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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER
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CULLIGAN WATER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 51-0350629
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE CULLIGAN PARKWAY
NORTHBROOK, ILLINOIS) 60062
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (847) 205-6000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
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Common Stock, $.01 par value New York Stock Exchange, Inc.
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant was $1,076,530,716 as of April 24, 1998 (based on a closing
market price on such date of $58.0625; excludes 7,334,859 shares held by persons
who may be deemed to be affiliates of the registrant).
There were 25,875,754 shares of the registrant's Common Stock ($.01 par
value) outstanding as of April 24, 1998.
Documents Incorporated by Reference
[None]
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EAC Draft for Discussion
Purposes Only
28 April 98
PART I
ITEM 1. BUSINESS
GENERAL
Culligan Water Technologies, Inc. (the "Company" or "Culligan") is a
leading manufacturer and distributor of water purification and treatment
products and services principally for household, consumer, and commercial
applications. Products and services offered by Culligan range from those
designed to solve residential water problems, such as filters for tap water
and household water softeners, to highly sophisticated equipment and services,
such as ultrafiltration and microfiltration products. Culligan also offers
desalination systems and portable deionization services ("PDS"), designed for
commercial and industrial applications. In addition, Culligan sells, and
licenses its dealers to sell under the Culligan trademark, five-gallon bottled
water. In fiscal 1997, Culligan entered the consumer market selling water
filtration products directly to retailers.
Culligan has been an active participant in the water purification and
treatment industry since 1936, and its Culligan(R), Everpure(R), Elga(R), and
Bruner(R) brands are among the most recognized in the industry. Culligan's
products are sold and serviced in over 90 countries through a worldwide
network of over 1,400 sales and service centers. To support this distribution
network, Culligan maintains manufacturing facilities in the United States,
United Kingdom, France, Italy, Spain and Canada. During the last 15 years,
Culligan's residential water treatment systems have been installed in over 3
million households in the United States. In addition, Culligan has a
significant installed base of water treatment and filtration systems for
commercial uses, such as food service. Culligan also has a small presence in
industrial and municipal systems and desalination systems.
With net sales of $505.7 million for the fiscal year ended January 31,
1998, Culligan and its dealers provide a wide range of services to support its
products and offer a full line of accessories and replacement parts competing
in the highly fragmented water purification and treatment industry.
Approximately 43% of Culligan's revenues in fiscal 1998 were derived from
sources believed to be recurring in nature, such as servicing installed
equipment, sales of replacement parts, filters and other consumables,
equipment rental and royalties. In fiscal 1998, approximately 38% of
Culligan's revenues were from export and international sales. Culligan
conducts its activities in two principal areas: household and consumer, and
commercial and industrial.
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In its fiscal year ended January 31, 1998, Culligan completed over 35
strategic, dealer and other acquisitions with annualized revenues of
approximately $350 million. The most significant of such acquisitions include
the acquisition of the water filtration business of Ametek, Inc. ("Ametek")
now known as Plymouth Products, Inc. in August 1997, and the acquisition of
Protean plc ("Protean") in December 1997. The acquired Ametek business
manufactures and markets point-of-use water filtration and treatment products
under the Ametek, Plymouth, American Plumber and other brand names and had
revenues for its year ended December 31, 1996, of approximately $69 million.
Protean manufactures, distributes and services water purification equipment
and analytical and thermal equipment. The companies in the water purification
division of Protean supply equipment which is designed to purify tap water to
the levels needed by scientific, medical and industrial customers. The
companies in the analytical and thermal equipment division supply electric
furnaces and ovens, specialized thermally controlled equipment (including
equipment for freeze-drying and thermal conditioning), instruments and
consumables for use in chromatography, glass and plastic single-use containers
and bench-top analytical equipment. Protean had total revenues of Pounds
Sterling 81.1 million (US$132.8 million) in its fiscal year ended March 31,
1997, of which Pounds Sterling 38.8 million (US$63.5 million) related to its
water purification equipment operations and Pounds Sterling 42.3 million
(US$69.3 million) related to its analytical and thermal equipment operations.
In January 1998, the Company decided to divest the analytical and thermal
operations. As a result, these operations have been recorded as discontinued
operations.
PENDING MERGER WITH U.S. FILTER
On February 9, 1998, the Company entered into the Agreement and Plan of
Merger (the "Merger Agreement"), dated as of February 9, 1998, among United
States Filter Corporation, ("USF"), the Company and Palm Water Acquisition
Corp., a newly-formed wholly owned subsidiary of USF ("Merger Sub").
Pursuant to the Merger Agreement, Merger Sub will be merged with and into
the Company (the "Merger"). In connection with the Merger, USF will issue in
exchange for each issued and outstanding share (other than treasury shares and
shares owned by USF) of the Company's common stock, par value $.01 per share
("Company Common Stock"), 1.714 shares of common stock, par value $.01 per
share of USF ("USF Common Stock") if the average of the closing prices of the
shares of USF Common Stock as reported on the New York Stock Exchange
Composite Tape on each of the last ten trading days ending on the sixth
trading day prior to the date of the meeting of the Company's stockholders at
which the approval of the Merger by the Company's stockholders is obtained
(the "Average Share Price") is equal to or greater than $35 (the "Exchange
Ratio"); provided, however, that (i) if the Average Share Price is less than
$35, but greater than or equal to $32, then the Exchange Ratio shall be equal
to the quotient obtained (rounded to the nearest ten-thousandth of a share) by
dividing $60 by the Average Share Price; and (ii) if the Average Share Price
is less than $32, the Exchange Ratio shall be equal to 1.875. Among other
circumstances, the Merger
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Agreement may be terminated by the Company if the Average Share Price, or if
the average of the closing prices of the shares of USF Common Stock as
reported on the New York Stock Exchange Composite Tape for any period of 10
consecutive trading days which ends after the last trading day used in
calculating the Average Share Price, is less than $26.25.
The Merger will be accounted for as a pooling of interests and is
intended to qualify as a tax-free reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended. Consummation of the Merger is
subject to customary regulatory approvals and the approval of the stockholders
of each of the Company and USF. The Merger is expected to be consummated in
the first half of 1998.
Apollo Investment Fund, LP, and Lion Advisors, LP, (collectively,
"Apollo") which beneficially own in the aggregate 7,334,859 shares of the
Company's common stock (representing approximately 28.4% of the total number
of shares of Company Common Stock outstanding) have each entered into a
Support/Voting Agreement with USF pursuant to which they have agreed, among
other things, to cause such shares of Company Common Stock that they
beneficially own to be voted in favor of the Merger.
CERTAIN HISTORICAL INFORMATION
Until September 1995, the Company was a wholly-owned subsidiary of
Samsonite Corporation ("Samsonite"), formerly known as Astrum International
Corp. ("Astrum"). In September 1995, Samsonite distributed to its
stockholders all of the Company's then outstanding Common Stock, and the
Company became a separate public company (the "Spin-off"). In December 1995,
the Company successfully completed a public offering of 4,025,000 shares of
Common Stock realizing net proceeds of approximately $85 million and its
Common Stock is listed on the New York Stock Exchange, Inc. In addition, in
October 1996, the Company issued additional shares of its common stock upon the
exercise of over-allotment options granted to underwriters in connection with a
secondary public offering of shares of Common Stock and received net proceeds of
approximately $32 million from the issuance of such shares and the exercise of
stock options by one of the selling stockholders in such secondary offering.
In June 1993, Samsonite Corporation's predecessor, Astrum, emerged from
bankruptcy and as a result, Samsonite and all of its subsidiaries, including the
Company, were required to adjust their assets and liabilities to reflect their
fair values. The reorganization value in excess of identifiable assets of the
Company, which was $112 million at the time of Astrum's emergence from
bankruptcy, was amortized through charges to the consolidated statement of
operations over a three year period that ended in June 1996. While these amounts
represent non-cash charges, they have had an adverse effect on the Company's
reported results of operations in fiscal years 1994, 1995, 1996 and the first
two fiscal quarters of 1997. See "Item 6. Selected Financial Data."
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INDUSTRY OVERVIEW
Water purification and treatment has developed into a multi-billion
dollar global industry in response to an increasingly limited supply of
drinkable water, global economic expansion, the increasing need for
high-quality or ultrapure water by commercial and industrial companies,
heightened public health and safety concerns relating to drinking water, and
the promulgation of numerous governmental regulations for water quality. The
Science Advisory Board of the United States Environmental Protection Agency
(the "EPA"), an independent panel established by Congress, has cited drinking
water contamination as one of the highest ranking environmental risks.
The Company believes that it has benefited from, and is in a position to
continue to benefit from, several existing and emerging market trends,
including increased consumer emphasis on health and safety concerns relating
to drinking water and water supplies, growing demand for better water quality
in commercial establishments and industrial manufacturing processes and
continued promulgation of Federal, state and local regulations relating to
water purification and treatment.
Principal components of the water purification and treatment industry
include the household, consumer, bottled water, commercial and industrial,
municipal and wastewater treatment markets. The Company is currently in each
of these markets, although its principal activities are conducted in the
household bottled water and consumer markets.
HOUSEHOLD. The household market includes the sale or rental of water
softening and conditioning equipment and other products installed at the
point-of-entry to a residential water system, as well as point-of-use
filtration systems designed to improve the quality of drinking water.
Household point-of-entry and point-of-use water treatment systems are used to
remove lead and other health-related contaminants, eliminate chlorine and
unpleasant odors and tastes and soften hard water by removing minerals.
Consumers' equipment needs vary by geographical region as a result of
differing water qualities and problems. The market for such systems in the
United States continues to grow in response to public concerns relating to the
quality of drinking water.
CONSUMER. The consumer market consists of the sale through retail
distribution channels of water purification and treatment systems, principally
of point-of-use filtration systems designed to improve the quality of drinking
water. The consumer market also includes the sale of point-of-entry and water
softening equipment and systems through do-it-yourself retail distribution
channels as well as the distribution of water filtration products by co-branding
with appliance and other manufacturers for sale in the retail market. The
Company first entered the consumer market in fiscal 1997.
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BOTTLED WATER. The bottled water market consists of the production and
sale of water in various sized containers through several channels of
distribution. In some cases, bottled water is sold directly to residential
and commercial customers, typically in five-gallon bottles that are delivered
to the customer's location by the bottled water company. Bottled water is
also sold on a retail basis, typically in grocery stores, convenience store
chains and vending machines and usually in one-gallon and smaller containers.
Because of growing consumer concern over the quality of water and its health
effects, the bottled water market has grown substantially in recent years and
is expected to continue to expand. The Company is principally engaged in the
five-gallon portion of this market.
COMMERCIAL AND INDUSTRIAL. The commercial and industrial market
encompasses all equipment and products that treat water for commercial and
industrial purposes. Improved or customized water, free of dissolved minerals
and health-related contaminants, is an essential element in many products and
manufacturing processes. The use of untreated water in commercial and
industrial businesses may result in inconsistent product quality as well as
diminished equipment performance which can lead to expensive maintenance or
replacement costs. Consequently, manufacturers treat incoming water to
maintain a consistently acceptable degree of water quality. In addition,
advances in manufacturing technology in industries such as electronics and
pharmaceuticals are dependent upon highly purified and ultrapure water.
MUNICIPAL. Municipal and other governmental entities are often in need
of water treatment systems to supply potable water to their residents. These
systems are designed to chlorinate and remove contaminants from water supplies
and to desalt brackish water and seawater. Public concern regarding the
increasing scarcity of potable water as well as the quality of drinking water
have resulted in municipalities seeking to improve the treatment and
purification of public water supplies. In addition, requirements established
by the EPA and other governmental bodies, including the Safe Drinking Water
Act, have resulted in increasing governmental legislation, regulation and
enforcement of strict standards for potable water, thereby contributing to the
need for water treatment systems to serve the municipal market. The Company
believes that there is a growing market for companies with the ability to
operate and maintain drinking water treatment facilities and to provide build,
own and operate facilities. The Company first entered the operate and
maintain (O&M) portion of the municipal drinking water treatment market in
fiscal 1996 with the acquisition of Culligan Operating Services and first
entered the build, own and operate portion of the market with the acquisition
of Culligan-Enerserve in fiscal 1997.
WASTEWATER. The wastewater treatment market involves the design,
manufacture, installation, operation and servicing of systems to treat the
outgoing wastewater of industrial and commercial companies and municipalities.
The growth of the wastewater treatment market is attributable in large part to
increased governmental regulation of the discharge of pollutants in wastewater
and the disposal of aqueous industrial waste, as well as heightened public
awareness of, and concern regarding, the
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environment and industrial pollution. In addition to the manufacture and
installation of equipment and systems to treat wastewater, the Company
believes that there is a growing market for companies with the ability to
operate and maintain wastewater treatment facilities. The Company first
entered the O&M portion of the wastewater market in fiscal 1996 with the
acquisition of Culligan Operating Services.
TECHNOLOGIES
With over 60 years of experience in the water purification and treatment
industry, the Company's technology, and engineering expertise allow it to offer
a wide variety of products and services designed to meet the requirements of
its customers. The principal technologies utilized in the Company's offering
of products and services are:
FILTRATION. A process typically used for separating solids from a liquid
by means of a porous substance such as a permeable fabric, layers of inert
media (sand, gravel, garnet) or a membrane (such as ultrafiltration or
microfiltration). Types of filtration are often characterized by the degree
to which solids are separated from the liquid phase being treated. Filters
may be used for mechanical, adsorptive, neutralizing, or catalytic processes.
REVERSE OSMOSIS. A water treatment process that removes undesirable
materials from water by using pressure to force the water molecules through a
semipermeable membrane. This process is called "reverse" osmosis because the
pressure forces the water to flow in the reverse direction (from the
concentrated solution to the dilute solution) to the flow direction (from the
dilute to the concentrated) in the process of natural osmosis. Reverse
osmosis removes ionized salts, colloids, and organic molecules down to a
molecular weight of 100.
ULTRAFILTRATION. A method of cross-flow filtration (similar to reverse
osmosis but using lower pressures) which uses a membrane to separate small
colloids and large molecules from water and other liquids. The
ultrafiltration process falls between reverse osmosis and microfiltration in
terms of the size of particles removed, with ultrafiltration removing
particles in the 0.002 to 0.1 micron range, and typically rejecting organics
over 1,000 molecular weight while passing ions and smaller organics.
WATER SOFTENING. A form of ion exchange used for the reduction/removal
of calcium and magnesium ions, which are the principal causes of hardness in
water. The cation exchange resin method is most commonly used for residential
and commercial water treatment. Ion exchange is a reversible chemical process
in which ions from an insoluble permanent solid medium (usually a resin) are
exchanged for ions in a solution or fluid mixture surrounding the insoluble
medium.
DEIONIZATION. The removal of ionized materials from a solution by a
two-phase ion exchange procedure. First, positively-charged ions are removed
by a cation
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exchange resin in exchange for a chemically equivalent amount of hydrogen
ions. Second, negatively-charged ions are removed by an anion exchange resin
for a chemically equivalent amount of hydroxide ions. The hydrogen and
hydroxide ions introduced in this process unite to form water molecules. This
process is called deionization or demineralization by ion exchange.
PRODUCTS AND SERVICES
The Company serves the household and consumer market, including the
bottled water market and the commercial and industrial markets including PDS,
O&M, build, own and operate and other markets, offering a broad range of
products and services. The Company's product lines include filtration devices,
reverse osmosis systems, desalination facilities, bottled water, water
softeners, deionizers and ultrafiltration products. Product sizes range from
small devices for residential customers to large multi-process systems that
are custom engineered and manufactured for industrial customers. Through its
independent dealers, Company-owned dealers and international distributors, the
Company also offers a full line of accessories, replacement parts and
services. In addition, the Company is a major provider of PDS, both
domestically and internationally.
The Company conducts its activities in two principal areas: household and
consumer, and commercial and industrial.
HOUSEHOLD AND CONSUMER
The Company is the leading manufacturer and distributor of water
purification and treatment products to residential customers in the United
States. The Company's domestic and international household and consumer
products and services address residential water problems, including the
removal of lead, cysts and other health-related contaminants, the elimination
of chlorine and unpleasant odors and tastes from water, and the softening of
water by removing minerals.
The Company, through its independent and Company-owned dealers, sells,
installs and services a broad range of filters, reverse osmosis units and
water softeners that address household water problems. Culligan's strong
brand recognition, popularized by its famous "Hey Culligan Man!"(R)
commercials, as well as its extensive dealer network, have combined to give
the Company a leading position in the residential water treatment market.
The Company produces and sells mechanical filtration systems and
point-of-use filters in the household and consumer market designed to improve
the quality of drinking water. In 1988, the Company became the first to
receive certification from the independent National Sanitation Foundation
("NSF") under NSF's standard for
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residential reverse osmosis drinking water systems. Since that time, the
Company has developed many proprietary reverse osmosis systems to improve the
quality of drinking water, including the Company's latest model of its
Aqua-Cleer(R) Drinking Water System that utilizes the reverse osmosis process
to filter tap water three times before it comes out of the faucet.
The Company also offers a wide array of water softening and conditioning
equipment and products for household use. Household automatic softeners and
portable exchange conditioners have constituted a large portion of the
Company's household business since its inception.
In fiscal 1997, Culligan, through its newly-formed Consumer Markets
Division, launched a line of water filtration products for sale to consumers
through retail stores and do-it-yourself outlets and entered into several
marketing partnerships for the co- branding of products with partners that are
designed to provide rapid channel access and recurring revenue from replacement
filter sales. During fiscal 1998, the Company restructured its Consumer business
to focus its product offerings on the hybrid and "do-it-yourself" retail market
channels. Through Ametek, the Company also markets a full line of water
filtration products, consisting primarily of point-of-use filters, to the "do-it
yourself" market, plumbing wholesale and OEM markets under the Ametek, Plymouth,
American Plumber and other brand names.
Through its Everpure subsidiary, the Company also serves the residential
market by providing point-of-use filtration systems for homes and apartments
as well as recreational vehicles. Everpure's filtration systems reduce or
remove off-tastes, odors, chlorine, dirt, rust, asbestos fibers and parasitic
protozoan cysts from the water supply.
Utilizing its distribution network and product technology, the Company
entered the bottled water market in 1987 by licensing the sale of five-gallon
containers of bottled water under the Culligan name. Because of growing
consumer concern over the quality of water and its health effects, the bottled
water market has grown substantially in recent years and is expected to
continue to expand. Culligan's licensed bottled water sales now rank fourth
in the five-gallon bottled water market in the United States and is the only
brand in the five-gallon bottled water business with a nationwide distribution
network.
Bottled water under the Culligan name is produced at over 100
Company-owned, franchised or licensed bottling locations and sold through over
500 Company-owned and franchised dealers in the United States. The Company
receives royalty payments from its licensed producers and dealers based on the
volume of sales. The Company's dealers typically deliver the five-gallon
bottles to a customer's home or office on a route basis, and the customer
rents the dispenser console. The dealers also pick up the empty bottles which
are then cleaned and refilled at the bottling location. The Company does not
participate to any significant extent in any other segment of the bottled
water market.
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COMMERCIAL AND INDUSTRIAL
The Company designs, manufactures and, primarily through its distribution
network, sells, installs and services a wide range of products to solve the
water problems of its commercial and industrial customers. These products
include filtration systems, reverse osmosis units, water softeners,
desalination systems, deionizers and high quality ultrafiltration and
microfiltration products capable of producing ultrapure water.
COMMERCIAL. Commercial users require water treatment systems that remove
dissolved minerals, such as calcium, magnesium, iron or manganese, and health-
related contaminants from the available water supply and are capable of
treating large quantities of water on a cost effective basis. The Company's
commercial products use technologies similar to its residential products, but
afford greater capacity, durability and effectiveness and allow customers
increased flexibility for customization. For example, Culligan's filters,
deionizers and softeners provide food and beverage manufacturers with
consistently high quality water enabling them to preserve uniformity of taste
and appearance in their products, reduce health-related contaminants and
minimize equipment maintenance costs.
Other commercial enterprises such as airlines, hotels, restaurants, car
washes, laundromats, office buildings and apartment complexes use Culligan
products to condition, filter, deionize and otherwise treat large quantities
of water. Unique features of the Company's commercial water softeners include
high quality Cullex(R) resins, the Dubl-Safe(TM) brine system and a full range
of system controls that minimize salt usage, such as the Company's solid state
Aqua-Sensor(R) regeneration control.
Through Everpure, the Company supplies water filtration products to
commercial businesses which require consistently high quality water. Everpure
is the leading supplier of water filtration products to the food service
industry. Sales to the food service industry constituted a significant
portion of Everpure's revenues in fiscal 1998. Everpure's line of food service
water filtration products includes systems for post-mix beverage dispensers,
ice machines, coffee makers, steamers and vending machines that are designed
to treat all levels of water contamination and to ensure that consumer
products such as coffee, soups or ice are of the highest quality. Everpure
systems also decrease maintenance costs and extend the life of water-using
equipment by removing dirt and other abrasive particles that can damage the
internal workings of such equipment.
Everpure complements the Company's Culligan operations by providing a
presence in selected markets where the Company's Culligan dealer network does
not generally participate. Everpure products are used extensively in many
major fast-food restaurants and convenience store chains around the world. In
1979, Everpure received NSF certification for its filtration cartridges, and
today, substantially all of the Everpure systems carry the highest NSF rating
for both aesthetic and health effects.
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Everpure's principal family of filter cartridges uses its proprietary precoat
filtration process, using unique MicroPure(R) filtering media. Everpure's
filtration and disinfection products are also used in the airline, marine,
offshore oil and military markets.
Everpure operates in most western European countries and Japan. In
recent years, Everpure has expanded internationally by following its customers
into developing countries where the water supply is of questionable quality.
Its market outside the United States is primarily the food service industry,
including fast-food chains, restaurants and offices. Everpure's products are
sold by licensed distributors directly to equipment manufacturers, fast food
chains and convenience store chains as well as to individual locations.
The companies in the water purification division of the Protean Group
supply equipment under the Elga and DWA brands which is designed to purify tap
water to the levels needed by scientific, medical and industrial customers
with flow rates from seven liters per day to 2,500 cubic meters per day. These
products incorporate multiple technologies including ion exchange,
electro-deionization, reverse osmosis filtration, and ultra-violet
photo-oxidation. Elga has been a pioneer in the water purification industry
from the commercial development of small portable deionizers to the
development of ultrapure laboratory systems or custom-designed systems.
The Company's Bruner operation designs and manufactures water softeners,
filters, deionizers, dealkalizers, demineralizers, degasifiers and reverse
osmosis systems in standard and custom design configurations for commercial
and industrial applications worldwide. Bruner products are sold through an
extensive network of sales representatives supported by sales and service
locations in the United States and internationally.
INDUSTRIAL. Industrial companies also require the removal of dissolved
minerals and contaminants from water before the water can be used in
manufacturing processes. A typical treatment system for these applications
will combine multiple processes, including clarification, depth filtration,
carbon filtration, softening, reverse osmosis, deionization, submicron
cartridge filtration and ultraviolet light disinfection. Through Bruner, the
Company also designs and manufactures systems for industrial large volume
process water users including packaged systems utilizing multi-cell filters to
reduce or remove turbidity, iron, hydrogen sulfide, color and other
particulates from the water supply. Its industrial operations are also
supported internationally by its recent acquisition of Dewplan Limited, one of
the UK's leading specialist design contractors for high-purity and
ultra-high-purity industrial water treatment systems.
The Company's and Bruner's products and technologies are used to remove
dissolved minerals and contaminants from water in numerous industrial
applications, including manufacturing operations, laboratories, research, food
processing, chemical processing, pharmaceutical facilities and printing
plants. In addition, the Company and its dealers have substantial experience
in configuring systems used by manufacturers
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of prescription and non-prescription drugs. Culligan and Bruner ultrapure
water systems are also used by manufacturers of products such as integrated
circuits and compact discs.
PDS. The Company and its dealer network also provide PDS to commercial
and industrial customers in the United States and Europe. The Company's
network includes over 380 outlets and approximately 250 regeneration
facilities. In this growing business, the Company provides portable water
deionization treatment equipment that uses resins as the filtration medium to
produce ultrapure water. Resin is retrieved and transported by a dealer
service representative to a dealer's regeneration plant for chemical
recharging when it is exhausted. Unlike many permanent systems, PDS requires
no chemical handling or maintenance by the customer. PDS is a widely used
technology among industrial and commercial companies and provides the Company
and its dealer network with a recurring source of revenues and the opportunity
to market its systems and other services to its existing PDS customers.
MEDICAL. Medical-related products often require ultrapure water free
from certain minerals and contaminants to operate effectively. The Company
manufactures reverse osmosis units that comprise an integral part of the
kidney dialysis equipment used by hospitals, hemodialysis centers and other
health service providers. The Company's reverse osmosis unit is one of a
limited number of such units registered by the FDA as a medical device
approved for this purpose. Through Protean's DWA businesses, the Company
supplies a range of water treatment devices and ancillary systems for use in
hemodialysis centers throughout Europe.
DESALINATION. The Company has produced major desalination systems
throughout the world. In addition, its Culligan-Enerserve operation builds,
owns and operates desalination and other water and wastewater treatment
systems in the Caribbean.
MUNICIPAL. Historically the municipal market has not represented a
significant portion of the Company's business. In the United States, the
Company typically provides surface water treatment systems for small
municipalities, mobile home parks and other residential groups with
populations under 3,300 people. Culligan's Multi-Tech(R) filtration system
and similar non-U.S. OFSY Omnifiltration(R) systems are low-cost,
pre-engineered, packaged plants that contain all the steps used in a
conventional water treatment plant, such as coagulation, flocculation,
clarification, filtration and disinfection. In addition, the Company's Bruner
operation offers self-contained Bruner packaged water treatment plants in the
municipal market. The Bruner plants are custom engineered to produce potable
water from almost any surface water source and typically provide automated
controls programmed to regulate rapid or "flash" mixing, flocculation,
settling and gravity filtration.
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Through Culligan Operating Services, the Company also provides O&M
services for water and wastewater treatment facilities for municipalities and
other large users primarily in Florida and elsewhere in the Southeastern
United States.
DEALER AND DISTRIBUTION NETWORK
The Company believes that the size and scope of its dealer and
distributor network make it uniquely positioned in the water purification and
treatment industry. Today there are over 1,100 independent Culligan dealers
and distributors and 98 Company-owned dealers who distribute and service
Culligan products throughout the United States, Canada and Western Europe as
well as other foreign markets. In addition, there are over 350 distributors
and authorized agents in the United States and Western Europe as well as in
other foreign markets that distribute water filtration products of the
Company's Everpure subsidiary for the food service industry and other
commercial businesses. The Company's Bruner operation has approximately 90
sales representatives that distribute its products in the United States and
internationally. In addition, Protean's Elga operations have approximately 50
sales representatives. The Company believes that this diverse geographical
distribution network allows it to react rapidly to changing customer needs as
well as to market conditions.
As part of its distribution system, the Company currently owns 65 Culligan
dealerships in North America which had total revenues of approximately $105
million in fiscal 1998. The Company-owned dealers are primarily located in major
metropolitan markets. Such markets include the New York/New Jersey/Connecticut,
Los Angeles, Chicago, Denver, Houston, Miami, San Diego and San Francisco
metropolitan areas. Since the beginning of fiscal 1998, the Company-owned Dealer
division has made 16 acquisitions with annualized revenues of over $59 million.
In addition, since the beginning of fiscal 1998, Culligan's international
division has acquired 14 dealerships and other operations having aggregate
annualized revenues of approximately $76 million.
Company-owned dealer operations generally have a high percentage of
revenues which are derived from sources believed to be recurring in nature,
such as servicing equipment, sales of replacement parts, filters and other
consumables, equipment rental and royalties. The Company's dealer and
distribution network enables it to offer complete solutions to pre-use water
problems for residential, commercial and industrial customers through a
combination of testing, product selection, installation, monitoring and
service. The Company is continuously upgrading and expanding its dealer
network coverage. The Company also has utilized its dealer network and
distributors to introduce new product lines and enter new markets.
Typically, a dealer's territory covers a local community or metropolitan
area and the dealer sells or rents a significant portion of its products to
residential users.
12
<PAGE>
The size of dealerships range from small local operations involving only
a few employees to large multiple site dealerships. Generally, approximately
one-half of a dealer's revenues are derived from rental and service income
from existing customers. Certain dealers, including many large dealers, are
capable of providing standard and special-order commercial and industrial
products and services. The Company's laboratories in Northbrook, Illinois;
Barcelona, Spain; and Bologna, Italy test water samples for dealers to help
them to identify a customer's water treatment needs.
Dealers generally purchase all their requirements for water treatment
products from the Company. The Company assigns each dealer a primary area of
geographic responsibility and generally expects the dealer to cover the needs
of customers in this area, although the dealer has no exclusive right to this
territory. Virtually all of the Company's sales of household products in
North America have been made through the dealer network. Dealers purchase
equipment from the Company for sale, rental or use in their portable exchange
service programs. In addition, the Company receives royalties from the sale
of bottled water and certain supplies that bear the Culligan name.
