, for the same period as
would be required pursuant to (i) (B) above, of life, disability, and
accident and health insurance coverages, reasonably comparable to all
available group life, disability and accident and health insurance
coverages in effect for Executive on the date of termination, offset
by any coverages from any subsequent employment, provided, however,
that Executive shall continue to be responsible for the cost of
available insurance coverages following his termination to the same
extent that he was responsible for the cost of the insurance coverages
prior to the Termination Pursuant to a Change in Control; and
provided, further, that Executive shall have no duty to mitigate his
damages hereunder or to seek other employment.
(d) Definitions. As used in this Section:
(i) "Cash Compensation" shall mean Executive's annual base
salary in effect at the time of a termination, plus any bonus or
incentive compensation earned by Executive for the calendar year
immediately preceding the date of the termination.
(ii) "Applicable Interest Rate" shall mean the weekly average
yield on United States Treasury securities adjusted to a constant
maturity of three (3) years, as made available by the Federal Reserve
Board, effective on the date of any termination:
(iii) "Change in Control" shall mean the occurrence of, or
execution of agreements providing for, a merger, consolidation,
acquisition, reorganization, sale of all or substantially all of the
assets or other similar event, or a "Significant Stock Acquisition",
of the Corporation; provided, however, that any merger, consolidation,
acquisition or reorganization, or
<PAGE> 8
execution of an agreement providing for any of the foregoing
transactions, involving Corporation as a constituent corporation in
the transaction if, upon the effectiveness of such transaction,
Corporation is a surviving corporation and there has not been, or, in
the case of the execution of an agreement therefore, there is not
contemplated in such agreement, a change in a majority of
Corporation's Board of Directors shall not constitute a "Change in
Control" for purposes of this Section 8. For purposes of this
Agreement, a "Significant Stock Acquisition" of the Corporation shall
have occurred if, at any time during the Term, more than 35% of the
votes attributed to the Corporation's outstanding equity securities
shall be acquired by any corporation, person or group other than
Corporation or another wholly-owned subsidiary of Corporation. "Group"
shall mean persons who act in concert as described in Section 13(d)
(2) of the Securities Exchange Act of 1934, as amended.
(e) Benefits Exclusive. The Executive acknowledges that, in the
event of termination of Executive's employment during the Term of his employment
hereunder pursuant to paragraph (a) or (b) of this Section 8, the payments and
benefits to be made or provided to Executive pursuant to this Section 8 are to
be in full satisfaction of the Corporation's obligations to Executive under this
Employment Agreement and, in such an event, Executive shall not be entitled to
any other payments or benefits, whether pursuant to this Agreement or otherwise,
except as otherwise required by applicable law.
9. Waiver. Failure by either party to insist upon strict compliance
with any of the terms, covenants or conditions hereof shall not be deemed a
waiver of such terms, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any time or from time to time
be deemed a waiver or relinquishment of such right or power at any other time or
times.
10. Notices. All notices required or permitted by this Employment
Agreement shall be in writing and shall be deemed to have been given upon
delivery in person or upon deposit in certified or registered United States
mail, return receipt requested, postage prepaid, to the following address of the
party to whom notice is being given or to such other address of which notice
shall have been given pursuant to this paragraph:
<PAGE> 9
To Executive: W. Earl Stogner
430 Golf View Drive
P.O. Box 130
Lewisburg, PA 17837
To Corporation: Shop Vac Corporation
2323 Reach Road
P.O. Box 3307
Williamsport, PA 17701-0307
11. Binding Effect. All of the terms, provisions and conditions of this
Employment Agreement shall be binding upon, inure to the benefit of, and be
enforceable by the parties hereto and their respective successors and assigns.
12. Governing Law and Severability. This Employment Agreement shall be
construed, interpreted and applied according to the laws of the Commonwealth of
Pennsylvania. All covenants and provisions contained herein, and any part
thereof, are severable, and in the event that any such covenant or provision, or
any part thereof, shall be held to be invalid by a court of competent
jurisdiction, this Employment Agreement shall be interpreted as if such invalid
covenant or provision, or part thereof, was not contained herein.
13. Entire Agreement. This Employment Agreement contains the entire
agreement of the parties hereto with respect to the employment of Executive by
the Corporation and will supersede all prior agreements. This Employment
Agreement may not be modified or amended, in whole or in part, except by an
instrument in writing signed by all of the parties hereto.
IN WITNESS WHEREOF, the following parties have caused their signatures
and seals to be hereunto affixed to this Employment Agreement as of the day
first above written.
ATTEST: SHOP VAC CORPORATION
/s/ Ruth Holt /s/ Jonathan Miller
- ------------------------------ BY:---------------------------------------
Secretary President and Chief Executive
(SEAL) Officer
WITNESS: EXECUTIVE:
/s/ David A. Grill /s/ W. Earl Stogner
- ------------------------------- -------------------------------------(SEAL)
W. Earl Stogner
<PAGE> 1
Exhibit 10.8
[ I. E. SHAFFER & CO LETTERHEAD ]
AGREEMENT BETWEEN DISTRICT 65 PENSION PLAN
AND
SHOP-VAC CORPORATION (Shop #3569)
CONCERNING PRELIMINARY PAYMENTS
This agreement (the "Agreement") is made as of the 14th day of March,
1996 by and between the District 65 Pension Plan and its Trustees (the "Plan")
and SHOP-VAC CORPORATION (Shop #3569) (the "Employer").
WHEREAS, the Employer may be required to contribute to the Plan to
satisfy the minimum funding requirements set forth in the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and the Internal Revenue Code
and/or may have effected a "complete" or "partial" withdrawal from the Plan as
those terms are used in Title IV of ERISA;
WHEREAS, the Plan has not yet assessed withdrawal liability against the
Employer;
WHEREAS, the Employer has agreed to make certain payments to the Plan,
which payments may be used to satisfy, in whole or in part, the
EMPLOYEE BENEFIT PLAN ADMINISTRATORS & CONSULTANTS
<PAGE> 2
Employer's obligation to pay to the Plan withdrawal liability to the extent such
obligation exists.
NOW, THEREFORE, in consideration of the covenants and
conditions set forth herein, the parties intending to be legally bound, agree as
follows:
1. The Employer shall pay to the Plan $47,114 quarterly: The
Employer's quarterly withdrawal liability payment shall be one-forth of the
amount the Plan determines for the Employer pursuant to Section 4219(c)(1)(C) of
ERISA using a 5% contribution rate (or higher, if the collective bargaining
agreement specified a pension contribution rate in excess of 5%) in lieu of the
Section 4219(c)(1)(C) rate, if different, and not including a portion of any
minimum funding deficiency. The Plan shall receive the first quarterly
installment on or before March 15, 1996. The Plan shall receive additional
quarterly installments of the same amount from the Employer until this Agreement
is terminated. The Employer shall pay interest on all late payments under this
Agreement at the rate set forth in 29 C.F.R. S 2644.3. The amounts paid to the
Plan pursuant to this Agreement shall be used to satisfy, in whole or part,
first, the Employer's obligation to pay withdrawal liability, and second, the
Employer's obligation to pay minimum funding contributions to the Plan, if such
obligation(s) exist. The amounts paid to the Plan pursuant to this Agreement
shall be allocated between principal and interest on the Employer's withdrawal
liability obligation, if any, as follows: (a) if the parties to this Agreement
enter into an agreement settling the Plan's withdrawal liability claims against
the Employer, then in accordance with such settlement agreement; or (b) if the
parties do not settle the Plan's
<PAGE> 3
claims against the employer for withdrawal liability, then in a manner
consistent with an arbitrator's or court's final non-appealable order
interpreting Section 4219(c)(1)(i)(II) of ERISA.
2. The quarterly payment amount of $47,114 set forth in
paragraph 1 of this Agreement is based upon contribution records maintained by
the Plan. If at any time during the term of this Agreement the Employer can show
to the reasonable satisfaction of the Plan that the Plan's records are
incorrect, of the Plan can show to the reasonable satisfaction of the Employer
that the Plan's record, are incorrect, the quarterly payment set forth in
paragraph 1 of this Agreement shall be adjusted accordingly for the remainder of
this Agreement.
3. If it is determined by an arbitrator's order that is not
subject to appeal, a court order that is not subject to appeal, or a settlement
agreement between the parties that the Employer's payments hereunder exceed the
amounts due to the Plan from the Employer for withdrawal liability and minimum
funding contributions, the Plan shall refund to the Employer all such excess
payments, plus interest in accordance with 29 C.F.R. S2644.2(d)
4. The payments made by the Employer hereunder do not
constitute an admission of any kind that the Employer has an obligation to pay
to the Plan withdrawal liability and/or the minimum funding contributions and
the Employer retains all rights, if any, to contest the assertion by the Plan
that the Employer has any such obligations, the amount of such obligations (if
any), or the payment schedule of such obligations (if any).
<PAGE> 4
5. The payments accepted by the Plan under this Agreement
shall not constitute an admission by the Plan of any kind concerning the method
or assumptions used to calculate the Employer's alleged withdrawal liability or
minimum funding contribution amount or to calculate the payment schedule of the
Employer's alleged withdrawal liability or alleged minimum fund obligations to
the Plan.
6. The Employer recognizes that the Plan is not at this time
issuing a notice of withdrawal liability and demand for payment thereof (the
"Assessment") and agrees that during the term of this Agreement the time period
for the Plan to issue an Assessment pursuant to Section 4219 of ERISA is tolled,
and that the time period during which this Agreement is effective shall not be
included in determining whether the Assessment complies with ERISA.
7. The Plan agrees it will not assess the Employer withdrawal
liability or payment of a minimum funding contribution until the earliest of:
(a) the date on which the Employer is thirty (30) days late in paying to the
Plan any obligation under this Agreement; (b) the date on which, for the third
time, an Employer's obligation under this Agreement is late; (c) the date on
which an arbitrator's or court's final order determining whether an employer's
minimum funding contribution may increase the rate set forth in Section
4219(c)(1)(C)(i)(II) of ERISA is not subject to appeal; (d) the date on which
the Plan reasonably determines that the financial condition of the Employer may
jeopardize the Plan's ability to collect the Employer's alleged withdrawal
liability and minimum funding obligations to the Plan; (e) the date on which the
parties to this Agreement enter into an agreement settling the Plan's claims
against the Employer for withdrawal
<PAGE> 5
liability and minimum funding; (f) June 15, 1996, if arbitration or litigation
concerning the issue described in subparagraph (c) of this paragraph has not
been commenced; and (g) the date on which the Employer commences litigation
against the Plan other than litigation concerning the issue described in
subparagraph (c) of this paragraph.
8. This Agreement shall commence on the date first written
above. The obligations to make the quarterly payments under paragraph 1 shall
terminate on the date on which the Plan issues an assessment to the Employer for
payment of either withdrawal liability or a minimum funding contribution, or by
either party providing thirty (30) days notice to the other, such notice to be
given no earlier than May 15, 1996.
9. This Agreement shalt be governed and construed in
accordance with the laws of the State of New York, except where preempted by
ERISA.
10. All notices hereunder shall be sent by certified mail,
return receipt requested, as follows:
If to the Plan:
District 65 PensIon Plan
c/o Glenn D. Shaffer
President
I.E. Shaffer & Co.
830 Bear Tavern Road
CN 01028
West Trenton, NJ 08628-1019
WITH A COPY TO:
Ronald E. Richman, Esq.
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, NY 10112
and
<PAGE> 6
William T. Josem, Esq.
Cleary & Josem
1420 Walnut Street, Suite 300
Philadelphia, Pennsylvania 19102-4097
If to the Employer:
David A. Grill
Shop Vac Corporation
2323 Reach Road
Williamsport, PA 17701-0307
WITH A COPY TO:
C. Stephen Parker, Jr.
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
11. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and superseded
any and all prior agreements or understandings between the parties
arising out of or relating to the subject matter hereof. This Agreement
may only be amended by a writing executed by both parties.
Dated: March 14, 1996
New York, New York
DISTRICT 65 PENSION PLAN SHOP-VAC CORPORATION
/s/ unreadable /s/ David A. Grill
------------------------ ----------------------
By: By: David A. Grill
Vice President, Taxes &
Benefits
<PAGE> 1
EXHIBIT 10.9
STOCK PURCHASE AGREEMENT
(McCulloch Corporation)
This STOCK PURCHASE AGREEMENT, made this 22 day of October, 1995 by and
among BEAVER ACQUISITION CORPORATION, a Delaware corporation ("Buyer"), and SHOP
VAC CORPORATION, a New Jersey corporation ("Shop Vac" or "Seller").
W I T N E S E T H:
WHEREAS, McCulloch Corporation, a Maryland corporation and wholly owned
subsidiary of Shop Vac ("McCulloch"), the subsidiaries of McCulloch (the
"McCulloch Subsidiaries") and Shop Vac and any corporation, either directly or
indirectly or through one or more intermediaries, that controls or is controlled
by or is under common control with Shop Vac other than McCulloch and the
McCulloch Subsidiaries (the "Shop Vac Affiliates") are engaged worldwide in the
business of developing, manufacturing, marketing, distributing and selling chain
saws, string trimmers, blowers (other than blowers as part of vacuum products
manufactured by Shop Vac or a Shop Vac Affiliate sold other than under a trade
mark of the McCulloch Business), hedge trimmers, lawn edgers, electric pressure
washers and other outdoor and lawn and garden equipment and accessories
(excluding the manufacture of electric motors or plastic molded products by Shop
Vac or the Shop Vac Affiliates or the distributor operations of Goblin Limited
(UK), Goblin Ireland Limited (Ireland), FAM Nederlands B.V. (Netherlands),
McCulloch Gmbh (Germany), McCulloch Espana S.A. (Spain), McCulloch Gesellschaft
m.b.h. (Austria), McCulloch Kft (Hungary), and Shop Vac of Canada Ltd (Canada)
or Shop Vac's French distribution operations (the "McCulloch Business"); and
WHEREAS, contemporaneously with or as soon as practicable after the
execution of this Agreement, all the Non-Owned McCulloch Assets (as defined in
Section 2.26 hereof) including without limitation those assets set forth on
Section 2.26(b) of the Disclosure Schedule hereto will be transferred from Shop
Vac or the Shop Vac Affiliates to McCulloch as a contribution to capital
pursuant to one or more Contribution and Transfer Agreements in the form of
Exhibit A attached hereto (each a "Contribution and Transfer Agreement") or a
bill of sale in respect of Non-Owned McCulloch Assets owned by McCulloch Ireland
Limited or Goblin Ireland Limited; and
<PAGE> 2
WHEREAS, Buyer desires to purchase and Seller desires to sell to Buyer
all right, title and interest of Seller in and to all of the stock of McCulloch
(the "McCulloch Stock"); and
WHEREAS, Buyer and Seller desire to enter into this Agreement to set
forth the terms and conditions on which the McCulloch Stock will be sold to
Buyer; and
WHEREAS, there are shares of capital stock or other ownership interests
in the McCulloch Subsidiaries not owned by McCulloch (such interests being
disclosed in Section 2.03 of the Disclosure Schedule), and persons owning such
stock or interests ("Nominating Shareholders") have agreed with Shop Vac to
enter into agreements in the form of Exhibit B attached hereto ("Nominating
Share Transfer Agreements") to transfer such stock or interests to Buyer or its
nominee in consideration of Buyer purchasing the McCulloch Stock pursuant to
this Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound, the parties hereto hereby agree
as follows:
ARTICLE I
PURCHASE AND SALE; ASSUMPTION OF LIABILITIES
1.01. Purchase and Sale. Subject to the terms and conditions of this
Agreement, at the Closing (as defined in Section 1.03) Shop Vac shall sell,
transfer, convey, assign and deliver to Buyer and Buyer shall purchase, acquire
and accept from Shop Vac all of the issued and outstanding McCulloch Stock.
1.02. Consideration. Subject to the terms and conditions of this
Agreement, in reliance on the representations, warranties and agreements of the
Seller contained herein, and in consideration of the sale, assignment, transfer
and delivery of the McCulloch Stock, and the cancellation of all intercompany
indebtedness or obligations of McCulloch and the McCulloch Subsidiaries to Shop
Vac and the Shop Vac Affiliates other than the obligations of McCulloch Italy to
Goblin Ireland Limited for AquaVac Products, on the Closing Date Buyer shall pay
to Shop Vac in immediately available U.S. funds, the amount of Thirty Million
Dollars ($30,000,000.00) (the "Purchase Price"), plus the amount referred to in
Section 14.03 hereof.
1.03. Closing.
(a) The Closing of the transactions contemplated by this Agreement (the
"Closing") will take place at the offices of Davis Polk &
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<PAGE> 3
Wardwell, 450 Lexington Avenue, New York, New York, on November 10, 1995 at
11:00 A.M., except that any party hereto may, by giving two business days'
written notice to all other parties hereto, defer the Closing to a date not
later than November 30, 1995 in order that such party may satisfy any of the
conditions required to be satisfied at or prior to the Closing (the date of the
Closing is hereinafter referred to as the "Closing Date").
(b) At the Closing:
(i) Shop Vac will deliver to Buyer certificates representing the shares
of McCulloch Stock, either properly endorsed for transfer in blank or
accompanied by stock powers duly endorsed in blank with any required transfer
stamps affixed thereto.
(ii) Shop Vac will deliver all other previously undelivered documents
required to be delivered by Shop Vac, McCulloch or the Shop Vac Affiliates to
Buyer at or prior to the Closing in connection with the transactions
contemplated by this Agreement, including (A) evidence satisfactory to Buyer's
counsel of cancellation by Shop Vac of any intercompany indebtedness of
McCulloch or the McCulloch Subsidiaries to Shop Vac and the Shop Vac Affiliates,
other than the obligations of McCulloch Italy to Goblin Ireland Limited for
Aquavac Products, (B) evidence satisfactory to Buyer's counsel of the transfer
to McCulloch of the Non-Owned McCulloch Assets (as defined in Section 2.26
hereof), (C) such consents, releases and other documents as are, in the opinion
of Buyer's counsel, necessary to release McCulloch and the McCulloch
Subsidiaries and any of the Assets of the McCulloch Business from any debt,
loan, security, or liability whatsoever in respect of the loan and collateral
security arrangements of Shop Vac and the Shop Vac Affiliates, and (D) evidence
satisfactory to Buyer's counsel of Shop Vac and the Shop Vac Affiliates
compliance with Section 4.04.
(iii) Buyer will deliver to Seller by wire transfer the consideration
referred to in Section 1.02 hereof.
(iv) Buyer will deliver all previously undelivered documents required
to be delivered by Buyer to the Seller at or prior to the Closing.
1.04. Additional Matters.
(a) At Closing, Buyer shall assume the obligations of Shop Vac to
Famopla Fabrica Portuguesa de Moldes Para Plastices, LBA ("Famopla") for
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<PAGE> 4
molds for the manufacture of plastic parts for McCulloch products, in the
remaining amount outstanding of $164,420. Shop Vac shall cause title in all
molds being manufactured in respect of the McCulloch Business to pass directly
from Famopla to McCulloch Italy.
(b) At Closing and subject to the consent of the lessor thereof, the
automobile leases disclosed in Section 2.12 of the Disclosure Schedule pursuant
to which Shop Vac leases automobiles for McCulloch shall be assigned to
McCulloch and Buyer shall be responsible for all payments to the lessor.
(c) McCulloch Ireland assets identified as "Tool Re HSGL&R, Brake,
Chassio Etc." on Annex 1 to Section 2.26 of the Disclosure Schedule have 22,967
GB Pounds remaining due and payable to Oru Stampi and assets identified as
"Brake Latch, Bar Plate and Spanner" on Annex 1 to Section 2.26 of the
Disclosure Schedule have 6,116 GB Pounds remaining due and payable to
Wolverhampton Pressings. McCulloch Italy shall assume responsibility for payment
of the above mentioned outstanding amounts due with respect to these assets.
Shop Vac shall cause title in all assets being manufactured in respect of the
McCulloch Chainsaw Mark 2 to pass directly from the relevant manufacturer to
McCulloch Italy.
(d) At or prior to the Closing, Shop Vac of Canada, Ltd. shall assign
to McCulloch and McCulloch shall assume the Distributor Agreements of McCulloch
Canada (merged into Shop Vac of Canada) set forth on Annex 2 to Section 2.14 of
the Disclosure Schedule.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Seller represents and warrants to Buyer that:
2.01. Corporate Organization.
(a) Seller is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and has full
corporate power and authority and all governmental licenses, authorizations,
permits, consents and approvals required to carry on its business as it is now
being conducted and to own the properties and assets it now owns. Seller has
heretofore delivered to Buyer a true and complete copy of the Certificate of
Incorporation of Seller as currently in effect.
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<PAGE> 5
(b) McCulloch is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and has full
corporate power and authority and all governmental licenses, authorizations,
permits, consents and approvals required to carry on its business as it is now
being conducted and to own the properties and assets it now owns. McCulloch is
duly qualified to do business as a foreign corporation and is in good standing
in each United States jurisdiction where such qualification is necessary, except
in any jurisdiction where the failure to be so qualified would not have a
material adverse effect on the ability of McCulloch to carry on the McCulloch
Business. Seller has heretofore delivered to Buyer a true and complete copy of
the Certificate of Incorporation of McCulloch as currently in effect.
(c) Each McCulloch Subsidiary is identified, together with its country
of formation, in Section 2.03 of the Disclosure Schedule attached hereto (the
"Disclosure Schedule") and is duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or formation and
has full corporate power and authority and all governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as it is now being conducted and to own the properties and assets it
now owns. Seller has heretofore delivered to Buyer a true and complete copy of
the Certificate of Incorporation (or similar document) of each McCulloch
Subsidiary as currently in effect.
2.02. Capitalization of McCulloch and the McCulloch Subsidiaries.
(a) As of the date of this Agreement:
(i) the authorized capital stock of McCulloch consists of
10,000 shares of common stock, of which 1,000 shares of common stock
are issued and outstanding;
(ii) the authorized capital stock of McCulloch Italiana, Srl
("McCulloch Italy") consists of 1,143,000,000 quotas, of which
1,143,000,000 quotas are issued and outstanding;
(iii) the authorized stock of Toplast, Srl ("Toplast")
consists of 90,000,000 quotas of which 90,000,000 quotas are issued and
outstanding; and
(iv) the issued and outstanding stock of McCulloch SA de CV
("McCulloch Mexico") consists of
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<PAGE> 6
1000 shares of Series "B" stock, of which 1,000 shares are issued
and outstanding.
(b) All outstanding shares of capital stock or other ownership
interest of McCulloch or the McCulloch Subsidiaries have been duly
authorized and are fully paid and non-assessable. Except as set forth in
Section 2.02(a) hereof, there are no outstanding (i) shares of capital stock
or voting securities or other ownership interest of McCulloch or the
McCulloch Subsidiaries, (ii) securities of McCulloch or the McCulloch
Subsidiaries convertible into or exchangeable for shares of capital stock or
voting securities or other ownership interest of McCulloch or the McCulloch
Subsidiaries, or (iii) options or other rights to acquire from McCulloch or
the McCulloch Subsidiaries, or other obligation of McCulloch or the
McCulloch Subsidiaries to issue, any capital stock, voting securities or
other ownership interest of or securities convertible into or exchangeable
for capital stock or voting securities or other ownership interest of
McCulloch or the McCulloch Subsidiaries (the items in clauses (i), (ii) and
(iii) being referred to collectively as the "McCulloch Securities"). There
are no outstanding obligations of McCulloch or the McCulloch Subsidiaries to
repurchase, redeem or otherwise acquire any McCulloch Securities.
2.03. Ownership.
(a) All of the issued and outstanding stock of McCulloch is
owned by Shop Vac; and
(b) All the issued and outstanding capital stock or ownership
interests of the McCulloch Subsidiaries as of the date hereof are owned as
set forth on Section 2.03 of the Disclosure Schedule,
in each case free and clear of all liens, options, encumbrances, limitations or
restrictions of any kind (including any restriction on the right to vote, sell
or otherwise dispose of such stock or ownership interest) except for the pledge
to First Union National Bank of North Carolina, as agent for certain lenders to
Shop Vac and its subsidiaries (the "Lenders' Agent") of 651 Series "B" shares of
McCulloch Mexico and 742,950,000 quotas of McCulloch Italy, and will transfer
and deliver to Buyer at the Closing valid title thereto, free and clear of any
such lien, option, encumbrance, limitation or restriction including the lien of
the Lenders' Agent referred to above.
2.04. Authorization; Enforceability. Seller has full corporate
power and authority to enter into this Agreement and Seller and the Shop Vac
Affiliates have full corporate power and authority to carry out the transactions
contemplated hereby. The
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<PAGE> 7
Board of Directors and stockholders of Seller and of the Shop Vac Affiliates
have taken all action required by law, its Certificate of Incorporation or
By-Laws, or otherwise to be taken by them to authorize the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby, and this Agreement is a valid and binding agreement of Seller
enforceable in accordance with its terms, except that such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefore may be brought. The stockholders of Seller have duly
approved Seller entering into this Agreement and carrying out the transactions
contemplated hereby.
2.05. No Violation. Neither the execution, delivery or performance of
this Agreement nor the consummation of the transactions contemplated hereby will
(i) violate any provision of the Certificate of Incorporation or By-Laws of the
Seller or of any Shop Vac Affiliate; (ii) violate any applicable law, rule,
regulation, judgment, injunction, order or decree by which Shop Vac or any of
the Shop Vac Affiliates is bound; or (iii) except as specified in Section 2.05
of the Disclosure Schedule, violate, or be in conflict with, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or cause the acceleration of the maturity of any debt
or obligation pursuant to, or result in the creation or imposition of any
security interest, lien or other encumbrance upon any property or assets of Shop
Vac, the Shop Vac Affiliates, McCulloch or the McCulloch Subsidiaries , or the
loss of any benefit relating to the McCulloch Business under, any agreement or
commitment to which Seller, McCulloch, the McCulloch Subsidiaries or the Shop
Vac Affiliates is a party or by it is bound, or to which their property is
subject.
2.06. Accounts Receivable. All accounts receivable of McCulloch and
each McCulloch Subsidiary will represent sales actually made in the ordinary
course of business consistent with historical practice. All accounts, notes
receivable and other receivables (other than receivables collected since August
31, 1995) reflected on the August 31, 1995 Financial Statements (as defined in
Section 2.28) are, and all accounts and notes receivable of McCulloch and the
McCulloch Subsidiaries at the Closing Date will be valid, genuine and, to
Seller's knowledge, fully collectible in the aggregate amount thereof, less any
reserves for doubtful accounts recorded on the August 31 Financial Statements.
All accounts, notes receivable and other receivables of McCulloch or the
McCulloch Subsidiaries at August 31, 1995 have been included in the August 31
Financial Statements.
2.07. Inventory. Except as set forth in Section 2.07 of the
Disclosure Schedule, the inventories set forth in the August 31 Financial
Statements (as defined in Section 2.28) were properly stated therein at the
lesser of cost or fair market value
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<PAGE> 8
determined in accordance with generally accepted accounting principles
consistently maintained and applied by Seller. Since July 31, 1995, the
inventories related to the McCulloch Business have been maintained in the
ordinary course of business consistent with historical practice. Except for the
lien of the Lenders' Agent which is to be released at Closing, all such
inventories are owned free and clear of all liens, encumbrances or adverse
claims of any kind. All of the inventories recorded on the August 31 Financial
Statements (i) consist of, and all inventories related to the McCulloch Business
on the Closing Date will consist of, items of a quality usable or saleable in
the normal course of the McCulloch Business consistent with historical practice,
(ii) are free of any defect or deficiency and (iii) meet in all material
respects all required specifications of both McCulloch, its customers and
federal, state, foreign and local code standards, if applicable and are and will
be in quantities sufficient for the normal operation of the McCulloch Business
in accordance with historical practice.
2.08. Interim Operations. Since July 31, 1995, the McCulloch Business
has been conducted only in the ordinary and usual course consistent with past
practice and neither McCulloch nor the McCulloch Subsidiaries have incurred any
indebtedness nor entered into any purchase or sales commitments (other than
sales orders in the ordinary course of its business consistent with past
practices which are part of any open sales orders previously placed by customers
of the McCulloch Business) or any other contractual obligations in excess of
$100,000 not disclosed in Section 2.14 of the Disclosure Schedule, or pledged or
transferred any assets other than in the ordinary course of business. Except as
set forth in Section 2.08 of the Disclosure Schedule, since July 31, 1995 there
has not been:
(a) any event, occurrence, development or state of
circumstances or facts which has had or could reasonably be expected to have
a material adverse effect on the condition (financial or otherwise),
business, assets or results of operations of the McCulloch Business;
(b) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of
McCulloch or any McCulloch Subsidiary or any repurchase, redemption or other
acquisition by McCulloch or any McCulloch Subsidiary of any outstanding
shares of capital stock or other securities of, or other ownership interests
in, McCulloch or any McCulloch Subsidiary;
(c) [intentionally omitted];
(d) any amendment of any material term of any outstanding
security of McCulloch or any McCulloch Subsidiary;
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<PAGE> 9
(e) any incurrence, assumption or guarantee by McCulloch or
any McCulloch Subsidiary of any indebtedness for borrowed money;
(f) any creation or assumption by McCulloch or any McCulloch
Subsidiary of any lien, option or encumbrance of any kind on any material
asset of the McCulloch Business except for those of a kind permitted under
Section 2.09, or that are created or assumed in the ordinary and usual
course of business consistent with historical practices;
(g) any making of any loan, advance or capital contributions
to or investment in any person;
(h) any damage, destruction or other casualty loss (whether or
not covered by insurance) affecting the business or assets of the McCulloch
Business which, individually or in the aggregate, has had or would
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), business assets, results of operations or
prospects of the McCulloch Business;
(i) any transaction or commitment made, or any contract or
agreement entered into, in respect of the McCulloch Business relating to its
assets or business (including the acquisition or disposition of any assets)
or any relinquishment by the McCulloch Business of any contract or other
right, in either case, material to the McCulloch Business other than
transactions and commitments in the ordinary course of business consistent
with historical practices;
(j) any change in any method of accounting or accounting
practice by McCulloch or any McCulloch Subsidiary;
(k) any (i) employment, deferred compensation, severance,
retirement or other similar agreement entered into with any director,
officer or employee of McCulloch or any McCulloch Subsidiary (or any
amendment to any such existing agreement), (ii) grant of any severance or
termination pay to any director, officer or employee of McCulloch or any
McCulloch Subsidiary or (iii) change in compensation or other benefits
payable to any director, officer or employee of McCulloch or any McCulloch
Subsidiary pursuant to any severance or retirement plans or policies
thereof;
(l) any departure in collection practices with respect to
accounts receivable, whether from Shop Vac and the Shop Vac Affiliates
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<PAGE> 10
or any third party, from collection practices in the ordinary course of
business consistent with historically evidenced practice and standards;
(m) any departure in payment practices (both timing and
amount) with respect to accounts payable to any person, whether Shop Vac and
the Shop Vac Affiliates or any third party, from payment practice in the
ordinary course of business consistent with historically evidenced practice
and standards;
(n) any change in historical inventory management or
maintenance practices;
(o) any disposal of or permitting to lapse of any rights to
the use of any patent, trade mark, trade name or copyright, or any
disclosure to any person of any trade secret, formula, process or know-how
not theretofore a matter of public knowledge;
(p) any change in trade relations with Shop Vac and the Shop
Vac Affiliates from the ordinary course of business under terms consistent
with historical practice, particularly with respect to supply of goods or
services by Shop Vac and the Shop Vac Affiliates to McCulloch and the
McCulloch Subsidiaries and the distribution by Shop Vac and the Shop Vac
Affiliates of products of the McCulloch Business;
(q) any capital expenditure other than capital projects
currently under way which will be continued and paid for in the ordinary
course of business consistent with historical practice; or
(r) the production of any stock items above the quantities
needed to fill customer orders and replacement and repair needs.
2.09. Title to Properties; Encumbrances. (a) Except as set forth in
Section 2.09 of the Disclosure Schedule:
(i) each of McCulloch and the McCulloch Subsidiaries has good
and marketable indefeasible fee simple title to all the assets (whether
real, personal or tangible or intangible) relating to the McCulloch Business
including, without limitation, any molds used to manufacture plastic molded
parts for McCulloch products and any such plastic molded parts that have
been manufactured (and which as and at the Closing Date shall include the
Non-Owned McCulloch Assets) (the "Assets of the McCulloch Business") other
than those assets which are licensed to or leased or
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<PAGE> 11
rented by McCulloch, a McCulloch Subsidiary, Shop Vac or a Shop Vac
Affiliate, and
(ii) as of the date of execution hereof, Shop Vac and the Shop
Vac Affiliates have good and marketable indefeasible fee simple title to all
of the Non-Owned McCulloch Assets (whether real, personal or tangible or
intangible) other than those Non-Owned McCulloch Assets which are licensed
to or leased or rented by Shop Vac or a Shop Vac Affiliate;
in each case free and clear of all liens and encumbrances, except (i) liens for
taxes, assessments, water and sewer charges, excises, license fees and all other
fees, special assessments and charges assessed or imposed by a public body which
are not yet due and payable; (ii) defects and irregularities in title not
materially adversely affecting such property or the use therefore; (iii)
publicly recorded easements to utility companies, municipalities or public
authorities for utility lines and facilities servicing any real property and not
materially adversely affecting such real property or the use thereof; and (iv)
zoning and land use and occupancy restrictions, provided that there has been no
violation of such restrictions; (v) such imperfections of title, easements and
encumbrances, if any, as are not substantial in character, amount or extent, and
do not materially detract from the value of such property or assets as now used,
or materially interfere with any present or material use of such property or
assets; and (vi) prior to the Closing, liens of the Lenders' Agent ((i) to (vi)
and the matters set forth on section 2.09 of the Disclosure Schedule,
collectively, "Permitted Liens").
(b) Section 2.09 of the Disclosure Schedule lists all real property
owned by McCulloch or the McCulloch Subsidiaries.
(c) There are no developments affecting any such property or assets
(whether real or personal) pending or threatened which might materially detract
from the value of such property or assets or materially interfere with any
present or intended use of any such property or assets.
(d) McCulloch currently has access to (i) public roads or valid
easements over private streets or private property for such ingress and egress
from and support of all such real property and (ii) water supply, storm and
sanitary sewer facilities, telephone, gas and electrical connections, fire
protection, drainage and other public utilities, as is necessary for the conduct
of the McCulloch Business.
(e) None of the material structures on such owned real properties
encroaches upon real property of another person, and no structures of any other
person substantially encroaches upon any of such real properties.
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<PAGE> 12
2.10. Plant and Equipment. The plants, structures and
equipment owned or leased by McCulloch and the McCulloch Subsidiaries or in
respect of the McCulloch Business are structurally sound with no material
defects and are in good operating condition and repair and are adequate for the
uses to which they are being put. Except as set forth in Section 2.10 of the
Disclosure Schedule, neither Seller, the Shop Vac Affiliates, McCulloch nor any
McCulloch Subsidiary has received notification that it is in material default of
any applicable building, zoning, anti-pollution, health or other law, ordinance
or regulation in respect of its plants or structures or their operations related
to the McCulloch Business and, to the knowledge of the Seller, no such material
violation exists.
2.11. Patents, Trademarks, Trade Names, Etc. Except as set
forth in Section 2.11 of the Disclosure Schedule, McCulloch owns, or is licensed
or otherwise has the full and exclusive right to use, all patents, trademarks,
tradenames, copyrights, technology, know-how and processes used in or necessary
for the conduct of the McCulloch Business as currently conducted. Section 2.11
of the Disclosure Schedule contains a list of (i) all patents, trademarks, trade
names and copyrights used or proposed to be used in the McCulloch Business, all
applications therefore, and all licenses and other agreements relating thereto
and (ii) a list of all agreements relating to technology, know-how or processes
which McCulloch or any McCulloch Subsidiary is licensed or authorized to use by
others or which Shop Vac or any of the Shop Vac Affiliates are licensed or
authorized to use and use or propose to use or have used within two years prior
to the date hereof in the McCulloch Business (other than in connection with
electric motors, ground fault circuit interrupters and other parts or assemblies
supplied by Shop Vac or the Shop Vac Affiliates to McCulloch or the McCulloch
Subsidiaries). Except as set forth in Section 2.11 of the Disclosure Schedule,
no claims have been asserted by any person to the use of any of the patents,
trademarks, trade names, copyrights, technology, know-how or processes or
challenging or questioning the validity or effectiveness of any such license or
agreement set forth on Section 2.11 of the Disclosure Schedule which have not
been resolved, and the Seller does not know of any valid basis for any such
claim; and the use of such patents, trademarks, trade names, copyrights,
technology, know-how or processes by the McCulloch Business does not infringe on
the rights of any person and Seller has no knowledge of any continuing
infringement by any other person with respect thereto. None of the processes and
formulae, research and development results and other know-how relating to the
McCulloch Business, the value of which to Seller is contingent upon maintenance
of the confidentiality thereof, has been disclosed by Seller or any Shop Vac
Affiliate thereof to any person other than employees, representatives and agents
of Seller or the Shop Vac Affiliates involved in the McCulloch Business.