The Company provides dealers with a variety of services, including
training, education and technical assistance. It offers the dealers
management, sales and service seminars at the time of start-up and throughout
their careers. The Company also employs technical service engineers who
travel throughout the United States aiding dealers with water quality needs.
One of the services that the Company supplies to its dealers as an aid in
commercial and industrial sales is the Company's proprietary CAAP(R) pc
software.
Commercial and industrial job specifications and proposals are supported
by application and technical engineers located in Northbrook, Illinois; High
Wycombe, United Kingdom; and Bologna, Italy. In addition, the Company
provides the dealers with significant marketing services and support,
including an extensive co-operative advertising program. See "--Marketing and
Advertising." A finance subsidiary of the Company provides intermediate-term
loans to franchised dealers for equipment placed on rental or lease.
COMPETITION
The markets in which the Company competes are highly competitive. The
Company competes with many domestic and international companies in its global
markets. In most of the areas in which it competes, the Company believes it
has a competitive advantage based on its brand recognition and the ability of
its dealer network to install, service and provide technical support for the
Company's products. The Company believes it is also distinguished by the
breadth and range of its products, compared to its competitors. The principal
methods of competition are distribution capabilities, product specifications,
product knowledge, reputation, technology, service
13
<PAGE>
and price. Some of the Company's competitors are multi-line companies with
other principal sources of income who have substantially greater resources
than the Company while many others are local product assemblers or service
companies that purchase components and supplies such as valves and tanks from
more specialized manufacturers than the Company.
MARKETING AND ADVERTISING
Dealers are required to participate in the Company's national cooperative
advertising program. This program provides for a variety of dealer programs
and services such as co-op advertising, consumer promotions, public relations,
market research and sales recognition. The Company shares with dealers the
cost of some promotions such as television, radio and newspaper advertising.
Cooperative advertising is typically tailored to regional and local markets
and is designed to increase sales on the local level.
The Company's famous "Hey Culligan Man!"(R) commercials have contributed
to the reputation of the Company and its distribution network as a supplier of
high quality durable water treatment products and as the leading service
provider in the water purification and treatment industry. Culligan's brand
recognition is supported by national and regional combined advertising.
MANUFACTURING
The Company's manufacturing is vertically integrated, with many of the
major components of its water treatment units manufactured and assembled in
its own plants. The Company owns manufacturing facilities in Northbrook and
Westmont, Illinois; Sheboygan, Wisconsin; Mississauga, Ontario, Canada; High
Wycombe, United Kingdom; Bologna, Italy; and Barcelona, Spain. The Company
believes that it has sufficient manufacturing capacity for the foreseeable
future. Most products are manufactured and assembled in the region in which
they are to be sold, with the exception of European household products, which
are imported from the Northbrook facility.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are conducted in its
own laboratories, supplemented by on-site development and application of
custom design and engineering. The Company's research and development
expenditures for fiscal 1998, 1997 and 1996 were approximately $4.1 million,
$3.2 million, and $3.2 million, respectively. Of these amounts, approximately
$3.1 million, $2.6 million, and $2.3 million related to laboratory research
and approximately $1.0 million, $.6 million, $.9
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<PAGE>
million related to customer specific design and engineering for fiscal 1998,
1997 and 1996, respectively. The Company also incurs additional internal costs
relating to its sales and service personnel for product development.
BACKLOG AND CUSTOMERS
The Company does not believe that backlog is a meaningful measurement of
its ongoing business. The Company's backlog of orders believed to be firm was
approximately $36.8 million at January 31, 1998 and approximately $20.9
million at January 31, 1997. The Company does not believe that it is
dependent on any single customer, and no single customer accounted for more
than 5% of the Company's sales in the year ended January 31, 1998.
TRADEMARKS, SERVICE MARKS AND TRADE NAMES
Trademarks and brand name recognition are important to the Company. The
Company generally owns the trademarks under which its products are marketed.
The Company has registered its trademarks and will continue to do so as they
are developed or acquired. The Company protects such trademarks and believes
that there is significant value associated with them. The loss of the
Culligan, Everpure, or, to a lesser extent, Bruner and Elga trademarks could
have a materially adverse effect on the business of the Company.
SEASONALITY
The Company's business is typically not seasonal.
GOVERNMENT REGULATIONS
The Company manufactures certain water treatment products that are used
as medical devices, and, therefore, the production facility for such devices
must be FDA registered and the Company must maintain an FDA listing for these
products. Company-owned and independent dealers in the United States who
regenerate portable exchange and deionized water tanks are subject to local,
state and Federal requirements regulating the character and volume of the
processed water they discharge.
In many areas the sale and promotion of water treatment devices is
regulated at the state level by product registration, advertising restriction,
water testing, product disclosure and other regulations specific to the water
treatment industry. In some local areas, certain types of water treatment
products, including those manufactured by the
15
<PAGE>
Company, are restricted because of a concern with the character and volume of
water they discharge.
The Company is also subject to state franchise laws, some of which
require the Company to register with the state before it may offer a franchise
and require the Company to deliver specified disclosure documentation to
potential franchisees. The Company is also subject to regulation under the
Federal Trade Commission's ("FTC") rule entitled "Disclosure Requirements and
Prohibitions Concerning Franchising and Business Opportunity Ventures." The
FTC requires that franchisors make extensive disclosure to prospective
franchisees but does not require registration. While the Company's
franchising operations have not been materially adversely affected by existing
Federal, state or local regulation, the Company cannot predict the effect of
any future legislation or regulation.
ENVIRONMENTAL MATTERS
The Company is subject to Federal, state and local laws relating to
environmental protection, including, but not limited to, laws relating to the
closure of underground storage tanks and discharges of wastewater. The
Company believes that it is in substantial compliance with applicable
environmental laws, and that any compliance costs associated with its ongoing
operations will not be material. Compliance with regulations of Federal, state
and local authorities regulating the discharge of materials into the
environment, or otherwise relating to the environment, has been accomplished
without a material effect on the earnings and competitive position of the
Company.
In connection with the Anvil Transaction (see "--Anvil Transaction"), the
Company assumed responsibility for future costs of addressing environmental
problems at Anvil Knitwear's Asheville Dyeing and Finishing plant (the
"Plant") in Swannanoa, North Carolina. A post-closing groundwater monitoring
plan is currently being implemented at the Plant pursuant to an Administrative
Consent Order (the "Order") entered into with the North Carolina Department of
Environment, Health and Natural Resources in 1990 covering the closure of an
underground storage tank used by a prior owner that was removed in 1985.
Groundwater testing at the Plant and at two adjoining properties have shown
levels of a cleaning solvent believed to be from the Plant above action levels
under state guidelines. The Company has established reserves for such matters
and, as a result, anticipates that the potential costs of further monitoring
and corrective measures to address the groundwater problem under the Order and
other applicable laws will not have a material adverse effect on the financial
position or the results of operations of the Company.
16
<PAGE>
EMPLOYEES
At January 31, 1998, the Company employed approximately 4,578 people
worldwide (exclusive of employees of independent dealers) with approximately
2,618 employees in the United States and approximately 1,960 employees in
other countries. In the United States, approximately 298 employees are members
of unions. In Europe, substantially all of the Company's employees are
members of unions. The Company believes its employee relations are good.
ANVIL TRANSACTION
In January 1995, a subsidiary of Samsonite sold its Anvil Knitwear
division to Anvil Holdings and a subsidiary of Anvil Holdings. The Company
purchased 30% of the common equity, consisting of a combination of voting and
non-voting common stock and 35% of the preferred stock of Anvil Holdings and
the Company assumed certain environmental liabilities. See "--Environmental
Matters." In March 1997, Culligan received approximately $51 million (a
pre-tax gain of $31.1 million) in cash proceeds as a result of the redemption
by Anvil Holdings of the Anvil securities owned by the Company.
YEAR 2000 RISKS
The Year 2000 issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from
the application of computer programs which have been written using two digits,
rather than four, to define the applicable year of business transactions. Most
of Culligan's operating systems with Year 2000 issues have been modified to
address those issues; accordingly, management does not anticipate any
significant costs, problems or uncertainties associated with becoming Year
2000 compliant. Culligan is currently developing plans intended to assure
that their other internal operating systems with Year 2000 issues are modified
on a timely basis. Suppliers, customers and creditors of Culligan also face
similar Year 2000 issues. A failure on their part to successfully address the
Year 2000 issue could have a material adverse effect on the business or
results of operations of Culligan.
17
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
IDENTIFICATION OF EXECUTIVE OFFICERS AND OTHER OFFICERS AND SIGNIFICANT
EMPLOYEES
Set forth below is certain information regarding each of the executive
officers and certain other officers and significant employees of the Company
and its principal operating subsidiaries:
NAME AGE POSITION
- ---- --- --------
Douglas A. Pertz 43 President and Chief Executive Officer
and Director
Michael E. Salvati 45 Vice President, Finance and Chief Financial
Officer
Edward A. Christensen 54 Vice President, General Counsel and Secretary
Calvin R. Hendrix 47 Group President - North America
Kenneth I. Wellings 51 Group President - International
Perialwar Regunathan 58 Sr. Vice President and Chief Technology Officer
Diane Frisch 43 Vice President, Human Resources
Thomas E. Pavlick 36 Vice President and General Manager, Company-
owned Division
Timothy Tousignant 40 Vice President and General Manager, Household,
Commercial and Bottled Water
Juan Valdes 38 Vice President Operations - North America
Douglas A. Pertz. Mr. Pertz joined the Company in his present position
in January 1995. From 1994 until January 1995, he was Corporate Vice
President and Group Executive of the Danaher Corporation ("Danaher"), a
manufacturer of products in the tool, process/environmental controls and
transportation industries and was also President and a director of Danaher's
subsidiary, Hennessy Industries, a manufacturer of transportation equipment.
In addition, from 1990 to January 1995, he was President, Chief Executive
Officer and a director of Danaher's subsidiary, NMTC, Inc. d/b/a Matco Tools,
a manufacturer of hand tools, and NMTC, Inc.'s predecessor company, Matco
Tools Corporation.
Michael E. Salvati. Mr. Salvati became Vice President, Finance and Chief
Financial Officer of the Company in July 1996. From May 1996 to July 1996,
Mr. Salvati was a principal in a consulting practice. For more than five
years prior thereto, Mr. Salvati was a partner in the Corporate Transactions
Group of KPMG Peat Marwick LLP, where he provided strategic, financial and
operational consulting services to various creditor, equity and management
constituencies.
Edward A. Christensen. Mr. Christensen became Vice President, General
Counsel and Secretary of the Company in August 1995. From November 1993 until
May 1995, Mr. Christensen was a consultant to, and from April 1993 until
November 1993 he was Vice President and Associate General Counsel of Triarc
Companies, Inc. (formerly known as DWG Corporation). For more than five years
prior thereto, Mr. Christensen was Vice President, Secretary and Chief Legal
Officer of DWG Corporation and certain affiliated companies. DWG Corporation
is a holding company whose
18
<PAGE>
principal subsidiaries are Royal Crown Cola Co., Arby's Inc., National Propane
Corporation and Graniteville Company. Mr. Christensen was also Vice
President, Secretary and Chief Legal Officer of NVF Company and APL
Corporation until April 1993. Mr. Christensen is informed that subsequent
thereto such corporations became subjects of proceedings under the United
States Bankruptcy Code.
Calvin R. Hendrix. Mr. Hendrix joined the Company in his present
position in February 1997. From September 1993 to January 1997, he served as
Vice President - General Manager of the Irrigation Division of The Toro
Company. For more than five years previous to joining Toro, Mr. Hendrix was
President of Thermador Corporation, a major kitchen appliance company.
Kenneth I. Wellings. Mr. Wellings joined the Company in 1976 and became
Vice President, European Operations in August 1994, Vice President,
International in August 1995 and Group President--International in January
1997. From 1991 to 1994, he was employed with the Company as General Manager,
Retail Division.
Perialwar Regunathan. Mr. Regunathan joined Everpure in 1968 and was
promoted to President of Everpure in September 1995. Mr. Regunathan became
Senior Vice President and Chief Technology Officer of Culligan International
Company in January 1996.
Diane Frisch. Ms. Frisch joined the Company in January 1998. For more
than five years prior thereto she was Vice President of Human Resources of
Alumax Mill Products, a division of Alumax Inc., a producer of aluminum
products.
Thomas E. Pavlick. Mr. Pavlick joined the Company in 1983 and has held
his present position with Culligan International Company since 1994. Prior to
assuming his current position, Mr. Pavlick served as Eastern Regional
Marketing Manager since 1991.
Timothy Tousignant. Mr. Tousignant joined the Company as Vice President and
General Manager, Household, Commercial and Bottled Water in March 1997. Prior to
joining the Company, Mr. Tousignant was Managing Director of Marketing, Sales
and Customer Support for the Irrigation Division of The Toro Company from July
1993 to March 1997. He also served in a variety of marketing positions for
General Mills, Inc. from July 1987 to July 1993, culminating in Marketing
Manager.
Juan Valdes. Mr. Valdes joined the Company in his present position in
June 1997. From 1995 to June 1997 he served on a consulting basis in a
variety of operating positions for Autonomous Technologies, Surgijet, Visijet
and The Toro Company. Prior to that he served as Director of Manufacturing
and Engineering for Pharmacia Intermedics from 1988-1990 and from 1990 - 1995
he served as Vice President Operations for Pharmacia, Inc.
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<PAGE>
ITEM 2. PROPERTIES
The Company's world headquarters is located on 43 acres in Northbrook,
Illinois. This facility also contains Culligan's primary manufacturing and
assembly plant. Culligan's other principal manufacturing facilities are
located in Sheboygan, Wisconsin; Mississauga, Ontario, Canada; High Wycombe,
United Kingdom; Bologna, Italy and Barcelona, Spain.
Everpure has one manufacturing and two light assembly facilities. Its
headquarters and main manufacturing plant are located in Westmont, Illinois;
with two non-U.S. operations located in Atsugi, Japan; and Hevertee, Belgium.
Each of the non- U.S. operations do light assembly and also warehouse and sell
products manufactured in the United States.
The following table sets forth certain information relating to the
Company's principal properties and facilities, all of which are owned by the
Company. All of the Company's manufacturing plants, in the opinion of the
Company's management, have been adequately maintained, are in good operating
condition and generally have sufficient capacity to handle all present sales
volume and all sales volume contemplated in the foreseeable future. No plant
is materially underutilized.
Approximate
Facility Size
Location (Sq. Ft.)
------------------------- -------------
Northbrook, IL 445,000
Sheboygan, WI 270,000
Westmont, IL 110,000
Bologna, Italy 118,000
San Bernardino, CA 68,000
Barcelona, Spain 65,000
High Wycombe, U.K. 60,000
Shipley, West Yorks, U.K. 50,000
Mississauga, Canada 42,000
Hope, Sheffield, U.K. 40,000
In addition to the properties listed directly above, the Company owns 36
office, light assembly, warehouse or distribution facilities in the United
States and 24 outside the United States and leases 58 such facilities in the
United States and 41 additional such facilities outside the United States.
ITEM 3. LEGAL PROCEEDINGS
In January 1997, an action was commenced by the Company in the Circuit
Court of Cook County, Illinois against United States Water Company, LP ("U.S.
Water"),
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<PAGE>
United States Water Management Company ("USWMC"), Randall C. Easton ("Easton")
and United States Filter Corporation ("U.S. Filter"). The Company's Complaint
in the action alleges, among other things, that the sale of U.S. Water to U.S.
Filter is in violation of its franchise agreements with Culligan and
applicable law and seeks declaratory judgment, injunctive and other relief as
a result of such violation. The Complaint also alleges that U.S. Filter
tortuously interfered with the Company's contractual agreements by inducing
the sale of U.S. Water in violation of its agreements with the Company and
that U.S. Water's president, Randy Easton, in exchange for personal incentives
from U.S. Filter, induced violations of U.S. Water's agreements with Culligan.
U.S. Water, USWMC and Easton filed an Answer, Affirmative Defenses and
Counterclaims to Culligan's Complaint. The counterclaims seek declaratory and
injunctive relief and purport to assert state common law claims for alleged
tortuous interference with contracts and alleged violations of the Illinois
Trade Secrets Act and the Illinois Antitrust Act. U.S. Filter separately
filed an Answer, Affirmative Defenses and Counterclaims to Culligan's
Complaint. The counterclaims purport to assert state common law claims for
alleged tortuous interference with contracts, tortuous interference with
prospective economic advantage, alleged violations of various state law
antitrust and unfair trade practice acts, and alleged violations of the
Sherman Antitrust Act.
In April 1997, the Court ruled on the parties' motions for partial
summary judgment and determined that the Company's right of first refusal did
not apply to the sale of U.S. Water to U.S. Filter. An appeal of the Court's
ruling is currently pending, although U.S. Filter and the Company have agreed
in connection with the Merger not to initiate any action with respect to such
action except as may be necessary to maintain the status quo. The Company
does not believe that such action will have a material effect on its financial
condition or results of operations.
In January 1997, a complaint for patent infringement was filed by The
Brita Products Company and its parent ("Brita") in the United States District
Court for the Northern District of Georgia against Recovery Engineering, Inc.,
Health o Meter and the Company. Insofar as it relates to the Company, the
complaint alleges that a plastic pour-through pitcher being marketed by Health
o Meter in partnership with the Company infringes a patent held by Brita. The
complaint seeks, among other things, injunctive relief and damages in an
unspecified amount. On motion of the Company and Health o Meter, the case was
transferred to the Northern District of Illinois in May 1997. The Company
believes it has meritorious defenses to such action and does not believe it
will have a material adverse effect on its financial condition or results of
operations.
In August 1997, a purported class action was filed against Culligan
International Company, certain unidentified distributors and certain other
unidentified individual defendants in the Superior Court, County of Los
Angeles, State of California. The
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Complaint in the action alleges that the defendants violated provisions of
California law relating to home solicitations by failing to include language
and notices relating to rights of rescission and engaging in unfair, unlawful
and deceptive business acts and practices. The Complaint in such action seeks
disgorgement of alleged illicit profits, injunctive relief, punitive damages
and treble damages and alleges that the amount the class is entitled to
exceeds $20 million. In February 1998, a second purported class action was
filed against Culligan International Company, Household International and
others in the Superior Court, County of Los Angeles, State of California. The
complaint in such action also alleges violations of California law relating to
home solicitations and seeks equitable relief and consequential and exemplary
damages in an unspecified amount. The Company intends to vigorously contest
these matters and does not believe that it will have a material adverse effect
on its financial condition or results of operations.
In November 1997, an action was commenced by Culligan Springs Limited
("Culligan Springs") against Culligan of Canada Ltd., ("Culligan of Canada"),
a wholly owned subsidiary of the Company, in Bracebridge, Ontario. Culligan
Springs is an authorized producer of bottled water under Culligan of Canada's
trademarks in Canada. The action alleges breach of contract and breach of
warranty in connection with an alleged license to use the CULLIGAN trademark
in connection with the processing, distribution and sale of bottled water in
the eastern United States. The Statement of Claim seeks $50 million in
damages, interest, attorneys fees and other unspecified relief. Culligan of
Canada answered, denying the claim. The Company believes it has meritorious
defenses to such action and does not believe it will have a material adverse
effect on its financial condition or the results of operations.
In February 1998, a complaint was filed by KX Industries, LP and Koslow
Technologies Corporation against the Company and its Plymouth Products
subsidiary alleging that infringement of a patent for the production of carbon
block, false advertising in connection with a carbon block faucet mount filter
marketed by the Company's consumer products division, and the misappropriation
of certain of KX's trade secrets. The Complaint seeks injunctive relief,
disgorgement, compensatory and exemplary damages in an unspecified amount. The
Company believes it has meritorious defenses to such action and does not
believe it will have a material adverse effect on its financial condition or
the results of operations.
The Company is party to various other pending and threatened litigation
arising in the normal course of business. While it is not possible to predict
the outcome of these matters, management believes that the pending items will
not have a material adverse effect upon the financial condition or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
Since December 15, 1995, the Company's Common Stock has been traded on
the New York Stock Exchange. The high and low sales prices for the Common
Stock as reported in the Consolidated Transaction Reporting System for the
periods set forth below are as follows:
<TABLE>
<CAPTION>
Period High Low
------ ---- ---
<S> <C> <C>
Feb. 1, 1996 - Apr. 30, 1996 33 3/4 27 5/8
May 1, 1996 - July 31,1996 40 3/4 32 3/4
Aug. 1, 1996 - Oct. 31, 1996 40 1/4 32 7/8
Nov. 1, 1996 - Jan.31, 1997 41 1/8 33
Feb. 1, 1997 - Apr. 30, 1997 46 33 5/8
May 1, 1997 - July 31, 1997 47 3/8 39 3/8
Aug. 1, 1997 - Oct. 31, 1997 50 13/16 39 7/8
Nov. 1, 1997 - Jan. 31, 1998 52 1/4 33 15/16
Feb. 1, 1998 - Apr. 24, 1998 61 11/16 35 1/4
</TABLE>
HOLDERS
As of April 24, 1998, there were approximately 2,654 holders of record of
the Common Stock.
DIVIDEND POLICY
The Company currently anticipates that it will not pay cash dividends on
shares of the Common Stock in the foreseeable future. The payment of
dividends will be a business decision to be made by the Company's Board of
Directors from time to time based on such considerations as the Board of
Directors deems relevant, will be payable only out of funds legally available
under Delaware law and will be subject to any restrictions which may be
contained in the Company's debt instruments. The payment of dividends on the
Common Stock is currently limited by the Company's credit facility described
elsewhere herein.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected historical financial data for Culligan Water Technologies,
Inc. and Subsidiaries (the "Company" or "Culligan") presented below are
derived from the Company's audited consolidated financial statements. The
Company's consolidated financial statements as of and for the fiscal years
ended January 31, 1996, January 31, 1997 and January 31, 1998 have been
audited by KPMG Peat Marwick LLP, independent accountants.
The selected financial information presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and notes thereto included elsewhere in this Annual Report.
24
<PAGE>
<TABLE>
<CAPTION>
Five Seven
Months Months
Ended Ended Year Ended Year Ended Year Ended Year Ended
June 30, January 31, January 31, January 31, January 31, January 31,
1993 1994 1995 1996 1997 1998
--------------- ----------- ----------- ----------- ----------- -----------
STATEMENTS OF OPERATIONS DATA: Predecessor (a)
---------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $109,748 $154,325 $280,051 $304,502 $371,018 $505,744
Cost of Goods Sold (f) 60,894 87,112 155,829 168,363 205,581 288,851
-------- -------- -------- -------- -------- --------
Gross Profit 48,854 67,213 124,222 136,139 165,437 216,893
Selling, General and Administrative (f) 36,339 50,341 91,989 95,723 113,932 146,807
Administrative Expenses
Allocated from Samsonite (b) - - 1,095 - - -
Write-off of Goodwill and In-process
Research and Development (c) - - - - - 55,803
Merger and Restructuring Expenses (d) - 2,103 5,917 - - 5,236
Amortization of Intangible Assets (e) 731 22,554 38,691 38,802 17,522 5,440
-------- -------- -------- -------- -------- --------
Operating Income (Loss) 11,784 (7,785) (13,470) 1,614 33,983 3,607
Other Income (Expense), Net (g) (324) 1,919 398 2,867 5,023 32,888
-------- -------- -------- -------- -------- --------
Income (Loss) Before Interest, Taxes,
Minority Interest and Extraordinary Item 11,460 (5,866) (13,072) 4,481 39,006 36,495
Interest Income 1,436 886 1,439 1,576 2,633 1,765
Interest Expense (h) (1,039) (11,576) (19,085) (12,426) (5,490) (9,903)
Income Taxes (4,387) (3,434) (5,678) (14,910) (20,264) (32,638)
Minority Interest - - - - - (919)
-------- -------- -------- -------- -------- --------
Income (Loss) before Extraordinary Item 7,470 (19,990) (36,396) (21,279) 15,885 (5,200)
Extraordinary Item - - - - - (422)
-------- -------- -------- -------- -------- --------
Net Income (Loss) $ 7,470 ($19,990) ($36,396) ($21,279) $15,885 $ (5,622)
======== ======== ======== ======== ======== ========
PER COMMON SHARE DATA:
BASIC:
Income (Loss) before Extraordinary Item $ (1.26) $ (2.29) $ (1.30) $ 0.75 $ (0.22)
Extraordinary Item -- -- -- -- $ (.02)
-------- -------- -------- -------- --------
Net Income (Loss) $ (1.26) $ (2.29) $ (1.30) $ 0.75 $ (0.24)
======== ======== ======== ======== ========
DILUTED:
Income (Loss) Before Extraordinary Item (1.26) (2.29) (1.30) $ 0.74 (0.22)
Extraordinary Item -- -- -- -- (0.02)
-------- -------- -------- -------- --------
Net Income (Loss) (1.26) (2.29) (1.30) $ 0.74 (0.24)
-------- -------- -------- -------- --------
Basic Weighted Average Number Of
Common Shares Outstanding (000's) 15,889 15,889 16,311 21,091 23,444
Diluted Weighted Average Number Of
Common Shares Outstanding (000's) 15,889 15,889 16,311 21,375 23,444
OTHER DATA:
Income (Loss) Before Interest, Taxes,
Minority Interest and Extraordinary Item $11,460 ($5,866) ($13,072) $ 4,481 $39,006 $36,495
Amortization of Reorganization Value in
Excess of Identifiable Assets (e) - 21,771 37,322 37,322 15,551 -
Administrative Expenses Allocated from
Samsonite (b) - - 1,095 - - -
Write-off of Goodwill and In-Process
Research and Development (c) - - - - - 55,803
Merger and Restructuring Expenses (d) 2,103 5,917 - - 5,236
Gain on Disposition of Investment
In Affiliate (g) - - - - - (31,098)
Gain on Insurance Settlement (g) - - - - (1,980) -
-------- -------- -------- -------- -------- --------
Adjusted Income Before Interest,
Taxes, Minority Interest and
Extraordinary Item 11,460 18,008 31,262 41,803 52,577 66,436
All Other Amortization 731 783 1,369 1,480 1,971 5,440
Depreciation 3,175 5,696 9,279 9,409 10,091 15,161
-------- -------- -------- -------- -------- --------
EBITDA (i) $15,366 $24,487 $41,910 $52,692 $64,639 $87,037
======== ======== ======== ======== ======== ========
(See footnotes beginning on page 27)
</TABLE>
25
<PAGE>
IMPACT OF NONRECURRING ITEMS
Included in the Company's statements of operations subsequent to June 30,
1993, are amortization and depreciation related to adjustments of assets and
liabilities to fair value in connection with the adoption of the American
Institute of Certified Public Accountants Statement of Position 90-7 entitled
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"). The most significant adjustment relates to reorganization value
in excess of identifiable assets which was amortized over a three-year period
ended in June of 1996. In addition, the statements of operations for the
years ended January 31, 1997 and 1998, include certain nonrecurring items. Due
to the significance of these items, and considering that they are either of a
short duration or nonrecurring, management believes that it is useful to
isolate their impact on the statement of operations. The impact on income
before interest, taxes, minority interest and extraordinary item for the years
ending January 31, 1997 and 1998 are shown below. This information does not
represent and should not be considered an alternative to income before interest,
taxes, minority interest and extraordinary item, any other measure of
performance as determined by generally accepted accounting principles or as an
indicator of operating performance.
<TABLE>
<CAPTION>
(Dollars in thousands) Year Ended Year Ended
January 31, January 31,
1997 1998
----------- -----------
<S> <C> <C>
Income before interest, taxes,
minority interest and extraordinary item $39,006 $36,495
Amortization of reorganization value in
excess of identifiable assets 15,551 --
Write-off of purchased in-process research
and development -- 52,633
Write-off of goodwill -- 3,170
Merger and restructuring expenses -- 5,236
Gain on disposition of investment in affiliate -- (31,098)
Gain on insurance settlement (1,980) --
------- -------
Adjusted income before interest, taxes,
minority interest and extraordinary item $52,577 $66,436
======= =======
</TABLE>
26
<PAGE>
(a) In June 1993, Samsonite's predecessor, Astrum International Corp.
("Astrum"), completed a financial restructuring pursuant to a plan of
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Plan"). Effective June 30, 1993 and pursuant to SOP 90-7, Astrum and
all its subsidiaries, including the Company, were required to adjust
their assets and liabilities to their fair ("Fresh Start") values. Due
to the effect of SOP 90-7, amortization of intangible assets and interest
expense (see notes (e) and (h) below) for the periods before and after
June 30, 1993 are not comparable. The information for the predecessor
company reflects activity occurring through June 30, 1993, prior to the
effective date of the Plan.
(b) Administrative expenses allocated from Samsonite represent certain
accounting and management services performed for the benefit of the
Company primarily related to Astrum's reorganization and the Spin-off.
In prior years, these services were not provided, and are not anticipated
to recur on an on-going basis.