2.12. Leases. Section 2.12 of the Disclosure Schedule contains
an accurate list of all leases of real or personal property used in the
McCulloch Business Except as set forth in Section 2.12 of the Disclosure
Schedule: (i) all such leases are
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<PAGE> 13
valid, binding and enforceable in accordance with their terms, and are in full
force and effect; (ii) there are no existing defaults thereunder; (iii) no event
of default has occurred which (whether with or without notice, lapse of time or
the happening or occurrence of any other event) would constitute a default
thereunder; and (iv) except for any consents required of lessors thereunder,
which are set forth on Section 2.12 of the Disclosure Schedule, no consents of
lessors are necessary to the consummation of the transactions contemplated by
this Agreement.
2.13. Taxes. (a) Except as set forth in Section 2.13 of the
Disclosure Schedule, each of McCulloch and the McCulloch Subsidiaries has timely
and correctly filed all tax reports and returns required to be filed by it (the
"Returns") and have timely paid all taxes and other charges due or claimed to be
due from it by federal, state, local or foreign taxing authorities (including,
without limitation, those due in respect of the properties, income, franchises,
licenses, sales or payrolls of any of them); and there are no tax liens upon any
property or assets of McCulloch or any McCulloch Subsidiary except liens for
current taxes not yet due.
(b) Except as set forth in Section 2.13 of the Disclosure
Schedule:
(i) All Returns filed with respect to tax years of
McCulloch and the McCulloch Subsidiaries through the tax year ended
December 31, 1991 have been examined and closed or are Returns with
respect to which the applicable period for assessment under the
applicable law, after giving effect to extensions or waivers, has
expired.
(ii) Neither McCulloch nor any McCulloch Subsidiary
has requested any extension of time within which to file any Return and
has not yet filed such Return.
(iii) Neither McCulloch nor any McCulloch Subsidiary
(or any member of any affiliated, consolidated, combined or unitary
group of which McCulloch or any McCulloch Subsidiary is or has been a
member) has granted any extension or waiver of the statute of
limitations period applicable to any Return, which period (after giving
effect to such extension or waiver) has not yet expired.
(iv) There is no claim, audit, action, suit,
proceeding, or investigation now pending or threatened against or with
respect to McCulloch, any McCulloch Subsidiary or Seller or any Shop
Vac Affiliate in respect of any tax or tax asset.
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<PAGE> 14
(v) There are no requests for rulings or
determinations in respect of any tax or tax asset pending between
McCulloch or any McCulloch Subsidiary or (in respect to any Assets of
the McCulloch Business) Shop Vac or any Shop Vac Affiliate and any
taxing authority.
(vi) Neither McCulloch nor any McCulloch Subsidiary
owns, nor are any of the Assets of the McCulloch Business comprised of,
now or as of the Closing Date, any interest in real property in the
State of New York or in any other jurisdiction in which a tax is
imposed on the transfer of a controlling interest in an entity that
owns any interest in real property.
(vii) Neither McCulloch nor any McCulloch Subsidiary
is currently under any contractual obligation to pay any tax of any
other person as a result of being a member of an affiliated,
consolidated, combined or unitary group or being a party to any tax
sharing or tax indemnity agreement or other arrangement whereby
liability of McCulloch or any McCulloch Subsidiary for the payment of
any such amounts was determined or taken into account with reference to
the liability of any other person for any tax period.
(c) Section 2.13 of the Disclosure Schedule contains a list of
all jurisdictions (whether domestic or foreign) to which, to Seller's
knowledge, any tax is properly payable by McCulloch or any McCulloch
Subsidiary for the current fiscal year.
2.14. Contracts and Commitments. Each agreement, commitment,
arrangement or plan disclosed or required to be disclosed pursuant to this
Section is a valid and binding agreement of McCulloch or a McCulloch Subsidiary
and is in full force and effect, and except as set forth in Section 2.14(a) of
the Disclosure Schedule neither McCulloch nor any McCulloch Subsidiary nor, to
the knowledge of Seller, any other party thereto, is in default or breach in any
material respect under the terms of any such agreement, contract, plan, lease,
arrangement or commitment. Section 2.14(b) of the Disclosure Schedule contains a
list of all open price commitments made to customers of the McCulloch Business
("Open Price Commitments"). Except as set forth in Section 2.14(c) of the
Disclosure Schedule neither McCulloch nor any McCulloch Subsidiary is party to
nor bound by nor is there in respect of the McCulloch Business:
(a) any agreements, contracts or commitments which are
material to its business, operations or prospects;
(b) any lease (whether of real or personal property) providing
for annual rentals of $10,000 or more;
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<PAGE> 15
(c) any partnership, joint venture or other similar agreement
or arrangement;
(d) any agreement relating to the acquisition or disposition
of any business (whether by merger, sale of stock, sale or assets or
otherwise) entered into since May 30, 1990;
(e) any agreement relating to indebtedness for borrowed money
or the deferred purchase price of property (in either case whether
incurred, assumed, guaranteed or secured by any asset), except any such
agreement (i) with an aggregate outstanding principal amount not
exceeding $25,000 and which may be prepaid on not more than 30 days
notice without the payment of any penalty; and (ii) entered into
subsequent to the date of this agreement as permitted by Section
2.08(d);
(f) any license, franchise or similar agreement;
(g) any agency, dealer, sales representative, marketing or
similar agreement;
(h) any agreement that limits the freedom of McCulloch or the
McCulloch Subsidiaries to compete anywhere in the world in any line of
business or with any person or in any area or which would so limit
McCulloch or the McCulloch Subsidiaries after the Closing Date;
(i) any agreement with (i) Seller or any of the Shop Vac
Affiliates, (ii) any person directly or indirectly owning, controlling
or holding any securities of Seller or any of the Shop Vac Affiliates;
or (iii) any director or officer of Seller or any of the Shop Vac
Affiliates or any "associates" or members of the "immediate family" (as
such terms are respectively defined in Rule 12b-2 and Rule 16a-1 of the
1934 Act) of any such director or officer.
(j) any purchase contracts or commitments to purchase which
continue for a period of more than 12 months or are in excess of the
normal, ordinary and usual requirements of business or are in excess of
$100,000 in value.
(k) outstanding sales, distribution or other contracts,
commitments or proposals (whether as to price or otherwise) which
continue for a period of more than 12 months or are in excess of
$100,000 in value, or agreements, arrangements or understandings
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<PAGE> 16
(whether by way of discount, special terms or otherwise) relating to
any such contracts, commitments or proposals.
(l) all contracts, agreements, or commitments for employment
or personal services to which McCulloch or any McCulloch Subsidiary is
a party are terminable, without liability or expense, on 30 days' or
less notice, other than any severance or other payments required by
law.
2.15. Insurance. Section 2.15 of the Disclosure Schedule
contains an accurate and complete list of all policies of fire, liability,
workmen's compensation and other forms of insurance and fidelity bonds owned or
maintained covering the McCulloch Business. All such policies and bonds (or
others providing similar coverage) have been in effect since January 1, 1991,
and such policies and bonds are in full force and effect, all premiums with
respect thereto covering all periods up to and including the date of the Closing
have been, or will be, paid prior to the Closing if and when due except as
disclosed on Section 2.15 of the Disclosure Schedule, and no notice of
cancellation or termination has been received with respect to any such policy.
There is no claim related to the McCulloch Business pending under any such
policies or bonds for which coverage has been questioned, denied or disputed by
the underwriters of such policies or bonds or in respect of which such
underwriters have reserved their rights. All policies (other than benefit
insurance) are on an occurrence basis except as noted on Section 2.15 of the
Disclosure Schedule. Such policies are sufficient for compliance with all
requirements of law and of all agreements to which McCulloch or any McCulloch
Subsidiary is a party, and are valid, outstanding and enforceable policies.
McCulloch has been placed as a co-insured on such policies in so far as they
relate to the McCulloch Business in respect of claims over events occurring
prior to the Closing Date.
2.16. Labor Difficulties. Except as set forth in Section 2.16
of the Disclosure Schedule:
(a) McCulloch and all McCulloch Subsidiaries are in material
compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and
hours, and nondiscrimination in employment, and are not engaged in any
unfair labor practice;
(b) There is no unfair labor practice complaint against
McCulloch or any McCulloch Subsidiary pending before the National Labor
Relations Board;
(c) There is no labor strike, dispute, slowdown or stoppage
actually pending or threatened against or affecting McCulloch or any
McCulloch Subsidiary;
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<PAGE> 17
(d) No representation question exists respecting the employees
of McCulloch or any McCulloch Subsidiary;
(e) No grievance which might have a material adverse effect on
McCulloch or any McCulloch Subsidiary or the conduct of its business
nor any arbitration proceeding arising out of or under collective
bargaining agreements is pending and, to Seller's knowledge, no claim
therefore exists; and
(f) There have not been at any time within the last three
years any work stoppages or strikes at the locations owned or leased by
McCulloch or the McCulloch Subsidiaries.
(g) Neither McCulloch nor any McCulloch Subsidiary has any
collective bargaining or union contracts or agreements; and
(h) Neither McCulloch nor any McCulloch Subsidiary is the
subject of any threatened or actual union petition activity,
organizational campaign or other union organizational activity.
2.17. Employee Benefit Matters.
(a) Definitions. The following terms, as used herein, have the
following meanings:
"Benefit Arrangement" means any bonus, deferred compensation,
severance, disability, salary continuation, death benefit, vacation,
hospitalization or other medical, life or other insurance, supplemental
unemployment benefit, profit sharing, retirement, stock purchase, stock
option or any other employee benefit plan (written or unwritten) that
(i) is not an Employee Plan, (ii) is entered into or maintained, as the
case may be, by Seller or any of the Shop Vac Affiliates and (iii)
covers any U.S. employee or former employee of McCulloch or any
McCulloch Subsidiary.
"Employee Plan" means any "employee benefit plan", as defined
in Section 3(3) of ERISA, that (i) is subject to any provision of
ERISA, (ii) is maintained, administered or contributed to by Seller or
any of its ERISA Affiliates and (iii) covers any employee or former
employee of McCulloch or any McCulloch Subsidiary.
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<PAGE> 18
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto and the rules and
regulations promulgated thereunder.
"ERISA Affiliate" of any entity means any other entity which,
together with such entity, would be treated as a single employer under
Section 414 of the Code.
"International Plan" means any bonus, deferred compensation,
severance, disability, salary continuation, death benefit, vacation,
hospitalization or other medical, life or other insurance, supplemental
unemployment benefit, profit sharing, retirement, stock purchase, stock
option or any other employee benefit plan (written or unwritten) that
(i) is not an Employee Plan or Benefit Arrangement, (ii) is entered
into, maintained, administered or contributed to, as the case may be,
by the Seller or any of its affiliates and (iii) covers any employee or
former employee of McCulloch or any of the McCulloch Subsidiaries.
"McCulloch Plan" means the Title IV Plan known as the
McCulloch Employees' Pension Plan.
"Multiemployer Plan" means each Employee Plan that is a
multiemployer plan, as defined in Section 3(37) of ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Title IV Plan" means an Employee Plan, other than any
Multiemployer Plan, subject to Title IV of ERISA.
(b) Section 2.17(b) of the Disclosure Schedule identifies each
Employee Plan. Seller has furnished to Buyer copies of the Employee
Plans (and, if applicable, related trust agreements) and all amendments
thereto and written interpretations thereof together with (i) the most
recent annual report prepared in connection with any Employee Plan
(Form 5500 including, if applicable, Schedule B thereto) and (ii) the
most recent actuarial valuation report prepared in connection with any
Employee Plan. Section 2.17(b) of the Disclosure Schedule identifies
each Employee Plan which is (i) a Title IV Plan or (ii) maintained in
connection with any trust described in Section 501(c)(9) of the Code.
No Employee Plan is a Multiemployer Plan. Seller has provided Buyer
with complete age, salary, service and related data as of January 1,
1995 for all employees and former employees covered under any Title IV
Plan.
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<PAGE> 19
(c) As of January 1, 1995, the present value of all benefits
accrued under such Title IV Plan determined on a termination basis
using the assumptions established by the PBGC as in effect on such date
exceeded the fair market value of the assets of each Title IV Plan
(excluding for these purposes any accrued but unpaid contributions) by
$12,286,668. No Employee Plan is a plan described under Sections 4
(B)(5) or 401(a)(1) of ERISA.
(d) Seller has made the contributions to the McCulloch Plan on
the respective dates and in the respective amounts set forth on Section
2.17(d) of the Disclosure Schedule.
(e) Except as set forth in Section 2.17(e) of the Disclosure
Schedule:
(i) No "prohibited transaction", as defined in
Section 406 of ERISA or Section 4975 of the Code, has occurred
with respect to any Employee Plan or any other employee
benefit plan or arrangement maintained by McCulloch or any of
its ERISA Affiliates which is covered by Title I of ERISA,
excluding transactions effected pursuant to a statutory or
administrative exemption.
(ii) No "accumulated funding deficiency", as defined
in Section 412 of the Code, has been incurred with respect to
any Employee Plan subject to such Section 412, whether or not
waived. No "reportable event", within the meaning of Section
4043 of ERISA and regulations promulgated thereunder and no
event described in Section 4062 or 4063 of ERISA, has occurred
in connection with any Employee Plan.
(iii) Neither the Seller nor any ERISA Affiliated of
the Seller has (A) engaged in, or is a successor or parent
corporation to an entity that has engaged in, a transaction
described in Sections 4069 or 4212(c) of ERISA or (B)
incurred, or reasonably expects to incur prior to the Closing
Date, (aa) any liability under Title IV of ERISA arising in
connection with the termination of, or a complete or partial
withdrawal form, any plan covered or previously covered by
Title IV of ERISA or (bb) any liability under Section 412 or
Section 4971 of the Code that in either case could become a
liability of the Buyer or any of its ERISA
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<PAGE> 20
Affiliates after the Closing Date. No condition exists that
could constitute grounds for termination by the PBGC of any
employee benefit plan that is subject to Title IV of ERISA
that is maintained by McCulloch, any McCulloch Subsidiary or
any of their ERISA Affiliates. The assets of McCulloch and all
of the McCulloch Subsidiaries are not now, nor will they after
the passage of time be, subject to any lien imposed under Code
Section 412(n) by reason of a failure of any of the Seller,
the Shop Vac Affiliates, McCulloch or any McCulloch Subsidiary
to make timely installments or other payments required under
Code Section 412. Seller's "complete withdrawal" in 1993 from
the District 65 multiemployer pension plan will not cause
Buyer, McCulloch, any McCulloch Subsidiary or any of their
ERISA Affiliates to incur any withdrawal liability under Title
IV of ERISA.
(f) Each Employee Plan that is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified
during the period from its adoption to date; each trust created under
any such Plan is exempt from tax under Section 501(a) of the Code and
has been so exempt during the period from creation to date. Seller has
provided Buyer with the most recent determination letter (or
application to obtain such determination letter) of the Internal
Revenue Service relating to each such Employee Plan. To Seller's
knowledge, each Employee Plan has been maintained in substantial
compliance with its terms and with the requirements prescribed by any
and all applicable statutes, orders, rules and regulations, including
but not limited to ERISA and the Code.
(g) Section 2.17(g) of the Disclosure Schedule identifies each
Benefit Arrangement. Seller has furnished to Buyer copies or
descriptions of each Benefit Arrangement. Each Benefit Arrangement has
been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all applicable statutes, orders,
rules and regulations.
(b) Except as set forth in Section 2.17(h) of the Disclosure
Schedule, neither the Seller nor any of its ERISA Affiliates has any
current or projected liability in respect of post-employment or
post-retirement health or medical or life insurance benefits for
retired or former employees of the McCulloch or any of the McCulloch
Subsidiaries, except as required to avoid excise tax under Section
4980B of the Code. Section 11 of the letter agreement dated March 31,
1983
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<PAGE> 21
between McCulloch and Black and Decker continues to be in full force
and effect and neither McCulloch nor Black and Decker are in breach of
such agreement.
(i) There has been no amendment to, written interpretation of
or announcement (whether or nor written) by the Seller, McCulloch, any
McCulloch Subsidiary or any of their ERISA Affiliates relating to, or
change in employee participation or coverage under, any Employee Plan
or Benefit Arrangement that would increase materially the expense of
maintaining such Employee Plan or Benefit Arrangement above the level
of the expense incurred in respect thereof for the fiscal year ended
prior to the date hereof.
(j) There is no contract, agreement, plan or arrangement
covering any employee or former employee of McCulloch or any of the
McCulloch Subsidiaries that, individually or collectively, could give
rise to the payment of any amount that would not be deductible pursuant
to the terms of Section 280G of the Code as a result of the sale of
McCulloch Stock pursuant to this Agreement.
(k) No tax under Section 4980B of the Code has been incurred
in respect of any Employee Plan that is a group health plan, as defined
in Section 5000(b)(1) of the Code.
(l) Section 2.17(l) of the Disclosure Schedule identifies each
International Plan. To the extent available, Seller has furnished to
Buyer copies or descriptions of each International Plan (and, if
applicable, related trust agreements or funding vehicle documents) and
all amendments thereto and written interpretations thereof. Each
International Plan has been maintained in substantial compliance with
its terms and with the requirements prescribed by any and all
applicable statutes, orders, rules and regulations (including any
special provisions relating to qualified plans where such Plan was
intended to so qualify) and has been maintained in good standing with
applicable regulatory authorities. There has been no amendment to,
written interpretation of or announcement (whether or not written) by
the Seller, McCulloch or any McCulloch Subsidiary relating to, or
change in employee participation or coverage under, any International
Plan that would increase materially the expense of maintaining such
International Plan above the level of expense incurred in respect
thereof for the most recent fiscal year ended prior to the date hereof.
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<PAGE> 22
2.18. Litigation. Except as set forth in Section 2.18 of the
Disclosure Schedule, there is no action, suit, inquiry, proceeding or
investigation by or before any court or governmental or other regulatory or
administrative agency or commission pending or, to the best knowledge of Seller,
threatened against or involving (a) the McCulloch Business, McCulloch or any
McCulloch Subsidiary; or (b) Seller or any Shop Vac Affiliate which could have a
material adverse affect on Seller's ability, or the ability of any Shop Vac
Affiliate, to consummate the transactions contemplated by this Agreement.