(c) During fiscal 1998 the Company wrote off $33.1 million of in-process R&D
purchased in connection with the acquisition of the Water Filtration
Business of Ametek. As of the purchase date, the Water Filtration Business
was engaged in ongoing research and development relating to carbon block
extrusion technology which was less labor intensive than competing
technologies and a new water filtration product line that is expected to
improve the purity of water and flow rates. Both of the projects are
proceeding according to schedule. It is estimated that technological and
commercial feasibility will be achieved in 6 to 12 months and that their
development will not require cash expenditures that are material to the
results of operations or financial position of the Company. The principal
risks associated with successfully completing such in-process R&D is that
other competitors may bring a technologically superior product to market.
The Company does not believe that the failure to complete such R&D projects
would have a material adverse effect on its results of operations or
financial position. The existing technology of the Water Filtration
Business acquired was included in goodwill and is being amortized over 40
years.
During fiscal 1998, the Company wrote-off $19.5 million of in-process R&D
purchased in connection with the acquisition of Protean as these projects
had not reached technological feasibility and have no alternative use. As
of the purchase date, Elga plc, a subsidiary of the continuing operations
of Protean, was engaged in the research and development of a series of new
water filtration systems that will employ new processes or techniques
related to the filtration of tap water for laboratory use. Such projects
were valued by an independent appraiser using a risk adjusted cash flow
model under which the expected cash flows were discounted, taking into
account the costs to complete the projects, risks related to existing and
future markets, and the life expectancy of such projects. Failure to
complete these projects successfully and on time would open the way for
competitors to introduce alternative technologies, with consequent
implications for Elga's revenues. The projects are proceeding according to
schedule and it is estimated that technological and commercial feasibility
will be met within the existing timeframes, which range from three months
to two years. These projects are not expected to require future cash
expenditures that are material to the results of operations or financial
position of the Company. The existing technology of Protean's continuing
operations acquired was included in goodwill and is being amortized over 40
years.
Culligan also wrote off the remaining goodwill of $3.2 million arising
from the acquisition of UltraPure in January 1996, related to more costly
carbon block production technology used prior to the acquisition of the
Water Filtration Business. UltraPure was engaged in the business of
development, design, production, and sale of molded carbon block and
molded filtration devices for liquid filtration. The effect on future
operations related to this write down is not expected to be material.
(d) In fiscal 1994 the Company implemented a plan to consolidate the
production facilities and administrative functions of certain operations
in Europe. The severance, other personnel related costs and facility
shut-down expenses related to the restructuring resulted in charges in
fiscal 1994 and fiscal 1995 of $2.1 million and $5.9 million,
respectively.
During fiscal 1998 the Company recorded a merger and restructuring charge
of $5.2 million in connection with the acquisition of Ametek's Water
Filtration Business and as a result of a decision made by the Company to
exit the market for the sale of consumer products in the department store
and mass merchant channels so as to focus principally on the
"do-it-yourself" (DIY) and hybrid retail markets. The merger and
restructuring charge reflects the costs of integrating and streamlining
manufacturing, sales, distribution, research and development, and
administrative functions, in order to take advantage of more cost
effective technology acquired in the acquisition of Ametek's Water
Filtration Business. The merger and restructuring charge also reflects
costs resulting from the decision to exit certain retail markets, such as
charges against receivables to reflect the fact that the value of these
assets diminished as a result of the decision to exit portions of the
business. Included in the $5.2 million of merger and restructuring costs
are $0.7 million for severance costs related to the elimination of
redundant employees, $1.3 million related to the write-off of receivables,
$2.5 million related to the write-off of excess property, equipment and
other assets (consisting principally of fixed assets used in the
manufacture of molded carbon block), and $0.7 million representing legal
and other professional fees. During fiscal 1998, costs amounting to $4.3
million were charged against the merger and restructuring reserve. Total
future cash requirements relating to the merger and restructuring is
expected to be immaterial.
27
<PAGE>
(e) Amortization of intangible assets consists of the following:
<TABLE>
<CAPTION>
Five Months Seven Months
Expected Ended Ended Year Ended Year Ended Year Ended Year Ended
Useful Life June 30, January 31, January 31, January 31, January 31, January 31,
(years) 1993 1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
Predecessor
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Amortization of
reorganization
value in excess of
identifiable assets 3 -- $ 21,771 $ 37,322 $ 37,322 $ 15,551 $ --
Amortization of
trademarks and other
"Fresh Start"
intangibles 40 -- 758 1,300 1,300 1,300 1,300
----- -------- -------- -------- -------- --------
"Fresh Start"
amortization 22,529 38,622 38,622 16,851 1,300
Amortization of
goodwill 10 to 40 699 18 158 504 3,784
Amortization of other
intangibles 3 to 9 32 25 51 22 167 356
----- -------- -------- -------- -------- --------
Amortization of
intangible assets $ 731 $ 22,554 $ 38,691 $ 38,802 $ 17,522 $ 5,440
===== ======== ======== ======== ======== ========
</TABLE>
"Fresh Start" amortization represents the expense arising solely as a
result of "Fresh Start" accounting in accordance with SOP 90-7.
(f) Depreciation included in cost of goods sold and selling, general and
administrative related to adjustments of assets and liabilities to fair
value in connection with the adoption of SOP 90-7 consists of the
following:
<TABLE>
<CAPTION>
Seven
Months Year Year Year Year
Ended Ended Ended Ended Ended
January 31, January 31, January 31, January 31, January 31,
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
"Fresh Start" depreciation in
cost of goods sold $1,040 $1,414 $1,077 $ 603 $ 304
"Fresh Start" depreciation in
selling, general and administrative 520 707 539 301 152
------ ------ ------ ------ ------
Total "Fresh Start" depreciation $1,560 $2,121 $1,616 $ 904 $ 456
====== ====== ====== ====== ======
</TABLE>
Property and equipment revalued in connection with the adoption of SOP
90-7 are being depreciated over their respective estimated useful lives,
primarily ranging from two to six years.
(g) Other income (expense), net for fiscal 1997 includes a gain of $1,980 on
an insurance settlement associated with a fire at the Company's Belgian
facility in July 1993 and for fiscal 1998 includes a gain on the
Company's disposition of its investment in Anvil Holdings, Inc. of
$31,098.
(h) Interest expense for periods subsequent to June 30, 1993 includes
interest on the $150 million note payable to Samsonite issued in
connection with Astrum's reorganization. A principal payment of $20
million to Samsonite and a $30 million contribution by Samsonite to
equity capital of the Company on December 1, 1994 and January 31, 1995,
respectively, reduced the outstanding principal during fiscal 1995.
During July 1995, borrowings under a $150 million credit facility entered
into by the Company in July 1995 (the "Credit Facility)" were used to
repay in full the outstanding balance of the note payable to Samsonite
(the "Refinancing").
28
<PAGE>
(i) EBITDA is defined as income before interest, taxes, minority interest and
extraordinary item, excluding certain nonrecurring items plus depreciation
and amortization. The Company believes that EBITDA provides useful
information regarding a company's financial performance. EBITDA should not
be considered in isolation or as an alternative to net income, an indicator
of the Company's operating performance, or an alternative to the Company's
cash flow from operating activities as a measure of liquidity.
<TABLE>
<CAPTION>
January 31, January 31, January 31, January 31, January 31,
1994 1995 1996 1997 1998 (d)
-----------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Property, Plant and Equipment, Net $ 68,043 $ 68,974 $ 70,749 $ 78,740 $144,631
Total Assets 331,035 303,431 292,570 337,362 858,263
Long-Term Debt and Capital Lease
Obligations (Including Current Debt) 159,404 114,635(a) 48,324(b) 48,645 372,167
Total Liabilities 278,734 255,187 173,481(b) 163,722 560,235
Stockholders' Equity 52,301 48,244 119,089(b) 173,640(c) 298,028
</TABLE>
(a) During fiscal 1995, a principal payment of $20 million to Samsonite and a
$30 million contribution by Samsonite to equity capital of the Company
were made on December 1, 1994 and January 31, 1995, respectively, related
to the note payable to Samsonite.
(b) During fiscal 1996, the Company completed the sale of 4,025,000 shares of
common stock. Net proceeds included in equity capital at January 31,
1996 were approximately $85 million. The Company used such proceeds to
repay borrowings under the Credit Facility. Also during fiscal 1996,
prior to the Spin-off, Samsonite contributed approximately $5 million to
equity capital of the Company.
(c) During fiscal 1997, the Company issued additional shares of common stock
upon the exercise of overallotment options granted to underwriters in
connection with a secondary public offering of shares of the Company's
common stock. The net proceeds included in equity capital at January 31,
1997 were approximately $32 million which includes proceeds from the
exercise of stock options by one of the selling stockholders in the
offering. In addition, as a result of the exercise of stock options, the
Company recognized an income tax benefit of approximately $7.5 million
which it recorded as additional paid-in- capital during fiscal 1997.
(d) During fiscal 1998, the Company completed over 35 strategic dealer and
complimentary acquisitions with annual revenues of approximately $350
million. Payments for these acquisitions during the year approximated $324
million, financed principally through net borrowings on long-term debt of
$284 million and the issuance of common stock. Additionally, the Company
had approximately $36 million in capital expenditures associated with a new
build, own and operate water treatment facility in the Caribbean,
improvements to the Company's management information systems, and the
expansion and improvement of various manufacturing operations to support
new growth initiatives.
29
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the consolidated financial statements of the Company and accompanying notes
appearing elsewhere herein. In September 1995, the Company's former parent,
Samsonite Corporation, distributed to shareholders all of the Company's then
outstanding common stock (the "Spin-off"). The Company's common stock is
listed on the New York Stock Exchange ("CUL"). The Company's fiscal year ends
on January 31. The following discussion and analysis of results of operations
compare (i) the Company's results of operations for fiscal 1998 with the
Company's results of operations for fiscal 1997, and (ii) the Company's
results of operations for fiscal 1997 with the Company's results of operations
for fiscal 1996.
RESULTS OF OPERATIONS
COMPARATIVE SUMMARY OF OPERATING RESULTS
As an aid to understanding the Company's operations on a comparative
basis, the following presents certain statements of operations and other data
for fiscal 1996, 1997 and 1998.
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1997 Fiscal 1998
----------- ----------- -----------
% of Net % of Net % of Net
Dollars Sales Dollars Sales Dollars Sales
------- -------- ------- -------- ------- --------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 304.5 100.0% $ 371.0 100.0% $ 505.7 100.0%
Gross Profit 136.1 44.7% 165.4 44.6% 216.9 42.9%
Selling, General and
Administrative Expenses 95.7 31.4% 113.9 30.7% 146.8 29.0%
Write-off of Goodwill and
in-process Research and Development - - 55.8
Merger and Restructuring Expenses - - 5.2
Amortization of Intangible Assets 38.8 17.5 5.4
------- ------- -------
Operating Income 1.6 34.0 3.6
Gain on Disposition of Investment
in Affiliate - - 31.1
Other Income, Net (a) 2.9 5.0 1.8
------- ------- -------
Income Before Interest, Taxes, Minority Interest $ 4.5 $ 39.0 $ 36.5
and Extraordinary Item ======= ======= =======
Adjusted Income Before Interest, Taxes, Minority Interest
and Extraordinary Item (b) $ 41.8 13.7% $ 52.6 14.2% $ 66.4 13.1%
EBITDA(b) $ 52.7 17.3% $ 64.6 17.4% $ 87.0 17.2%
</TABLE>
(a) Other income for fiscal 1997 includes a gain of $2.0 million on an
insurance settlement associated with a fire at the Company's Belgian
facility in July 1993.
30
<PAGE>
(b) Adjusted income before interest and taxes and EBITDA have been calculated
as follows:
<TABLE>
<CAPTION>
Fiscal
----------------------------------
1996 1997 1998
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Income Before Interest, Taxes,
Minority Interest and Extraordinary
Item $ 4.5 $39.0 $36.5
Amortization of Reorganization Value
in Excess of Identifiable Assets 37.3 15.6 -
Write-off of Goodwill and In-Process
Research and Development - - 55.8
Merger and Restructuring Expenses - - 5.2
Gain from Insurance Settlement - (2.0) -
Gain on Disposition of Investment in
Affiliate - - (31.1)
----- ----- -----
Adjusted Income Before Interest, Taxes,
Minority Interest and Extraordinary
Item 41.8 52.6 66.4
All Other Depreciation and Amortization 10.9 12.0 20.6
----- ----- -----
EBITDA $52.7 $64.6 $87.0
===== ===== =====
</TABLE>
Adjusted income before interest, taxes, minority interest and extraordinary item
and EBITDA should not be considered as an alternative to net income, any other
measure of operating performance as determined by generally accepted accounting
principles, or as an indicator of the Company's operating performance.
FISCAL 1998 COMPARED TO FISCAL 1997
Net Sales. The Company recorded record sales for fiscal 1998. Net sales
increased $134.7 million, or 36.3%, to $505.7 million for fiscal 1998 from
$371.0 million in fiscal 1997. Of the increase in revenues, $115.1 million or
31.0% was attributable to acquisitions, and $37.4 million or 10.1% (before
including the unfavorable impact of $17.9 million or 4.8% related to the
effects of currency translation and the repositioning of the consumer product
line) was attributable to internal core growth.
In fiscal 1998, household product sales increased $81.8 million, or
40.4%, due primarily to increased sales at Company-owned dealerships in both the
U.S. and Europe; the acquisition of the Water Filtration Business of Ametek,
Inc. on August 1, 1997, a manufacturer and supplier of point-of-use water
filtration and treatment products; the acquisition of a bottled water company in
Argentina; the continued growth of drinking and bottled water products in the
U.S.; and the issuance of a Trademark License Agreement ("TLA") with Packaged
Ice, Inc. These increases were offset by the negative impact of a price
repositioning in the consumer faucet-mount product lines and a reduction in
sales caused by foreign exchange fluctuations.
Commercial and industrial product sales increased $52.9 million, or 31.3%
primarily due to: increased market penetration of commercial products in the
U.S.; led by a full year's impact of the 1997 Culligan Enerserve acquisition,
which builds, owns and operates desalination and wastewater treatment systems in
the Carribbean; revenues associated with an industrial project in the U.S., the
acquisition of various commercial and industrial engineering concerns such as
Dewplan in the U.K. and Idracos in Italy, and the Company's recent Protean
acquisition.
Gross Profit. Gross profit increased to $216.9 million in fiscal 1998
from $165.4 million in fiscal 1997, a 31.1% improvement. Gross profit margins
decreased to 42.9% in
31
<PAGE>
fiscal 1998 from 44.6% in fiscal 1997. This decrease primarily resulted from a
shift in product mix due to a large industrial project in the U.S., which has
historically had lower margins, price repositioning of consumer faucet mount
product lines, inventory write-offs related to the Company's decision to exit
the market for the sale of consumer products in the department store and mass
merchant channels, and the overall impact of acquisitions of international
commercial / industrial operations completed during the second half of fiscal
1997 and during fiscal 1998.
Selling, General and Administrative ("SG&A"). As a percentage of sales,
SG&A was 29.0% in fiscal 1998 as compared to 30.7% in fiscal 1997. This
decrease as a percentage of sales was the result of the impact of increased
industrial sales which generally carry lower SG&A costs as a percentage of
sales, continued cost containment initiatives and the impact of acquired
businesses which have, after integration, an SG&A level as a percentage of
sales below the Company's historical levels.
Write-off of Goodwill and in-process R&D. During fiscal 1998, the Company
wrote off $33.1 million of in-process R&D purchased in connection with the
acquisition of the Water Filtration Business. As of the purchase date, the Water
Filtration Business was engaged in ongoing research and development relating to
carbon block extrusion technology which is less labor intensive than competing
technologies, and a new water filtration product line that is expected to
improve the purity of water and flow rates. Such projects were valued by an
independent appraiser using a risk adjusted cash flow model under which the
expected cash flows were discounted, taking into account the costs to complete
the projects and the life expectancy of the projects. Both of these projects are
proceeding according to schedule. It is estimated that technological and
commercial feasibility will be achieved in 6 to 12 months and that development
will not require cash expenditures that are material to the results of
operations or financial position of the Company. The principal risks associated
with successfully completing such in- process R&D is that other competitors may
bring a technologically superior product to market. The Company does not believe
that the failure to complete such R&D projects would have a material adverse
effect on its results of operations or financial position. The existing
technology of the Water Filtration Business acquired was included in goodwill
and is being amortized over 40 years.
During fiscal 1998, the, Company wrote-off $19.5 million of in-process R&D
purchased in connection with the acquisition of Protean as these projects had
not reached technological feasibility and have no alternative use. As of the
purchase date, Elga plc, a subsidiary of the continuing operations of Protean,
was engaged in the research and development of a series of new water filtration
systems that will employ new processes or techniques related to the filtration
of tap water for laboratory use. Such projects were valued by an independent
appraiser using a risk adjusted cash flow model under which the expected cash
flows were discounted, taking into account the costs to complete the projects
and the life expectancy of such projects. Failure to complete these projects
successfully and on time would open the way for competitors to introduce
alternative technologies, with consequent implications for Elga's revenues. The
projects are proceeding according to schedule and it is estimated that
technological and commercial feasibility will be met within the existing
timeframes which range from three months to two years. These projects are not
32
<PAGE>
expected to require future cash expenditures that are material to the results of
operations or financial position of the Company. The existing technology of
Protean's continuing operations acquired has been included in goodwill and is
being amortized over 40 years.
During fiscal 1998, Culligan also wrote off the remaining goodwill of
$3.2 million arising from the acquisition of UltraPure in January 1996,
related to more costly carbon block production technology used prior to the
acquisition of the Water Filtration Business. UltraPure was engaged in the
business of development, design, production, and sale of molded carbon block
and molded filtration devices for liquid filtration. The effect on future
operations related to this write down is not expected to be material.
Merger and Restructuring Charge. During fiscal 1998, the Company
recorded a merger and restructuring charge of $5.2 million in connection with
the acquisition of the Water Filtration Business and as a result of a decision
made by the Company to exit the market for the sale of consumer products in
the department store and mass merchant channels so as to focus principally on
the "do-it-yourself" (DIY) and hybrid retail markets. The merger and
restructuring charge reflects the costs of integrating and streamlining
manufacturing, sales, distribution, research and development, and
administrative functions, in order to take advantage of more cost effective
technology acquired in the acquisition of Water Filtration Business. The
merger and restructuring charge also reflects costs resulting from the
decision to exit certain retail markets, such as charges against receivables to
reflect the fact that the value of these assets diminished as a result of the
decision to exit portions of our business. Included in the $5.2 million of
merger and restructuring costs are $0.7 million for severance costs related to
the elimination of redundant employees, $1.3 million related to the write-off of
receivables, $2.5 million related to the write-off of excess property, equipment
and other assets (consists principally of fixed assets used in the manufacture
of molded carbon block), and $0.7 million representing legal and other
professional fees. During fiscal 1998, costs amounting to $4.3 million were
charged against the merger and restructuring reserve. Total future cash
requirements relating to the merger and restructuring are expected to be
immaterial.
Amortization of Intangible Assets. Amortization of intangible assets
decreased by $12.1 million in fiscal 1998. Prior year amortization expense
included approximately $15.5 million of "Amortization of Reorganization Value
in Excess of Identifiable Assets" attributable to the reorganization of the
Company's former parent resulting from "Fresh Start" accounting as required by
SOP 90-7. There were no such amounts in fiscal 1998. This decrease was
partially offset by the full year impact of amortization of goodwill and other
intangibles recorded in connection with the Company's fiscal 1997 acquisitions
and amortization of intangibles recorded in connection with acquisitions
consummated during fiscal 1998.
33
<PAGE>
Other Income, Net. The decrease in other income, net from the prior year
comparable period was largely due to the inclusion in the prior year of a gain
on an insurance settlement of $2.0 million related to a fire at the Company's
Belgian facility in July 1993. There were no such amounts in fiscal 1998.
Gain on Disposition of Investment in Affiliate. Gain on disposition of
investment of affiliate in fiscal 1998 relates to the Company's disposal of its
investment in Anvil Holdings, Inc. for total cash proceeds of $50.9 million. The
transaction which included payment of accrued interest receivable and dividends
resulted in a pre-tax gain of $31.1 million. Proceeds were used to reduce
outstanding borrowings under the Company's credit facility.
Adjusted Income Before Interest and Taxes. Adjusted income before interest,
taxes, minority interest and extraordinary item increased $13.8 million, or
26.2%, from $52.6 million during fiscal 1997 to $66.4 million in fiscal 1998 due
to the reasons described above.
EBITDA. EBITDA as a percentage of sales decreased to 17.2% in fiscal 1998
as compared to 17.4% in fiscal 1997. Increased sales and the improvement in
SG&A as a percentage of sales were offset by the expected decrease in gross
profit percentage described above.
Interest Income (Expenses), Net. Interest expense, net of interest income,
increased to $8.1 million in fiscal 1998, from $2.9 million in fiscal 1997 as a
result of increased borrowings to fund additional acquisitions that were
partially offset by the paydown of debt with proceeds from the Company's
disposition of its investment in Anvil Holdings, Inc. and more favorable
interest rates resulting under its new credit facilities.
Income Taxes. The effective tax rate differs from the statutory rate
primarily because of the nondeductibility of the amortization of intangibles.
FISCAL 1997 COMPARED TO FISCAL 1996
Net Sales. The Company recorded record sales and earnings in fiscal
1997. Net sales increased $66.5 million, or 21.8%, to $371.0 million for
fiscal 1997 from $304.5 million in fiscal 1996. Household product sales
increased $37.8 million, or 23.0%, primarily due to the introduction of
consumer markets product lines during the second half of fiscal 1997,
increased sales at Company-owned dealerships in both the U.S. and France, and
the continued growth of drinking and bottled water products in the U.S.
Approximately $6.5 million of such increase was attributable to the
acquisition of retail dealers. Commercial and industrial product sales
increased $28.7 million, or 20.5%,
34
<PAGE>
primarily due to acquisitions consummated in the fourth quarter of fiscal 1996
and increased market penetration in both U.S. and international markets.
Changes in currency exchange rates had an unfavorable effect of $0.7 million
in the year-to-year comparison.
Gross Profit. Gross profit increased to $165.4 million in fiscal 1997
from $136.1 million in fiscal 1996, a 21.5% improvement. Gross profit margins
decreased slightly to 44.6% in fiscal 1997 from 44.7% in fiscal 1996. Expected
decreases in gross margins as a percentage of sales were attributable to the
introduction of the bottled water cooler product line and the acquisitions of
commercial and industrial product lines completed at the end of fiscal 1996,
partially offset by the full-year impact of productivity improvement programs
implemented in late fiscal 1996 and a shift in product mix.
Selling, General and Administrative ("SG&A"). As a percentage of sales,
SG&A was 30.7% in fiscal 1997 as compared to 31.4% in fiscal 1996. Additional
SG&A costs resulting from the start-up of the Company's consumer markets
product group were more than offset by continued cost containment initiatives
as well as the impact from acquired businesses which had, after integration, a
SG&A level as a percentage of sales below the Company's historical levels.
Amortization of Intangible Assets. Amortization of intangible assets
decreased by $21.3 million in fiscal 1997 from the prior year period due to
the completion in June 1996 of the "Amortization of Reorganization Value in
Excess of Identifiable Assets" attributable to the reorganization of the
Company's former parent resulting from "Fresh Start" accounting as required by
SOP 90-7. This decrease was slightly offset by amortization of goodwill and
other intangibles recorded in connection with the Company's acquisitions
consummated during the fourth quarter of fiscal 1996 and in fiscal 1997.
Other Income (Expense), Net. In fiscal 1997, other income (expense), net
included a gain of $2.0 million from an insurance settlement related to a fire
at the Company's Belgian facility in July 1993. A reduction in accruals in
fiscal 1997 offset the absence of earnings reported from an affiliate that was
recorded under the equity method of accounting in fiscal 1996.
Adjusted Income Before Interest and Taxes. Adjusted income before
interest and taxes increased $10.8 million, or 25.8%, from $41.8 million
during fiscal 1996 to $52.6 million in fiscal 1997 due to the reasons
described above.
EBITDA. EBITDA as a percentage of sales improved to 17.4% in fiscal 1997
as compared to 17.3% in fiscal 1996. Increased sales and the improvement in
SG&A as a percentage of sales were offset by the expected decrease in gross
profit percentage described above.
35
<PAGE>
Interest Income (Expenses), Net. Interest expense, net of interest
income, decreased to $2.9 million in fiscal 1997, from $10.9 million in fiscal
1996. Such decrease was primarily due to a reduction in borrowings resulting
from the repayment of debt with proceeds from the Company's equity offering in
the fourth quarter of fiscal 1996 and proceeds received from the issuance of
additional shares of common stock upon the exercise of overallotment options
granted to underwriters in connection with a secondary public offering in the
third quarter of fiscal 1997 and the exercise of stock options by one of the
selling stockholders in such secondary offering. In addition, more favorable
interest rates resulting from the refinancing of debt in July 1995 reduced
interest, net during fiscal 1997.
Income Taxes. The effective tax rate differs from the statutory rate
primarily because of the nondeductibility of the "Amortization of
Reorganization Value in Excess of Identifiable Assets."
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating cash requirements consist principally of
acquisitions, capital expenditures and working capital requirements. The
Company believes that cash flow from operating activities and periodic
borrowings under bank credit facilities will be adequate to meet the Company's
operating cash requirements in the future.
Cash provided by operating activities was $7.0 million, $16.5 million,
and $13.4 million in fiscal 1998, 1997, and 1996, respectively. The decrease
in cash provided by operating activities to $7.0 million in fiscal 1998 from
$16.5 million in fiscal 1997 was principally due to improved operating results
which was more than offset by increased interest expense, merger and
restructuring costs and increased investments in working capital which were
required to fund the higher sales volume and new growth initiatives. In
fiscal 1997, cash flows from operations were favorably impacted by improved
operating results and reduced interest expense, offset by increased
investments in working capital.
Cash utilized for capital expenditures during fiscal 1998, 1997 and 1996
was $35.6 million, $17.0 million, and $8.8 million, respectively. In fiscal
1998, capital expenditures increased over historical levels due to
expenditures associated with a new build, own and operate water treatment
facility in the Caribbean and the expansion of manufacturing operations to
support new growth initiatives. Capital expenditures are expected to continue
to be made, as required, for the purpose of maintaining and improving
operating facilities and equipment to increase manufacturing efficiencies and
enhance the Company's competitiveness and profitability on a worldwide basis.
36
<PAGE>
During fiscal 1998, the Company received approximately $51 million ($31.1
million, net of tax) in cash proceeds as a result of the disposition of its
investment in Anvil Holdings, Inc., which it acquired in January 1995 at a
cost of $9 million. The Company used the proceeds received to repay
acquisition related indebtedness under its existing credit facility and to
fund added growth.
During fiscal 1998, the Company entered into a securities purchase
agreement with Packaged Ice, Inc. ("Packaged Ice") in which the Company
purchased $23.5 million of preferred stock and warrants to purchase 1,807,692
shares of Packaged Ice common stock. The dividend rate is 10% and can be paid in
cash or additional preferred stock and warrants to acquire additional common
stock. The Company's investment is included in other noncurrent assets in the
accompanying Consolidated Balance Sheet at January 31, 1998.
On April 30, 1997, the Company signed a new credit facility to replace a
$150 million reducing revolving credit facility. The new credit facility is a
$300 million multi- currency revolving credit facility consisting of a $200
million, five-year multi-currency revolving credit facility and a $100
million, 364-day multi-currency revolving credit facility, which at the option
of the Company may be converted into a four year amortizing term loan
(collectively the "New Credit Facility"). The New Credit Facility provides
for unsecured multi-currency borrowings and for the issuance of letters of
credit. The New Credit Facility is guaranteed by the Company's principal
domestic subsidiaries. Loans under the New Credit Facility bear interest, at
the election of the Company, at either a base rate based on (i) the higher of
the prime rate or .5% per annum above the Federal Funds rate or (ii) a
Eurodollar rate, together with an applicable margin tied to the Company's
financial leverage. The New Credit Facility contains certain customary
representations and warranties and certain financial and other covenants,
including the restrictions on the incurring of indebtedness, the creation of
liens, sales of assets, the making of investments and the payment of dividends
and repurchases of common stock, as well as certain customary events of
default. As of January 31, 1998, the Company had available credit under its
New Credit Facility of $12 million. The New Credit Facility is available,
among other things, to finance the working capital needs of the Company, fund
standby letters of credit, to support international debt, and finance
acquisitions.
On October 21, 1997 the Company established a $100 million line of credit
pursuant to a letter agreement (the "Letter Agreement") with the First
National Bank of Chicago, maturing on April 21, 1998. Borrowings under the
Letter Agreement are guaranteed by the Company's principal domestic
subsidiaries and bear interest, at the election of the Company, at either a
base rate based on (i) the prime rate or (ii) a fixed rate equal to the sum of
.65% per annum plus an applicable Eurodollar rate. The Letter Agreement
incorporates by reference various representations, warranties, certain
financial and other covenants, and events of default set forth in the New
Credit Facility. As of January 31, 1998, the Company had available credit
under the Letter Agreement of $44 million. The Company intends to use the
Letter Agreement to finance future acquisitions, and for general corporate
purposes.
On March 10, 1998, the Company entered into four letter agreements
(the "New Letter Agreements") with various financial institutions to establish
a 364-day line of credit in the aggregate amount of $200 million. The Company
drew initial borrowings under the New Letter Agreements to replace
indebtedness outstanding under the Letter Agreement
37
<PAGE>
discussed above. The Company intends to use the New Letter Agreements to fund
future acquisitions, capital expenditures and working capital needs of the
Company. Loans made under the New Letter Agreements bear interest, at the
election of the Company, at either (i) the prime rate or (ii) a Eurodollar
rate plus .75% per annum. The New Letter Agreements incorporate by reference
various representations, warranties, certain financial and other covenants,
and events of default set forth in the New Credit Facility.
During fiscal 1998, the Company completed a number of acquisitions of
businesses which complement existing products and operations of the Company
for an aggregate cash purchase price of approximately $323.7 million,
including the assumption of debt, which have been primarily financed through
borrowings under the New Credit Facility and Letter Agreement. The Company
intends to continue to make acquisitions as part of its business strategy and
presently expects to finance these activities either by internally generated
funds, bank borrowings, public offerings or private placements of equity or
debt securities, or a combination of the foregoing. No assurance can be
given, however, with respect to the financial or business effect of any
possible future acquisitions.
The Company's principal non-U.S. operations are located in Western
Europe, the economies of which are not considered to be highly inflationary.
The Company's subsidiaries in Spain, Italy and Belgium are subject to currency
fluctuations because these subsidiaries have monetary assets and liabilities
denominated in other than their respective local currencies. It is the
Company's policy not to speculate in non-U.S. currencies, but rather to hedge
against currency changes by using bank borrowings by its non-U.S. subsidiaries
to reduce the extent to which its monetary assets are at risk. From time to
time, the Company has entered into forward exchange contracts in order to
hedge its exposure on certain intercompany transactions. As of January 31,
1998, the Company had three forward exchange contracts outstanding. The
contracts, for an aggregate of $3.3 million, mature during fiscal 1999.
Identifiable assets of the Company's non-U.S. subsidiaries translated at January
31, 1998 exchange rates were approximately $378.5 million at January 31, 1998,
an increase of approximately 318% from January 31, 1997.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("Statement 128"). Implementation of Statement 128 is required for periods
ending after December 15, 1997, Statement 128 establishes new methods for
computing and presenting earnings per share ("EPS") and replaces the
presentation of primary and fully diluted EPS with basic and diluted EPS. The
Company adopted Statement 128 during the fourth quarter of fiscal 1998.
38
<PAGE>
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("Statement 130"). Implementation of Statement 130 is required for periods
beginning after December 15, 1997. Statement 130 establishes standards to
report and display comprehensive income and its components in a full set of
general purpose financial statements. The standard requires all items that
are required to be recognized under accounting standards as components of
comprehensive income to be reported in a financial statement that is displayed
in equal prominence with the other financial statements. The Company is
currently evaluating this standard and expects to adopt the Statement in its
financial statements for the first quarter of the fiscal year ending January 31,
1999.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("Statement 131"). Implementation of
Statement 131 is required for periods beginning after December 15, 1997.
Statement 131 establishes standards for the way companies are to report
information about operating segments in annual financial statements and
requires those companies to report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company is currently evaluating
this standard and expects to adopt the Statement in its financial statements
for the fiscal year ending January 31, 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by Item 8 and included in this Report
are listed in the Index to Consolidated Financial Statements appearing on page
F-1 and are incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
39
<PAGE>
PART III
ITEM 10, 11, 12 and 13.
See, "Item 1 - Executive Officers of the Company" for certain information
concerning the Company's officers required by Item 10. The other information
required by Items 10, 11,12, and 13 will be furnished by amendment hereto on
or prior to May 31, 1998 or the Company will otherwise have filed a definitive
proxy statement involving the election of directors pursuant to Regulation 14A
with the Securities and Exchange Commission on or prior to May 31, 1998.
40
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) 1. Financial Statements
See Index to Financial Statements on page F-1 hereof.
2. Financial Statement Schedules
3. Exhibits:
Copies of the following exhibits are available at a charge of $.25 per
page upon written request to the Secretary of the Company at One Culligan
Parkway, Northbrook, IL 60062.
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 Distribution Agreement, dated as of July 14, 1995, between
Samsonite and the Company.(1)
3.1 Restated Certificate of Incorporation.(1)
3.2 Amended and Restated By-Laws.(1)
4.1 Rights Agreement between the Company and the First National
Bank of Boston as Rights Agent.(2)
4.2 Amendment No. 1 dated as of August 27, 1997 between the Company
and American Stock Transfer and Trust Company as successor
Rights Agent to the Rights Agreement dated as of September 13,
1996 between the Company and First National Bank of Boston.(5)
4.3 Amendment, dated as of February 9, 1998, to the Rights
Agreement, dated as of September 13, 1996 by and between
Culligan Water Technologies, Inc. and American Stock Transfer
and Trust (as Rights Agent), as heretofore amended.(6)
10.1 Credit Agreement dated as of April 30, 1997 (the "Credit
Agreement") among the Borrowers, as defined therein, Bank of
America Illinois, as an
41
<PAGE>
Administrative Agent, Swing Line Lender and Letter of Credit
Issuing Lender, Harris Trust Savings Bank, as Documentation
Agent, The First National Bank of Chicago, as Syndication
Agent, and the financial institutions party thereto.(4)
10.2 Short-Term Credit Agreement Dated as of April 30, 1997 (the
"Short-term Credit Agreement") among the Borrowers, as defined
therein, Bank of America Illinois, as an Administrative Agent,
Swing Line Lender and Letter of Credit Issuing Lender, Harris
Trust Savings Bank, as Documentation Agent, The First National
Bank of Chicago, as Syndication Agent, and the financial
institutions party thereto. (4)
10.3 Amendment dated February 13, 1998 to the Credit Agreement.(9)
10.4 Amendment dated February 13, 1998 to the Short Term Credit
Agreement.(9)
10.5 Letter Agreement dated as of March 3, 1998 and related other
agreements between the Company and The First National Bank of
Chicago.(9)
10.6 Letter Agreement dated as of March 10, 1998 and related other
agreements between the Company and Bank of America.(9)
10.7 Letter Agreement dated as of March 10, 1998 and related other
agreements between the Company and Bank of Montreal.(9)
10.8 Letter Agreement dated as of March 10, 1998 and related other
agreements between the Company and Credit Lyonnais.(9)
10.9 Form of Amended and Restated 1995 Stock Option and Incentive
Award Plan.(7)
10.10 Form of 1997 Stock Option And Incentive Award Plan.(8)
10.11 Amendment No. 1, dated as of January 31, 1997 (the
"Amendment"), by and between Culligan Water Technologies, Inc.,
and Douglas A. Pertz to the Employment Agreement dated as of
December 15, 1994, by and between Culligan International
Company and Douglas A. Pertz.(4)
10.12 Employment Agreement dated as of February 1, 1997, by and
between Culligan Water Technologies, Inc. and Douglas A.
Pertz.(4)
42
<PAGE>
10.13 Tax Sharing Agreement, dated as of July 14, 1995, between
Samsonite and the Company.(1)
10.14 Culligan Supplemental Retirement Plan, dated July 1, 1991.(1)
10.15 Amended and Restated Registration Rights Agreement.(3)
10.16 Form of Indemnification Agreement entered into or to be entered
into by the Company with each of its officers and directors.(1)
10.17 Amended and Restated Agreement and Plan of Merger dated as of
February 5, 1997 among Culligan Water Technologies, Inc.,
Culligan Water Company, Inc., Ametek, Inc., and Ametek
Aerospace Products, Inc.(4)
10.18 Agreement and Plan of Merger, dated as of February 9, 1998,
among Culligan Water Technologies, Inc., United States Filter
Corporation, and Palm Water Acquisition Corp.(6)
10.19 Support/Voting Agreement, dated as of February 9, 1998 between
United States Filter Corporation and Apollo Investment Fund,
LP.(6)
10.20 Support/Voting Agreement, dated as of February 9, 1998 between
United States Filter Corporation and Lion Advisors, LP.(6)
21.1 List of Subsidiaries.(9)
27.1 Financial Data Schedule.(9)
- ------------------------
(1) Incorporated by reference to the Company's Registration Statement on Form
10 (File No. 0-26630).
(2) Incorporated by reference to the Company's Annual Report on Form 10K for
the year ended January 31, 1996.
(3) Incorporated by reference to the Company's Registration Statement on Form
8-A filed with the Commission on September 16, 1996.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended April 30, 1997.
43
<PAGE>
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1997.
(6) Incorporated by reference to the Company's Current Report on Form 8-K
dated February 10, 1997.
(7) Incorporated by reference to the Company's Proxy Statement on Schedule 14A
dated April 30, 1996.
(8) Incorporated by reference to the Company's Proxy Statement on Schedule 14A
dated May 14, 1997.
(9) Filed herewith
(b) Reports on Form 8-K
The Company filed four Current Reports on Form 8-K during the quarter ended
January 31, 1998, and to date as follows:
November 4, 1997 Item 5. Press Release
November 21, 1997 Item 5. Summary of Results for the Third Quarter and
Nine Months ended October 31, 1997
December 12, 1997 Item 2. Acquisition or Disposition of Assets (as
amended on Form 8-K/A dated February 17, 1998)
February 10, 1998 Item. 2. Acquisition or Disposition of Assets
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed by
the undersigned, thereunto duly authorized.
CULLIGAN WATER TECHNOLOGIES, INC.
(Registrant)
Dated: May 1, 1998
By: /s/ Douglas A. Pertz
---------------------------------------
Douglas A. Pertz
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on May 1, 1998 by the following persons on behalf
of the registrant in the capacities indicated.
Signature Title
- --------- -----
/s/ Douglas A. Pertz President and Chief Executive Officer
- ---------------------- and Director
Douglas A. Pertz
/s/ Michael E. Salvati Vice President, Finance and Chief
- ---------------------- Financial Officer (principal financial
Michael E. Salvati and accounting officer)
/s/ Andrew D. Africk Director
- ----------------------
Andrew D. Africk
/s/ R. Theodore Ammon Director
- ----------------------
R. Theodore Ammon
45
<PAGE>
/s/ Bernard Attal Director
- ----------------------
Bernard Attal
/s/ Leon D. Black Director
- ----------------------
Leon D. Black
/s/ Robert H. Falk Director
- ----------------------
Robert H. Falk
/s/ Michael Fisch Director
- ----------------------
Michael Fisch
/s/ Mark H. Rachesky Director
- ----------------------
Mark H. Rachesky
/s/ Robert L. Rosen Director
- ----------------------
Robert L. Rosen
/s/ Marc J. Rowan Director
- ----------------------
Marc J. Rowan
/s/ Stephen J. Solarz Director
- ----------------------
Stephen J. Solarz
/s/ Carl Spielvogel Director
- ----------------------
Carl Spielvogel
46
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheets as of January 31, 1997 and 1998 F-3
Consolidated Statements of Operations for the years ended
January 31, 1996, 1997 and 1998 F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended January 31, 1996, 1997 and 1998 F-5
Consolidated Statements of Cash Flows for the years ended
January 31, 1996, 1997 and 1998 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Culligan Water Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Culligan Water
Technologies, Inc. and subsidiaries as of January 31, 1997 and 1998, and the
related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
January 31, 1998. These consolidated financial statements are the
responsibility of the management of Culligan Water Technologies, Inc. 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 Culligan
Water Technologies, Inc. and subsidiaries as of January 31, 1997 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended January 31, 1998, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
April 7, 1998
Chicago, Illinois
F-2
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE PER SHARE)
<TABLE>
<CAPTION>
January 31, January 31,
ASSETS 1997 1998
------ ----------- -----------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 8,984 $ 14,293
Restricted Cash -- 3,287
Accounts and Notes Receivable, Net of Allowance
for Doubtful Accounts of $5,695 and $7,387
in 1997 and 1998, respectively 80,843 132,923
Inventories 47,213 74,740
Deferred Income Taxes 10,964 16,213
Net Assets of Discontinued Operations -- 106,743
Prepaid Expenses and Other Current Assets 4,650 3,541
-------- --------
Total Current Assets 152,654 351,740
-------- --------
Property, Plant, and Equipment, Net 78,740 144,631
Intangible Assets, Less Accumulated Amortization
of $117,671 and $178,914 in 1997 and 1998, respectively 76,883 312,699
Other Noncurrent Assets 29,085 49,193
-------- --------
Total Assets $337,362 $858,263
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts Payable $ 23,867 $ 39,470
Accrued Expenses 36,950 90,533
Short-Term Debt and Current Maturities of Long-Term Debt 12,414 34,610
-------- --------
Total Current Liabilities 73,231 164,613
-------- --------
Long-Term Liabilities:
Long-Term Debt 36,231 337,557
Noncurrent and Deferred Income Taxes 29,805 30,703
Other Noncurrent Liabilities 24,455 25,171
-------- --------
Total Long-Term Liabilities 90,491 393,431
-------- --------
Minority Interest -- 2,191
-------- --------
Stockholders' Equity:
Common Stock ($.01 Par Value; 60,000,000 Shares Authorized;
21,342,957 and 25,814,543 Shares Issued and Outstanding
at January 31, 1997 and 1998, respectively) 213 258
Additional Paid-In Capital 235,894 367,602
Retained Deficit (61,780) (63,879)
Foreign Currency Translation Adjustment (687) (5,953)
-------- --------
Total Stockholders' Equity 173,640 298,028
-------- --------
Total Liabilities and Stockholders' Equity $337,362 $858,263
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
January 31, January 31, January 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales $ 304,502 $ 371,018 $ 505,744
Cost of Goods Sold 168,363 205,581 288,851
----------- ----------- -----------
Gross Profit 136,139 165,437 216,893
Selling, General, and Administrative 95,723 113,932 146,807
Write-off of Goodwill and In-process
Research and Development -- -- 55,803
Merger and Restructuring Expenses -- -- 5,236
Amortization of Intangible Assets 38,802 17,522 5,440
----------- ----------- -----------
Operating Income 1,614 33,983 3,607
Interest Income 1,576 2,633 1,765
Interest Expense on Indebtedness to Former Parent (5,207) -- --
Interest Expense--Other (7,219) (5,490) (9,903)
Other, Net 2,867 5,023 32,888
----------- ----------- -----------
Income (Loss) Before Income Taxes, Minority
Interest and Extraordinary Item (6,369) 36,149 28,357
Income Taxes 14,910 20,264 32,638
Minority Interest -- -- 919
----------- ----------- -----------
Net Income (Loss) before Extraordinary Item $ (21,279) $ 15,885 $ (5,200)
Extraordinary Item (Net of Tax Benefit of $272) -- -- (422)
----------- ----------- -----------
Net Income (Loss) $ (21,279) $ 15,885 $ (5,622)
=========== =========== ===========
Basic Income (Loss) Per Share:
Income (Loss) before Extraordinary Item $ (1.30) $ 0.78 $ (0.22)
Extraordinary Item -- -- (0.02)
----------- ----------- -----------
Net Income (Loss) Per Share $ (1.30) $ 0.78 $ (0.24)
=========== =========== ===========
Weighted Average Shares Of Common Stock Outstanding 16,311,426 20,356,046 23,444,322
=========== =========== ===========
Diluted Income (Loss) Per Share:
Income (Loss) Before Extraordinary Item (1.30) $ 0.74 (0.22)
Extraordinary Item -- -- (0.02)
----------- ----------- -----------
Net Income (Loss) Per Share (1.30) $ 0.74 (0.24)
=========== =========== ===========
Weighted Average Shares Of Common Stock Outstanding 16,311,426 21,374,672 23,444,322
=========== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARES OUTSTANDING)
<TABLE>
<CAPTION>
Common Stock Foreign
----------------- Additional Retained Currency Total
Par Paid-in Earnings Translation Stockholders'
Shares Value Capital (Deficit) Adjustment Equity
------ ----- ---------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1995 15,889,450 $159 $105,815 $ (56,386) $ (1,344) $ 48,244
Capital Contribution from
Former Parent -- -- 4,785 -- -- 4,785
Sale of Common Stock 4,025,000 40 94,547 -- -- 94,587
Costs of Issuance and Distribution -- (9,191) -- -- (9,191)
Net Loss -- -- (21,279) -- (21,279)
Foreign Currency Translation
Adjustment, Net -- -- -- 1,943 1,943
--------------------------------------------------------------------------------
Balance at January 31, 1996 19,914,450 199 195,956 (77,665) 599 119,089
Sale of Common Stock 749,239 7 28,183 -- -- 28,190
Costs of Issuance and Distribution (1,584) -- -- (1,584)
Exercise of Stock Options 679,268 7 5,784 -- -- 5,791
Income Tax Benefit from Exercise
Of Stock Options -- 7,555 -- -- 7,555
Net Income. -- -- 15,885 -- 15,885
Foreign Currency Translation
Adjustment, Net -- -- -- (1,286) (1,286)
--------------------------------------------------------------------------------
Balance at January 31, 1997 21,342,957 213 235,894 (61,780) (687) 173,640
Costs of Issuance and Distribution. 25 -- -- 25
Exercise of Stock Options 56,800 -- 735 -- -- 735
Income Tax Benefit from Exercise
Of Stock Options -- -- 598 -- -- 598
Shares Issued Pursuant to
Directors' Stock Plan 6,974 -- 274 -- -- 274
Issuance of Common Stock
in Connection With
Acquisitions 4,407,812 45 130,076 3,523 -- 133,644
Net Loss -- -- -- (5,622) -- (5,622)
Foreign Currency Translation
Adjustment, Net -- -- -- -- (5,266) (5,266)
--------------------------------------------------------------------------------
Balance at January 31, 1998 25,814,543 $258 $367,602 $(63,879) $(5,953) $298,028
================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
January 31, January 31, January 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $(21,279) $ 15,885 $ (5,622)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:
Write-off of Goodwill and In-process R&D -- -- 55,803
Depreciation 9,409 10,091 15,161
Amortization. 38,802 17,522 5,440
(Gain)/Loss on Sales of Assets (295) (382) 26
Gain on Disposition of Investment in Affiliate -- -- (31,098)
Insurance Settlement -- (1,980) --
Deferred Income Taxes 255 (299) (5,670)
Changes in Assets and Liabilities:
Receivables, Net (5,845) (10,230) (12,409)
Inventories 3,575 (6,626) (7,998)
Other Current Assets. (1,659) (636) 5,015
Accounts Payable and Accrued Expenses (6,962) 345 (3,887)
Other, Net (2,635) (7,157) (7,808)
-------- -------- ---------
Net Cash Provided by Operating Activities 13,366 16,533 6,953
-------- -------- ---------
Cash Flows from Investing Activities:
Proceeds from Sales of Assets 2,093 6,323 2,219
Proceeds from Insurance Settlement -- 4,500 --
Proceeds from Disposition of Investment in Affiliate -- -- 50,897
Capital Expenditures (8,841) (17,043) (35,528)
Payments for Acquisitions (13,872) (20,745) (216,912)
Net Assets of Discontinued Operations -- -- (106,743)
Restricted Cash Held in Escrow for Protean Acquisition -- -- (3,287)
-------- -------- ---------
Net Cash Used in Investing Activities (20,620) (26,965) (309,354)
-------- -------- ---------
Cash Flows from Financing Activities:
Net Proceeds from Sale of Common Stock 85,396 26,606 25
Proceeds from Exercise of Stock Options -- 5,791 735
Funding to Former Parent, Net (111,125) (6,743) --
Net Borrowings (Repayments) of Long-term Debt 32,616 (11,165) 284,460
Net Short-term Borrowings (Repayments) (2,099) 1,336 23,339
-------- -------- ---------
Net Cash Provided by Financing Activities 4,788 15,825 308,559
-------- -------- ---------
Effect of Foreign Exchange Rate Changes on Cash 417 (286) (849)
-------- -------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (2,049) 5,107 5,309
Cash and Cash Equivalents at Beginning of Year 5,926 3,877 8,984
-------- -------- ---------
Cash and Cash Equivalents at End of Year $ 3,877 $ 8,984 $ 14,293
======== ======== =========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for:
Interest (Including to Former Parent) $ 12,149 $ 5,236 $ 6,980
Income Taxes (Excluding to Former Parent). $ 8,086 $ 12,618 $ 37,064
Supplemental Schedule of Noncash Financing Activities:
Former Parent Contribution to Equity Capital $ 4,785 $ -- $ --
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Culligan Water Technologies, Inc. (the "Company" or "Culligan") and
subsidiaries are engaged in the manufacture and sale of water purification and
treatment products. A significant part of the Company's sales are made to
franchised dealers and licensees.
"Fresh Start" Basis of Accounting
On May 25, 1993 the United States Bankruptcy Court confirmed a Plan of
Reorganization (the "Plan") of Culligan's parent at the time, Astrum
International Corp. ("Astrum"). Pursuant to the terms of the Plan, which
became effective on June 8, 1993, Astrum completed a comprehensive financial
reorganization (the "Restructuring"). The Restructuring has been accounted
for in accordance with the American Institute of Certified Public Accountants
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7"). SOP 90-7 requires that the Company's
assets and liabilities be adjusted to their fair values ("Fresh Start") and
that a new reporting entity be created. Although Culligan did not file for
bankruptcy, as a subsidiary company, Culligan was required to record the
effects of Astrum's "Fresh Start" adjustments of assets and liabilities as
additional capitalization (the "recapitalization") as of June 30, 1993.
The Consolidated Balance Sheets as of January 31, 1997 and 1998 and
Consolidated Statements of Operations and Cash Flows for the years ended January
31, 1996, 1997 and 1998 include the continuing impact of the recapitalization.
Spin-Off
On September 12, 1995, Samsonite Corporation ("Samsonite"), formerly known as
Astrum, distributed one share of Culligan common stock for each share of
Samsonite common stock in a spin-off (the "Spin-Off"). In connection with the
Spin-Off, Culligan's capital stock was recapitalized. All share amounts for
the periods preceding the Spin-Off have been retroactively restated to give
effect to the stock distribution.
Principles of Consolidation
The consolidated financial statements include the financial statements of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Revenue Recognition
Sales of the Company's products are recorded upon shipment. Estimated costs
to be incurred by the Company related to product installation and warranty
fulfillment are accrued at the date of shipment.
Revenues and profits on long-term contracts, performed over extended periods
of time, are recognized under the percentage-of-completion method of
accounting, principally based on direct labor dollars incurred and related
billings from outside vendors. Revenues and profits on long-term contracts
are based on the Company's estimates to complete and are reviewed
periodically, with adjustments recorded in the period in which the revisions
are made. Any anticipated losses on contracts are charged to operations as
soon as they are determinable.
Foreign Currency Translation
The accounts of the Company's non-U.S. subsidiaries are measured using local
currency as the functional currency. These operations report financial
results on a calendar year basis. The Company translates assets and
liabilities denominated in non-U.S. currencies at exchange rates prevailing at
balance sheet dates and income, costs, and expenses are translated at the
average rates during the period. Translation adjustments are included as a
separate component of stockholders' equity.
Cash Equivalents
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
F-7
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Inventories
Inventories, consisting of materials, labor and overhead, are valued at the
lower of cost on the first-in, first-out ("FIFO") method or market.
Property, Plant, and Equipment
In connection with the adoption of "Fresh Start" accounting, the Company
adjusted property, plant, and equipment to fair market values. Depreciation is
provided on the straight-line method over the estimated useful lives of the
assets as follows:
Buildings and improvements 3 to 40 years
Furniture and fixtures 4 to 10 years
Machinery and equipment 3 to 10 years
Gains or losses resulting from dispositions are included in other income
(expense), net. Improvements which extend the life of an asset are
capitalized; maintenance and repair costs are expensed.
Intangible Assets
As a result of "Fresh-Start" accounting, the Company recorded reorganization
value in excess of identifiable assets. Tradenames and other intangibles were
recorded at fair market value based on independent appraisals. Intangible
assets are amortized on a straight-line basis over their estimated useful
lives as follows:
Reorganization value in excess of
identifiable assets 3 years
Tradenames 40 years
Goodwill 10 to 40 years
Other intangible assets 3 to 40 years
The Company accounts for intangible assets at the lower of amortized cost or
fair value. On an ongoing basis, the Company reviews the valuation and
amortization of intangible assets by comparing carrying values to projected
discounted future operating results using a discount rate reflecting the
Company's average cost of capital and taking into consideration any events or
circumstances that could impair the assets' carrying values.
Advertising
Costs incurred for advertising, including costs incurred under the Company's
U.S. cooperative advertising program with its dealers and franchisees, are
expensed when incurred.
Computer Software
In 1998, the Company began capitalizing certain costs of computer software
developed or obtained for internal use. The amount capitalized as of January
31, 1998, was $797 million. If such costs were capitalized in prior years,
the effect would not have been material. Software assets are classified as
property, plant and equipment and will be amortized over periods up to seven
years.
Research and Development
Research and development costs are expensed during the year in which such
costs are incurred and amounted to approximately $3,221, $3,212 and $4,082 for
the years ended January 31, 1996, 1997 and 1998, respectively.
F-8
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Income Taxes
Deferred tax assets and liabilities are recognized for 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 expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Insurance
The Company retains risks for workers' compensation, automobile and general
liability up to $250 per individual claim. Culligan purchases excess workers
compensation, automobile and general liability coverage for individual claims
in excess of $250.
Earnings (Loss) Per Share
The Company adopted Statement of Financial Accounting Standards No. 128 (SFAS
128), "Earnings Per Share", in 1998. SFAS 128 simplifies the computation of
earnings per share ("EPS") previously required in Accounting Principles Board
(APB) Opinion No. 15, "Earnings Per Share," by replacing primary and fully
diluted EPS with basic and diluted EPS. Under SFAS 128, basic EPS is calculated
by dividing net earnings (loss) by the weighted-average common shares
outstanding during the period. Diluted EPS reflects the potential dilution to
basic EPS that could occur upon the conversion of stock options to common shares
using the treasury stock method based upon the weighted-average fair value of
the Company's common shares during the period. SFAS 128 was required to be
adopted by the Company in fiscal 1998 and earnings per share for prior periods
have been restated in accordance with SFAS 128. The only reconciling item
related to the numerators and denominators of the basic and diluted earnings per
share calculations is the dilutive impact of stock options for the year ended
January 31, 1997 in the amount of 1,018,626 shares on the denominator.
Employee Stock Options
The Company accounts for employee stock options under the provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees" and related interpretations. Accounting for the issuance of
stock options under the provisions of APB Opinion No. 25 typically does not
result in compensation expense for the Company as the exercise price of
options are normally established at the market price of the Company's common
stock on the date granted.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and related
disclosures 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.
Reclassifications
Certain reclassifications were made to the prior periods' financial statements
in order to conform with the 1998 presentation.
F-9
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(2) INVENTORIES
Inventories at January 31, 1997 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Raw materials $19,137 $15,499
Work in process 7,788 8,947
Finished goods 20,288 50,294
------- -------
Total $47,213 $74,740
======= =======
</TABLE>
(3) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at January 31, 1997 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Land and land improvements $ 21,113 $ 22,639
Buildings 28,289 45,820
Machinery and equipment 51,132 121,423
-------- --------
100,534 189,882
Less accumulated depreciation (21,794) (45,251)
-------- --------
Total $ 78,740 $144,631
======== ========
</TABLE>
(4) ACQUISITIONS, DISCONTINUED OPERATIONS AND DIVESTITURES
Acquisitions and Discontinued Operations
In August, 1997 the Company completed a $157 million acquisition of the Water
Filtration Business of Ametek, Inc. (the "Water Filtration Business"), by
merging a wholly owned subsidiary of the Company into Ametek, Inc. immediately
following the spin-off of Ametek's non-water filtration operations. As a
result of the merger, which was accounted for under the purchase method, each
share of Ametek common stock was converted into the right to receive .105
shares of common stock of the Company (or an aggregate of 3,466,667 shares of
the Company's common stock resulting in additional paid in capital of $129.3
million) and cash in lieu of fractional shares. The Water Filtration
Business, located in Sheboygan Wisconsin, manufactures and markets point of
use water filtration and treatment products and is a leading supplier in the
do-it-yourself, plumbing wholesale and commercial/industrial water treatment
markets. The excess of fair value of net assets acquired of $94.5 million is
being amortized on a straight-line basis over 40 years. The acquisition includes
$33.1 million of purchased in-process research and development which was charged
to expense during the year ended January 31, 1998 since the technology had not
reached technological feasibility and was determined to have no alternative
future use.
On December 2, 1997, the Company declared its cash offer of approximately $174
million to acquire all of the outstanding shares of Protean plc ("Protean"), a
United Kingdom corporation, unconditional in all respects. As of December 2,
1997, the Company owned or received valid acceptances for an aggregate of
97.9% of Protean's outstanding shares. Subsequent thereto, Culligan acquired
the remaining outstanding shares of Protean in accordance with United Kingdom
law and Protean became a wholly owned subsidiary of the Company. Protean is
engaged in the design, manufacture and sale of water purification equipment
sold primarily to commercial and industrial customers and analytical and
thermal equipment.