2.19. No Condemnation or Expropriation. Neither the whole nor
any portion of the leaseholds or any other real property assets of the McCulloch
Business subject to any governmental decree or order to be sold or is being
condemned, expropriated or otherwise taken by any public authority with or
without payment of compensation therefore, nor to the Seller's knowledge has any
such condemnation, expropriation or taking been proposed.
2.20. Consents and Approvals of Governmental Authorities.
Except as set forth on Schedule 2.20, no consent, approval or authorization of,
or declaration, filing or registration with, any governmental or regulatory
authority (including any foreign government or authority) is required in
connection with the execution, delivery and performance of this Agreement by
Seller; provided, however, that with respect to Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), Seller is relying on the
representation of Buyer in Section 3.05 hereof in making this representation.
2.21. Non-Governmental Consents. Except for the consent of
lenders to Shop Vac and its subsidiaries and as will be set forth in Section
2.21 and Section 2.12 (with respect to leases) of the Disclosure Schedule, no
consent of any non-governmental person will be necessary to the execution,
delivery and performance of this Agreement, including, without limitation,
consents from parties to loans, and material contracts, leases or other
agreements.
2.22. Compliance with Law. The operations of the McCulloch
Business have been conducted in material compliance with all applicable laws,
regulations and other requirements of all U.S. and foreign governmental
authorities, and of all states, municipalities and other political subdivisions
and agencies thereof, having jurisdiction over the McCulloch Business,
including, without limitation, all such laws, regulations and requirements
relating to antitrust, consumer protection, currency exchange, equal
opportunity, health, occupational safety, pension, securities and
trading-with-the-enemy matters. Except as set forth in Section 2.22 of the
Disclosure Schedule, neither McCulloch nor any McCulloch Subsidiary nor Seller
nor any Shop Vac Affiliate has received any notification in the 5 years to date
of any asserted present or past failure by
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<PAGE> 23
the McCulloch Business to comply with such laws, rules or regulations that has
not been resolved favorably.
2.23. Environmental Protection. (a) Except as set forth in
Section 2.23 of the Disclosure Schedule, McCulloch and the McCulloch
Subsidiaries have obtained all Environmental Permits identified in clause (x) of
the definition of Environmental Permits in Section 2.23(e)(iv) are in material
compliance with all terms and conditions of such Environmental Permits, and are
also in material compliance with all Environmental Laws. All Environmental
Permits identified in clause (y) of the definition of Environmental Permits in
Section 2.23(e)(iv) have been obtained by Shop Vac and the Shop Vac Affiliates
and all Assets of the McCulloch Business are being operated in compliance with
terms of such Environmental Permits.
(b) Except as set forth in Section 2.23 of the Disclosure
Schedule:
(i) no notice, notification, demand, request for
information, citation, summons, complaint or order has been
issued, no complaint has been filed, no penalty has been
assessed and no investigation or review is pending, or to
Seller's knowledge, threatened by any governmental entity or
other Person with respect to any (A) alleged violation of any
Environmental Law or liability thereunder, (B) alleged failure
to have any Environmental Permit or (C) generation, treatment,
storage, recycling, transportation, disposal or Release of any
Hazardous Substance, in each case (x) by McCulloch or any
McCulloch Subsidiary or (y) relating to or arising in
connection with any Assets of the McCulloch Business;
(ii) no polychlorinated biphenyls, radioactive
material, urea formaldehyde, lead, asbestos,
asbestos-containing material or underground storage tank
(active or abandoned) is or has been present at any property
now or previously owned, leased or operated by McCulloch or
any McCulloch Subsidiary or as part of the McCulloch Business;
(iii) no Hazardous Substance has been Released (and
no notification of such Release has been filed or made) at, on
or under any property now or previously owned, leased or
operated by McCulloch or any McCulloch Subsidiary;
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<PAGE> 24
(iv) no property now or previously owned, leased or
operated by McCulloch or any McCulloch Subsidiary, nor any
property to which McCulloch or any McCulloch Subsidiary has,
directly or indirectly, transported or arranged for the
transportation of any Hazardous Substances nor any property to
which any Hazardous Substance resulting from the use of any
Assets of the McCulloch Business has been transported, is
listed or, to Seller's knowledge, proposed for listing, on the
National Priorities List promulgated pursuant to CERCLA, or
CERCLIS (as defined in CERCLA) or on any similar federal,
state or foreign list of sites requiring investigation or
clean-up;
(v) there are no Environmental Permits that are
nontransferable or require consent, notification or other
action to remain in full force and effect following the
consummation of the transactions contemplated hereby.
(c) There has been no environmental investigation, study,
audit, test, review or other analysis conducted of which Seller has
knowledge in relation to the current or prior business of McCulloch or
any property or facility now or previously owned or leased by McCulloch
or any McCulloch Subsidiary which has not been delivered to Buyer at
least five days prior to the date hereof.
(d) For purposes of this Section, the terms "McCulloch" and
"McCulloch Subsidiary" shall include any entity which is, in whole or
in part, a predecessor of McCulloch or any McCulloch Subsidiary.
(e) As used in this Agreement, the following terms have the
following meanings:
(i) "CERCLA" means the Comprehensive Environmental
Response, Compensation and Liability act of 1980, as amended
from time to time and the regulations promulgated thereunder.
(ii) "Environmental Laws" means any and all federal,
state, local and foreign statutes, laws, judicial decisions,
regulations, ordinances, rules, judgments, orders, decrees,
codes, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and
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<PAGE> 25
governmental restrictions, whether now or hereafter in effect,
relating to human health, the environment or to emissions,
discharges or releases of pollutants, contaminants, hazardous
or toxic materials or substances or wastes into the
environment, including without limitation ambient air, surface
water, ground water or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants,
contaminants, hazardous or toxic materials or substances or
wastes or the clean-up or other remediation thereof.
(iii) "Environmental Liabilities" means any and all
liabilities of or relating to McCulloch and any McCulloch
Subsidiary (including any entity which is, in whole or in
part, a predecessor of McCulloch or any McCulloch Subsidiary)
or arising in connection with or in any way relating to any
Asset of the McCulloch Business, whether vested or unvested,
contingent or fixed, actual or potential, known or unknown,
which (i) arise under or relate to matters covered by
Environmental Laws (including without limitation any matters
disclosed or required to be disclosed in Section 2.23 of the
Disclosure Schedule hereto) and (ii) relate to actions
occurring or conditions existing on or prior to the Closing
Date.
(iv) "Environmental Permits" means all permits,
licenses, authorizations, certificates and approvals of
governmental authorities relating to or required by
Environmental Laws and necessary or proper for (x) the
business of McCulloch or any McCulloch Subsidiary as currently
conducted or (y) the operation of any Asset of the McCulloch
Business.
(v) "Hazardous Substances" means any toxic
radioactive, caustic or otherwise hazardous substance,
including petroleum, its derivative, by-products and other
hydrocarbons, or any substance having any constituent elements
displaying any of the foregoing characteristics, including,
without limitation, any substance regulated under
Environmental Laws.
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<PAGE> 26
(vi) "Release" means any discharge, emission or
release, including a Release as defined in CERCLA at 42 U.S.C.
Section 9601(22). The term "Released" has a corresponding
meaning.
2.24. Brokers and Finders. With the exception of PaineWebber
Incorporated, financial advisor to Seller, and the Seller's obligations thereto,
neither Seller nor any respective officers, directors or employees has employed
any broker or finder or incurred any liability for any brokerage fees,
commissions or finders' fees in connection with the transactions contemplated by
this Agreement.
2.25. Disclosure. No representations or warranties by Seller
in this Agreement (including the Disclosure Schedule) and no statement contained
in any document, certificate, or other writing furnished or to be furnished by
Seller to Buyer pursuant to the provisions hereof or in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of material fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.
2.26. Transfer of Non Owned McCulloch Assets. All assets that
are not owned by McCulloch or the McCulloch Subsidiaries as of the date of
execution hereof and that are used or held for use in connection with the
McCulloch Business or are necessary to operate the McCulloch Business in a
manner consistent with the way it has been operated during the immediately
preceding twelve (12) months but excluding those assets set forth in Section
2.26(a) of the Disclosure Schedule (the "Non Owned McCulloch Assets") (i) are
set forth on Section 2.26(b) of the Disclosure Schedule and (ii) will be
transferred to McCulloch or a McCulloch Subsidiary prior to the Closing under a
Contribution Agreement, free and clear of all liens and encumbrances except
Permitted Liens and to the Seller's knowledge there are no potential future
liens or encumbrances or, in the case of any property that is included in the
Non Owned McCulloch Assets that is leased, licensed or rented by Shop Vac or a
Shop Vac Affiliate, such property will be assigned, subleased or sublicensed to
McCulloch prior to Closing. Prior to the Closing Seller shall cooperate fully
with Buyer in determining whether all the Non Owned McCulloch Assets are
identified in Section 2.26(b) of the Disclosure Schedule. Buyer and Seller agree
that prior to Closing Seller shall make any necessary changes to Section 2.26(b)
of the Disclosure Schedule.
2.27. No Liabilities. Except for (j) liabilities or
obligations which are disclosed or reserved against in the August 31 Financial
Statements, (ii) liabilities or obligations incurred in the ordinary and usual
course of business consistent with past practice subsequent to August 31, 1995,
and (iii) liabilities or obligations disclosed in this Agreement or the
Disclosure Schedule or which by the terms of this Agreement are permitted to be
incurred after the date hereof, neither McCulloch nor the McCulloch
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<PAGE> 27
Subsidiaries has any liabilities of any kind whatsoever whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which could reasonably be
said to result in such a liability.
2.28. Financial Statements. The balance sheets of McCulloch
and the McCulloch Subsidiaries and the related statements of income, changes in
stockholders' equity and cash flow for the period then ended as of December 31,
1994 (the "December 31 Financial Statements") set forth in Section 2.28(a) of
the Disclosure Schedule and the balance sheet of the McCulloch Business as of
August 31, 1995 (the "August 31 Financial Statements") (collectively "the
Financial Statements") are set forth in Section 2.28(b) of the Disclosure
Schedule. The December 31, 1994 Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis (other than changes in classifications reflected on the December 31
Financial Statements) and present fairly the financial position of McCulloch and
its subsidiaries included therein as and at such date and the results of the
operations of McCulloch and the McCulloch Subsidiaries included therein for such
periods and fairly set forth the information purported to be shown therein. The
August 31 Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis (other than changes
in classifications reflected on the August 31 Financial Statements or necessary
to include on a pro forma basis the Non Owned McCulloch Assets to be transferred
to McCulloch or a McCulloch Subsidiary pursuant hereto) and presents fairly the
financial position of the McCulloch Business at and as of such date and fairly
sets forth the information purported to be shown therein.
2.29. Products. Except as set forth in Section 2.29 of the
Disclosure Schedule, each of the products sold in connection with the McCulloch
Business since May 30, 1990, was at the time of sale, (a) in compliance in all
material respects with all applicable federal, state, local and foreign laws and
regulations of the jurisdiction where sold and (b) fit for the ordinary purposes
for which it was intended to be used and conformed in all material respects to
any promises or affirmations of fact made on the container or label for such
product or in connection with its sale. There is no design defect with respect
to any of such products, and each of such products contains adequate warnings,
presented in a reasonably prominent manner, in accordance with applicable laws,
rules and regulations and current industry practice with respect to its contents
and use.
2.30. Distributor Agreements. Except as set forth in Section
2.30 of the Disclosure Schedule, neither Seller, any Shop Vac Affiliate,
McCulloch nor any McCulloch Subsidiary has received notice of termination from
any distributor of McCulloch products, and to the best of Seller's knowledge, no
distributor of McCulloch products intends to exercise any right to terminate any
distributor agreement as a result of the transactions contemplated by this
Agreement or is otherwise involved in a dispute
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over the agreement. No distributor has notified Seller or any Shop Vac Affiliate
of any problem, notice of termination or intention to terminate by any dealer.
2.31. Shop Vac Guarantees. There are no guarantees by Shop Vac
or the Shop Vac Affiliates involving the McCulloch Business which involve any
covenants whatsoever other than covenants confined to the actual payment of
money under such guarantee.
2.32. Intercompany Accounts. The U.S. Intercompany Accounts
Receivable Statement set out in Section 2.32 of the Disclosure Schedule
accurately reflects the historical information contained therein, is prepared on
a consistent basis and is derived from the books and records of Seller. The
projections for the month of October reflected in such Statement for each of the
items "Cash Receipts", "Cash Disbursements" and the items included under
"Payments Made by SVC for McCulloch" fairly present and reflect Seller's best
reasonable estimate of each such item for the period from October 1 to October
31, 1995, calculated on a basis consistent with corresponding amounts for the
prior months reflected in the U.S. Intercompany Accounts Receivable Statement
and assuming that the McCulloch Business is conducted from October 1, 1995 to
the October 31, 1995 only in the ordinary and usual course of business
consistent with past practice and in accordance with the provisions of Section
2.08 and Article IX of this Agreement. The projections for the month of October
contained in the Balance Sheet of McCulloch Italy set out in Section 2.32 of the
Disclosure Schedule fairly present and reflect Seller's best reasonable estimate
of each such item for the period from October 1 to October 31, 1995, calculated
on a basis consistent with corresponding items for the prior months reflected in
such balance sheet and assuming that the business of McCulloch Italy is
conducted from October 1, 1995 to October 31, 1995 only in the ordinary and
usual course of business consistent with past practice and in accordance with
the provisions of Section 2.08 and Article IX of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
3.01. Corporate Organization. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer has heretofore delivered to Seller a true and complete copy of
the Certificate of Incorporation of Buyer as currently in effect.
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<PAGE> 29
3.02. Capitalization and Ownership of Buyer.
(a) The authorized capital stock of Buyer consists of 100
shares of common stock, of which as of the date hereof 100 shares are
issued and outstanding;
(b) as of the date hereof, the issued and outstanding common
stock of Buyer is owned by DLJ Merchant Banking Partners, L.P.; and
(c) except for the Commitment Letter dated October 21, 1995
(the "Commitment Letter"), a true and correct copy of which has
heretofore been delivered to Seller, there are no outstanding options,
rights or agreements of any kind relating to the issuance, sale or
transfer of any capital stock or other equity securities of Buyer to
any other persons.
3.03. Authorization; Enforceability. Buyer has full corporate
power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby. The Board of Directors of Buyer has taken all
action required by law, its Certificate of Incorporation and By-Laws or
otherwise to authorize the execution and delivery of this Agreement and the
transactions contemplated hereby and no action by the stockholders of Buyer is
required, and this Agreement is a valid and binding agreement of Buyer
enforceable in accordance with its terms except that such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
3.04. No Violation. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby, including the purchase of the McCulloch Stock by Buyer,
will (i) violate any provisions of the Certificate of Incorporation or By-Laws
of Buyer or any shareholder of Buyer; (ii) violate any applicable law, rule,
regulation, judgment, injunction, order or decree; or (iii) be in conflict with,
or constitute a default under, or cause the acceleration of the maturity of any
debt or obligation pursuant to, any agreement or commitment to which Buyer is a
party, including, without limitation, the Commitment Letters, or by which Buyer
is bound, or violate any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental authority by which Buyer or any
shareholder of Buyer is bound.
3.05. No Consents. No consent, approval or authorization of,
or declaration, filing or registration with, any governmental or regulatory
authority (including any foreign government or authority) or any other person
(other than the
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consent of Buyer's Board of Directors that has already been obtained) is
required in connection with the execution, delivery and performance of this
Agreement by Buyer and Buyer hereby represents and warrants to Seller that Buyer
is not subject to Section 7A of the Clayton Act, 15 U.S.C. Section 18(a), as
added by Section 201 of the HSR, and the rules promulgated thereunder, and is
therefore not required to file a Notification and Report Form under the HSR and
to observe the required waiting period before consummating the transactions
contemplated in this Agreement.
3.06. Litigation. There is no action, suit, inquiry,
proceeding or investigation by or before any court or governmental or other
regulatory or administrative agency or commission pending or, to the best
knowledge of Buyer, threatened against or involving Buyer or any affiliate,
proposed shareholder or organizer of Buyer which could have a material adverse
effect on Buyer's ability to consummate the transactions contemplated by this
Agreement.
3.07. Brokers and Finders. Except for services provided by
Donaldson, Lufkin & Jenrette Securities Corporation neither Buyer nor any of its
shareholders, officers, directors or employees have employed any broker or
finder or incurred any liability for any brokerage fees, commissions or finders'
fees in connection with the transactions contemplated by this Agreement.
3.08. Financing. Buyer has, or will have, prior to Closing,
sufficient cash to enable it to fulfil its obligations under this Agreement and
to consummate the transactions contemplated hereunder.
ARTICLE IV
PRE-CLOSING COVENANTS OF SELLER
Seller hereby covenants and agrees with Buyer as follows:
4.01. Full Access. Seller shall, and shall cause the Shop Vac
Affiliates to, afford to Buyer, its counsel, accountants and other
representatives full access to the plants, offices, warehouses, properties,
books and records of Shop Vac, each Shop Vac Affiliate, McCulloch and each
McCulloch Subsidiary in order that Buyer may have full opportunity to make such
investigations as it shall desire to make of the affairs of McCulloch and the
McCulloch Subsidiaries and of Shop Vac and the Shop Vac Affiliates to the extent
relevant to potential liabilities of the McCulloch Business, McCulloch, the
McCulloch Subsidiaries and Buyer, and to the extent relevant to Buyer
identifying Assets of the McCulloch Business; and Shop Vac will cause its
officers and accountants to furnish such additional financial and operating data
and other information related to the McCulloch Business as Buyer shall from time
to time reasonably request; provided,
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<PAGE> 31
however, that any such investigation shall be conducted in such a manner as not
to interfere unreasonably with the operation of the businesses of Shop Vac and
its subsidiaries, including McCulloch and the McCulloch Subsidiaries. Shop Vac
shall afford to Buyer, its counsel, accountants and other representatives full
access to the Non-Owned McCulloch Assets and to the books and records related to
the value of such Non-Owned McCulloch Assets and the use thereof in the
McCulloch Business. No such investigation by Buyer shall serve as a waiver or
otherwise affect any representation, warranty or agreement given or made by
Seller hereunder.
4.02. Consents of Lenders and Others. Shop Vac shall, and
shall cause each Shop Vac subsidiary to, use its best efforts to obtain at the
earliest practicable date and prior to the Closing all consents of lenders of
Shop Vac and its subsidiaries and other persons necessary to the consummation of
the transactions contemplated hereby. All such consents shall be in the form set
out in Exhibit H and in writing and copies thereof will be delivered to Buyer at
or prior to Closing.