F-10
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
In connection with the acquisition, the Company decided to divest the Analytical
and Thermal Equipment Division of Protean within the next 12 months as these
businesses do not fit the Company's long-term strategic objectives. This
Division consists of eight operating units involved in the manufacture and sale
of analytical and thermal equipment and consumables principally for use in
medical, academic, research and industrial laboratories worldwide. These
operations are reflected as discontinued operations for all periods presented in
the accompanying combined financial statements at the estimated proceeds from
the sale of such operations plus the estimated cash flows during the holding
period less the estimated interest on debt associated with the discontinued
operations. The results of operations of the discontinued operations of Protean
included in the Net Assets of Discontinued Operations are not material to the
Consolidated Statements of Operations.
The acquisition of Protean has been accounted for as a purchase and,
accordingly, the results of Protean's continuing operations are included in the
Company's consolidated statements of income from the date of acquisition. The
fair market value of Protean's assets and liabilities from continuing operations
has been included in the Consolidated Balance Sheet at January 31, 1998. The
excess of fair value of continuing net assets acquired of $40.4 million is being
amortized on a straight-line basis over 40 years. The acquisition includes $19.5
million of purchased in-process research and development which was charged to
expense during the year ended January 31, 1998 since the technology had not
reached technological feasibility and was determined to have no alternative
future use.
Summarized below are the unaudited pro forma results of operations of the
Company as though the Water Filtration Business of Ametek, Inc. and the
continuing operations of Protean had been acquired at the beginning of the
Company's fiscal year ended January 31, 1997:
<TABLE>
<CAPTION>
January 31, 1997 January 31, 1998
---------------- ----------------
(In thousands, except per share data)
<S> <C> <C>
Revenues: $ 500,490 $596,066
Net Income: $ 17,725 $ (4,755)
Basic Income per share $ 0.74 $ (0.19)
Diluted Income per share $ 0.71 $ (0.19)
</TABLE>
On September 30, 1997, the Company acquired all of the outstanding capital
stock of the R&S McCoy Corporation, Florida Bottled Water Company, McCoy
Transport, Inc., H2O Ventures, Inc. and Gold Coast Water Technologies, Inc.
(collectively, referred to as "McCoy"), in a $16,865 transaction accounted for
by the pooling of interests method. Additionally, in January 1998, the
Company acquired all of the outstanding common stock of two franchise
dealerships in New England and Ohio for approximately $26,363 accounted for by
the pooling of interests method. The Company issued 941,145 shares of common
stock for these three poolings. The effect of these poolings are not material
to the Company's operations and accordingly, prior years' financial statements
have not been restated.
On April 1, 1997, the Company acquired a 51% interest in Sparkling S.A.
("Sparkling"), a bottled water company based in Buenos Aires, Argentina for a
purchase price of approximately $19.5 million. An additional 29% was acquired
on October 1, 1997 for an amount to be determined based on financial
performance for the twelve months ended March 31, 1998. The Company will
purchase the remaining 20% on March 31, 1999 at a price to be determined based
on Sparkling's financial performance for the twelve months ending March 31,
1999. Sparkling provides the Company with a strong, well established presence
in the Argentine market.
During the year ended January 31, 1998, the Company completed several other
acquisitions of businesses which complement existing products and operations
of the Company for approximately $90,924 of cash and $7,620 of notes payable.
These acquisitions have been accounted for under the purchase method of
accounting and the results of these acquired businesses have been included in
the Consolidated Statements of Operations from the dates of acquisition. The
excess of fair value of net assets acquired is being amortized on a
straight-line basis over 40 years.
During the year ended January 31, 1997, the Company completed a number of
acquisitions for approximately $20,745 of cash and $11,203 of notes payable.
These acquisitions have been accounted for under the purchase method of
accounting and the results of these acquired businesses have been included in
the Consolidated Statements of Operations from the dates of acquisition. The
excess of fair value of net assets acquired is being amortized on a
straight-line basis over 40 years.
During fiscal 1998, the Company entered into a securities purchase agreement
with Packaged Ice, Inc. ("Packaged Ice") in which the Company purchased $23.5
million of preferred stock and warrants to purchase 1,807,692 shares of Packaged
Ice common stock. The dividend rate is 10% and can be paid in cash or additional
preferred stock and warrants to acquire additional common stock. The Company's
investment is included in other noncurrent assets in the accompanying
Consolidated Balance Sheet at January 31, 1998.
F-11
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Divestitures
On March 15, 1997, the Company disposed of its investment in Anvil Holdings,
Inc. for total cash proceeds of $50,897. The transaction, which included
payment of accrued interest receivable and dividends resulted in a pre-tax
gain of approximately $31,098 which is included in other income in the
Consolidated Statement of Operations for the year ended January 31, 1998.
Proceeds from this transaction were used to reduce outstanding borrowings under
the Company's credit facility.
(5) RESTRUCTURING AND ASSET WRITE-DOWN
Restructuring
As a result of the acquisition of Ametek's Water Filtration Business on August
1, 1997 and the subsequent decision made by the Company in the quarter to exit
the market for the sale of consumer products in the department store and mass
merchant channels, the Company recorded a merger and restructuring charge of
$5.2 million during the year ended January 31, 1998. The merger and
restructuring charge reflects the costs of integrating and streamlining
manufacturing, sales, distribution, research and development, and administrative
functions completed during the third quarter in the Company's point-of-use
business. Included in the $5.2 million merger and restructuring charge are $0.7
million for severance costs related to the elimination of redundant employees,
$1.3 million related to the write-down of receivables aggregating $3.1 million
in the Consumer Products Division, $2.5 million related to the write-down of
excess property, equipment and other assets, and $0.7 million representing legal
and other professional fees. The property, equipment and other assets consist
principally of fixed assets used in the manufacture of molded carbon block, of
which approximately $0.5 million was acquired in the acquisition of UltraPure in
January 1996 and the balance of which relates to property and equipment of the
Company's Everpure and Consumer Products businesses. The value of these fixed
assets is considered to be impaired as a result of improved extruded carbon
block technology acquired in the acquisition of Ametek's Water Filtration
Business in August 1997. These assets are not expected to generate any
significant future cash flows and have therefore been written-down to estimated
salvage value, which is not material. The write-down of these assets is not
expected to have a material effect on future operations. In addition to the $5.2
million merger and restructuring charge, the Company recorded a charge of $4.2
million to cost of goods sold to write down excess inventory and to establish
reserves for excess purchase commitments that resulted from the Company's
restructuring plan. Total future cash requirements relating to the merger and
restructuring are not expected to be material.
Asset Write-Down
The Company wrote-off $3,170 of goodwill pertaining to the Company's UltraPure
operations as a result of improved technology acquired in the acquisition of
Ametek's Water Filtration Business. Because the UltraPure technology was
abandoned in favor of technology acquired in the acquisition of the Water
Filtration Business, the Company does not expect significant future cash flows
from the UltraPure operations. As a result, the goodwill associated with the
UltraPure acquisition was written off.
(6) INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, at January 31, 1997 and
1998 consist of the following:
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Trademarks $44,160 $ 42,947
Goodwill 26,424 259,252
Other intangible assets 6,299 10,500
------- --------
Total. $76,883 $312,699
======= ========
</TABLE>
F-12
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Amortization of intangible assets consists of the following:
<TABLE>
<CAPTION>
Year Year Year
Expected Ended Ended Ended
Useful January 31, January 31, January 31,
Life 1996 1997 1998
-------- ----------- ----------- -----------
(years)
<S> <C> <C> <C> <C>
Amortization of reorganization value in
excess of identifiable assets 3 $37,322 $15,551 $ --
Amortization of trademarks and other
"Fresh Start" intangibles 40 1,300 1,300 1,300
------- ------- --------
"Fresh Start" amortization 38,622 16,851 1,300
Amortization of goodwill 10 to 40 158 504 3,784
Amortization of other intangibles 3 to 9 22 167 356
------- ------- --------
Total $38,802 $17,522 $ 5,440
======= ======= ========
</TABLE>
"Fresh Start" amortization represents the expense arising from the adoption of
"Fresh Start" accounting in accordance with SOP 90-7.
(7) ACCRUED EXPENSES
Accrued expenses at January 31, 1997 and 1998 consist of the following:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Accrued wages and other compensation $15,512 $20,402
Accrued professional fees 2,153 10,021
Deferred income 3,502 8,323
Accrued warranty expense 1,365 4,153
Accruals for claims in litigation (see Note 16) 3,312 1,122
Other 11,106 46,512
------- -------
Total $36,950 $90,533
======= =======
</TABLE>
(8) FINANCING ARRANGEMENTS
The Company's debt at January 31, 1997 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
1997 1998
Current ------------------ ------------------
Interest
Rates Current Long-Term Current Long-Term
-------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Notes payable to banks 4.0 - 10.0% $ 9,549 $29,294 $31,762 $328,779
Other 6.5 - 12.0% 2,865 6,937 2,848 8,778
------- ------- ------- --------
Total $12,414 $36,231 $34,610 $337,557
======= ======= ======= ========
</TABLE>
Principal payments for each of the years ending January 31, 1999, through the
year 2003 and thereafter are $34,610, $61,618, $4,767, $264,908, $2,889 and
$3,375, respectively.
On April 30, 1997, the Company signed a new credit facility to replace its
existing $150 million reducing revolving credit facility (the "New Credit
Facility"). The Company borrowed $37.8 million under the new facility to
repay outstanding indebtedness under previous financing arrangements
F-13
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
in May 1997. The New Credit Facility is a $300 million multi-currency
revolving credit facility consisting of a $200 million, five-year multi-
currency revolving credit facility and a $100 million, 364-day multi-currency
revolving credit facility, which at the option of the Company may be converted
into a four year amortizing term loan. The New Credit Facility provides for
unsecured multi-currency borrowings and the issuance of letters of credit. The
New Credit Facility is guaranteed by the Company's principal domestic
subsidiaries. Loans under the New Credit Facility bear interest, at the
election of the Company, at either a base rate based on (i) the higher of the
prime rate or .5% per annum above the Federal Funds Rate or (ii) a Eurodollar
rate, together with an applicable margin tied to the Company's financial
leverage. As of February 13, 1998 the New Credit Facility was amended (the
"Amended Credit Facility") to modify certain covenants and lessen restrictions
on the incurrence of debt outside the Amended Credit Facility, guarantees,
and certain other matters. The Amended Credit Facility contains customary
representations and warranties and certain financial and other covenants as
well as customary events of default including, but not limited to, payment
defaults, breaches of covenants or representations, or insolvency. The
364-day multi-currency revolving portion of the Amended Credit Facility was
subsequently extended and currently matures at April 28, 1999. At January 31,
1998, the weighted average interest rate on borrowings under the Credit
Facility was 6.58% per annum. Of the $287,797 outstanding under the New Credit
Facility, $141,298 is denominated in British Pound Sterling which is intended to
hedge the Company's investment in Protean.
In connection with the signing of the New Credit Facility, the Company was
required to write-off certain capitalized costs associated with the previous
credit facility. The write-off of $694, net of an applicable tax benefit of
$272, is reflected as an extraordinary item on the Consolidated Statement of
Operations for the year ended January 31, 1998.
On October 21, 1997, the Company established a $100 million line of credit
pursuant to a letter agreement (the "Letter Agreement") with The First
National Bank of Chicago. The Letter Agreement originally matured at April
21, 1998, but has subsequently been replaced with the Letter Agreements
discussed below aggregating $200 million. Borrowings under the Letter
Agreement were guaranteed by the Company's principal domestic subsidiaries and
bore interest, at the election of the Company, at either a base rate based on
(i) the prime rate or (ii) a fixed rate equal to the sum of .65% per annum
plus an applicable Eurodollar rate. The Company used the Letter Agreement to
finance various acquisitions and for general corporate purposes. As of January
31, 1998 the Company had available credit under the Letter Agreement of $44,200.
On March 10, 1998, the Company entered into four letter agreements (the "New
Letter Agreements") with various financial institutions to establish a 364-day
line of credit in the aggregate amount of $200 million. The Company drew
initial borrowings under the New Letter Agreements to replace indebtedness
incurred under the Letter Agreement discussed above. The Company intends to
use the Letter Agreements to fund future acquisitions and working capital
needs of the Company. Loans made under the New Letter Agreements bear
interest, at the election of the Company, at either (i) the prime rate or (ii)
a Eurodollar rate plus .75% per annum. The New Letter Agreements incorporate
by reference various representations, warranties, certain financial and other
covenants, and events of default set forth in the Amended Credit Facility.
At January 31, 1998, the Company had non-U.S. lines of credit of approximately
$24.6 million, with interest rates ranging from 4.4% to 10.5% and varying
maturity dates. At January 31, 1998, the weighted average interest rate on
the $13.5 million of borrowings under these lines of credit was approximately
6.7% per annum.
(9) INCOME TAXES
Prior to the Spin-Off, the Company's results were included in the consolidated
U.S. federal and, where applicable, unitary state income tax returns filed by
Samsonite. For periods prior to the Spin-Off, the provision for income taxes
has been computed as if the Company had filed its own U.S. federal and state
income tax returns. The provision for income taxes is as follows:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
January 31, January 31, January 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Currently payable:
U.S. federal $ 8,793 $12,516 $24,970
State 1,537 2,956 4,787
Non-U.S 3,650 4,966 7,060
------- ------- -------
Total currently payable $13,980 $20,438 $36,817
======= ======= =======
</TABLE>
F-14
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Deferred:
U.S. federal 1,067 1,122 $(3,826)
State (24) (708) (692)
Non-U.S. (113) (588) 339
------- ------- -------
Total deferred 930 (174) (4,179)
------- ------- -------
Total income taxes $14,910 $20,264 $32,638
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at January 31, 1997 and
1998 are presented below:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Accounts and notes receivable $ 3,259 $ 2,556
Inventories 3,527 4,199
Insurance and litigation accruals 2,822 3,051
Pension and postretirement benefits 4,654 5,044
Other accruals 6,884 10,776
Net operating loss carryforwards 4,143 4,415
Other 469 440
-------- --------
Total gross deferred tax assets 25,758 30,481
Less valuation allowance (2,892) (2,992)
-------- --------
Net deferred tax assets 22,866 27,489
-------- --------
Deferred tax liabilities:
Property, plant, and equipment (10,306) (12,788)
Trademarks and other intangible assets (19,051) (19,898)
Unremitted earnings (2,550) --
-------- --------
Total gross deferred tax liabilities (31,907) (32,686)
-------- --------
Net deferred tax liabilities $ (9,041) $ (5,197)
======== ========
</TABLE>
Deferred income taxes have been provided on undistributed earnings of non-U.S.
subsidiaries to the extent that management plans to have these earnings
remitted to the U.S. in the future. At January 31, 1998, undistributed
earnings of non-U.S. subsidiaries that will be permanently invested and for
which no deferred taxes have been provided amount to approximately $49,300. It
is not practicable for the Company to compute the amount of unrecognized
deferred tax liability on these undistributed earnings.
A valuation allowance has been provided for those net operating loss
carryforwards and temporary differences which management believes will not be
utilized. The increase (decrease) in the total valuation allowance for the
years ended January 31, 1996, 1997 and 1998, was $(1,691), $1,159 and $100,
respectively. Management believes that it is more likely than not that the
results of future operations will generate sufficient taxable income to
realize the remaining deferred tax assets.
F-15
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Total income tax expense differed from the amounts computed by applying the
U.S. federal income tax rate of 35% to income (loss) before income taxes,
minority interest and extraordinary item as a result of the following:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
January 31, January 31, January 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Income (loss) before income taxes,
minority interest and extraordinary
item:
U.S $ (9,715) $ 17,732 $ 11,222
Non-U.S. 3,346 18,417 17,135
-------- -------- --------
Total $ (6,369) $ 36,149 $ 28,357
======== ======== ========
Income taxes computed at the U.S.
federal statutory income tax rate $ (2,229) $ 12,652 $ 9,925
State income taxes, net of U.S.
federal Income tax benefit 983 1,461 2,662
Non-U.S. rate differential 2,366 (2,068) 1,402
Amortization and write-off of
nondeductible intangible assets 13,063 5,443 20,233
Change in valuation allowance (1,691) 1,159 100
Unremitted Earnings 487 1,155 (1,402)
Other, net 1,931 462 (282)
-------- -------- --------
Total $ 14,910 $ 20,264 $ 32,638
======== ======== ========
</TABLE>
(10) EMPLOYEE BENEFIT PLANS
Pension Plans
The Company has pension plans which cover substantially all salaried employees
and certain hourly-paid employees. Plans covering salaried employees generally
provide pension benefits to employees who complete five or more years of
service. Pension benefits are generally based upon years of service and
compensation during the final years of employment. Plans covering hourly-paid
employees generally provide pension benefits of fixed amounts for each year of
service.
The Company also has an unfunded supplemental retirement plan for certain
employees and unfunded supplemental benefit agreements for two former
executives of the Company. The annual costs of the supplemental retirement
plan and supplemental benefit agreements are included in the determination of
net periodic pension cost shown below.
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
January 31, January 31, January 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Service cost $ 1,196 $ 1,421 $ 1,345
Interest cost 3,297 3,415 3,692
Actual return on plan assets (11,289) (7,362) (8,590)
Net amortization and deferral 7,727 3,435 4,287
------- ------- -------
Net periodic pension cost $ 931 $ 909 $ 734
======= ======= =======
</TABLE>
F-16
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents the plans' status reconciled with amounts
recognized as other non-current liabilities in the Consolidated Balance Sheets
at January 31, 1997 and 1998:
<TABLE>
<CAPTION>
Accumulated
Benefits Exceed Assets Exceed
Assets Accumulated Benefits
----------------------- -----------------------
1997 1998 1997 1998
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested $(1,942) $(3,169) $(37,042) $(41,838)
Nonvested -- (245) (1,845) (2,156)
------- ------- -------- --------
Accumulated benefit obligations $(1,942) $(3,414) $(38,887) $(43,994)
======= ======= ======== ========
Projected benefit obligations $(2,011) $(3,482) $(44,978) $(50,577)
Fair value of plan assets, principally
equity securities, and corporate
and government bonds - 1,119 56,536 62,249
------- ------- -------- --------
Projected benefit obligations (in excess of)
less than plan assets (2,011) (2,363) 11,558 11,672
Unrecognized net gain from past experience
different from that assumed and effect
of changes in assumptions (1,073) (405) (10,222) (11,692)
Prior service cost not yet recognized in
net periodic pension cost 112 262 (955) (185)
------- ------- -------- --------
Prepaid (accrued) pension cost $(2,972) $(2,506) $ 381 $ (205)
======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Actuarial assumptions were:
Discount rates 7.50% 8.0-8.5% 6.25%-8.5%
Rates of increase in compensation levels 6.00 5.00 3.75-6.00
Expected long-term rate of return
on assets 8.50 8.50 8.50
</TABLE>
Plan assets are invested primarily in equity securities and fixed income
instruments. The plans do not have significant liabilities other than benefit
obligations. The Company's funding policy is to contribute amounts equal to
the minimum funding requirements of the Employee Retirement Income Security
Act of 1974.
Defined Contribution Plans
The Company has defined contribution plans which cover substantially all
domestic salaried employees and certain hourly-paid employees. Company
contributions are based primarily on a percentage of earnings of the Company,
as defined. The Company's expenses related to these plans were approximately
$3,125, $3,609 and $3,576 for the years ended January 31, 1996, 1997 and 1998,
respectively.
Other Postretirement Benefit Plans
The Company sponsors a defined benefit health care plan that provides
postretirement medical benefits to full-time employees who meet minimum age
and service requirements. The plan is contributory and contains other
cost-sharing features such as deductibles and limits on certain coverages. The
Company has the right to modify or terminate the plan.
F-17
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company's policy is to fund the cost of these benefits as incurred.
Employees hired subsequent to August 1, 1992 are not eligible for
postretirement medical benefits.
The following table presents the plan's status reconciled with amounts
recognized as other noncurrent liabilities in the Consolidated Balance Sheets
at January 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $2,473 $2,638
Fully eligible active plan participants 1,741 2,002
Other active plan participants 2,449 2,787
------ ------
Accumulated postretirement benefit
obligation in excess of plan assets 6,663 7,427
Unrecognized net loss 1,483 1,154
------ ------
Accrued postretirement benefit cost $8,146 $8,581
====== ======
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
January 31, January 31, January 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Service cost $ 219 $ 195 $ 173
Interest cost 467 483 512
Net amortization and deferral (74) (45) (74)
----- ----- -----
Net periodic postretirement benefit cost $ 612 $ 633 $ 611
===== ===== =====
</TABLE>
For measurement purposes, a 14% annual rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) was assumed for fiscal
year 1992; the rate was assumed to decrease 1% each year to 5.5% by the year
2000 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as
of January 31, 1998 by $1,026 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for the year ended
January 31, 1998 by $103. The weighted average discount rate used in
determining the accumulated postretirement benefit obligation was 8.00% and
7.5% at January 31, 1997 and 1998, respectively.
(11) LEASES
The Company leases certain office facilities or other assets for which the
future minimum rental payments under noncancelable operating leases for each
of the years ending January 31, 1999 through the year 2003 and thereafter are
$3,921, $3,297, $2,478, $1,720, $1,252, and $2,180, respectively.
Rental expense amounted to $2,205, $2,169 and $3,056 for the years ended
January 31, 1996, 1997 and 1998, respectively.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments at January 31, 1997 and 1998 include
long-term receivables, notes payable, and long-term debt. The fair values of
such financial instruments have been determined based on market interest rates
as of the respective year-ends and are not materially different from their
financial statement carrying values.
F-18
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(13) FINANCIAL INSTRUMENTS
Several of the Company's non-U.S. subsidiaries are exposed to foreign currency
risk as they have monetary assets and liabilities denominated in currencies
other than their respective functional currencies. Financial instruments
currently utilized by continuing operations of the Company include local
currency bank borrowings and, from time to time, forward foreign exchange
contracts. Forward exchange contracts are not held for trading purposes, but
correlate with the Company's net exposure in specific transactions in all
material respects.
As of January 31, 1997 and 1998, the Company had forward exchange contracts
not extending beyond one year, to trade principally Belgian francs, lira,
pesetas, or yen in the total gross notional amounts of $4,100 and $3,348
respectively. Unrealized gains and losses on the forward contracts are
deferred until the related transaction occurs. Deferred gains and losses on
forward exchange contracts incurred during the years ended January 31, 1996,
1997 and 1998 were not material. Other, immaterial instruments outstanding at
January 31, 1998 include two interest rate swap transactions intended to
mitigate floating interest rates related to debt acquired through the
Company's discontinued Analytical & Thermal division.
(14) INTERNATIONAL OPERATIONS
During the year ended January 31, 1997, the Company received an insurance
settlement related to a fire which substantially destroyed the Company's
facility in Belgium during July 1993. The settlement of $4,500 was offset by
additional incremental costs related to the fire of $2,520. The resulting
pre-tax gain of $1,980 is included as a component of other, net in the
Consolidated Statement of Operations for the year ended January 31, 1997.
(15) TRANSACTIONS WITH RELATED PARTIES
The following summarizes information about certain transactions between the
Company and Samsonite:
Tax Sharing Agreement
Prior to the Spin-Off, Culligan's results of operations had been included in
Samsonite's consolidated U.S. federal income tax returns. In connection with
the Spin-Off, Culligan and Samsonite entered into a Tax Sharing Agreement (the
"Tax Sharing Agreement") providing, among other things, for the allocation
between Samsonite and Culligan of federal and state tax liabilities for all
periods prior to completion of the Spin-Off. Under the Tax Sharing Agreement,
the balance in Culligan's intercompany tax payable account remained
outstanding and was converted into a long-term obligation. During the year
ended January 31, 1996, Culligan paid to Samsonite, approximately $7,325 of
its intercompany tax payable. During the year ended January 31, 1997,
Culligan settled the remaining tax payable with Samsonite.
Note Payable to Samsonite
In June 1993, Culligan issued a $150,000 subordinated note payable with an
interest rate of 11.5% to Samsonite. In December 1994, the Company made a
principal payment to Samsonite of $20,000. In January 1995, Samsonite reduced
the principal amount outstanding under the note payable through a $30,000
contribution to equity capital of the Company. The outstanding balance of such
note was repaid by Culligan during July 1995 in connection with the
Refinancing. For the year ended January 31, 1996, Culligan incurred interest
expense under this obligation of $5,207.
(16) LITIGATION
In August 1997, a purported class action was filed against Culligan
International Company, certain unidentified distributors and certain other
unidentified individual defendants in the Superior Court, County of Los
Angeles, State of California. The Complaint in the action alleges that the
defendants violated provisions of California law relating to home
solicitations by failing to include language and notices relating to rights of
rescission and engaging in unfair, unlawful and deceptive business acts and
practices. The Complaint in such action seeks disgorgement of alleged illicit
profits, injunctive relief, punitive damages and treble damages and alleges
that the amount the class is entitled to exceeds $20 million. In February
1998, a second purported class action was filed against Culligan International
Company, Household International and others in the Superior Court, County of
Los Angeles, State of California. The complaint in such action also alleges
violations of California law relating to home solicitations and seeks
equitable relief and consequential and exemplary damages in an unspecified
amount. The Company intends to vigorously contest these matters and does not
believe that they will have a material adverse effect on its financial condition
or results of operations.
F-19
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
In November 1997, an action was commenced by Culligan Springs Limited
("Culligan Springs") against Culligan of Canada Ltd., ("Culligan of Canada"), a
wholly owned subsidiary of the Company, in Bracebridge, Ontario. Culligan
Springs is an authorized producer of bottled water under Culligan of Canada's
trademarks in Canada. The action alleges breach of contract and breach of
warranty in connection with an alleged license to use the CULLIGAN trademark in
connection with the processing, distribution and sale of bottled water in the
eastern United States. The Statement of Claim seeks $50 million in damages,
interest, attorneys fees and other unspecified relief. Culligan of Canada
answered, denying the claim. The Company believes it has meritorious defenses to
such action and does not believe it will have a material adverse effect on its
financial condition or the results of operations.
In February 1998, a complaint was filed by KX Industries, LP and Koslow
Technologies Corporation against the Company and its Water Filtration Business
alleging that infringement of a patent for the production of carbon block, false
advertising in connection with a carbon block faucet mount filter marketed by
the Company's consumer products division, and the misappropriation of certain of
KX's trade secrets. The Complaint seeks injunctive relief, disgorgement,
compensatory and exemplary damages in an unspecified amount. The Company
believes it has meritorious defenses to such action and does not believe it will
have a material adverse effect on its financial condition or the results of
operations.
The Company is party to various other pending and threatened litigation arising
in the normal course of business. While it is not possible to predict the
outcome of these matters, management believes that the pending items will not
have a material adverse effect upon the financial condition or results of
operations of the Company.
(17) SEGMENT INFORMATION
The Company operates in one industry segment--the design, manufacture and
marketing of water treatment products and equipment. The Company has a
diversified customer base with no one customer accounting for 10% or more of
consolidated net sales. The Company has subsidiaries in Europe, the Pacific Rim,
Latin America, Canada and the Caribbean. Information regarding the Company's
operations in the United States and internationally are presented below:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
January 31, January 31, January 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
United States $203,441 $265,904 $358,265
Europe 102,607 105,558 142,752
Other non-U.S 14,284 18,065 37,455
Intercompany sales (15,830) (18,509) (32,728)
-------- -------- --------
Consolidated net sales $304,502 $371,018 $505,744
======== ======== ========
Operating income (loss):
United States $ (9,027) $ 19,617 $ 3,555
Europe 8,315 13,044 (4,609)
Other non-U.S 2,655 2,471 6,350
Adjustments and eliminations (329) (1,149) (1,689)
-------- -------- --------
Consolidated operating income $ 1,614 $33,983 $ 3,607
======== ======== ========
Depreciation expense
United States 5,921 7,234 10,009
Europe 1,418 1,287 2,077
Other non-U.S. 194 404 2,359
Corporate 1,876 1,166 716
-------- -------- --------
Total depreciation expense 9,409 10,091 15,161
======== ======== ========
Amortization expense
United States 23 382 2,576
Europe 157 152 684
Other non-U.S. 0 138 722
Corporate 38,622 16,850 1,458
-------- -------- --------
Total amortization expense 38,802 17,522 5,440
======== ======== ========
</TABLE>
F-20
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
January 31,
-----------
1997 1998
---- ----
<S> <C> <C>
Identifiable assets:
United States $179,438 $416,611
Europe 74,613 317,987
Other non-U.S. 15,972 60,523
Corporate 67,339 63,142
-------- --------
Consolidated identifiable assets $337,362 $858,263
======== ========
Capital Expenditures:
United States $ 12,702 $ 22,009
Europe 2,601 4,204
Other non-U.S. 1,740 9,315
Corporate 0 0
-------- --------
Total Capital Expenditures 17,043 35,528
======== ========
</TABLE>
(18) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year Ended January 31, 1997:
Net sales $83,390 $ 91,922 $ 97,104 $ 98,602
Gross profit 36,738 41,372 42,610 44,717
Net income (loss) $(3,348) $ 2,761 $ 7,951 $ 8,521
======= ======== ======== ========
Basic Income (Loss) Per Share:
Income (Loss) Before Extraor-
dinary Item (0.17) 0.14 0.40 0.40
Extraordinary Item - - - -
------- -------- -------- --------
Net Income (Loss) Per Share (0.17) 0.14 0.40 0.40
======= ======== ======== ========
Diluted Income (Loss) Per Share:
Income (Loss) Before Extraor-
dinary Item (0.17) 0.13 0.37 0.39
Extraordinary Item - - - -
------- -------- -------- --------
Net income (Loss) Per Share (0.17) 0.13 0.37 0.39
======= ======== ======== ========
Year Ended January 31, 1998:
Net sales $99,403 $114,765 $140,086 $151,490
Gross profit 45,049 49,757 57,002 65,085
Net income (loss) $26,592 $ 9,472 $(15,160) $(26,526)
======= ======== ======== ========
Basic Income (Loss) Per Share:
Income (Loss) Before Extraor-
dinary Item 1.26 0.44 (0.61) (1.03)
Extraordinary Item (0.02) - - -
------- -------- -------- --------
Net Income (Loss) Per Share 1.24 0.44 (0.61) (1.03)
======= ======== ======== ========
Diluted Income (Loss) Per Share:
Income (Loss) Before Extraor-
dinary Item 1.22 0.43 (0.61) (1.03)
Extraordinary Item (0.02) - - -
------- -------- -------- --------
Net Income (Loss) Per Share 1.20 0.43 (0.61) (1.03)
======= ======== ======== ========
</TABLE>
(19) STOCKHOLDER RIGHTS
On September 13, 1996, the Company adopted a stockholder rights plan and
authorized the execution of the Rights Agreement between the Company and The
First National Bank of Boston, as Rights Agent (the "Rights Agreement") for
which American Stock Transfer and Trust Company serves as successor rights
agent. The rights plan is intended to deter coercive or partial offers which
will not provide fair value to all stockholders and enhance the Board's
ability to represent all stockholders and thereby maximize stockholder values.
Pursuant to the Rights Agreement, one right ("Right") was issued for each
share of common stock, par value $.01 per share, of the Company outstanding as
of the close of business on September 26, 1996. Each of the Rights entitle
the registered holder to purchase from the Company one one-hundredth of a
share of Series A Junior Participating Preferred Stock, par value $.01 per
share, at a price of $78 per one one-hundredth of a share. Initially, the
Rights are attached to common stock certificates representing shares then
outstanding and no separate rights certificates will be distributed until the
occurrence of a Distribution Date as defined in the Rights Agreement. The
Rights generally will not become exercisable unless and until, among other
things, any person acquires 15% or more of the outstanding stock (other than a
person that owned 15% or more on September 3, 1996 as long as such person does
not increase its percentage ownership by more than five percentage points over
its percentage ownership on such date). The Rights are generally redeemable
at $.005 per Right at any time until 10 business days following a public
announcement that a 15% or greater position in the Company's common stock has
been acquired and will expire, unless earlier redeemed or extended, on
September 13, 1998.
In connection with the Agreement and Plan of Merger described in Note 22, the
Company has amended the Rights Agreement to among other things, provide that
the rights shall not become exercisable as a result of the Agreement and Plan
of Merger or the merger provided for therein, and reduce the beneficial
ownership threshold at which a person becomes an "Acquiring Person" under the
Rights Agreement from 15% of the outstanding shares of Company Common Stock to
9.9%.
F-21
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(20) STOCK OPTIONS
Pursuant to his employment agreement, the Company granted to its chief
executive officer (CEO) options to purchase 491,426 shares at an exercise
price of $9.98 per share. Such options expire in 2005 and are fully vested as
of January 31, 1998. The Company has also granted to the CEO options for
300,000 shares at an exercise price of $33.25 under the 1997 Plan described
below, in connection with an extension of his employment agreement.
Approximately 60% of these options are exercisable in five equal annual
installments upon the attainment by the Company of performance goals developed
jointly by the Compensation Committee and the CEO, and the remainder are
exercisable in five equal annual installments, so long as the CEO remains
employed with the Company.
At January 31, 1998, the Company had two stock option plans, the Culligan 1995
Amended and Restated Stock Option and Incentive Award Plan (the "1995 Plan")
and the Culligan 1997 Stock Option and Incentive Award Plan (the "1997 Plan").
Under the 1995 Plan, as amended, the Company may grant options to its
employees for up to 1,050,000 shares of common stock. As of January 31, 1998,
the Company has granted options, net of cancellations, for 879,950 shares
pursuant to the 1995 Plan. Under the 1997 Plan, the Company may grant options
to its employees for up to 1,000,000 shares of common stock. As of January 31,
1998, the Company has granted options for 300,000 shares pursuant to the 1997
Plan. Except for the options referred to above included under the 1997 Plan,
no options are outstanding under such Plan. Options under both plans vest
over a five-year period subject to satisfaction of certain time and
performance vesting criteria.
A summary of the status of the Company's fixed stock option activity as of
January 31, 1996, 1997, and 1998, and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1996 1997 1998
-------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Share Price Share Price Share Price
----- --------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Fixed Options
- -------------
Outstanding at beginning of year 286,666 $ 9.98 1,256,434 $ 9.74 1,028,766 $22.32
Granted
1995 Plan 298,600 $12.58 362,500 $35.49 57,500 $42.09
1997 Plan -- 120,000 $33.25 --
Options granted outside the plans 671,168 $ 8.37 -- --
Exercised -- (662,768) $ 8.43 (32,320) $12.93
Cancelled -- (47,400) $11.33 (100,740) $25.54
--------- --------- --------
Outstanding at end of year 1,256,434 $ 9.74 1,028,766 $22.32 953,206 $22.66
========= ========= ========
Options exercisable at year-end 810,923 296,530 531,466
Weighted-average fair value of
options granted during the year $ 4.81 $13.03 $14.07
</TABLE>
F-22
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes information about the Company's fixed stock
options outstanding at January 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Number average Weighted- Number Weighted-
Outstanding remaining average Exercisable Average
Range of January 31, contractual exercise January 31, Exercise
exercise prices 1998 life price 1998 Price
--------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 7.87 17,500 -- $ 7.87 17,500 $ 7.87
$ 9.98 286,666 7.0 years $ 9.98 286,666 $ 9.98
$12.23 198,040 7.8 years $12.59 100,700 $12.49
$33.13 - $46.01 451,000 8.0 years $35.70 126,600 $35.10
------- -------
953,206 7.5 years $22.65 531,466 $16.37
======= =======
</TABLE>
A summary of the status of the Company's performance based stock option
activity as of January 31, 1996, 1997, and 1998, and changes during the years
ended on those dates is presented below:
<TABLE>
<CAPTION>
1996 1997 1998
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Share Price Share Price Share Price
----- --------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Performance Options
- -------------------
Outstanding at beginning of year 204,760 $ 9.98 430,660 $11.10 742,660 $22.86
Granted
1995 Plan 225,900 $12.11 195,000 $35.24 19,500 $38.09
1997 Plan -- 180,000 $33.25 --
Exercised -- (16,500) $10.92 (24,480) $12.89
Cancelled -- (46,500) $10.37 (2,010) $27.97
------- ------- -------
Outstanding at end of year 430,660 $11.10 742,660 $22.86 735,670 $23.72
======= ======= =======
Options exercisable at year-end 105,153 194,212 380,710
Weighted-average fair value of
options granted during the year $ 4.84 $12.81 $13.18
</TABLE>
F-23
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes information about the Company's performance
based stock options outstanding at January 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Number average Weighted- Number Weighted-
Outstanding remaining average Exercisable Average
Range of January 31, contractual exercise January 31, Exercise
exercise prices 1998 life price 1998 Price
--------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$9.98 204,760 7.0 years $ 9.98 204,760 $ 9.98
$12.23 130,410 8.1 years $12.23 66,450 $12.23
$33.13 - $46.01 400,500 8.9 years $34.49 109,500 $34.67
------- -------
735,670 7.8 years $23.72 380,710 $17.47
======= =======
</TABLE>
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost for the
Company's stock option plans been determined using a fair value method rather
than the intrinsic value method prescribed by APB Opinion No. 25, the
Company's net income (loss) and earnings (loss) per share would have been
reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Net Income (Loss) As Reported $15,885 $(5,622)
Pro Forma $15,626 $(7,272)
Earnings (Loss) per Share As Reported - Basic $0.78 $ (0.24)
As Reported - Diluted $0.74 (0.24)
Pro Forma - Basic $0.77 $ (0.31)
Pro Forma - Diluted $0.73 (0.31)
</TABLE>
Pro forma net income (loss) primarily reflects options granted in the years
ended January 31, 1996 and 1997. As a result, the full impact of calculating
compensation cost for stock options under the fair value method is not reflected
in the pro forma net income amounts presented above. Compensation cost for
options granted at the end of the year ended January 31, 1998, will be reflected
over the options' vesting period of 5 years beginning in fiscal 1999.
The fair value of options granted under the Company's stock plans during
fiscal 1997 and 1998 was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used: no
dividend yield, expected volatility of 29.98%, risk free interest rates
ranging from 6.20% - 6.94% and expected lives ranging from 3 to 5 years.
(21) PUBLIC OFFERING OF COMMON STOCK
In October 1996, the Company issued additional shares of its common stock upon
the exercise of over-allotment options granted to underwriters in connection
with a secondary public offering of shares of the Company's common stock. The
net proceeds of approximately $32,000 from the issuance of such shares and
from the exercise of stock options by one of the selling stockholders in the
offering were used to repay indebtedness under a then existing Credit Facility.
F-24
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(22) SUBSEQUENT EVENTS (UNAUDITED)
On February 9, 1998, the Company entered into the Agreement and Plan of Merger
(the "Merger Agreement"), dated as of February 9, 1998 among United States
Filter Corporation, ("USF"), the Company and Palm Water Acquisition Corp., a
newly-formed wholly owned subsidiary of USF ("Merger Sub").
Pursuant to the Merger Agreement, Merger Sub will be merged with and into the
Company (the "Merger"). In connection with the Merger, USF will issue in
exchange for each issued and outstanding share (other than treasury shares and
shares owned by USF) of the Company's common stock, par value $.01 per share
("Company Common Stock"), 1.714 shares of common stock, par value $.01 per
share of USF ("USF Common Stock") if the average of the closing prices of the
shares of USF Common Stock as reported on the New York Stock Exchange
Composite Tape on each of the last ten trading days ending on the sixth
trading day prior to the date of the meeting of the Company's stockholders at
which the approval of the Merger by the Company's stockholders is obtained
(the "Average Share Price") is equal to or greater than $35 (the "Exchange
Ratio"); provided, however, that (i) if the Average Share Price is less than
$35, but greater than or equal to $32, then the Exchange Ratio shall be equal
to the quotient obtained (rounded to the nearest ten-thousandth of a share)
by dividing $60 by the Average Share Price; and (ii) if the Average Share
Price is less than $32, the Exchange Ratio shall be equal to 1.875. Among
other circumstances, the Merger Agreement may be terminated by the Company if
the Average Share Price, or if the average of the closing prices of the shares
of USF Common Stock as reported on the New York Stock Exchange Composite Tape
for any period of 10 consecutive trading days which ends after the last
trading day used in calculating the Average Share Price, is less than $26.25.
The Merger will be accounted for as a pooling of interests and is intended to
qualify as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended. Consummation of the Merger is subject to
customary regulatory approvals and the approval of the stockholders of each of
the Company and USF. The Merger is expected to be consummated in the first
half of 1998.
Apollo Investment Fund, LP, and Lion Advisors, LP, (collectively, "Apollo")
which beneficially own in the aggregate 7,334,859 shares of the Company's
common stock (representing approximately 28.4% of the total number of shares
of Company Common Stock outstanding) have each entered into a Support/Voting
Agreement with USF pursuant to which they have agreed, among other things, to
cause such shares of Company Common Stock that they beneficially own to be
voted in favor of the Merger.
F-25
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.3 Amendment dated February 13, 1998 to the Credit
Agreement
10.4 Amendment dated February 13, 1998 to the Short Term
Credit Agreement
10.5 Letter Agreement dated as of March 3, 1998 and related
other agreements between the Company and The First
National Bank of Chicago
10.6 Letter Agreement dated as of March 10, 1998 and related
other agreements between the Company and Bank of
America
10.7 Letter of Agreement dated as of March 10, 1998 and related
other agreements between the Company and Bank of
Montreal
10.8 Letter Agreement dated as of March 10, 1998 and related
other agreements between the Company and Credit Lyonnais
21.1 List of Subsidiaries.
27.1 Financial Data Schedule
<PAGE>
EXHIBIT 10.3
FIRST AMENDMENT
THIS FIRST AMENDMENT dated as of February 13, 1998 (this "Amendment")
amends the Credit Agreement dated as of April 30, 1997 (the "Credit Agreement"
and, as amended or otherwise modified in this Amendment, the "Amended Credit
Agreement") among CULLIGAN WATER TECHNOLOGIES, INC. (the "Company") and various
subsidiaries thereof, as Borrowers, various financial institutions
(collectively, the "Lenders"), HARRIS TRUST AND SAVINGS BANK, as Documentation
Agent, LASALLE NATIONAL BANK, as Documentation Agent, THE FIRST NATIONAL BANK OF
CHICAGO, as Syndication Agent, BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (successor by merger to Bank of America Illinois), as swing line
lender and letter of credit issuing lender, and BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION (successor by merger to Bank of America Illinois), as
Administrative Agent (in such capacity, the "Administrative Agent"). Capitalized
terms used but not defined herein are used herein as defined in the Credit
Agreement.
WHEREAS, the parties hereto have entered into the Credit Agreement, which
provides for the Lenders to extend certain credit facilities to the Company and
the Borrowing Subsidiaries from time to time; and
WHEREAS, the parties hereto desire to amend the Credit Agreement as set
forth below;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION 1. AMENDMENTS. Effective on (and subject to the occurrence of)
the First Amendment Effective Date (as defined below), the Credit Agreement
shall be amended as set forth below:
SECTION 1.1 New Definition. Section 1.1 is amended by adding the
following definition in appropriate alphabetical order:
<PAGE>
"Other Priority Indebtedness means, without duplication, secured
Indebtedness of Culligan and Indebtedness of any Subsidiary."
SECTION 1.2 Amendment to Definition of Interest Payment Date. The
definition of "Interest Payment Date" set forth in Section 1.1 is amended in its
entirety to read as follows:
"Interest Payment Date means (a) as to any Loan other than a Base Rate
Loan or a Swing Line Loan, the last day of each Interest Period
applicable to such Loan,(b) as to any Base Rate Loan, the last
Business Day of each calendar quarter and (c) as to any Swing Line
Loan, the first Thursday following the first Saturday of each month;
provided that if any Interest Period for an Offshore Rate Loan exceeds
three months, the date that falls three months after the beginning of
such Interest Period also shall be an Interest Payment Date."
SECTION 1.3 Amendment to Definition of Minimum Tranche. The
definition of "Minimum Tranche" set forth in Section 1.1 is amended by deleting
the amount "$2,500,000" where it appears in clause (a) of such definition and
substituting the amount "$1,000,000" therefor.
SECTION 1.4 Amendment to Definition of Offshore Currency. The definition
of "Offshore Currency" set forth in Section 1.1 is amended in its entirety to
read as follows:
"Offshore Currency means at any time Canadian Dollars, German
Deutschemarks, French Francs, British Pounds Sterling, Dutch Guilders
and any Agreed Alternative Currency."
SECTION 1.5 Amendment to Section 2.10. The first sentence of Section
2.10(b) is amended in its entirety to read as follows:
"Accrued and unpaid interest on each Loan shall be paid in arrears on
each Interest Payment Date; provided that the amount of interest
payable on Swing Line Loans on any Interest Payment Date shall be the
amount of interest accrued and unpaid on such Loans as of the
-2-
<PAGE>
last day of the month immediately preceding the month in which such
Interest Payment Date falls."
SECTION 1.6 Limitation on Indebtedness. Section 8.5 is amended by (i)
deleting the existing clauses (g) and (h) thereof; and (ii) inserting the
following new clauses (g) and (h) therein:
"(g) Other Priority Indebtedness; provided that all Other Priority
Indebtedness shall not exceed the greater of (i) $75,000,000 and (ii)
20% of Net Worth; and
"(h) so long as no Event of Default or Unmatured Event of Default
exists at the time of, or would result from, the incurrence thereof,
other unsecured Indebtedness of Culligan."
SECTION 1.7 Contingent Obligations. Section 8.8 is amended by deleting
the existing clauses (e) and (f) thereof and inserting the following new clauses
(e) and (f) therein:
(e) Guaranty Obligations of Culligan or any Subsidiary in respect of
the obligations of Culligan or any Subsidiary, provided that such
Guaranty Obligations are permitted by subsection 8.5(g) or (h);
(f) Guaranty Obligations in respect of the Indebtedness or other
liabilities of other Persons, provided that such Guaranty Obligations
constitute permitted Investments under subsection 8.4 (i) and
permitted Indebtedness under subsection 8.5(g) or (h); and
SECTION 2. WARRANTIES. To induce the Lenders to enter into this
Amendment, the Company warrants that:
SECTION 2.1 Authorization. The Company is duly authorized to execute and
deliver this Amendment and to perform its obligations under the Amended Credit
Agreement.
SECTION 2.2 No Conflicts. The execution and delivery of this Amendment,
and the performance by the Company of its obligations under the Amended Credit
Agreement, do not and will not conflict with any provision of law or of the
charter or by-
-3-
<PAGE>
laws of the Company or any Subsidiary or of any agreement binding upon the
Company or any Subsidiary.
SECTION 2.3 Validity and Binding Effect. The Amended Credit Agreement is
a legal, valid and binding obligation of the Company and each Borrowing
Subsidiary which is a party thereto, enforceable against each such entity in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws of general application affecting
the enforcement of creditors' rights or by general principles of equity limiting
the availability of equitable remedies.
SECTION 3. EFFECTIVENESS. The amendments set forth in Section 1 above
shall become effective on such date (the "First Amendment Effective Date") when
the Administrative Agent shall have received counterparts of this Amendment
executed by the Company, the Lenders, the Swing Line Lender and the
Administrative Agent.
SECTION 4. MISCELLANEOUS.
SECTION 4.1 Continuing Effectiveness, etc. As herein amended, the Credit
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects. After the First Amendment Effective Date, all
references in the Credit Agreement and the Notes to the "Credit Agreement,"
"this Agreement" or similar terms shall refer to the Amended Credit Agreement.
SECTION 4.2 Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original but all such counterparts
shall together constitute one and the same Amendment.
SECTION 4.3 Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS; PROVIDED THAT
THE ADMINISTRATIVE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER
FEDERAL LAW.
SECTION 4.4 Successors and Assigns. This Amendment shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
CULLIGAN WATER TECHNOLOGIES, INC.
By:__________________________________
Title:_______________________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
By:__________________________________
Title:_______________________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Lender
and as Swing Line Lender
By:__________________________________
Title:_______________________________
HARRIS TRUST AND SAVINGS BANK
By:__________________________________
Title:_______________________________
THE FIRST NATIONAL BANK OF CHICAGO
By:__________________________________
Title:_______________________________
-5-
<PAGE>
THE BANK OF NOVA SCOTIA
By:__________________________________
Title:_______________________________
-6-
<PAGE>
CREDIT LYONNAIS, CHICAGO BRANCH
By:__________________________________
Title:_______________________________
LASALLE NATIONAL BANK
By:__________________________________
Title:_______________________________
THE SANWA BANK
By:__________________________________
Title:_______________________________
UNION BANK OF CALIFORNIA, N.A.
By:__________________________________
Title:_______________________________
CREDIT AGRICOLE INDOSUEZ
By:__________________________________
Title:_______________________________
By:__________________________________
Title:_______________________________
THE NORTHERN TRUST COMPANY
By:__________________________________
Title:_______________________________
-7-
<PAGE>
EXHIBIT 10.4
FIRST AMENDMENT
THIS FIRST AMENDMENT dated as of February 13, 1998 (this "Amendment")
amends the Short-term Credit Agreement dated as of April 30, 1997 (the "Credit
Agreement" and, as amended or otherwise modified in this Amendment, the "Amended
Credit Agreement") among CULLIGAN WATER TECHNOLOGIES, INC. (the "Company") and
various subsidiaries thereof, as Borrowers, various financial institutions
(collectively, the "Lenders"), HARRIS TRUST AND SAVINGS BANK, as Documentation
Agent, LASALLE NATIONAL BANK, as Documentation Agent, THE FIRST NATIONAL BANK OF
CHICAGO, as Syndication Agent, BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (successor by merger to Bank of America Illinois), as swing line
lender and letter of credit issuing lender, and BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION (successor by merger to Bank of America Illinois), as
Administrative Agent (in such capacity, the "Administrative Agent"). Capitalized
terms used but not defined herein are used herein as defined in the Credit
Agreement.
WHEREAS, the parties hereto have entered into the Credit Agreement, which
provides for the Lenders to extend certain credit facilities to the Company and
the Borrowing Subsidiaries from time to time; and
WHEREAS, the parties hereto desire to amend the Credit Agreement as set
forth below;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION 1. AMENDMENTS. Effective on (and subject to the occurrence of) the
First Amendment Effective Date (as defined below), the Credit Agreement shall be
amended as set forth below:
SECTION 1.1 New Definition. Section 1.1 is amended by adding the following
definition in appropriate alphabetical order:
<PAGE>
"Other Priority Indebtedness means, without duplication, secured
Indebtedness of Culligan and Indebtedness of any Subsidiary."
SECTION 1.2 Amendment to Definition of Interest Payment Date. The
definition of "Interest Payment Date" set forth in Section 1.1 is amended in its
entirety to read as follows:
"Interest Payment Date means (a) as to any Loan other than a Base Rate
Loan or a Swing Line Loan, the last day of each Interest Period
applicable to such Loan,(b) as to any Base Rate Loan, the last
Business Day of each calendar quarter and (c) as to any Swing Line
Loan, the first Thursday following the first Saturday of each month;
provided that if any Interest Period for an Offshore Rate Loan exceeds
three months, the date that falls three months after the beginning of
such Interest Period also shall be an Interest Payment Date."
SECTION 1.3 Amendment to Definition of Minimum Tranche. The definition of
"Minimum Tranche" set forth in Section 1.1 is amended by deleting the amount
"$2,500,000" where it appears in clause (a) of such definition and substituting
the amount "$1,000,000" therefor.
SECTION 1.4 Amendment to Definition of Offshore Currency. The definition
of "Offshore Currency" set forth in Section 1.1 is amended in its entirety to
read as follows:
"Offshore Currency means at any time Canadian Dollars, German
Deutschemarks, French Francs, British Pounds Sterling, Dutch Guilders
and any Agreed Alternative Currency."
SECTION 1.5 Amendment to Section 2.10. The first sentence of Section
2.10(b) is amended in its entirety to read as follows:
"Accrued and unpaid interest on each Loan shall be paid in arrears on
each Interest Payment Date; provided that the amount of interest
payable on Swing Line Loans on any Interest Payment Date shall be the
amount of interest accrued and unpaid on such Loans as of the
<PAGE>
last day of the month immediately preceding the month in which such
Interest Payment Date falls."
SECTION 1.6 Limitation on Indebtedness. Section 8.5 is amended by (i)
deleting the existing clauses (g) and (h) thereof; and (ii) inserting the
following new clauses (g) and (h) therein:
"(g) Other Priority Indebtedness; provided that all Other Priority
Indebtedness shall not exceed the greater of (i) $75,000,000 and (ii)
20% of Net Worth; and
"(h) so long as no Event of Default or Unmatured Event of Default
exists at the time of, or would result from, the incurrence thereof,
other unsecured Indebtedness of Culligan."
SECTION 1.7 Contingent Obligations. Section 8.8 is amended by deleting the
existing clauses (e) and (f) thereof and inserting the following new clauses (e)
and (f) therein:
(e) Guaranty Obligations of Culligan or any Subsidiary in respect of
the obligations of Culligan or any Subsidiary, provided that such
Guaranty Obligations are permitted by subsection 8.5(g) or (h);
(f) Guaranty Obligations in respect of the Indebtedness or other
liabilities of other Persons, provided that such Guaranty Obligations
constitute permitted Investments under subsection 8.4 (i) and
permitted Indebtedness under subsection 8.5(g) or (h); and
SECTION 2. WARRANTIES. To induce the Lenders to enter into this
Amendment, the Company warrants that:
SECTION 2.1 Authorization. The Company is duly authorized to execute and
deliver this Amendment and to perform its obligations under the Amended Credit
Agreement.
SECTION 2.2 No Conflicts. The execution and delivery of this Amendment,
and the performance by the Company of its obligations under the Amended Credit
Agreement, do not and will not conflict with any provision of law or of the
charter or by-
-10-
<PAGE>
laws of the Company or any Subsidiary or of any agreement binding upon the
Company or any Subsidiary.
SECTION 2.3 Validity and Binding Effect. The Amended Credit Agreement is a
legal, valid and binding obligation of the Company and each Borrowing Subsidiary
which is a party thereto, enforceable against each such entity in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency or other similar laws of general application affecting the
enforcement of creditors' rights or by general principles of equity limiting the
availability of equitable remedies.
SECTION 3. EFFECTIVENESS. The amendments set forth in Section 1 above
shall become effective on such date (the "First Amendment Effective Date") when
the Administrative Agent shall have received counterparts of this Amendment
executed by the Company, the Lenders, the Swing Line Lender and the
Administrative Agent.
SECTION 4. MISCELLANEOUS.
SECTION 4.1 Continuing Effectiveness, etc. As herein amended, the Credit
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects. After the First Amendment Effective Date, all
references in the Credit Agreement and the Notes to the "Credit Agreement,"
"this Agreement" or similar terms shall refer to the Amended Credit Agreement.
SECTION 4.2 Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original but all such counterparts
shall together constitute one and the same Amendment.
SECTION 4.3 Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS; PROVIDED THAT
THE ADMINISTRATIVE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER
FEDERAL LAW.
SECTION 4.4 Successors and Assigns. This Amendment shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
CULLIGAN WATER TECHNOLOGIES, INC.
By:_________________________________
Title:______________________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
By:_________________________________
Title:______________________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Lender
and as Swing Line Lender
By:_________________________________
Title:______________________________
HARRIS TRUST AND SAVINGS BANK
By:_________________________________
Title:______________________________
THE FIRST NATIONAL BANK OF CHICAGO
By:_________________________________
Title:______________________________
-12-
<PAGE>
THE BANK OF NOVA SCOTIA
By: __________________________________
Title: _______________________________
-6-
<PAGE>
CREDIT LYONNAIS, CHICAGO BRANCH
By: __________________________________
Title: _______________________________
LASALLE NATIONAL BANK
By: __________________________________
Title: _______________________________
THE SANWA BANK
By: __________________________________
Title: _______________________________
UNION BANK OF CALIFORNIA, N.A.
By: __________________________________
Title: _______________________________
CREDIT AGRICOLE INDOSUEZ
By: __________________________________
Title: _______________________________
By: __________________________________
Title: _______________________________
THE NORTHERN TRUST COMPANY
By: __________________________________
Title: _______________________________
-7-
<PAGE>
EXHIBIT 10.5
March 3, 1998
Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, IL 60063
Attention: Michael E. Salvati
Vice President, Finance and
Chief Financial Officer
Ladies and Gentlemen:
The First National Bank of Chicago (the "Lender") is pleased to renew a
line of credit in favor of Culligan Water Technologies, Inc. (the "Borrower") in
the amount of $50,000,000 (reduced from $100,000,000), which shall continue from
March 3, 1998 through March 1, 1999 (the "Maturity Date") unless the line of
credit is terminated on an earlier date as set forth below; provided, however,
that as of March 3, 1998 the Borrower has $82,300,000 outstanding under this
line of credit and the Borrower shall be permitted to allow the outstanding
amount of this line of credit to remain in excess of $50,000,000 (but not to be
increased) through and including April 5, 1998 and the Borrower shall make a
principal payment on April 6, 1998 in an amount necessary to reduce the line of
credit to $50,000,000 or less.
(a) Loans under this line of credit will continue to be evidenced and
governed by the Lender's standard form of master note dated October 21, 1997
(the "Note") and will bear interest, at the Borrower's option, at:
(i) a rate equal to the Lender's corporate base rate of interest
announced by the Lender from time to time, changing when and as the
corporate base rate changes, with interest payable on the last day of each
month, on the Maturity Date, and on demand thereafter; or
(ii) subject to availability and for a maturity to be agreed upon, at
a fixed rate equal to the sum of .75% per annum plus the Eurodollar rate,
where the Eurodollar rate is the rate at which deposits in U.S. dollars in
the amount and for a maturity corresponding to that of the loan are offered
by the Lender in the offshore interbank market at approximately 10 a.m.
(Chicago time) two business days prior to the date on which such loan is
made, adjusted for maximum statutory reserve requirements.
(b) No interest period for or maturity of a loan hereunder shall extend
beyond the Maturity Date. Interest and fees will be computed on the basis of
actual days elapsed on a 360-day year basis. During the
1
<PAGE>
continuance of a Default (defined below) the Lender may, at its option, by
notice to the Borrower, declare that loans may only be made as, converted into
or continued as loans bearing interest at the corporate base rate of interest.