4.03. Intercompany Accounts. At Closing, Shop Vac and its
subsidiaries shall with respect to all intercompany accounts for product payable
to McCulloch or the McCulloch Subsidiaries which are past due either pay each
such account in full or arrange for the orderly transfer of corresponding
inventory to McCulloch or such McCulloch Subsidiary (any such transfer being
subject to such inventory (i) consisting of items useable or saleable in the
normal course of the McCulloch Business consistent with historical practice,
(ii) being free of any defect or deficiency, (iii) meeting in all material
respects all required specifications of both McCulloch and its customers and
federal, state, foreign and local code standards, if applicable), (iv) being the
subject of an outstanding invoice to which the intercompany account payable
relates (or in substitute for such product, product of exactly the same product
description and quality as such product and providing any such substitution
shall be on terms and conditions and with such adjustments as Buyer may agree);
and (v) being delivered, at Seller's expense, in accordance with McCulloch's
directions, including as to destination (Seller to provide 5 days prior written
notice to McCulloch of its decision to return any inventory hereunder).
4.04. Employee Benefit Plan Contributions. At or prior to the
Closing Date, Seller shall, or shall cause McCulloch to, contribute to the
McCulloch Plan an amount which, when added to the amounts contributed to such
plan in respect of 1995 as disclosed in Section 2.17(d) of the Disclosure
Schedule is not less than 84% of the amount required under section 412 of the
Code to be contributed to such Employee Plan for 1995. In furtherance of the
foregoing, Seller or McCulloch shall cause the actuaries for the McCulloch Plan
to finalize the actual valuation report for such Employee Plan for 1995.
4.05. Transfer of Non-Owned McCulloch Assets. (a)
Contemporaneously with the execution of this Agreement or as soon as practicable
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thereafter, but in any event prior to the Closing Date, Shop Vac shall, and
shall cause the Shop Vac Affiliates to, take all necessary action to transfer
the Non-Owned McCulloch Assets set forth in Section 2.26 of the Disclosure
Schedule to McCulloch.
(b) At or prior to the Closing, Shop Vac shall arrange for the
execution of Nominating Share Transfer Agreements by Nominating Shareholders of
McCulloch Italy and McCulloch Mexico.
4.06. Covenant to Satisfy Conditions. Seller and Shop Vac
Affiliates will use their respective best efforts to cause the conditions set
forth in Article VIII hereof to be satisfied, insofar as such matters are within
the control of any of them.
4.07. Insurance. (a) Seller and the Shop Vac Affiliates shall
use their respective best efforts to cause Buyer to be named, effective as of
the Closing Date, as an additional insured on Seller's or Shop Vac Affiliates'
general liability, automobile liability, property/boiler machinery and umbrella
policies covering operations of the McCulloch Business prior to the Closing
Date. Seller and the Shop Vac Affiliates shall use best efforts to cause Buyer
to be named, effective as of the Closing Date, as additional insured on Seller's
or the Shop Vac Affiliates workers' compensation and employer's liability
policies, if any, covering operations of McCulloch Business prior to the Closing
Date provided, however, that Shop Vac and the Shop Vac Affiliates shall not be
required to agree to any increased premium that may be required by the insurers.
(b) Seller and the Shop Vac Affiliates shall use their
respective best efforts to obtain the right of the Buyer from the insurers in
respect of policies referred to in Section 2.15 of this Agreement to report,
assert and prosecute claims against those insurers which provide coverage to the
McCulloch Business under the Seller's or Shop Vac Affiliates' insurance programs
provided, however that Shop Vac and the Shop Vac Affiliates shall not be
required to agree to any increased premium that may be required by the insurers.
This only applies to claims for which there is coverage for the McCulloch
Business in respect of occurrences prior to the Closing Date
4.08. Loan Documents. Shop Vac shall, and shall cause each
Shop Vac Affiliate to, prior to the Closing, execute and use their respective
best efforts to obtain Lender's consents to the releases of McCulloch, the
McCulloch Subsidiaries and all Assets of the McCulloch Business (including the
Non Owned McCulloch Assets) from any obligation to lenders to Shop Vac and its
affiliates and any security arrangements or collateral thereto.
4.09. Cash Management. Seller shall use its best efforts to
manage cash disbursements of the McCulloch Business made on behalf of McCulloch
from the date hereof to the Closing Date so as to ensure that the Net Monthly
Activity from October 1 to the Closing Date (calculated on a basis consistent
with the basis upon which the Net
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Monthly Activity for the month of January through September 31 were calculated
in Section 2.32 of the Disclosure Schedule) shall be $4,031,000. Seller shall be
responsible for and shall honor all checks which are issued by or on behalf of
McCulloch and its subsidiaries before Closing and which are presented for
payment after Closing.
4.10. Statement. (a) As promptly as practicable, but no later
than 10 business days after the Closing Date, Sellers shall prepare and deliver
to Buyer a Statement of the Intercompany Accounts Receivables Activity for the
period October 1 through to the Closing Date (the "U.S. Statement") prepared on
a basis consistent with Section 2.32 of the Disclosure Schedule. The Executive
Vice President of Seller shall certify that the Statement fairly reflects the
Net Monthly Activity for the period October 1, 1995 to the Closing Date
calculated on a basis consistent with Section 2.32 of the Disclosure Schedule
(the "Closing Period U.S. Activity Amount"). Following the Closing, Seller shall
give Buyer and any auditors of Buyer access at all reasonable times to the
properties, books, records and personnel of the Seller and the McCulloch
Business relating to periods prior to the Closing Date for purposes of reviewing
such statements. Buyer shall have 30 days following delivery to Buyer of such
statements during which to notify Seller of any dispute of any item contained in
the Statement, which notice shall set forth in reasonable detail the basis for
such dispute. If Buyer fails to notify Seller of any such dispute within such
30-day period, the Statement shall be deemed to be the Final Statement. In the
event that Buyer shall so notify Seller of any dispute, Buyer and Seller shall
cooperate in good faith to resolve such dispute as promptly as possible.
(b) If Buyer and Seller are unable to resolve any such dispute
within 15 days of Buyer's delivery of such notice, such dispute shall be
resolved by such independent accounting firm as the parties may agree, and such
determination shall be final and binding on the parties. If Seller and Buyer
cannot mutually agree on the identity of the independent accounting firm, Seller
and Buyer shall each submit to the other party's independent auditor the name of
a big six accounting firm which does not at the time and has not in the prior
two years provided services to Seller or Buyer, and an independent accounting
firm shall be selected by lot from these two firms by the independent auditors
of the two parties. Any expenses relating to the engagement of the independent
accounting firm shall be shared equally by Buyer and Seller. The independent
accounting firm shall be instructed to use every reasonable effort to perform
its services within 30 days of submission of the Statement to it and, in any
case, as promptly as practicable after such submission. The U.S. Statement, as
modified by resolution of any disputes by Buyers and Seller or by the
independent accounting firm, shall be the Final Statement.
(c) An amount being equal to the difference between $6,665,000
and the Closing Period U.S. Activity Amount reflected on the Final Statement
shall be the Net Intercompany Settlement Amount for the purposes of determining
the Monthly Credits referred to in Section 5(d) of the Co-Pack Agreement
refereed to in Section 8.07 hereof.
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4.11 Warehousing. Prior to closing Seller and Buyer shall
agree on mutually acceptable transitional arrangements for a period of 90 days
for:
(a) Shop Vac to continue to use that portion of the McCulloch
warehouse facility currently used by Seller at Tucson, Arizona rent-free to
store and distribute Shop Vac products; and
(b) McCulloch to use that portion of the Shop Vac of Canada
warehouse in Burlington, Canada currently used in respect of McCulloch products
from the Closing date rent-free to store and distribute McCulloch products.
Both Shop Vac and McCulloch shall move to new warehouse
facilities within 90 days following Closing.
4.12 Irish Supply Agreement. At or prior to Closing McCulloch
Ireland Limited ("McCulloch Ireland") and McCulloch Italy shall enter into a
Product Supply Agreement on terms reasonably satisfactory to McCulloch Italy
under which McCulloch shall supply certain string trimmers, other products and
parts to McCulloch Italy for a period of 2 years, at prices to be acceptable to
Buyer and Seller calculated using the same methodology as used for prices in the
Co-Pack Agreement referred to in Section 8.07 hereof except there shall be no
component of such prices for depreciation on assets (other than real estate)
related to the manufacture of such products. The Agreement shall provide that
McCulloch may terminate such agreement at any time on 90 days written notice, or
extend such agreement in respect of any products for an additional year on 90
days notice prior to expiration of the 2 years.
4.13 Component Supply Agreement. At or prior to Closing
McCulloch and Shop Vac and Felchar Manufacturing Corporation shall enter into a
Component Supply Agreement substantially in the same form as set out in Exhibit
F-2.
ARTICLE V
PRE-CLOSING COVENANTS OF BUYER
5.01. Covenant to Satisfy Conditions. Buyer will use its best
efforts to cause the conditions set forth in Article VII hereof to be satisfied,
insofar as such matters are within the control of Buyer.
ARTICLE VI
CONFIDENTIALITY AND PUBLICITY
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6.01. Confidentiality. (a) Each party hereto will hold and
will cause its consultants and advisors to hold in strict confidence, unless
compelled to disclose by judicial or administrative process or, in the opinion
of its counsel, by other requirements of law, all documents and information
concerning the other party (other than, with respect to Buyer's obligations
hereunder after the Closing Date, documents and information relating to the
McCulloch Business) furnished it by such other party or its representatives in
connection with the transactions contemplated by this Agreement (except to the
extent that such information can be shown to have been (i) in the public domain
through no fault of such party, or (ii) later lawfully acquired from other
sources by the party to which it was furnished), and each party will not release
or disclose such information to any other person, except its auditors,
attorneys, financial advisors, bankers and other consultants and advisors in
connection with this Agreement.
(b) After Closing, Seller and the Shop Vac Affiliates will
hold, and will use their best efforts to cause their respective officers,
directors, employees, accountants, counsel, consultants, advisors and agents to
hold, in confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law, all confidential documents and
information concerning the McCulloch Business, except to the extent that such
information can be shown to have been (i) previously known on a nonconfidential
basis by Seller, (ii) in the public domain through no fault of Seller or (iii)
later lawfully acquired by Seller from sources other than those related to its
prior ownership of the McCulloch Business. The obligation of Seller and the Shop
Vac Affiliates to hold any such information in confidence shall be satisfied if
they exercise the same care with respect to such information as they would take
to preserve the confidentiality of their own similar information.
(c) If the transactions contemplated by this Agreement are not
consummated, such confidence shall be maintained except to the extent such
information comes into the public domain through no fault of the party required
to hold it in confidence, and such information shall not be used to the
detriment of, or in relation to any investment in, the other party and all such
documents (including copies thereof) shall be returned to the other party
immediately upon the written request of such other party. Each party shall be
deemed to have satisfied its obligation to hold confidential information
concerning or supplied by the other party if it exercises the same care as it
takes to preserve confidentiality for its own similar information.
(d) Each party agrees that it will cooperate with and make
available to the other party, and shall cause its affiliates, advisors,
consultants, employees, agents and representatives to cooperate with and make
available to the other party, during normal business hours, all books of account
and other financial records (including, without limitation, accountant's work
papers) pertaining to the McCulloch Business ("BOOKS AND RECORDS"), information
and employees (without substantial disruption of employment) retained and
remaining in existence after the Closing Date which are necessary or useful
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in connection with any inquiry relating to taxes or any audit, investigation or
dispute, any ligation or investigation or any other matter requiring any such
Books and Records, information or employees for any reasonable business purpose,
including for the purpose of any future financing (including by way of private
placement memorandum, registration statements, prospectus or otherwise). The
party requesting any such Books and Records, information or employees shall bear
all of the out-of-pocket costs and expenses (including, without limitation,
attorneys' fees, but excluding reimbursement for general overhead, salaries and
employee benefits) reasonably incurred in connection with providing such Books
and Records, information or employees. The Seller may require certain financial
information relating to the McCulloch Business for periods prior to the Closing
Date for the purpose of filing federal, state, local and foreign tax returns and
other governmental reports, and the Buyer agrees to furnish such information to
the Seller at the Seller's request and expense (on the same basis as in the
immediately preceding sentence).
6.02. Publicity. Except as required by law, the rules of any
stock exchange or any governmental authority, prior to the Closing Date no
public announcement or other publicity regarding the transactions referred to
herein shall be made by Buyer, Seller or any of the respective affiliates,
officers, directors, employees, representatives or agents, without the prior
written approval of both Buyer and Seller as to form, timing and manner of
distribution or publication; provided, however, that nothing in this Section
6.02 shall prevent such parties from disclosing this Agreement and discussing
such transactions with those persons whose approval, consent, agreement or
opinion, as the case may be, is required for consummation of this Agreement.
6.03. Notices of Certain Events. (a) Seller and Buyer shall
promptly notify the other party of:
(i) any notice or other communication from any person alleging
that the consent of such person is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental
or regulatory agency or authority (U.S. or foreign) in connection with
the transactions contemplated by this Agreement; or
(iii) any actions, suits, claims, investigations or
proceedings commenced or, to such party's knowledge threatened against,
relating to or involving or otherwise affecting the McCulloch Business
or such party that, if pending on the date of this Agreement, would
have been required to have been disclosed pursuant to Section 2.18 in
the case of Seller or Section 3.06 in the case of Buyer, or that relate
to the consummation of the transactions contemplated by this Agreement;
and
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(b) Seller shall promptly notify Buyer of the damage or
destruction by fire or other casualty of any asset of the McCulloch
Business or part thereof or in the event that any asset of the
McCulloch Business or part thereof becomes the subject of any
proceeding or, to the knowledge of Seller, threatened proceeding for
the taking thereof or any part thereof or of any right relating thereto
by condemnation, eminent domain or other similar governmental action.
6.04. Noncompetition. (a) Seller agrees that for a period of
two full years from the Closing Date, neither it nor any of the Shop Vac
Affiliates shall:
(i) engage, either directly or indirectly, as a
principal or for its own account or solely or jointly with
others, or as stockholders in any corporation or joint stock
association, in any business that competes with the McCulloch
Business as it exists on the Closing Date worldwide; provided
that nothing herein shall prohibit the acquisition by Seller
or any of the Shop Vac Affiliates of a company having not more
than 10% of its sales (based on its latest financial
statements) attributable to any business that competes with
the current McCulloch Business and nothing shall prohibit Shop
Vac and the Shop Vac Affiliates from carrying on its non
McCulloch Business, including, without limitation, the
manufacture of electric motors, electric parts (including,
without limitation, ground fault circuit interrupters), molded
plastic parts or other parts or products manufactured by Shop
Vac or the Shop Vac Affiliates as part of their non-McCulloch
Business;
(ii) employ or solicit, or receive or accept the
performance of services by, any employee of McCulloch or the
McCulloch Subsidiaries; or
(iii) supply or assemble any products related to the
manufacture and sale of chain saws, string trimmers, blowers
(other than blowers as part of vacuum products manufactured by
Shop Vac or a Shop Vac Affiliate sold other than under a trade
mark of the McCulloch Business), hedge trimmers, lawn edgers,
electric pressure washers or other outdoor lawn and garden
equipment or accessories to any business anywhere in the world
that competes with the McCulloch Business as it exists on the
Closing Date; provided, however, that this covenant shall not
prohibit the
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supply by Shop Vac and its subsidiaries of electric motors,
electric parts (including, without limitation, ground fault
circuit interrupters) molded plastic parts, or other parts or
products manufactured by Shop Vac or the Shop Vac Affiliates
as part of their non McCulloch Business.
(b) If any provision contained in this Section shall for any
reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provisions
of this Section, but this Section shall be construed as if such invalid, illegal
or unenforceable provision had never been contained herein. It is the intention
of the parties that if any of the restrictions or covenants contained herein is
held to cover a geographic area or to be for a length of time which is not
permitted by applicable law, or in any way construed to be too broad or to any
extent invalid, such provision shall not be construed to be null, void and of no
effect, but to the extent such provision would be valid or enforceable under
applicable law, a court of competent jurisdiction shall construe and interpret
or reform this Section to provide for a covenant having the maximum enforceable
geographic area, time period and other provisions (not greater than those
contained herein) as shall be valid and enforceable under such applicable law.
Seller acknowledges that Buyer would be irreparably harmed by any breach of this
Section and that there would be no adequate remedy at law or in damages to
compensate Buyer for any such breach. Seller agrees that Buyer shall be entitled
to injunctive relief requiring specific performance by Seller of this Section,
and Seller consents to the entry thereof with respect to any violation of this
covenant.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF SELLER
Each and every obligation of Seller under this Agreement to be
performed on or before the Closing shall be subject to the satisfaction, on or
before the Closing, of each of the following conditions, unless waived in
writing by Seller:
7.01. Representations and Warranties True. The representations
and warranties of Buyer contained herein shall be in all material respects true,
complete and accurate as of the date when made and at and as of the Closing Date
as though such representations and warranties were made at and as of such date.
7.02. Performance. Buyer shall have performed and complied
with all agreements, obligations and conditions required by this Agreement to be
performed or complied with by it on or prior to the Closing.
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7.03. Receipt of Consents. Seller shall have obtained all
consents of Seller's lenders and other consents set out in Sections 2.12, 2.20
and 2.21 of the Disclosure Schedule required for consummation of the
transactions contemplated hereby.
7.04. No Governmental Proceeding or Litigation. No suit,
action, investigation, inquiry or other proceeding by any governmental body or
other person or legal or administrative proceeding shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby.
7.05. No Injunction. On the Closing Date there shall be no
effective injunction, writ, preliminary restraining order or any order of any
nature issued by a court of competent jurisdiction directing that the
transactions provided for herein or any of them not be consummated as provided
or imposing any conditions on the Seller's business other than the McCulloch
Business in order to consummate the transactions contemplated hereby which
Seller deems unacceptable in its sole discretion.
7.06. Opinion of Counsel. Buyer shall have delivered to Seller
an opinion of counsel to Buyer dated as of the Closing Date, in form and
substance satisfactory to Seller, with respect to the matters set forth in
Exhibit C hereto.
7.07. Certificates. Buyer shall have furnished Seller with
such certificates of its officers and others to evidence compliance with the
conditions set forth in this Article VII as may be reasonably requested by
Seller.
7.08. Distributor Agreements. Shop Vac,the Shop Vac Affiliates
identified in Exhibit D-1 and McCulloch shall have entered into a distributor
agreement with respect to the European distribution of McCulloch products by
Shop Vac and such Shop Vac Affiliates in the forms set out in Exhibit D-2
attached hereto. Shop Vac and McCulloch Italy shall have entered into a
distributor agreement with respect to the Italian distribution of certain Shop
Vac products in the form set out in Exhibit D-3 attached hereto.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF BUYER
Each and every obligation of Buyer under this Agreement to be
performed on or before the Closing shall be subject to the satisfaction, on or
before the Closing, of each of the following conditions, unless waived in
writing by Buyer:
8.01. Representations and Warranties True. The representations
and warranties of Seller contained herein shall be in all material respects
true, complete and
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accurate as of the date when made and at and as of the Closing Date as though
such representations and warranties were made at and as of such date.
8.02. Performance. Seller shall have performed and complied
with all agreements, obligations and conditions required by this Agreement to be
performed or complied with by them on or prior to the Closing.
8.03. Receipt of Consents. Seller shall have received all
consents of its lenders and other consents set out in Sections 2.12, 2.20 or
2.21 of the Disclosure Schedule as required for consummation of the transactions
contemplated hereby.
8.04. No Government Proceeding or Litigation. No suit, action,
investigation, inquiry or other proceeding by any governmental body or other
person or legal or administrative proceeding shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby.
8.05. No Injunction. On the Closing Date there shall be no
effective injunction, writ, preliminary restraining order or any order of any
nature issued by a court of competent jurisdiction directing that the
transactions provided for herein or any of them not be consummated as so
provided or which restrains, prohibits, or otherwise interferes with the
effective operation or enjoyment by the Buyer of all or a material portion of
the McCulloch Business.
8.06. Opinion of Seller's Counsel. Seller shall have delivered
to Buyer an opinion of counsel to Seller dated as of the Closing Date, in form
and substance satisfactory to Buyer, with respect to the matters set forth in
Exhibit E hereto.
8.07. Supply Agreement(s) with Shop Vac. Shop Vac and the Shop
Vac Affiliates set out in Exhibit F-1 shall have executed and delivered to Buyer
the Co-Pack Agreement and the Component Supply Agreement in the forms set forth
in Exhibit F-2 hereto and the Irish Supply Agreement referred to in Section
4.12.
8.08. Certificates. Seller shall have furnished Buyer with
such certificates of its officers and others to evidence compliance with the
conditions set forth in this Article VIII as may be reasonably requested by
Buyer, including documents evidencing cancellation of indebtedness on
intercompany accounts.
8.09. No Material Adverse Change. Except as set forth in the
Disclosure Schedule, since July 31, 1995, there shall not have been any material
adverse change in the condition (financial or otherwise), business assets,
results of operations or prospects of the McCulloch Business.
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8.10. Distributor Agreements. Shop Vac, the Shop Vac
Affiliates identified in Exhibit D-1 and Buyer shall have entered into a
distributor agreement with respect to the European distribution of McCulloch
products by Shop Vac and such Shop Vac Affiliates in the form set out in Exhibit
D-2 attached hereto. Shop Vac and McCulloch Italy shall have entered into a
distributor agreement with respect to the Italian distribution of certain Shop
Vac products by McCulloch Italy in the form set out in Exhibit D-3 attached
hereto.
8.11. Nominating Shares of McCulloch Subsidiaries. All shares
or quotas of the McCulloch Subsidiaries not owned by Seller shall have been
transferred, assigned, conveyed and delivered to Buyer or Buyer's nominees, free
and clear of any and all liens, pledges or other encumbrances, pursuant to
Nominating Share Transfer Agreements in the form set out in Exhibit B.
8.12. Non-Owned McCulloch Assets. All of the Non-Owned
McCulloch Assets shall have been contributed or sold to McCulloch and McCulloch
Italy pursuant to the Contribution and Transfer Agreement or a bill of sale in a
form reasonably satisfactory to Buyer.
8.13. Loan Documents. Buyer shall be reasonably satisfied that
McCulloch, the McCulloch Subsidiaries and all Assets of the McCulloch Business
(including the Non-Owned McCulloch Assets) shall be released from any obligation
to lenders to Shop Vac and its affiliates and any security arrangements
collateral thereto.
8.14. Intercompany Balance Activity. The executive vice
president and chief financial officer of the Seller shall deliver a certificate
to Buyer (i) setting forth the Net Monthly Activity for the period October 1,
1995 to October 31, 1995 calculated on a basis consistent with Section 2.32 of
the Disclosure Schedule and setting forth such calculations, (ii) stating that
such officer has reviewed information as to cash disbursements made on behalf of
McCulloch and cash receipts for the period October 31, 1995 to the Closing Date,
product shipments and such other data concerning such period from October 31 to
Closing Date as such officer deems necessary or desirable for the purpose and
(iii) certifying that on the basis of such information and calculations, the Net
Intercompany Settlement Amount as of the Closing Date shall not be greater than
$3,250,000. Sellers independent auditors shall render to the Buyer an opinion
concurring with the conclusions reached by the executive vice president and
chief financial officer.
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ARTICLE IX
CONDUCT OF THE MCCULLOCH BUSINESS PENDING THE CLOSING
Pending the Closing, and except as otherwise expressly
consented to or approved by Buyer in writing:
9.01. Regular Course of Business. Shop Vac shall cause the
McCulloch Business to be conducted only in the ordinary and usual course
consistent with past practice and in accordance with the obligations set forth
in Section 2.08 of this Agreement.
9.02. Amendments. No change or amendment shall be made in the
Certificate of Incorporation or By-laws of McCulloch or any McCulloch
Subsidiary.
9.03. Organization. Shop Vac shall use its best efforts to
preserve the corporate existence and business organization of McCulloch and the
McCulloch Subsidiaries intact, to keep available to Buyer key operating
employees of McCulloch and the McCulloch Subsidiaries, and to preserve for Buyer
the relationships with licensors, suppliers, distributors, customers and others
having business relations with McCulloch and the McCulloch Subsidiaries.
9.04. Certain Changes. Without limiting the generality of the
foregoing, Shop Vac will not, and will not permit McCulloch or any McCulloch
Subsidiary to:
(a) with respect to the McCulloch Business, acquire a material
amount of assets from any other person;
(b) sell, lease, license or otherwise dispose of any of the
assets of the McCulloch Business except (i) pursuant to existing
contracts or commitments, and (ii) in the ordinary course of business
consistent with historical practice;
(c) agree or commit to do any of the foregoing; or
(d) (i) take or agree or commit to take any action that would
make any representation and warranty of Seller hereunder inaccurate in
any material respect at, or as of any time prior to, the Closing Date
or (ii) omit or agree or commit to omit to take any action necessary to
prevent any such representation or warranty from being materially
inaccurate in any respect at any such time.
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9.05. Contracts and Commitments. The Seller will operate the
McCulloch Business in the ordinary course. The McCulloch Business will not,
among other things, incur any indebtedness nor enter into any purchase or sales
commitments (other than "Open Sales Commitments as described below) or any other
contractual obligations in excess of $100,000 or pledge or transfer any asset
without the prior approval of Buyer, which will not be unreasonably withheld.
Buyer shall respond to Seller's written request for such approval within 24
hours of receipt by Buyer of such written request for approval (or if such 24
hour period expires on a day that is not a business day, by the close of the
business day next following the date of receipt by Buyer of such request).
Notwithstanding the foregoing, McCulloch and the McCulloch Subsidiaries may in
the ordinary course of its business consistent with past practices enter into
any sales orders which are part of any Open Price Commitments previously made to
the customers of the McCulloch Business and which are set forth in Section
2.14(a) of the Disclosure Schedule.
9.06. Insurance; Maintenance of Property. Shop Vac shall, or
shall cause McCulloch and each McCulloch Subsidiary to, adequately insure all
property, real, personal and mixed, owned or leased by McCulloch or any
McCulloch Subsidiary, and all of the Non-Owned McCulloch Assets against all
ordinary and insurable risks; and all such property shall be used, operated,
maintained and repaired consistent with past practice.
9.07. Tax Matters.
(a) Shop Vac shall, or shall cause McCulloch and the McCulloch
Subsidiaries to, prepare and file all federal, state, local and foreign
tax returns and amendments thereto required to be filed with respect to
McCulloch and the McCulloch Subsidiaries prior to the Closing when due
in accordance with all applicable laws, and all such returns will
correctly reflect the facts regarding the income, business, assets,
operations, activities and status of McCulloch and the McCulloch
Subsidiaries, and any other information required to be shown therein.
(b) Neither McCulloch nor any McCulloch Subsidiary shall make
any payment of taxes to any person or any taxing authority, except for
such taxes as are due or payable or have been properly estimated in
accordance with applicable law as applied in a manner consistent with
past practice of Seller.
(c) Without the prior written consent of Buyer, neither Seller
nor McCulloch or any McCulloch Subsidiary shall, to the extent it may
affect or relate to McCulloch or any McCulloch Subsidiary, make or
change any tax election, change an annual tax accounting period, adopt
or
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change any method of tax accounting, file any amended return, enter
into any closing agreement, settle any tax claim or assessment,
surrender any right to claim a tax refund, consent to any extension or
waiver of the limitations period applicable to any tax claim or
assessment or take or omit to take any other action, if any such action
or omission would have the effect of increasing the tax liability or
reducing any tax asset of McCulloch, any McCulloch Subsidiary, Buyer or
any Affiliate of Buyer.
ARTICLE X
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
10.01. Survival of Representations and Warranties. All
representations and warranties made by Seller in Article II hereof or elsewhere
pursuant hereto, or by Buyer in Article III hereof or elsewhere pursuant hereto,
shall survive the Closing hereunder and any investigation at any time made by or
on behalf of the other party for a period of two years following the Closing, or
in the case of Section 2.17(e), (f), (g), (h), (i) and (j) until expiration of
the applicable statutory period of limitation (giving effect to any waiver or
extension thereof), after which all representations and warranties made by the
parties herein or pursuant hereto shall expire. Covenants and agreements of the
parties to be performed after the Closing including, without limitation, those
set forth in this Article X, Articles VI, XI, XII and XIII, and Section 14.03
hereof, shall survive in accordance with their respective terms or, if no
survival period is specified, indefinitely, provided that the covenants and
agreements set forth in Section 10.03(c) and Section 10.03(d) shall survive for
a period of 7.5 years after the Closing Date. Notwithstanding this Section
10.01, any representation, warranty or covenant or agreement in respect of which
indemnity may be sought under this Agreement shall survive the time at which it
would otherwise terminate pursuant to this Section 10.01, if notice of the
inaccuracy or breach or claim giving rise to such right to indemnity shall have
been given to the party against whom such indemnity may be sought prior to such
time, but only to the extent of the inaccuracy or breach or claim asserted in
the notice.
10.02. Statements as Representations. All statements of fact
contained herein or in any certificate, schedule, list, exhibit, document or
other writing delivered pursuant hereto or in connection with the transactions
contemplated hereby shall be deemed representations and warranties within the
meaning of Section 10.01 hereof.
10.03. Agreement to Indemnify. Subject to the conditions and
provisions herein set forth, Seller hereby agrees from and after the Closing to
indemnify, defend and hold harmless Buyer and McCulloch and each parent or
subsidiary or affiliate of Buyer or McCulloch from and against all demands,
claims, actions or causes of action, assessments, losses, damages, liabilities,
costs and expenses (including with respect to
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Environmental Liabilities any costs of or associated with dismantling and
relocating the plating operations at the Lake Havasu facility, demolishing the
building or portions thereof in which such plating operations are located and
any interruption to such business caused by such dismantling, relocation or
demolition provided, Buyer shall use commercially reasonable efforts to minimize
the business interruption resulting therefrom), including, without limitation,
interest, penalties and attorney's fees and reasonable expenses of investigation
(including any investigation by engineers, environmental consultants and similar
technical personnel) ("Loss"), asserted against or imposed upon or incurred by
Buyer or any parent or subsidiary or affiliate of Buyer ("Claim") arising in
connection with or resulting from:
(a) the breach of any representation or warranty of Seller
contained in or made pursuant to this Agreement;
(b) any breach of any covenant or obligation of Seller
contained herein;
(c) any Environmental Liabilities, except however:
(i) Buyer shall be responsible for the first $1.25
million of liabilities (including costs and expenses) related
to compliance with the terms of the Consent Order effective
January 17, 1995 between the Arizona Department of
Environmental Quality and McCulloch relating to McCulloch's
Lake Havasu facility ("Chromium Liabilities"); and
(ii) Buyer and Seller shall be responsible for the
next $1.25 million of Chromium Liabilities in equal portion;
(d) any workmen's compensation or product liability Claim
against or involving McCulloch that relates to any action, omission,
occurrence or circumstance arising prior to Closing, except to the
extent of accounts payable for workers compensation on the books of
McCulloch at July 31, 1995 and except however:
(i) Buyer shall be responsible for the first $1.1
million of such Loss; and
(ii) Buyer and Seller shall be responsible for the
next $1.75 million of such Loss in equal portion;
(e) any Claim asserted by a third party against McCulloch or
any McCulloch Subsidiary to the extent that any such claim is attributable to an
occurrence occurring prior to the Closing Date and since but not earlier than
January 1, 1991 and
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for which the McCulloch Business carried insurance, but only to the extent such
insurance actually provides coverage therefore prior to the Closing Date and
since but not earlier than January 1, 1991, provided, however, that Seller shall
not have any indemnification obligation pursuant to this paragraph (e) if the
Claim is not covered by the terms of the applicable insurance policy,
(f) the computer equipment lease pursuant to Lease Schedule 1
of the Lease Agreement No. LA-0476 with American Technologies Credit, Inc.,
including all costs, expenses and liabilities in connection with the litigation
in Orange County (California): American Technologies Credit, Inc. v. McCulloch
Corporation: Shop Vac Corporation et al.
(g) the District 65 Security Plan Pension Fund referred to in
Section 2.17(e) (iii) of this Agreement and any other employee benefit plan that
is not an employee benefit plan of McCulloch or McCulloch Subsidiaries; and
(h) the claim by Mr. Glenn C. Bushee with respect to alleged
commissions and reimbursement for a leased vehicle, and all legal costs and
other expenses in relation thereto.
10.04. Procedure. In the event of any claim by Buyer (or any
parent, subsidiary or affiliate) under this Article X, Buyer shall promptly
notify Seller in writing of said claim, which notice shall set forth the basis
of the claim including, without limitation, reference to the specific
representation, warranty, or obligation alleged to have been breached) and, if
then determinable by Buyer, a reasonable estimate of the amount thereof (or, if
in Buyer's good faith opinion, no such reasonable estimate can then be made by
it, the maximum potential damages that, in Buyer's good faith opinion, might be
sustained in connection with such claim) provided that, except as otherwise
provided in Section 10.07, the failure to give such notice shall not relieve the
Seller from any liability under Section 10.03 except to the extent that Seller
has been materially prejudiced by such failure.
10.05. Conditions of Indemnification. The obligations and
liabilities of Seller under Section 10.03 hereof (other than in respect of a
claim by Buyer pursuant to Section 10.03(d), which shall be dealt with in
accordance with Section 10.09 hereof) with respect to claims for damages
resulting from the assertion of liability by third parties ("Claims"), shall be
subject to the following terms and conditions in addition to the limitation of
liability set forth in Section 10.07 hereof:
(a) Buyer will give Seller prompt written notice of any Claim
asserted against or imposed upon or incurred by Buyer or any affiliate,
parent or subsidiary of Buyer (other than any Claim occurring in
connection with or relating to (i) the Consent Order referred to in
Section
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10.03(c) hereof, or (ii) the leaking underground storage tank located
at McCulloch's Lake Havasu facility, which shall in each case be dealt
with in accordance with the provisions of Section 10.04 hereof and not
this Section 10.05), and Seller will undertake at its own expense the
defense thereof by representatives the Buyer has consented to in
writing, such consent not to be unreasonably withheld.
(b) In the event that Seller, promptly and in any event within
two business days after written notice of any such Claim from Buyer,
fails to agree to conduct the defense of such Claim, Buyer or such
affiliate parent or subsidiary of Buyer will (upon further notice to
Seller) have the right to undertake the defense, compromise or
settlement of such Claim for the account of Seller, subject to the
right of Seller to assume the defense of such Claim at any time prior
to settlement, compromise or final determination thereof and in
connection therewith Seller shall reimburse Buyer promptly for all
out-of-pocket fees, expenses and losses and employee wages or salaries
for time incurred.
(c) Seller must receive the notice of claim required by
Section 10.05(a) within any applicable time period.
(d) Buyer may, at its own expense, retain such additional
attorneys as it may deem necessary, which attorneys will be permitted
by Seller and its attorneys to observe and/or participate in all
aspects of the defense of such action. Seller shall have the right,
after consultation with Buyer, to resolve and settle any such claims or
actions which result only in the payment of money damages by Seller and
which do not, in Buyer's reasonable determination, otherwise adversely
impact on the condition (financial or otherwise), business, assets or
results of operations of the McCulloch Business. Otherwise consent of
Buyer to such settlement or resolution shall be required, which consent
shall not be unreasonably withheld.
10.06. Remedies Cumulative. The remedies provided herein shall
be cumulative and shall not preclude Buyer from asserting any other rights or
seeking any other remedies against Seller or its respective successors or
assigns, except that no director, officer or shareholder of Shop Vac or its
subsidiaries shall have any personal liability to Buyer as a result of any
breach of any representation, warranty or covenant contained herein or made
pursuant hereto.
10.07. Limitation of Liability. Notwithstanding anything else
to the contrary in this Agreement, Seller shall not have any liability under
Section 10.03(a) and Section 10.03(b) until the aggregate amount of the
indemnification obligations of Seller
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pursuant to such Sections 10.03 (a) and (b) exceeds $250,000 and thereafter only
to the extent of such excess.
10.08. Indemnification by Buyer. Buyer hereby agrees, jointly
and severally with McCulloch, from and after the Closing to indemnify, defend
and hold harmless Seller and each Shop Vac Affiliate from and against all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs and expenses, including, without limitation, interest,
penalties and attorney's fees and reasonable expenses of investigation, asserted
against or imposed upon or incurred by Seller or any Shop Vac Affiliate arising
in connection with or resulting from: (i) the breach of any representation,
warranty, covenant or obligation of Buyer contained in or made pursuant to this
Agreement, (ii) any liabilities arising from Buyer's ownership of McCulloch or
the McCulloch Subsidiaries or the operation of the McCulloch Business by Buyer,
McCulloch or the McCulloch Subsidiaries from and after the Closing, or (iii) any
liabilities of Shop Vac or any Shop Vac Affiliate to vendors (other than Shop
Vac or any Shop Vac Affiliates) under the guarantees set out in Section 10.08 of
the Disclosure Schedule given or made by Shop Vac or any Shop Vac Affiliate
prior to the Closing in respect of obligations of the McCulloch Business to pay
accounts payable to vendors in the ordinary course of business. The joint and
several obligation of McCulloch pursuant to this Section 10.08 shall be
evidenced by McCulloch's execution and delivery of its joinder agreement set
forth on the signature page hereof.