During the continuance of a Default the Lender may, at its option, by notice to
the Borrower, declare that (i) each loan bearing interest at a rate other than
the corporate base rate shall bear interest for the remainder of the applicable
interest period at the rate otherwise applicable to such interest period plus 2%
per annum and (ii) each loan bearing interest at the corporate base rate shall
bear interest at a rate per annum equal to the corporate base rate plus 2% per
annum.
(c) The Borrower will use the proceeds of the loans hereunder for the
acquisition of the capital stock of Protean PLC and for other acquisitions
permitted under the Agreement (as defined below) and general corporate purposes.
The Borrower shall not use the proceeds of any credit extended under this line
of credit for the purpose of repaying principal, interest or dividends on any
security issued by the Borrower and underwritten, distributed or placed by First
Chicago Capital Markets, Inc.
(d) The Borrower will perform, comply with and observe for the Lender's
benefit the agreements set forth in Articles VI, VII, VIII and IX of the Credit
Agreement dated as of April 30, 1997 by and among the Borrower, various
Subsidiaries of the Borrower, the lenders party thereto and Bank of America
Illinois, as administrative agent for such lenders (as amended to the date
hereof, the "Agreement"). For purposes hereof, the provisions of the Agreement,
together with related definitions and ancillary provisions, are hereby
incorporated herein by reference, mutatis mutandis, and shall be deemed to
continue in effect for the Lender's benefit as in effect on the date hereof,
whether or not the Agreement remains in effect or is amended, waived or
otherwise modified by the parties thereto.
(e) The Borrower may not borrow under this line of credit unless, after
giving effect to the proposed borrowing, the following statements are true and
correct on the date of borrowing: (i) there exists no Default (as defined below)
or event which, with giving of notice, or lapse of time, or both, would be a
Default and (ii) the representations and warranties set forth in Article VI of
the Agreement are true and correct. Any request by the Borrower for a borrowing
hereunder shall be deemed to be a representation and warranty by the Borrower
that the statements set forth in the previous sentence are true and correct in
all material respects.
(f) All outstanding loans and accrued and unpaid interest, at the option
of the Lender, may be declared immediately due and payable without notice if
there exists any Default hereunder. "Default" means (i) any failure by the
Borrower to pay principal when due or interest, fees, or other obligations
within 5 days of when due under this letter, the Note, or any other agreement or
arrangement with the Lender, (ii) the existence of any default under the Note or
the Guaranty (as defined below), or any violation or failure to comply with any
provision of the Note or the Guaranty, or lack of enforceability of the Guaranty
or (iii) the existence of any Event of Default under and as defined in the
Agreement.
(g) The full amount of this line of credit will continue to be fully
guaranteed by that certain guaranty dated March 3, 1998 (the "Guaranty")
executed by each of the Guarantors (identified on Schedule 6.16 of the
Agreement).
(h) The Lender may make assignments and sell participations in this line
of credit, the Note and the loans made hereunder, and may disclose information
pertaining to the Borrower to prospective assignees and participants. Any
assignment will release the Lender of its funding obligation with respect to the
amount assigned and may be made only with the Borrower's consent (which consent
will not unreasonably be
2
<PAGE>
withheld). The Borrower agrees that if it fails to pay any loan when due, any
purchaser of a participation interest in such loan shall be entitled to seek
enforcement of this note if the purchaser is permitted to do so pursuant to the
terms of the participation agreement between the Lender and such purchaser.
(i) This line of credit shall be effective as of the date of this letter
when the Borrower has signed and returned to the Lender a copy of this letter
and has provided the Lender with executed originals of a reaffirmation of the
Guaranty, a new fee letter supplied by the Lender (and any fees identified
therein as due), resolutions and an incumbency certificate in form and substance
satisfactory to the Lender.
(j) THIS LETTER AND THE NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF ILLINOIS. BOTH PARTIES HERETO HEREBY WAIVE TRIAL BY JURY IN THE EVENT
THIS LETTER OR THE NOTE BECOMES THE SUBJECT OF A DISPUTE.
If this letter reflects the Borrower's understanding, please cause it to be
executed and returned to my attention, together with the other items referred to
in paragraph (i).
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
By:
_____________________________
Title:
__________________________
Accepted and agreed:
CULLIGAN WATER TECHNOLOGIES, INC.
By:______________________________
Title: Vice President, Finance
Date:____________________________
3
<PAGE>
EXHIBIT 10.6
March 10, 1998
Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, IL 60063
Attention: Michael E. Salvati
Vice President, Finance and
Chief Financial Officer
Ladies and Gentlemen:
Bank of America National Trust and Savings Association (the "Lender") is
pleased to establish a line of credit in favor of Culligan Water Technologies,
Inc. (the "Borrower") in the amount of $50,000,000, which shall continue from
March 10, 1998 through March 9, 1999 (the "Maturity Date") unless the line of
credit is terminated on an earlier date as set forth below:
(a) Loans made under this line of credit will be evidenced by one or more
accounts or records maintained by the Lender in the ordinary course of business
and such accounts or records will be rebuttable presumptive evidence of the
amount of the loans and the interest and payments thereon; provided that the
failure of Lender so to record or any error in so recording shall not affect the
obligation of the Borrower to pay any amount owing with respect to any loan made
hereunder.
(b) Loans made under this line of credit will be denominated in U.S.
dollars and will bear interest, at the Borrower's option, at:
(i) a rate equal to the reference rate of interest announced by the
Lender from time to time, changing when and as the reference rate changes,
with interest payable on the last day of each calendar quarter, on the
Maturity Date, and on demand thereafter; or
(ii) subject to availability and for a term of one, two, three or six
months, as agreed upon by the Borrower and the Lender (such term, the
"Interest Period"), at a fixed rate equal to the sum of 0.75% per annum
plus the Eurodollar rate, where the Eurodollar rate is the rate at which
deposits in U.S. dollars in the amount and for a maturity corresponding to
that of the loan are offered by the Lender in the offshore interbank market
at approximately 10 a.m. (Chicago time) two business days prior to the date
on which such loan is made, adjusted for maximum statutory reserve
requirements, with interest payable on the last day of the Interest Period
for such loan; provided that if the Interest Period for such loan exceeds
three months, interest also will be payable on the date that falls three
months after the date on which such loan was made.
(c) Procedures for borrowing, continuing and converting loans will be the
same as those set forth in the Agreement (as defined below). In connection with
the loans and its commitment
<PAGE>
hereunder, the Lender shall have the benefit of the provisions set forth in
Article IV of the Agreement as if such provisions (and all related definitions)
were set forth in full herein.
(d) No interest period for or maturity of a loan hereunder shall extend
beyond the Maturity Date. All computations of interest for loans which bear
interest based on the reference rate will be made on the basis of a year of 365
or 366 days, as the case may be, and actual days elapsed. All other computations
of interest and fees will be computed on the basis of a 360-day year and actual
days elapsed. During the continuance of a Default (as defined below), the Lender
may, at its option, by notice to the Borrower, declare that loans may only be
made as, converted into or continued as loans bearing interest at the reference
rate of interest. During the continuance of a Default, the Lender may, at its
option, by notice to the Borrower, declare that (i) each loan, bearing interest
at a rate other than the reference rate shall bear interest for the remainder of
the applicable interest period at the rate otherwise applicable to such interest
period plus 2% per annum and (ii) each loan bearing interest at the reference
rate shall bear interest at a rate per annum equal to the reference rate plus 2%
per annum.
(e) The Borrower represents and warrants for the benefit of the Lender
that the representations and warranties contained in Article VI of the Agreement
are true and correct as though made on and as of the date hereof (except to the
extent such representations and warranties expressly relate to an earlier date,
in which case they are true and correct as of such date) and agrees to perform,
comply with and observe for the Lender's benefit the agreements set forth in
Articles VII and VIII of the Agreement. As used herein, the term "Agreement"
means the Credit Agreement dated as of April 30, 1997 among the Borrower,
various Subsidiaries of the Borrower, the lenders party thereto and the Lender,
as administrative agent, as such Credit Agreement is in effect on the date
hereof and without giving effect to (i) the termination thereof or (ii) any
amendment thereto or modification thereof occurring after the date hereof unless
agreed to by the Lender.
(f) The Borrower may not borrow under this line of credit unless, after
giving effect to the proposed borrowing, the following statements are true and
correct on the date of borrowing: (i) there exists no Default (as defined below)
or event which, with giving of notice, or lapse of time, or both, would be a
Default and (ii) the representations and warranties set forth in Article VI of
the Agreement are true and correct. Any request by the Borrower for a borrowing
hereunder shall be deemed to be a representation and warranty by the Borrower
that the statements set forth in the previous sentence are true and correct in
all materials respects.
(g) All outstanding loans and accrued and unpaid interest, at the option
of the Lender, may be declared immediately due and payable without notice if
there exists any Default hereunder. "Default" means (i) any failure by the
Borrower to pay principal when due or interest, fees, or other obligations
within five days of when due under this letter or any other agreement or
arrangement with the Lender, (ii) the existence of any default under, or lack of
enforceability of, the Guaranty (as defined below) or (iii) the existence of any
Event of Default under and as defined in the Agreement. The rights provided for
in this letter are cumulative and are not exclusive of any other right, power,
privilege or remedy provided by law or in equity or under any other instrument,
document or agreement now existing or hereafter arising.
<PAGE>
(h) The full amount of this line of credit will at all times be fully
guaranteed by each of the Guarantors under the Credit Agreement pursuant to the
guaranty dated March 10, 1998 (the "Guaranty").
(i) The Lender may make assignments and sell participations in this line
of credit and the loans made hereunder, and may disclose information pertaining
to the Borrower to prospective assignees and participants. Any assignment will
release the Lender of its funding obligation with respect to the amount assigned
and may be made only with the Borrower's consent (which consent will not
unreasonably be withheld). The Borrower agrees that if it fails to pay any loan
when due, any purchaser of a participation interest in such loan shall be
entitled to seek enforcement of this letter if the purchaser is permitted to do
so pursuant to the terms of the participation agreement between the Lender and
such purchaser.
(j) This line of credit shall be effective as of the date of this letter
when the Borrower has signed and returned to the Lender a copy of this letter
and has provided the Lender with executed originals of the Guaranty, the fee
letter supplied by the Lender (and any fees identified therein as due),
resolutions, an incumbency certificate, and an opinion of counsel in form and
substance satisfactory to the Lender.
(k) THIS LETTER SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
ILLINOIS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH
STATE. BOTH PARTIES HERETO HEREBY WAIVE TRIAL BY JURY IN THE EVENT THIS LETTER
BECOMES THE SUBJECT OF A DISPUTE.
<PAGE>
If this letter reflects the Borrower's understanding, please cause it to be
executed and returned to the Lender attention, together with the other items
referred to in paragraph (j).
Very truly yours,
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
---------------------------------
Title:
------------------------------
Accepted and agreed:
CULLIGAN WATER TECHNOLOGIES, INC.
By:
-------------------------------
Title:
Date:
-----------------------------
<PAGE>
GUARANTY
THIS GUARANTY dated as of March 10, 1998 is executed in favor of BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Lender").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Culligan Water Technologies, Inc. ("Culligan") has entered into a
Letter Agreement dated as of even date herewith (as amended or otherwise
modified from time to time, the "Letter Agreement"; terms used but not defined
herein are used as defined in the Letter Agreement) with the Lender, pursuant to
which the Lender has agreed to establish a line of credit in favor of Culligan
in the amount of $50,000,000; and
WHEREAS, each of the undersigned will benefit directly or indirectly from
the making of loans pursuant to the Letter Agreement and is willing to guaranty
the Liabilities (as defined below) as hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each of the undersigned hereby
jointly and severally, unconditionally and irrevocably, as primary obligor and
not merely as surety, guarantees the full and prompt payment when due, whether
by acceleration or otherwise, and at all times thereafter, of all obligations
(monetary or otherwise) of Culligan to the Lender under or in connection with
the Letter Agreement and any other document or instrument executed in connection
therewith, in each case howsoever created, arising or evidenced, whether direct
or indirect, absolute or contingent, now or hereafter existing, or due or to
become due (all such obligations being herein collectively called the
"Liabilities"); provided, however, that the liability of each of the undersigned
hereunder shall be limited to the maximum amount of the Liabilities which such
undersigned may guaranty without violating any fraudulent conveyance or
fraudulent transfer law (plus all costs and expenses paid or incurred by the
Lender in enforcing this Guaranty against such undersigned).
Each of the undersigned agrees that, in the event of the dissolution or
insolvency of Culligan or any undersigned, or the inability or failure of
Culligan or any undersigned to pay debts
<PAGE>
as they become due, or an assignment by Culligan or any undersigned for the
benefit of creditors, or the occurrence of any other "Event of Default" under
subsection 9.1(f) or (g) of the Credit Agreement (as defined below), and if such
event shall occur at a time when any of the Liabilities may not then be due and
payable, such undersigned will pay to the Lender the full amount which would be
payable hereunder by such undersigned if all Liabilities were then due and
payable. As used herein, the term "Credit Agreement" means the Credit Agreement
dated as of April 30, 1997 among Culligan, various subsidiaries of Culligan, the
lenders party thereto and the Lender, as administrative agent, as such Credit
Agreement is in effect on the date hereof and without giving effect to (i) the
termination thereof or (ii) any amendment thereto or modification thereof
occurring after the date hereof unless agreed to by the Lender.
To secure all obligations of each of the undersigned hereunder, the Lender
shall have a lien on and security interest in and may, without demand or notice
of any kind, at any time and from time to time when any "Unmatured Event of
Default" under subsection 9.1(f) or (g) of the Credit Agreement or any Default
exists, appropriate and apply toward the payment of such amount, in such order
of application as the Lender may elect, any and all balances, credits, deposits,
accounts or moneys of or in the name of such undersigned now or hereafter with
the Lender and any and all property of every kind or description of or in the
name of such undersigned now or hereafter, for any reason or purpose whatsoever,
in the possession or control of, or in transit to, the Lender or any agent or
bailee for the Lender.
This Guaranty shall in all respects be a continuing, irrevocable, absolute
and unconditional guaranty, and shall remain in full force and effect
(notwithstanding, without limitation, the dissolution of any of the undersigned
or that at any time or from time to time no Liabilities are outstanding) until
the Lender's commitment under the Letter Agreement has terminated and all
Liabilities have been paid in full.
The undersigned further agree that if at any time all or any part of any
payment theretofore applied by the Lender to any of the Liabilities is or must
be rescinded or returned by the Lender for any reason whatsoever (including the
insolvency, bankruptcy or reorganization of Culligan or any of the undersigned),
such Liabilities shall, for the purposes of this Guaranty, to the extent that
such payment is or must be rescinded or returned, be
-23-
<PAGE>
deemed to have continued in existence, notwithstanding such application by the
Lender, and this Guaranty shall continue to be effective or be reinstated, as
the case may be, as to such Liabilities, all as though such application by the
Lender had not been made.
The Lender may, from time to time, at its sole discretion and without
notice to the undersigned (or any of them), take any or all of the following
actions: (a) retain or obtain a security interest in any property to secure any
of the Liabilities or any obligation hereunder, (b) retain or obtain the primary
or secondary obligation of any obligor or obligors, in addition to the
undersigned, with respect to any of the Liabilities, (c) extend or renew any of
the Liabilities for one or more periods (whether or not longer than the original
period), alter or exchange any of the Liabilities, or release or compromise any
obligation of any of the undersigned hereunder or any obligation of any nature
of any other obligor with respect to any of the Liabilities, (d) release its
security interest in, or surrender, release or permit any substitution or
exchange for, all or any part of any property securing any of the Liabilities or
any obligation hereunder, or extend or renew for one or more periods (whether or
not longer than the original period) or release, compromise, alter or exchange
any obligations of any nature of any obligor with respect to any such property,
and (e) resort to the undersigned (or any of them) for payment of any of the
Liabilities when due, whether or not the Lender shall have resorted to any
property securing any of the Liabilities or any obligation hereunder or shall
have proceeded against any other of the undersigned or any other obligor
primarily or secondarily obligated with respect to any of the Liabilities .
Each of the undersigned hereby expressly waives: (a) notice of the
acceptance by the Lender of this Guaranty, (b) notice of the existence or
creation or non-payment of all or any of the Liabilities, (c) presentment,
demand, notice of dishonor, protest and all other notices whatsoever, and (d)
all diligence in collection or protection of or realization upon any Liabilities
or any security for or guaranty of any Liabilities.
Notwithstanding any payment made by or for the account of any of the
undersigned pursuant to this Guaranty, the undersigned shall not be subrogated
to any right of the Lender until such time as the Lender shall have received
final payment in cash of the full amount of all Liabilities.
-24-
<PAGE>
Each of the undersigned further agrees to pay all expenses (including the
reasonable fees and expenses of counsel to the Lender, which may include
employees of the Lender) paid or incurred by the Lender in endeavoring to
collect the Liabilities of such undersigned, or any part thereof, and in
enforcing this Guaranty against such undersigned.
The creation or existence from time to time of additional Liabilities to
the Lender is hereby authorized, without notice to the undersigned (or any of
them), and shall in no way affect or impair the rights of the Lender or the
obligations of the undersigned under this Guaranty, including each of the
undersigned's guaranty of such additional Liabilities.
The Lender may from time to time without notice to the undersigned (or any
of them), assign or transfer any or all of the Liabilities or any interest
therein; and, notwithstanding any such assignment or transfer or any subsequent
assignment or transfer thereof, such Liabilities shall be and remain Liabilities
for the purposes of this Guaranty, and each and every immediate and successive
assignee or transferee of any of the Liabilities or of any interest therein
shall, to the extent of the interest of such assignee or transferee in the
Liabilities, be entitled to the benefits of this Guaranty to the same extent as
if such assignee or transferee were an original party to the Letter Agreement
and this Guaranty and all references herein to the "Lender" shall be deemed to
include such assignee or transferee.
No delay on the part of the Lender in the exercise of any right or remedy
shall operate as a waiver thereof, and no single or partial exercise by the
Lender of any right or remedy shall preclude other or further exercise thereof
or the exercise of any other right or remedy; nor shall any modification or
waiver of any provision of this Guaranty be binding upon the Lender, except as
expressly set forth in a writing duly signed and delivered by the Lender. No
action of the Lender permitted hereunder shall in any way affect or impair the
rights of the Lender or the obligations of the undersigned under this Guaranty.
For purposes of this Guaranty, Liabilities shall include all obligations of
Culligan to the Lender arising under or in connection with the Letter Agreement
or any other document or instrument executed in connection therewith,
notwithstanding any right or power of Culligan or anyone else to assert any
claim or defense as to the
-25-
<PAGE>
invalidity or unenforceability of any such obligation, and no such claim or
defense shall affect or impair the obligations of any of the undersigned
hereunder.
This Guaranty shall be binding upon the undersigned and the successors and
assigns of the undersigned; and to the extent that Culligan or any of the
undersigned is either a partnership or a corporation, all references herein to
Culligan and to the undersigned, respectively, shall be deemed to include any
successor or successors, whether immediate or remote, to such partnership or
corporation. The term "undersigned" as used herein shall mean all parties
executing this Guaranty and each of them, and all such parties shall be jointly
and severally obligated hereunder.
This Guaranty shall be governed by and construed in accordance with and
governed by the laws of the State of Illinois applicable to contracts made and
to be performed entirely within such State. Wherever possible, each provision of
this Guaranty shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Guaranty shall be prohibited
by or invalid under such 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 Guaranty.
This Guaranty may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, and each such counterpart
shall be deemed to be an original but all such counterparts shall together
constitute one and the same Guaranty. At any time after the date of this
Guaranty, one or more additional Persons may become parties hereto by executing
and delivering to the Lender a counterpart of this Guaranty. Immediately upon
such execution and delivery (and without any further action), each such
additional Person will become a party to, and will be bound by all of the terms
of, this Guaranty.
This Guaranty may be secured by one or more security agreements, pledge
agreements, mortgages, deeds of trust or other similar documents.
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS GUARANTY OR THE LETTER AGREEMENT, SHALL BE BROUGHT AND MAINTAINED
EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN
-26-
<PAGE>
DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT
AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE LENDER'S OPTION,
IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE
FOUND. EACH OF THE UNDERSIGNED HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE
JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE. EACH OF THE UNDERSIGNED FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, TO THE
ADDRESS SET FORTH OPPOSITE ITS SIGNATURE HERETO (OR SUCH OTHER ADDRESS AS IT
SHALL HAVE SPECIFIED IN WRITING TO THE ADMINISTRATIVE AGENT AS ITS ADDRESS FOR
NOTICES HEREUNDER) OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF
ILLINOIS. EACH OF THE UNDERSIGNED HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT
REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
EACH OF THE UNDERSIGNED, AND (BY ACCEPTING THE BENEFITS HEREOF) THE LENDER,
HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS GUARANTY, THE LETTER AGREEMENT AND ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY
BANKING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND
AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
-27-
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed and delivered as
of the day and year first above written.
CULLIGAN INTERNATIONAL COMPANY
By: ____________________________________
Address: Title: _____________________________
c/o Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, IL 60063
Attention: Michael E. Salvati
Telephone: 847/205-6113
Facsimile: 847/205-6050
BRUNER CORPORATION
By: ___________________________________
Address: Title: ____________________________
c/o Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, IL 60063
Attention: Michael E. Salvati
Telephone: 847/205-6113
Facsimile: 847/205-6050
CULLIGAN DISTRIBUTION SERVICES, INC.
By: ___________________________________
Address: Title: ____________________________
c/o Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, IL 60063
Attention: Michael E. Salvati
Telephone: 847/205-6113
Facsimile: 847/205-6050
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<PAGE>
CULLIGAN DES PLAINES VALLEY WATER
CONDITIONING, INC.
By: ___________________________________
Address: Title: ____________________________
c/o Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, IL 60063
Attention: Michael E. Salvati
Telephone: 847/205-6113
Facsimile: 847/205-6050
CULLIGAN WATER COMPANY OF SAN
DIEGO, INC.
By: ___________________________________
Address: Title: ____________________________
c/o Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, IL 60063
Attention: Michael E. Salvati
Telephone: 847/205-6113
Facsimile: 847/205-6050
EVERPURE, INC.
By: ___________________________________
Address: Title: ____________________________
c/o Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, IL 60063
Attention: Michael E. Salvati
Telephone: 847/205-6113
Facsimile: 847/205-6050
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<PAGE>
GREATER CHICAGO CULLIGAN WATER
CONDITIONING, INC.
By: ___________________________________
Address: Title: ____________________________
c/o Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, IL 60063
Attention: Michael E. Salvati
Telephone: 847/205-6113
Facsimile: 847/205-6050
CWC FINANCE CORP.
By: ____________________________________
Address: Title: _____________________________
c/o Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, IL 60063
Attention: Michael E. Salvati
Telephone: 847/205-6113
Facsimile: 847/205-6050
CULLIGAN PENINSULA INDUSTRIAL WATER
CONDITIONING, INC.
By: ___________________________________
Address: Title: ____________________________
c/o Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, IL 60063
Attention: Michael E. Salvati
Telephone: 847/205-6113
Facsimile: 847/205-6050
-30-
<PAGE>
CULLIGAN WATER CONDITIONING OF
ORANGE COUNTY
By: ___________________________________
Address: Title: ____________________________
c/o Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, IL 60063
Attention: Michael E. Salvati
Telephone: 847/205-6113
Facsimile: 847/205-6050
CULLIGAN WATER CONDITIONING OF
SOUTH BEND, INC.
By: ___________________________________
Address: Title: ____________________________
c/o Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, IL 60063
Attention: Michael E. Salvati
Telephone: 847/205-6113
Facsimile: 847/205-6050
INDIANA SOFT WATER SERVICES, INC.
By: ___________________________________
Address: Title: ____________________________
c/o Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, IL 60063
Attention: Michael E. Salvati
Telephone: 847/205-6113
Facsimile: 847/205-6050
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<PAGE>
PLYMOUTH PRODUCTS, INC.
By: ___________________________________
Address: Title: ____________________________
c/o Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, IL 60063
Attention: Michael E. Salvati
Telephone: 847/205-6113
Facsimile: 847/205-6050
<PAGE>
EXHIBIT 10.7
March 10, 1998
Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, IL 60063
Attention: Michael E. Salvati
Vice President, Finance and
Chief Financial Officer
Ladies and Gentlemen:
Bank of Montreal (the "Lender") is pleased to establish a revolving line of
credit in favor of Culligan Water Technologies, Inc. (the "Borrower") in the
amount of $50,000,000.00, which shall continue from March 10, 1998 through March
1, 1999 (the "Maturity Date") unless the line of credit is terminated on an
earlier date as set forth below.
(a) Loans under this line of credit will be evidenced and governed by the
Lender's standard form of master note (the "Note"), a copy of which is attached
hereto, and will bear interest, at the Borrower's option, at:
(i) a rate per annum equal to the Lender's corporate base rate of
interest announced by the Lender from time to time (for purposes hereof,
the "corporate base rate" shall mean, for any day, the greater of the rate
of interest announced by the Lender from time to time as its prime
commercial rate, or equivalent, for U.S. loans to borrowers located in the
United States or the sum of the overnight Federal funds rate as determined
by the Lender in accordance with its customary practices plus 1/2 of 1%),
changing when and as the corporate base rate changes, with interest payable
on the last day of each calendar quarter, commencing June 30, 1998, on the
Maturity Date, and on demand thereafter; or
(ii) subject to availability and for interest periods of 1, 2, 3 or 6
months, as Borrower may select subject to the terms and conditions hereof
and the Note, or such other interest periods as Borrower and the Lender may
mutually agree upon, at a rate per annum equal to the sum of .75% per annum
plus the Eurodollar rate (for purposes hereof, the "Eurodollar rate" shall
mean, with respect to the relevant interest period, the rate per annum
(rounded up, if necessary, to the nearest 1/100 of 1%) appearing on Dow
Jones Telerate Page 3750 or any
<PAGE>
successor page) as the London interbank offered rate for deposits in U.S.
dollars at approximately 11:00 a.m. (London time) two bank business days
prior to the first day of such interest period for a term and in an amount
comparable to such interest period and the requested loan, and, if for any
reason such rate is unavailable, the rate at which deposits in U.S. dollars
in the amount and for a maturity corresponding to that of the loan are
offered by the bank Lender in the offshore interbank market at
approximately 11 a.m. (London time) two business days prior to the date on
which such loan is made, in each case adjusted for maximum statutory
reserve requirements. Each Eurodollar rate loan shall be in an amount of
$500,000 or such greater amount which is an integral multiple of $250,000.
Interest shall be payable on each Eurodollar rate loan on the last day of
the relevant interest period (and, if the interest period is longer than 3
months, on each date occurring every three months after the commencement of
such interest), on the Maturity Date and on demand thereafter.
(b) No interest period for or maturity of a loan hereunder shall extend
beyond the Maturity Date. Interest and fees will be computed on the basis of
actual days elapsed on a 360-day year basis. During the continuance of a Default
(defined below) the Lender may, at its option, by notice to the Borrower,
declare that loans may only be made as, converted into or continued as loans
bearing interest at the corporate base rate of interest. During the continuance
of a Default the Lender may, at its option, by notice to the Borrower, declare
that (i) each loan bearing interest at a rate other than the corporate base rate
shall bear interest for the remainder of the applicable interest period at the
rate otherwise applicable to such interest period plus 2% per annum and (ii)
each loan bearing interest at the corporate base rate shall bear interest at a
rate per annum equal to the corporate base rate plus 2% per annum.
(c) The Borrower will use the proceeds of the loans hereunder to make
acquisitions permitted under the Agreement (as defined below) and general
corporate purposes or the repayment or refinancing of indebtedness incurred in
connection therewith.
(d) The Borrower will perform, comply with and observe for the Lender's
benefit the agreements set forth in Articles VI, VII, VIII and IX of the Credit
Agreement dated as of April 30, 1997 by and among the Borrower, various
Subsidiaries of the Borrower, the lenders party thereto and Bank of America
Illinois, as administrative agent for such lenders (as amended to the date
hereof, the "Agreement"). For purposes hereof, the provisions of the Agreement,
together with related definitions and ancillary provisions, are hereby
incorporated herein by reference, mutatis mutandis, and shall be deemed to
continue in effect for the Lender's benefit as in effect on the date hereof,
whether or not the Agreement remains in effect and without giving effect to any
amendment, modification or waiver to the terms thereof except to the extent
consented to in writing by the Lender hereunder, with any reference therein to
the Loan Documents to be deemed to refer to this letter, the Note, and the
Subsidiary Guaranty executed and delivered in connection herewith and all
references therein to the Agent or any Lender to be deemed to refer to the
Lender hereunder. Without limiting the foregoing, the Borrower hereby represents
and warrants to the Lender that the execution and delivery of this letter, and
the extension of credit to the Borrower hereunder, is permitted by the terms of
the Agreement and will not, now or at any time after giving effect to any loan
requested hereunder, conflict with the terms thereof.