10.09. In respect of a claim by Buyer pursuant to Section
10.03(d) hereof, Buyer shall conduct the defense of Claims, the costs and
expenses in relation to such defense shall fall within any such indemnity from
Seller. Buyer shall cooperate with representatives of Seller, at Seller's cost,
in providing reports on the status of such Claims and the defense thereof, and
in answering questions of Buyer in respect of Buyer's policies and procedures in
conducting such defense.
ARTICLE XI
CERTAIN TAX MATTERS AND INDEMNITY
11.01. Tax Definitions. The following terms, as used herein,
have the following meanings:
"Buyer Indemnitee" means Buyer, any of its Affiliates and,
effective upon the Closing, McCulloch and the McCulloch Subsidiaries.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Pre-Closing Tax Period" means any Tax period (or portion
thereof) ending on or before the close of business on the Closing Date.
"Section 338 Tax" means any Tax resulting from income, gain,
deduction, deferred gain or recapture of deductions or credits against
Tax resulting directly or indirectly from the Section 338(h)(10)
Election and as a consequence of Section 338 of the Code as applied by
any state or local or foreign jurisdiction.
"Section 338(h)(10) Election" is defined in Section 13.02.
"Tax" means (i) any tax imposed under Subtitle A of the Code
and any net income, alternative or add-on minimum tax, gross income,
gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, withholding on amounts paid to or by
McCulloch or any McCulloch Subsidiary, payroll, employment, excise,
severance, stamp, capital stock, occupation, property, environmental or
windfall profit tax, premium, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together
with any interest, penalty, addition to tax or additional amount
imposed by any governmental authority (a "Taxing Authority")
responsible for the imposition of any such tax (domestic or foreign),
(ii) liability of McCulloch or any McCulloch Subsidiary for the payment
of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group, or
being a party to any agreement or arrangement whereby liability of
McCulloch or any McCulloch Subsidiary for payment of such amounts was
determined or taken into account with reference to the liability of any
other person for any period during the Tax Indemnification Period, and
(iii) liability of McCulloch or any McCulloch Subsidiary for the
payment of any amounts as a result of being party to any Tax Sharing
Agreement or with respect to the payment of any amounts of the type
described in (i) or (ii) as a result of any express or implied
obligation to indemnify any other person.
"Tax Indemnification Period", means (i) with respect to any
Tax described in clause (i) of the definition of "Tax", any Pre-Closing
Tax Period of McCulloch or any McCulloch Subsidiary, (ii) with respect
to any Tax described in clause (ii) of the definition of "Tax", any
Pre-Closing Tax Period of McCulloch or any McCulloch Subsidiary and the
Tax year of any member of a group described in such clause (ii) which
includes (but does not end on) the Closing Date, and (iii) with respect
to any Tax described in clause (iii) of the definition of "Tax", the
survival period of the obligation under the applicable contract or
arrangement.
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"Tax Sharing Agreements" means all existing Tax sharing
agreements or arrangements (whether or not written) binding McCulloch
or any McCulloch Subsidiary and any agreements or arrangements which
afford any other person the benefit of any tax asset of McCulloch or
any McCulloch Subsidiary, afford McCulloch or any McCulloch Subsidiary
the benefit of any tax asset of any other person or require or permit
the transfer or assignment of income, revenues, receipts, or gains.
11.02. Termination of Existing Tax Sharing Agreements. Any and
all existing Tax Sharing Agreements shall be terminated as of Closing. After
Closing, neither McCulloch nor any McCulloch Subsidiary shall have any further
rights or liabilities thereunder.
11.03. Tax Indemnification.
(a) Seller hereby indemnifies each Buyer Indemnitee against
and agrees to hold each Buyer Indemnitee harmless from any (x) Tax of
McCulloch or any McCulloch Subsidiary related to the Tax
Indemnification Period except to the extent of accruals for Taxes
reflected on the August 31 Financial Statements or in the ordinary
course of business thereafter prior to Closing, (y) Section 338 Tax,
and (z) liabilities, costs, expenses (including, without limitation,
reasonable expenses of investigation and attorneys' fees and expenses),
losses, damages, assessments, settlements or judgments arising out of
or incident to the imposition, assessment or assertion of any Tax
described in (x) or (y), including those incurred in the contest in
good faith in appropriate proceedings relating to the imposition,
assessment or assertion of any such Tax, (the sum of (x), (y), and (z)
being referred to herein as a "Loss").
(b) For purposes of this Section, in the case of any Taxes
that are imposed on a periodic basis and are payable for a Tax period
that includes (but does not end on) the Closing Date, the portion of
such Tax related to the portion of such Tax period ending on and
including the Closing Date shall be deemed equal to the amount which
would be payable if the relevant Tax period ended on and included the
Closing Date. The portion of any credits relating to a Tax period that
begins before and ends after the Closing Date shall be determined as
though the relevant Tax period ended on and included the Closing Date.
All determinations necessary to give effect to the foregoing allocation
shall be made in a manner consistent with prior practice of McCulloch
and the McCulloch Subsidiaries.
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(c) Upon payment by any Buyer Indemnitee of any Loss, such
Buyer Indemnitee shall notify the Seller in writing of such Loss, and
Seller shall discharge its obligation to indemnify and Buyer Indemnitee
against such Loss by paying to Buyer an amount equal to the amount of
such Loss.
(d) Any payment pursuant to this Section 11.03 shall be made
not later than 30 days after receipt by Seller of written notice from
Buyer stating that any Loss has been paid by a Buyer Indemnitee and the
amount thereof and of the indemnity payment requested.
(e) Buyer agrees to give prompt notice to Seller of any Loss
or the assertion of any claim, or the commencement of any suit, action
or proceeding in respect of which indemnity may be sought hereunder
which Buyer deems to be within the ambit of this Section 11.03
(specifying with reasonable particularity the basis therefor) and will
give Seller such information with respect thereto as Seller may
reasonably request. Seller may, at its own expense, (i) participate in
and, (ii) except as provided in Section 11.03(f), upon notice to Buyer,
assume the defense of any such suit, action or proceeding (including
any Tax audit); provided that (i) Seller has provided security
reasonably acceptable to Buyer for payment of the amount in dispute,
(ii) Seller's counsel is reasonably satisfactory to Buyer, (iii) Seller
shall thereafter consult with Buyer upon Buyer's reasonable request for
such consultation from time to time with respect to such suit, action
or proceeding (including any Tax audit) and (iv) Seller shall not,
without Buyer's consent, agree to any settlement with respect to any
Tax if such settlement could adversely affect the Tax liability of
Buyer, any of its Affiliates or, upon the Closing, McCulloch or any
McCulloch Subsidiary. If Seller assumes such defense, (i) Buyer shall
have the right (but not the duty) to participate in the defense thereof
and to employ counsel, at its own expense, separate from the counsel
employed by Seller and (ii) Seller shall not assert that the Loss, or
any portion thereof, with respect to which Buyer seeks indemnification
is not within the ambit of this Section 11.03. If Seller elects not to
assume such defense, Buyer may pay, compromise or contest the Tax at
issue. Seller shall be liable for the fees and expenses of counsel
employed by Buyer for any period during which Seller has not assumed
the defense thereof. Whether or not Seller chooses to defend or
prosecute any claim, all of the parties hereto shall cooperate in the
defense or prosecution thereof.
(f) Buyer shall control the defense of any claim that relates
to (i) Taxes described in Section 11.03(b) or (ii) any separate return
filed by McCulloch or any McCulloch Subsidiary after the Closing.
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(g) Seller shall not be liable under this Section 11.03 with
respect to any Tax resulting from a claim or demand the defense of
which Seller was not offered the opportunity to assume as provided
under Section 11.03(e) to the extent Seller's liability under this
Section is adversely affected as a result thereof. No investigation by
Buyer or any of its Affiliates at or prior to the Closing Date shall
relieve Seller of any liability hereunder.
(h) Any claim of any Buyer Indemnitee (other than Buyer) under
this Section may be made and enforced by Buyer on behalf of such Buyer
Indemnitee.
11.05. Survival. Notwithstanding anything in this Agreement to
the contrary, the provisions of this Article XI shall survive for the full
period of all applicable statues of limitations (giving effect to any waiver,
mitigation or extension thereof).
ARTICLE XII
TERMINATION AND ABANDONMENT
12.01. Methods of Termination. The transactions contemplated
herein may be terminated and/or abandoned at any time but not later than the
Closing:
(a) By mutual consent of the respective Boards of Directors of
Buyer and Seller; or
(b) By the Board of Directors of Buyer on or after December 1,
1995, or such later date as may be established pursuant to Section 1.03
hereof, if any of the conditions to Buyer's obligations provided for in
Article VIII of this Agreement shall not have been met or waived in
writing by Buyer prior to such date, unless such failure to satisfy the
condition is the result of a wilful breach by Buyer of its obligations
under this Agreement or the failure by Buyer to have cash necessary to
pay the consideration required hereunder; or
(c) By the Board of Directors of Seller on or after December
1, 1995, or such later date as may be established pursuant to Section
1.03 hereof, if any of the conditions to Seller's obligations provided
for in Article VII of this Agreement shall not have been met or waived
in writing by Seller prior to such date, unless such failure to satisfy
the
- 52 -
<PAGE> 53
condition is the result of a wilful breach by Seller of its obligations
under the Agreement.
12.02. Procedure Upon Termination. In the event of termination
and abandonment by the Board of Directors of Buyer or by the Board of Directors
of Seller, or both, pursuant to Section 12.01 hereof, written notice thereof
shall forthwith be given to the other party and the transactions contemplated by
this Agreement shall be terminated and/or abandoned, without further action by
Buyer or Seller. If the transactions contemplated by this Agreement are
terminated and/or abandoned as provided herein:
(a) Each party will redeliver or destroy all documents, work
papers and other material of any other party relating to the
transactions contemplated hereby, whether so obtained before or after
the execution hereof, to the party furnishing the same;
(b) All confidential information received by any party hereto
with respect to the business of any other party or its subsidiaries
shall be treated in accordance with Section 6.01 hereof; and
(c) No party hereto shall have any liability or further
obligation to any other party to this Agreement except as stated in
subparagraphs (a) and (b) of this Section 12.02.
ARTICLE XIII
POST-CLOSING COVENANTS
13.01. Further Assurances. After the Closing, Seller shall,
and shall cause the Shop Vac Affiliates to, from time to time, at the request of
Buyer execute and deliver such other instruments of conveyance and transfer and
take such other actions as Buyer may reasonably request, in order to more
effectively consummate the transactions contemplated hereby and to vest in Buyer
good and marketable title to the McCulloch Stock and the Assets of the McCulloch
Business (including, without limitation, assistance in the collection or
reduction to possession of any of such assets).
13.02. Filing of Returns: Tax Election.
(a) Seller shall include McCulloch in its consolidated federal
tax return and in any state or local tax return filed on a
consolidated, combined or unitary basis through the close of business
on the Closing Date.
- 53 -
<PAGE> 54
(b) Buyer shall make a timely election under Section 338(g) of
the Internal Revenue Code of 1986, as amended (the "Code") and Seller
and Buyer shall jointly make an election under Section 338(h)(10) of
the Code (and any corresponding elections under state or local tax law)
(collectively, a "Section 338(h)(10) Election") with respect to
McCulloch and any domestic McCulloch Subsidiaries.
(c) Seller and Buyer shall (i) take, and cooperate with each
other to take, all actions necessary and appropriate (including filing
such forms, returns, elections, schedules and other documents as may be
required) to effect and preserve a timely Section 338(h)(10) Election
in accordance with Section 338 of the Code and the applicable
regulations and from time to time thereafter, and (ii) Seller and Buyer
shall report the sale of the McCulloch Stock pursuant to this Agreement
consistent with the Section 338(h)(10) Election and shall take no
position contrary thereto or inconsistent therewith In any tax return,
any discussion with or proceeding before any taxing authority, or
otherwise.
(d) Allocations. As soon as practicable after the date hereof,
but in no event later than 90 days prior to the date for filing of the
consolidated Shop Vac return for 1995 (taking into account any
extensions), Buyer shall prepare for Seller's review a schedule setting
forth (i) the modified aggregate deemed sales price (the "MADSP") at
which McCulloch is deemed to have sold its assets for tax purposes as a
result of the Section 338(h)(10) Elections, (ii) the adjusted
grossed-up basis (the "AGUB") at which McCulloch is deemed to have
purchased its assets for tax purposes as a result of such elections,
and (iii) the allocation of MADSP and AGUB among the assets of
McCulloch (collectively, the "Proposed Initial Allocation"). The
Proposed Initial Allocation shall be determined In accordance with
Section 338 of the Code and the applicable regulations thereunder.
Unless Seller shall have objected in writing to the Proposed Initial
Allocation within 10 days of the receipt thereof, Seller will be deemed
to have agreed to the Proposed Initial Allocation, which shall become
the Initial Allocation. The Initial Allocation shall be set forth on a
statement (the "Initial Allocation Statement") signed by the president
or any vice president of Buyer and Seller. If any increase or decrease
in MADSP and/or AGUB occurs, the amount of such increase or decrease
and the allocation thereof among the assets of McCulloch (collectively,
the "Adjustment Allocation") shall be set forth on a statement (the
"Adjustment Allocation Statement") prepared by Buyer and delivered to
Seller. The Adjustment Allocation Statement shall be subject to the
consent of Seller. Buyer and Seller will, to the maximum extent
permitted under applicable law, (i) file, or cause to be filed, all
Returns
- 54 -
<PAGE> 55
in a manner consistent with the Initial Allocation and any Adjustment
Allocation and (ii) not take any action inconsistent therewith.
(e) Dispute Resolution. Any dispute regarding the Proposed
Initial Allocation, Initial Allocation or any Adjustment Allocation
shall be submitted for resolution to independent accountants of
nationally recognized standing reasonably satisfactory to Buyer and
Seller (the "Tax Dispute Accountants"). The decision of the Tax Dispute
Accountants shall be final, conclusive and binding on the parties. The
fees and expenses of the Tax Dispute Accountants in resolving a dispute
will be borne equally by Buyer and Seller except that the Tax Dispute
Accountants may, if justice requires, allocate such expenses and fees
in any other manner they may determine between the Buyer, on the one
hand, and Seller, on the other.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.01. Amendment and Modification. This Agreement may be
amended, modified and supplemented by written agreement of the respective Boards
of Directors of the Seller and Buyer, or by their respective officers authorized
by such Boards of Directors, at any time prior to the Closing with respect to
any of the terms contained herein.
14.02. Waiver of Compliance. Any failure of Seller, on the one
hand, or Buyer, on the other, to comply with any obligation, covenant, agreement
or condition herein may be expressly waived in writing by the President or
Executive Vice President or other authorized officer of Buyer or Seller,
respectively, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
14.03. Expenses; Transfer Taxes, Etc. Whether or not the
transactions contemplated by this Agreement shall be consummated, Buyer agrees
that all fees and expenses incurred by it in connection with this Agreement
shall be borne by it, including all fees of counsel, actuaries and accountants.
Buyer and Seller agree that all sales or transfer taxes and recording and filing
fees which may be payable in connection with the transactions contemplated by
this Agreement shall be shared equally by Buyer and Seller. If the transactions
contemplated by this Agreement are consummated Buyer shall, at Closing,
reimburse Seller for costs (including the reasonable fees and expenses of its
- 55 -
<PAGE> 56
lawyers, accountants and financial advisors, including Paine Webber Incorporated
and including any sales or transfer taxes and recording or filing fees which
accrue to Seller pursuant to this Section 14.03) relating to the sale of
McCulloch and the McCulloch Business, in an aggregate amount not to exceed $1.85
million. If Seller is not reimbursed for costs in an amount equal to $1.85
million at Closing because the amount of all such costs is not available at
Closing, Seller may submit statements for reimbursement to Buyer within ninety
(90) days after Closing, and Buyer shall reimburse Seller within fifteen (15)
days of receipt thereof, but in no event shall Buyer's obligation to reimburse
Seller under this Section 14.03 exceed $1.85 million.
14.04. Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand or mailed, certified or
registered mail with postage prepaid, or by nationally recognized overnight
delivery service:
(a) If to Sellers, to:
W. Earl Stogner, Executive Vice President
Shop Vac Corporation
2323 Reach Road
Williamsport, PA 17701
with a copy to:
Rhoads & Sinon
One S. Market Square
P.O. Box 1146
Harrisburg, PA 17108
Attention: John P. Manbeck, Esquire
or to such other person or address as Seller shall furnish to Buyer in
writing.
(b) If to Buyer, to:
Beaver Acquisition Corporation
6085 S. McCulloch Drive
P.O. Box 11990
Tucson, AZ 85706
Attention: Jim Milligan, President
- 56 -
<PAGE> 57
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: Joseph Rinaldi
and with a copy to:
DLJ Merchant Banking, Inc.
140 Broadway
New York, NY 10005
Attention: Lawrence M.v.D. Schloss
or to such other person or address as Buyer shall furnish to Sellers in
writing.
14.05. Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of the other
parties.
14.06. Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the conflict of law rules of such State.
14.07. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.08. Headings: Negotiation. The headings of the Sections and
Articles of this Agreement are inserted for convenience only and shall not
constitute a part hereof or affect in any way the meaning or interpretation of
this Agreement. This Agreement is a product of negotiation by the parties and
its interpretation shall not be affected in any manner by the fact that counsel
to a party drafted this Agreement or any Schedule, Exhibit or document delivered
pursuant hereto.
14.09. Entire Agreement. This Agreement, including the
Exhibits hereto, the Disclosure Schedules and the other documents and
certificates delivered pursuant to the terms hereof, set forth the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein, and supersede all prior agreements,
- 57 -
<PAGE> 58
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto.
14.10. No Third Party Beneficiaries. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give to any
person or corporation other than the parties hereto and their successors or
assigns, any rights or remedies under or by reason of this Agreement.
14.11. Bulk Sales Laws. Buyer and Seller each hereby waive
(and Seller shall procure waiver by the Shop Vac Affiliates of) compliance by
Seller and the Shop Vac Affiliates with the provisions of the "bulk sales",
"bulk transfer" or similar laws of any state. Seller agrees to indemnify and
hold Buyer harmless against any and all claims, losses, damages, liabilities,
costs and expenses incurred by Buyer or any of McCulloch or the McCulloch
Subsidiaries as a result of any failure to comply with any such "bulk sales",
"bulk transfer" or similar laws except to the extent that such claim, loss,
damage, liability, cost or expense is the result of the failure of McCulloch or
any McCulloch Subsidiaries to pay after the Closing its liabilities (including,
without limitation, tax liabilities) when due.
14.12. Right of Setoff. The parties hereto agree that Buyer or
its affiliates may, upon giving fifteen (15) days written notice of its
intention to do so, be entitled to set off any obligation to Seller or the Shop
Vac Affiliates contained in any agreement entered into pursuant to this
Agreement (including agreements described in Sections 8.07 and 8.10) in payment
of the obligations of Seller contained in Article X, Article XI, Article XIII
and Section 14.11 of this Agreement, but only to the extent of the amount
payable to Buyer by Seller under such Articles X, XI, XIII and Section 14.11 of
this Agreement. Any such setoff shall discharge the obligations of Seller to
indemnify or make payment pursuant to Article X hereof or elsewhere herein to
the extent, and in the amount of, such setoff. Nothing contained herein shall
constitute an admission of a breach of any representation, warranty, covenant or
obligation by Seller or a waiver of Seller's right to contest Buyer's claim with
respect thereto. Nothing herein contained shall constitute any waiver of setoff
rights either party may otherwise have at law.
- 58 -
<PAGE> 59
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
BEAVER ACQUISITION CORPORATION
By: /s/ Lawrence M. v. D. Schloss
-------------------------------
Lawrence M. v. D. Schloss,
President
SHOP VAC CORPORATION
By: /s/ W. Earl Stogner
-------------------------------
W. Earl Stogner,
Executive Vice President
JOINDER AGREEMENT
McCulloch Corporation, intending to be legally bound, hereby joins in this
Agreement for the purpose of agreeing to its joint and several indemnification
obligations to Shop Vac Corporation and the Shop Vac Affiliates from and after
the Closing as set forth in Section 10.08 hereof. McCulloch Corporation agrees
that any of the provisions of this Agreement other than Section 10.08 may be
amended or modified by written agreement of Seller and Buyer without the consent
of or notice to McCulloch Corporation.
McCulloch Corporation
By: /s/ W. Earl Stogner
-------------------------------
W. Earl Stogner,
Executive Vice President
<PAGE> 60
AMENDMENT NO. 1 TO THE STOCK PURCHASE AGREEMENT
THIS AMENDMENT, dated as of November 1, 1995 is made to the Stock
Purchase Agreement "Stock Purchase Agreement" dated as of October 22, 1995
between Beaver Acquisition Corporation, a Delaware corporation ("Buyer") and
Shop Vac corporation, a New Jersey corporation ("Seller").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Seller and the Buyer for
themselves, their successors and assigns, hereby agrees as follows:
SECTION 1. The Stock Purchase Agreement is amended by:
(a) Modifying Section 1.02 of the Stock Purchase Agreement by adding
the following words at the end thereof:
", less any amount paid by Black Butte Ltd., a Cayman Island
corporation ("Black Butte"), to Seller pursuant to the Intellectual
Property Purchase Agreement (as defined in Section 4.14 hereof), and
also less any amount paid by McCulloch to McCulloch Ireland Ltd. in
respect of the Non Owned McCulloch Assets."
(b) Adding a new Section 4.14 to Article IV of the Stock Purchase
Agreement as follows:
"At Closing Seller shall (a) cause McCulloch to enter an
intellectual property purchase agreement pursuant to which McCulloch
shall transfer and assign to Black Butte all of its rights, title and
interest in all patents, copyrights, trademarks, trade names, service
marks, service names, technology, knowhow, processes, trade secrets,
inventions, proprietary data, formulas, research and development data,
corporate software programs and other intangible property that relate
to the McCulloch Business and any applications for the same, in each
case owned or licensed by McCulloch or any affiliate of McCulloch for a
consideration of $5,000,000 in cash payable to Seller (the
"Intellectual Property Purchase Agreement"), and (b) itself execute
Patent Assignments pursuant to which Shop Vac shall transfer and assign
to Black Butte all of its rights, title and interest in all patents
relating to pressure washers that are part of the McCulloch Business
("Patent Assignments")."
(c) Adding a new Section 7.09 and a new Section 8.15 to the
Stock Purchase Agreement both to provide as follows:
<PAGE> 61
"McCulloch and Black Butte shall have entered into the
Intellectual Property Purchase Agreement and Shop Vac shall have executed the
Patent Assignments as contemplated under Section 4.14 hereof."
(d) Section 10.03(d)(i) of the Stock Purchase Agreement is hereby
amended by deleting it in its entirety and substituting the following new
Section 10.03(d)(i) therefore:
"(i) Buyer shall be responsible for the first $1.25 million of
such Loss; and"
(e) Section 2.12 of the Disclosure Schedule to the Stock Purchase
Agreement is hereby amended by deleting it in its entirety and substituting the
attached Schedule 2.12.
(f) Section 2.14 of the Disclosure Schedule to the Stock Purchase
Agreement is hereby amended by deleting it in its entirety and substituting the
attached Schedule 2.14.
(g) Section 2.26(b) of the Disclosure Schedule to the Stock
Purchase Agreement is hereby amended by deleting it in its entirety and
substituting the attached Schedule 2.26(b).
SECTION 2. Buyer and Seller shall co-operate in obtaining the consent of G.E.
Capital Fleet Services ("G.E. Capital") to the assignment of the vehicle leases
referred to in Section 2.12 hereof. Seller shall co-operate with Buyer to put in
place arrangements to ensure that Buyer receives the benefit of such leases.
Prior to the assignment, and so long as McCulloch has use of the leased
vehicles. McCulloch shall make all rental payments due under said lease with
respect to such vehicles directly to G.E. Capital. If the Consent of G.E.
Capital is not obtained within 30 days after the Closing, Shop-Vac shall have
the option, upon at least 10 business days notice to McCulloch, to terminate
said such leases at Shop-Vac's expense and to return the vehicles to G.E.
Capital.
SECTION 3. In all other respects the provisions of the Stock Purchase Agreement
are confirmed and, except as herein provided shall have full effect and form.
-2-
<PAGE> 62
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed all as of the day and year first above written.
BEAVER ACQUISITION CORPORATION
/s/ David M. Wittels
---------------------------------
By: David M. Wittels
Title: Secretary
SHOP VAC CORPORATION
/s/ W. Earl Stogner
---------------------------------
By: W. Earl Stogner
Title: Executive Vice President
-3-
<PAGE> 1
Exhibit 12.1
SHOP VAC CORPORATION AND SUBSIDIARIES
EXHIBIT 12.1
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- --------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES, AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES 11,880 18,462 17,255 17,447 4,182 1,199 496
INTEREST EXPENSE 8,174 8,142 7,210 8,826 11,629 8,966 7,175
INTEREST COMPONENT OF RENTAL EXPENSE 165 111 133 154 218 172 157
------ ------- ------- ------- -------- ------- --------
20,219 26,715 24,598 28,427 16,029 10,337 7,828
====== ======= ======= ======= ======== ======= ========
INTEREST EXPENSE 8,174 8,142 7,210 8,826 11,629 8,966 7,175
INTEREST COMPONENT OF RENTAL EXPENSE 165 111 133 154 216 172 157
------ ------- ------- ------- -------- ------- --------
8,339 8,253 7,343 8,980 11,847 9,138 7,332
====== ======= ======= ======= ======== ======= ========
FIXED CHARGE COVERAGE RATIO 2.4 3.2 3.3 2.9 1.4 1.1 1.1
====== ======= ======= ======= ======== ======= ========
</TABLE>
<PAGE> 1
SHOP VAC CORPORATION
EXHIBIT 21.1
SUBSIDIARIES OF SHOP VAC CORPORATION
<TABLE>
<CAPTION>
<S> <C>
JURISDICTION
SUBSIDIARY NAME INCORPORATED
--------------- ------------
FAM NETHERLANDS b.v. NETHERLANDS
FELCHAR MANUFACTURING CORPORATION NEW YORK
GOBLIN FRANCE, S.A. FRANCE
GOBLIN IRELAND LTD IRELAND
GOBLIN LIMITED (UK) ENGLAND
MCCULLOCH (GERMANY) GMBH GERMANY
MCCULLOCH (AUSTRIA) GMBH AUSTRIA
MCCULLOCH IRELAND LTD IRELAND
MCCULLOCH KFT (HUNGARY) HUNGARY
MOSTARE MANUFACTURING CORPORATION ARKANSAS
SHOP VAC AUSTRALIA PTY LTD AUSTRALIA
SHOP VAC INTERNATIONAL, INC. DELAWARE
SHOP VAC MEXICO SA DE CV MEXICO
SHOP VAC OF CANADA LTD ONTARIO
SHOP VAC PROPERTIES INTERNATIONAL LTD DELAWARE
</TABLE>
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT ON SCHEDULE AND CONSENT
The Board of Directors
Shop-Vac Corporation:
The audits referred to in our report dated March 6, 1996 (except as to
the second paragraph of note 3 to the consolidated financial statements, which
is as of August 28, 1996 and the third paragraph of note 3 to the consolidated
financial statements, which is as of October 1, 1996), included the related
financial statement schedule as of December 31, 1994 and 1995, and for each of
the years in the three-year period ended December 31, 1995, included in the
registration statement. The financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in notes 6 and 7 to the consolidated financial
statements, the Company changed its method of accounting for postretirement
benefits other than pensions and income taxes in 1993.
We consent to the use of our reports included herein and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Harrisburg, Pennsylvania
November 19, 1996
<PAGE> 1
EXHIBIT 25.1
Conformed Copy
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
-----------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
-----------
MARINE MIDLAND BANK
(Exact name of trustee as specified in its charter)
New York 16-1057879
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
140 Broadway, New York, N.Y. 10005-1180
(212) 658-1000 (Zip Code)
(Address of principal executive offices)
Eric Parets
Senior Vice President
Marine Midland Bank
140 Broadway
New York, New York 10005-1180
Tel: (212) 658-6560
(Name, address and telephone number of agent for service)
SHOP VAC CORPORATION
(Exact name of obligor as specified in its charter)
New Jersey 13-5609081
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2323 Reach Road
Williamsport, Pennsylvania 17701
(717) 326-0502 (Zip Code)
(Address of principal executive offices)
10 5/8% SENIOR SECURED NOTES DUE 2003
(Title of Indenture Securities)
<PAGE> 2
General
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory
authority to which it is subject.
State of New York Banking Department.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
None
<PAGE> 3
Item 16. List of Exhibits.
Exhibit
- -------
T1A(i) * - Copy of the Organization Certificate of
Marine Midland Bank.
T1A(ii) * - Certificate of the State of New York
Banking Department dated December
31, 1993 as to the authority of Marine
Midland Bank to commence business.
T1A(iii) - Not applicable.
T1A(iv) * - Copy of the existing By-Laws of Marine
Midland Bank as adopted on January
20, 1994.
T1A(v) - Not applicable.
T1A(vi) * - Consent of Marine Midland Bank
required by Section 321(b) of the Trust
Indenture Act of 1939.
T1A(vii) - Copy of the latest report of condition
of the trustee (September 30, 1996),
published pursuant to law or the
requirement of its supervisory or
examining authority.
T1A(viii) - Not applicable.
T1A(ix) - Not applicable.
* Exhibits previously filed with the Securities and Exchange Commission
with Registration No. 33-53693 and incorporated herein by reference
thereto.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
Marine Midland Bank, a banking corporation and trust company organized under the
laws of the State of New York, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York on the 18th day of November 1996.
MARINE MIDLAND BANK
By: /s/ Peter S. Wolfrath
-----------------------------
Peter S. Wolfrath
Assistant Vice President
<PAGE> 5
<TABLE>
<S> <C>
EXHIBIT T1A (VII)
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Expires March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
[1]
THIS FINANCIAL INFORMATION HAS NOT BEEN REVIEWED, OR CONFIRMED
FOR ACCURACY OR RELEVANCE, BY THE FEDERAL RESERVE SYSTEM. Please refer to page i,
Table of Contents, for
the required disclosure
of estimated burden.
- -----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH
DOMESTIC AND FOREIGN OFFICES--FFIEC 031
REPORT AT THE CLOSE OF BUSINESS SEPTEMBER 30, (950630)
1996 ----------
(RCRI 9999)
This report is required by law; 12 U.S.C. Section 324 (State member This report form is to be filed by banks with branches and
banks); 12 U.S.C. Section 1817 (State nonmember banks); and 12 consolidated subsidiaries in U.S. territories and
U.S.C. Section 161 (National banks). possessions, Edge or Agreement subsidiaries, foreign
branches, consoli- dated foreign subsidiaries, or
International Banking Facilities.
- -----------------------------------------------------------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed The Reports of Condition and Income are to be prepared in
by an authorized officer and the Report of Condition must be accordance with Federal regulatory authority instructions.
attested to by not less than two directors (trustees) for State NOTE: These instructions may in some cases differ from
nonmember banks and three directors for State member and generally accepted accounting principles.
National Banks.
I, Gerald A. Ronning, Executive VP & Controller We, the undersigned directors (trustees), attest to the
----------------------------------------------------- correctness of this Report of Condition (including the
Name and Title of Officer Authorized to Sign Report supporting schedules) and declare that it has been examined
by us and to the best of our knowledge and belief has been
of the named bank do hereby declare that these Reports of prepared in conformance with the instructions issued by the
Condition and Income (including the supporting schedules) appropriate Federal regulatory authority and is true and
have been prepared in conformance with the instructions correct.
issued by the appropriate Federal regulatory authority and
are true to the best of my knowledge and believe.
/s/ James H. Cleave
-----------------------------------------------
Director (Trustee)
/s/ Gerald A. Ronning /s/ Bernard J. Kennedy
- ---------------------------------------------- -----------------------------------------------
Signature of Officer Authorized to Sign Report Director (Trustee)
10/28/96 /s/ Northrup R. Knox
- ---------------------------- -----------------------------------------------
Date of Signature Director (Trustee)
- -----------------------------------------------------------------------------------------------------------------------------------
FOR BANKS SUBMITTING HARD COPY REPORT FORMS:
STATE MEMBER BANK: Return the original and one copy to NATIONAL BANKS: Return the original only in the special
the appropriate Federal Reserve District Bank. return address envelope provided. If express mail is used in
lieu of the special return address envelope, return the
STATE NONMEMBER BANKS: Return the original only in the original only to the FDIC, c/o Quality Data Systems, 2127
special return address envelope provided. If express mail is Espey Court, Suite 204, Crofton, MD 21114.
used in lieu of the special return address envelope, return
the original only to the FDIC, c/o Quality Data Systems,
2127 Espey Court, Suite 204, Crofton, MD 21114.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FDIC Certificate Number 0 0 5 8 9
--------------------------
<PAGE> 6
(RCRI 9030)
<PAGE> 7
NOTICE
This form is intended to assist institutions with state publication
requirements. It has not been approved by any state banking authorities. Refer
to your appropriate state banking authorities for your state publication
requirements.
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the
Marine Midland Bank of Buffalo
Name of Bank City
in the state of New York, at the close of business
September 30, 1996
<TABLE>
<CAPTION>
ASSETS
Thousands
of dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances
currency and coin.................................... $ 924,069
Interest-bearing balances ........................... 1,269,750
Held-to-maturity securities.......................... 0
Available-for-sale securities........................ 3,096,772
Federal Funds sold and securities purchased
under agreements to resell in domestic
offices of the bank and of its Edge and
Agreement subsidiaries, and in IBFs:
Federal funds sold................................... 785,600
Securities purchased under
agreements to resell................................. 306,969
Loans and lease financing receivables:
Loans and leases net of unearned
income............................... 14,428,376
LESS: Allowance for loan and lease
losses............................... 440,075
LESS: Allocated transfer risk reserve 0
Loans and lease, net of unearned
income, allowance, and reserve....................... 13,988,301
Trading assets....................................... 791,225
Premises and fixed assets (including
capitalized leases).................................. 180,892
Other real estate owned................................. 5,104
Investments in unconsolidated
subsidiaries and associated companies................... 0
Customers' liability to this bank on
acceptances outstanding................................. 19,791
Intangible assets....................................... 161,326
Other assets............................................ 459,739
Total assets............................................ 21,989,538
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Deposits:
In domestic offices.................................. 14,736,857
Noninterest-bearing.................. 3,198,971
Interest-bearing..................... 11,537,886
In foreign offices, Edge, and Agreement
subsidiaries, and IBFs.................................. 3,676,395
Noninterest-bearing.................. 0
Interest-bearing..................... 3,676,395
Federal funds purchased and securities sold
under agreements to repurchase in domestic
offices of the bank and its Edge and
Agreement subsidiaries, and in
IBFs:
Federal funds purchased.............................. 385,430
Securities sold under agreements to
repurchase........................................... 212,177
Demand notes issued to the U.S. Treasury 300,000
Trading Liabilities...................................... 293,523
Other borrowed money:
With original maturity of one year
or less.............................................. 28,701
With original maturity of more than
one year............................................. 0
Mortgage indebtedness and obligations
under capitalized leases................................ 33,613
Bank's liability on acceptances
executed and outstanding................................ 19,791
Subordinated notes and debentures....................... 100,000
Other liabilities....................................... 305,078
Total liabilities....................................... 20,091,565
Limited-life preferred stock and
related surplus......................................... 0
EQUITY CAPITAL
Perpetual preferred stock and related
surplus................................................. 0
Common Stock............................................ 185,000
Surplus................................................. 1,633,279
Undivided profits and capital reserves.................. 77,442
Net unrealized holding gains (losses)
on available-for-sale securities........................ 2,252
Cumulative foreign currency translation
adjustments............................................. 0
Total equity capital.................................... 1,897,973
Total liabilities, limited-life
preferred stock, and equity capital..................... 21,989,538
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,142
<SECURITIES> 0
<RECEIVABLES> 36,679
<ALLOWANCES> 1,579
<INVENTORY> 28,945
<CURRENT-ASSETS> 93,161
<PP&E> 90,301
<DEPRECIATION> 57,713
<TOTAL-ASSETS> 137,635
<CURRENT-LIABILITIES> 179,746
<BONDS> 100,506
0
0
<COMMON> 85
<OTHER-SE> (42,196)
<TOTAL-LIABILITY-AND-EQUITY> 137,635
<SALES> 151,308
<TOTAL-REVENUES> 151,308
<CGS> 113,394
<TOTAL-COSTS> 113,394
<OTHER-EXPENSES> 30,243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,175
<INCOME-PRETAX> 496
<INCOME-TAX> 1,172
<INCOME-CONTINUING> (676)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (676)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