<PAGE>
(e) The Borrower may not borrow under this line of credit unless, after
giving effect to the proposed borrowing, the following statements are true and
correct on the date of borrowing: (i) there exists no Default (as defined below)
or event which, with giving of notice, or lapse of time, or both, would be a
Default and (ii) the representations and warranties set forth in Article VI of
the Agreement are true and correct. Any request by the Borrower for a borrowing
hereunder shall be deemed to be a representation and warranty by the Borrower
that the statements set forth in the previous sentence are true and correct in
all material respects. Any request by the Borrower for a loan shall be made not
later than 10:00 a.m. (Chicago time) on the requesting funding date (which shall
be a bank business day), provided that if such requesting borrowing is for a
Eurodollar rate loan, or in the event the Borrower wishes to continue a
Eurodollar rate loan or convert a corporate base rate loan into a Eurodollar
rate loan, the Borrower shall give the Lender notice by 10:00 a.m. (Chicago
time) 3 bank business days prior to the first day of the requested interest
period.
(f) All outstanding loans and accrued and unpaid interest, at the option
of the Lender, may be declared immediately due and payable without notice if
there exists any Default hereunder. "Default" means (i) any failure by the
Borrower to pay principal when due or interest, fees, or other obligations
within 5 days of when due under this letter, the Note, or any other agreement or
arrangement with the Lender, (ii) the existence of any default under the Note or
the Guaranty (as defined below), or any violation or failure to comply with any
provision of the Note or the Guaranty, or lack of enforceability of the Guaranty
or (iii) the existence of any Event of Default under and as defined in the
Agreement.
(g) The full amount of this line of credit will be fully guaranteed by
that certain guaranty dated March 10, 1998 (the "Guaranty") executed by each of
the Guarantors (identified on Schedule 6.16 of the Agreement).
(h) The Lender may make assignments and sell participations in this line
of credit, the Note and the loans made hereunder, and may disclose information
pertaining to the Borrower to prospective assignees and participants. Any
assignment will release the Lender of its funding obligation with respect to the
amount assigned and may be made only with the Borrower's consent (which consent
will not unreasonably be withheld). The Borrower agrees that if it fails to pay
any loan when due, any purchaser of a participation interest in such loan shall
be entitled to seek enforcement of this note if the purchaser is permitted to do
so pursuant to the terms of the participation agreement between the Lender and
such purchaser.
(i) This line of credit shall be effective as of the date of this letter
when the Borrower has signed and returned to the Lender a copy of this letter
and has provided the Lender with executed originals of the Note, the Guaranty,
the fee letter supplied by the Lender (and any fees identified therein as due),
resolutions, incumbency certificates, and an opinion of counsel in form and
substance satisfactory to the Lender.
(j) THIS LETTER AND THE NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF ILLINOIS. BOTH PARTIES HERETO HEREBY WAIVE TRIAL BY JURY IN THE EVENT
THIS LETTER OR THE NOTE BECOMES THE SUBJECT OF A DISPUTE.
<PAGE>
If this letter reflects the Borrower's understanding, please cause it to be
executed and returned to my attention, together with the other items referred to
in paragraph (i).
Very truly yours,
Bank of Montreal
By:
Title:
Accepted and agreed:
CULLIGAN WATER TECHNOLOGIES, INC.
By:
Title: Vice President, Finance
Date:
<PAGE>
MASTER NOTE
Chicago, Illinois
$50,000,000.00 Date: March 10, 1998
FOR VALUE RECEIVED, CULLIGAN WATER TECHNOLOGIES, INC. (the "Borrower")
promises to pay to the order of BANK OF MONTREAL (the "Lender"), in lawful money
of the United States at the office of the Lender at 115 S. LaSalle Street,
Chicago, Illinois, or as the Lender may otherwise direct, the lesser of Fifty
Million and no/100 Dollars ($50,000,000.00) or the aggregate outstanding unpaid
principal amount of loans advanced hereunder, together with interest as provided
below. All principal amounts outstanding under this Note, together with any
unpaid interest, shall be due and payable on the Maturity Date.
The Borrower and the Lender may agree to a fixed interest rate and a
specific maturity for a loan (a "fixed rate loan") at the time of borrowing.
Interest on each fixed rate loan shall be payable upon the maturity of such
fixed rate loan and, in the case of a fixed rate loan with an original maturity
in excess of three months, interest shall also be payable on the last day of
each three-month interval while such fixed rate loan is outstanding.
Any fixed rate loan not paid at maturity and any other loan as to which a
fixed rate is not agreed shall bear interest at a rate equal to the sum of the
corporate base rate of interest announced by the Lender from time to time,
changing when and as the corporate base rate changes. Interest on all loans
bearing interest at a rate related to the corporate base rate shall be payable
on the last day of each quarter, on the maturity date of this Note (whether due
to acceleration or otherwise) and on demand thereafter.
Any person authorized to borrow on behalf of the Borrower (an "authorized
person") may request a loan hereunder by telephone or telex. The Borrower agrees
that, in implementing this arrangement, the Lender is authorized to honor
requests which it believes, in good faith, to emanate from an authorized person
acting pursuant to this note, whether in fact that be the case or not. If the
Lender requests a written confirmation, the Borrower will confirm the terms of
each loan so requested by mailing a confirmation letter to the Lender signed by
any authorized person. If the Lender elects to confirm the terms of a loan to
the Borrower, the Borrower will notify the Lender in writing within 10 days
after the Borrower's receipt of such confirmation if it believes such
confirmation to be inaccurate, and the Borrower hereby waives any right to
contest the accuracy of such confirmation after such 10-day period.
The Borrower hereby authorizes the Lender to record loans, maturities,
repayments, interest rates and payment dates on the schedule attached to this
note or otherwise in accordance with the Lender's usual practice. The obligation
of the Borrower to repay each loan made hereunder shall be absolute and
unconditional notwithstanding any failure of the Lender to enter such amounts of
such
<PAGE>
schedule or to receive written confirmation of the transaction from the Borrower
and, in the event of disagreement as to the terms of a transaction, the Lender's
records shall govern, absent manifest error. The Borrower hereby authorizes the
Lender to deposit the proceeds of loans to, and to charge payments of principal
and interest against, the Borrower's deposit account with the Lender.
Each payment of principal or interest hereunder shall be made in
immediately available funds. If any payment shall become due and payable on a
Saturday, Sunday or legal holiday under the laws of Illinois, such payment shall
be made on the next succeeding business day in Illinois and any such extended
time of the payment of principal or interest shall be included in computing
interest at the rate this note bears in connection with such payment. All
interest hereunder shall be computed for the actual number of days elapsed on a
360-day year basis.
If any change in any law, rule, regulation or directive (including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve
System) imposes any condition the result of which is to increase the cost to the
Lender of making, funding or maintaining any fixed rate loan hereunder or
reduces any amount receivable by the Lender hereunder in connection with a fixed
rate loan, the Borrower shall pay the Lender the amount of such increased
expense incurred or the reduction in any amount received which the Lender
determines is attributable to making, funding and maintaining the fixed rate
loans hereunder. A fixed rate loan may not be prepaid prior to the agreed
maturity of the loan without the written consent of the Lender. If, for any
reason, any payment of a fixed rate loan occurs prior to maturity of that loan,
the Borrower will indemnify the Lender for any loss or cost resulting therefrom,
including, without limitation, any loss or cost in liquidating or employing
deposits acquired to fund or maintain the fixed rate loan. Loans bearing
interest at a rate related to the corporate base rate may be prepaid by the
Borrower, without premium or penalty.
The Borrower expressly waives any presentment, demand, protest or notice in
connection with this note now, or hereafter, required by applicable law and
agrees to pay all costs and expenses of collection. This note shall be governed
by the internal law (and not the law of conflicts) of the State of Illinois,
giving effect, however, to federal laws applicable to national Lenders.
This Note is issued pursuant to, and is entitled to the benefits of, the
Line of Credit Letter, dated as of March 9, 1998 (the "Letter") addressed by the
Lender to the Borrower to which Letter, as it may be amended from time to time,
reference is hereby made for a statement of the terms and conditions governing
this Note, including (i) the terms and conditions under which the maturity date
hereof may be accelerated and (ii) a reference to the Guaranty which supports
this Note. Capitalized terms used herein and not otherwise defined herein are
used with the meanings attributed to them in the Letter.
CULLIGAN WATER TECHNOLOGIES, INC.
By:
Title: Vice President, Finance
<PAGE>
SCHEDULE
to be attached and become a part of
the Master Note dated March 9, 1998
executed by Culligan Water Technologies, Inc.
and payable to
Bank of Montreal
<TABLE>
<CAPTION>
Unpaid Initials
Amount of Principal of Person
Date of Amount of Interest Principal Balance Making
Transaction Loan Maturity Rate Payment of Note Notation
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
SUBSIDIARY GUARANTY
THIS SUBSIDIARY GUARANTY (this "Guaranty") is made as of March 10, 1998, by
the entities listed on Schedule "1" attached hereto (collectively, the
"Subsidiary Guarantors") in favor of the Lender under the Line of Credit
referred to below;
WITNESSETH:
WHEREAS, CULLIGAN WATER TECHNOLOGIES, INC., a Delaware corporation (the
"Principal") and Bank of Montreal (together with its successors and assigns, the
"Lender") have entered into a certain letter agreement dated as of even date
herewith evidencing a line of credit (as same may be amended or modified from
time to time, the "Line of Credit"), providing, subject to the terms and
conditions thereof, for extensions of credit to be made by the Lender to the
Principal;
WHEREAS, it is a condition precedent to the Lender's executing the Line of
Credit that each of the Subsidiary Guarantors execute and deliver this Guaranty
whereby each of the Subsidiary Guarantors shall guarantee the payment when due,
subject to Section 9 hereof, of all principal, interest and other amounts that
shall be at any time payable by the Principal under the Line of Credit, the
Notes and any other documents executed in connection therewith (the "Loan
Documents"); and
WHEREAS, in consideration of the financial and other support that the
Principal has provided, and such financial and other support as the Principal
may in the future provide, to the Subsidiary Guarantors, and in order to induce
the Lender to enter into the Line of Credit, each of the Subsidiary Guarantors
is willing to guarantee the obligations of the Principal under the Line of
Credit, the Notes, and the other Loan Documents;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. Definitions. Terms defined in the Line of Credit and not
otherwise defined herein have, as used herein, the respective meanings provided
for therein.
SECTION 2.01 Representations and Warranties. Each of the Subsidiary
Guarantors represents and warrants (which representations and warranties shall
be deemed to have been
<PAGE>
renewed upon each borrowing date under the Line of Credit) that:
(a) it (i) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation; (ii) has all
requisite corporate power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on
its business as now being or as proposed to be conducted; and (iii) is qualified
to do business in all jurisdictions in which the nature of the business
conducted by it makes such qualification necessary and where failure so to
qualify would have a Material Adverse Effect.
(b) it has all necessary corporate power and authority to execute, deliver
and perform its obligations under this Guaranty; the execution, delivery and
performance of this Guaranty have been duly authorized by all necessary
corporate action; and this Guaranty has been duly and validly executed and
delivered by it and constitutes its legal, valid and binding obligation,
enforceable in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization, or moratorium or other
similar laws relating to the enforcement of creditors' rights generally and by
general equitable principles.
(c) neither the execution and delivery by it of this Guaranty nor
compliance with the terms and provisions hereof will conflict with or result in
a breach of, or require any consent under, its articles or certificate of
incorporation or by-laws or any applicable law or regulation, or any order,
writ, injunction or decree of any court or governmental authority or agency, or
any agreement or instrument to which it is a party or by which it is bound or to
which it is subject, or constitute a default under any such agreement or
instrument, or result in the creation or imposition of any Lien upon any of its
revenues or assets pursuant to the terms of any such agreement or instrument.
SECTION 2.02 Covenants. Each of the Subsidiary Guarantors covenants that,
so long as the Lender has any commitment outstanding under the Line of Credit or
any amount payable under the Line of Credit or any Note shall remain unpaid,
that it will, and, if necessary, will enable the Principal to fully comply with
those covenants and agreements incorporated by reference into the Line of
Credit.
SECTION 3. The Guaranty. Subject to Section 9 hereof, each of the
Subsidiary Guarantors hereby unconditionally guarantees the full and punctual
payment (whether at stated maturity, upon acceleration or otherwise) of the
principal of and interest on each Note issued by the Principal pursuant to the
Line of Credit, and the full and punctual payment of all other amounts payable
by the Principal under the Line of Credit and the other Loan Documents (all of
the foregoing, subject to the provisions of Section 9 hereof, being referred to
collectively as the "Guaranteed Obligations"). Upon failure by the Principal to
pay punctually any such amount, each of the Subsidiary Guarantors agrees that it
shall forthwith on demand pay the amount not so paid at the place and in the
manner specified in the Line of Credit, any Note or the relevant Loan Document,
as the case may be.
SECTION 4. Guaranty Unconditional. Subject to Section 9 hereof, the
obligations of
<PAGE>
each of the Subsidiary Guarantors hereunder shall be unconditional and absolute
and, without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
(i) any extension, renewal, settlement, compromise, waiver or release in
respect of any obligation of the Principal under the Line of Credit, any Note,
or any other Loan Document, by operation of law or otherwise or any obligation
of any other guarantor of any of the Guaranteed Obligations;
(ii) any modification or amendment of or supplement to the Line of Credit,
any Note, or any other Loan Document;
(iii) any release, nonperfection or invalidity of any direct or indirect
security for any obligation of the Principal under the Line of Credit, any Note,
any Loan Document, or any obligations of any other guarantor of any of the
Guaranteed Obligations;
(iv) any change in the corporate existence, structure or ownership of the
Principal or any other guarantor of any of the Guaranteed Obligations, or any
insolvency, bankruptcy, reorganization or other similar proceeding affecting the
Principal, or any other guarantor of the Guaranteed Obligations, or its assets
or any resulting release or discharge of any obligation of the Principal, or any
other guarantor of any of the Guaranteed Obligations;
(v) the existence of any claim, setoff or other rights which the
Subsidiary Guarantors may have at any time against the Principal, any other
guarantor of any of the Guaranteed Obligations, the Lender or any other Person,
whether in connection herewith or any unrelated transactions;
(vi) any invalidity or unenforceability relating to or against the
Principal, or any other guarantor of any of the Guaranteed Obligations, for any
reason related to the Line of Credit, any other Loan Document, or any provision
of applicable law or regulation purporting to prohibit the payment by the
Principal, or any other guarantor of the Guaranteed Obligations, of the
principal of or interest on any Note or any other amount payable by the
Principal under the Line of Credit, the Notes, or any other Loan Document; or
(vii) any other act or omission to act or delay of any kind by the
Principal, any other guarantor of the Guaranteed Obligations, the Lender or any
other Person or any other circumstance whatsoever which might, but for the
provisions of this paragraph, constitute a legal or equitable discharge of any
Subsidiary Guarantor's obligations hereunder.
SECTION 5. Discharge Only Upon Payment In Full: Reinstatement In Certain
Circumstances. Each of the Subsidiary Guarantor's obligations hereunder shall
remain in full force and effect until all Guaranteed Obligations shall have been
paid in full and the commitment under the Line of Credit shall have terminated
or expired. If at any time any payment of the principal of or interest on any
Note or any other amount payable by the Principal or any other
<PAGE>
party under the Line of Credit or any other Loan Document is rescinded or must
be otherwise restored or returned upon the insolvency, bankruptcy or
reorganization of the Principal or otherwise, each of the Subsidiary Guarantor's
obligations hereunder with respect to such payment shall be reinstated as though
such payment had been due but not made at such time.
SECTION 6. Waiver of Notice. Each of the Subsidiary Guarantors irrevocably
waives acceptance hereof, presentment, demand, protest and, to the fullest
extent permitted by law, any notice not provided for herein, as well as any
requirement that at any time any action be taken by any Person against the
Principal, any other guarantor of the Guaranteed Obligations, or any other
Person.
SECTION 7. Subrogation. Each of the Subsidiary Guarantors hereby agrees
not to assert any right, claim or cause of action, including, without
limitation, a claim for subrogation, reimbursement, indemnification or
otherwise, against the Principal arising out of or by reason of this Guaranty or
the obligations hereunder, including, without limitation, the payment or
securing or purchasing of any of the Guaranteed Obligations by any of the
Subsidiary Guarantors unless and until the Guaranteed Obligations are paid in
full and any commitment to lend under the Line of Credit and other Loan
Documents is terminated.
SECTION 8. Stay of Acceleration. If acceleration of the time for payment
of any amount payable by the Principal under the Line of Credit, any Note or any
other Loan Document is stayed upon the insolvency, bankruptcy or reorganization
of the Principal, all such amounts otherwise subject to acceleration under the
terms of the Line of Credit, any Note or any other Loan Document shall
nonetheless be payable by each of the Subsidiary Guarantors hereunder forthwith
on demand by the Lender.
SECTION 9. Limitation on Obligations. (a) It is the intention of each of
the Subsidiary Guarantors and the Lenders that each of the Subsidiary
Guarantor's obligations hereunder shall be in, but not in excess of, as of any
date, the greater of the following (such greater amount determined hereunder
being the relevant Subsidiary Guarantor's "Maximum Liability"): (i) the
aggregate amount of all monies received by the Subsidiary Guarantor from the
Principal after the date hereof (whether by loan, capital infusion or other
means), or (ii) the maximum amount (such amount being the Subsidiary Guarantor's
"Alternative Limitation") not subject to avoidance under Title 11 of the United
States Code, as same may be amended from time to time, or any applicable state
law (collectively, the "Bankruptcy Code"). As to the Alternative Limitation of
the Subsidiary Guarantors, to the extent such obligations would otherwise be
subject to avoidance under the Bankruptcy Code if the Subsidiary Guarantor is
not deemed to have received valuable consideration, fair value or reasonably
equivalent value for its obligations hereunder, any Subsidiary Guarantor's
obligations hereunder shall be reduced to that amount which, after giving effect
thereto, would not render the Subsidiary Guarantor insolvent, or leave the
Subsidiary Guarantor with an unreasonably small capital to conduct its business,
or cause the Subsidiary Guarantor to have incurred debts (or intended to have
incurred debts) beyond its ability to pay such debts as they mature, at the time
such obligations are deemed to have been incurred under the Bankruptcy Code. As
used herein, the terms "insolvent" and "unreasonably
<PAGE>
small capital" shall likewise be determined in accordance with the Bankruptcy
Code. This Section 9(a) with respect to the Alternative Limitation of the
Subsidiary Guarantor is intended solely to preserve the rights of the Agent
hereunder to the maximum extent not subject to avoidance under the Bankruptcy
Code, and neither the Subsidiary Guarantor nor any other person or entity shall
have any right or claim under this Section 9(a) with respect to the Alternative
Limitation, except to the extent necessary so that the obligations of the
Subsidiary Guarantor hereunder shall not be rendered voidable under the
Bankruptcy Code.
(b) Each of the Subsidiary Guarantors agrees that the Guaranteed
Obligations may at any time and from time to-time exceed the Maximum Liability
of each Subsidiary Guarantor, and may exceed the aggregate Maximum Liability of
all other Subsidiary Guarantors, without impairing this Guaranty or affecting
the rights and remedies of the Lender hereunder. Nothing in this Section 9(b)
shall be construed to increase any Subsidiary Guarantor's obligations hereunder
beyond its Maximum Liability.
(c) In the event any Subsidiary Guarantor (a "Paying Subsidiary
Guarantor") shall make any payment or payments under this Guaranty or shall
suffer any loss as a result of any realization upon any collateral granted by it
to secure its obligations under this Guaranty, each other Subsidiary Guarantor
(each a "Non-Paying Subsidiary Guarantor") shall contribute to such Paying
Subsidiary Guarantor an amount equal to such Non-Paying Subsidiary Guarantor's
"Pro Rata Share" of such payment or payments made, or losses suffered, by such
Paying Subsidiary Guarantor. For the purposes hereof, each Non-Paying Subsidiary
Guarantor's "Pro Rata Share" with respect to any such payment or loss by a
Paying Subsidiary Guarantor shall be determined as of the date on which such
payment or loss was made by reference to the ratio of (i) such Non-Paying
Subsidiary Guarantor's Maximum Liability as of such date (without giving effect
to any right to receive, or obligation to make, any contribution hereunder) to
(ii) the aggregate Maximum Liability of all Subsidiary Guarantors hereunder
(including such Paying Subsidiary Guarantor) as of such date (without giving
effect to any right to receive, or obligation to make, any contribution
hereunder). Nothing in this Section 9 (c) shall affect any Subsidiary
Guarantor's several liability for the entire amount of the Guaranteed
Obligations (up to such Subsidiary Guarantor's Maximum Liability). Each of the
Subsidiary Guarantors covenants and agrees that its right to receive any
contribution under this Guaranty from a Non-Paying Subsidiary Guarantor shall be
subordinate and junior in right of payment to all the Guaranteed Obligations.
The provisions of this Section 9(c) are for the benefit of both the Agent and
the Subsidiary Guarantors and may be enforced by any one, or more, or all of
them in accordance with the terms hereof.
SECTION 10. Notices. All notices, requests and other communications to any
party hereunder shall be given or made by telecopier or other writing and
telecopied, or mailed or delivered to the intended recipient in care of the
Principal at its address or telecopier number set forth in the Agreement or such
other address or telecopy number as the Principal may hereafter specify for such
purpose by notice to the Lender. Except as otherwise provided in this Guaranty,
all such communications shall be deemed to have been duly given when transmitted
by telecopier, or personally delivered or, in the case of a mailed notice sent
by certified mail return-
<PAGE>
receipt requested, on the date set forth on the receipt (provided, that any
refusal to accept any such notice shall be deemed to be notice thereof as of the
time of any such refusal), in each case given or addressed as aforesaid.
SECTION 11. No Waivers. No failure or delay by the Lender in exercising
any right, power or privilege hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided in this Guaranty, the Line of Credit, the Notes,
and the other Loan Documents shall be cumulative and not exclusive of any rights
or remedies provided by law.
SECTION 12. Successors and Assigns. This Guaranty is for the benefit of
the Lender and its successors and permitted assigns and in the event of an
assignment of any amounts payable under the Line of Credit, the Notes, or the
other Loan Documents, the rights hereunder, to the extent applicable to the
indebtedness so assigned, may be transferred with such indebtedness. This
Guaranty shall be binding upon each of the Subsidiary Guarantors and their
respective successors and permitted assigns.
SECTION 13. Changes in Writing. Neither this Guaranty nor any provision
hereof may be changed, waived, discharged or terminated orally, but only in
writing signed by each of the Subsidiary Guarantors and the Lender.
SECTION 14. GOVERNING LAW SUBMISSION TO JURISDICTION WAIVER OF JURY TRIAL.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF
THE STATE OF ILLINOIS. EACH OF THE SUBSIDIARY GUARANTORS HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS AND OF ANY ILLINOIS STATE COURT SITTING IN CHICAGO,
ILLINOIS AND FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS GUARANTY (INCLUDING, WITHOUT LIMITATION, ANY OF THE OTHER LOAN DOCUMENTS)
OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE SUBSIDIARY GUARANTORS
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE
SUBSIDIARY GUARANTORS, AND THE LENDER ACCEPTING THIS GUARANTY, HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 15. Taxes. etc. All payments required to be made by any of the
Subsidiary Guarantors hereunder shall be made without setoff or counterclaim and
free and clear of and
<PAGE>
without deduction or withholding for or on account of, any present or future
taxes, levies, imposts, duties or other charges of whatsoever nature imposed by
any government or any political or taxing authority thereof, provided, however,
that if any of the Subsidiary Guarantors is required by law to make such
deduction or withholding, such Subsidiary Guarantor shall forthwith pay to the
Lender, such additional amount as results in the net amount received by the
Lender, equaling the full amount which would have been received by the Lender,
had no such deduction or withholding been made.
IN WITNESS WHEREOF, each of the Subsidiary Guarantors has caused this
Guaranty to be duly executed, under seal, by its authorized officer as of the
day and year first above written.
CULLIGAN INTERNATIONAL COMPANY
By:
Title: Vice President, Finance
BRUNER CORPORATION
By:
Title: Vice President, Finance
CULLIGAN DES PLAINES VALLEY
WATER CONDITIONING, INC.
By:
Title: Vice President, Finance
CULLIGAN DISTRIBUTION SERVICES, INC.
By:
Title: Vice President, Finance
<PAGE>
CULLIGAN PENINSULA INDUSTRIAL
WATER CONDITIONING CO.
By:
Title: Vice President, Finance
CULLIGAN WATER COMPANY OF
SAN DIEGO, INC.
By:
Title: Vice President, Finance
CULLIGAN WATER CONDITIONING OF
ORANGE COUNTY
By:
Title: Vice President, Finance
CULLIGAN WATER CONDITIONING OF
SOUTH BEND, INC
By:
Title: Vice President, Finance
CWC FINANCE CORP.
By:
Title: Vice President, Finance
EVERPURE, INC.
<PAGE>
By:
Title: Vice President, Finance
GREATER CHICAGO CULLIGAN WATER
CONDITIONING, INC.
By:
Title: Vice President, Finance
INDIANA SOFT WATER SERVICE, INC.
By:
Title: Vice President, Finance
PLYMOUTH PRODUCTS, INC.
By:
Title: Vice President, Finance
<PAGE>
SCHEDULE "1"
SUBSIDIARY GUARANTORS
<TABLE>
<CAPTION>
Subsidiary State of
- ---------- ----------
Guarantor Incorporation
- --------- -------------
<S> <C>
Culligan International Company Delaware
Bruner Corporation Delaware
Culligan Des Plaines Valley Water Conditioning, Inc. Illinois
Culligan Distribution Services, Inc. Iowa
Culligan Peninsula Industrial Water Conditioning Co. California
Culligan Water Company of San Diego, Inc. Delaware
Culligan Water Conditioning of Orange County California
Culligan Water Conditioning of South Bend, Inc. Indiana
CWC Finance Corp. Illinois
Everpure, Inc. Nevada
Greater Chicago Culligan Water Conditioning, Inc. Illinois
Indiana Soft Water Service, Inc. Indiana
Plymouth Products, Inc. Delaware
</TABLE>
<PAGE>
EXHIBIT 10.8
March 10, 1998
Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, IL 60063
Attention: Michael E. Salvati
Vice President, Finance and
Chief Financial Officer
Ladies and Gentlemen:
Credit Lyonnais, Chicago Branch (the "Lender") is pleased to establish a
line of credit in favor of Culligan Water Technologies, Inc. (the "Borrower") in
the amount of $50,000,000.00, which shall continue from March 10, 1998 through
March 1, 1999 (the "Maturity Date") unless the line of credit is terminated on
an earlier date as set forth below.
(a) Loans under this line of credit will be evidenced and governed by the
Lender's standard form of master note (the "Note"), a copy of which is attached
hereto, and will bear interest, at the Borrower's option, at:
(i) a rate equal to the Lender's corporate base rate of interest
announced by the Lender from time to time, changing when and as the corporate
base rate changes, with interest payable on the last day of each month, on the
Maturity Date, and on demand thereafter; or
(ii) subject to availability and for a maturity to be agreed upon, at
a fixed rate equal to the sum of 0.75% per annum plus the Eurodollar rate,
where the Eurodollar rate is the rate at which deposits in U.S. dollars in the
amount and for a maturity corresponding to that of the loan are offered by the
Lender in the offshore interbank market at approximately 10 a.m. (Chicago time)
two business days prior to the date on which such loan is made, adjusted for
maximum statutory reserve requirements.
(b) No interest period for or maturity of a loan hereunder shall extend
beyond the Maturity Date. Interest and fees will be computed on the basis of
actual days elapsed on a 360-day year basis. During the continuance of a Default
(defined below) the Lender may, at its option, by notice to the Borrower,
declare that loans may only be made as, converted into or continued as loans
bearing interest at the corporate base rate of interest. During the continuance
of a Default the Lender may, at its option, by notice to the Borrower, declare
that (i) each loan bearing interest at a rate other than the corporate base rate
shall bear interest for the remainder of
<PAGE>
the applicable interest period at the rate otherwise applicable to such interest
period plus 2% per annum and (ii) each loan bearing interest at the corporate
base rate shall bear interest at a rate per annum equal to the corporate base
rate plus 2% per annum.
(c) The Borrower will use the proceeds of the loans hereunder to make
acquisitions permitted under the Agreement (as defined below) and general
corporate purposes or the repayment or refinancing of indebtedness incurred in
connection therewith.
(d) The Borrower will perform, comply with and observe for the Lender's
benefit the agreements set forth in Articles VI, VII, VIII and IX of the Credit
Agreement dated as of April 30, 1997 by and among the Borrower, various
Subsidiaries of the Borrower, the lenders party thereto and Bank of America
Illinois, as administrative agent for such lenders (as amended to the date
hereof, the "Agreement"). For purposes hereof, the provisions of the Agreement,
together with related definitions and ancillary provisions, are hereby
incorporated herein by reference, mutatis mutandis, and shall be deemed to
continue in effect for the Lender's benefit as in effect on the date hereof,
whether or not the Agreement remains in effect or is amended, waived or
otherwise modified by the parties thereto.
(e) The Borrower may not borrow under this line of credit unless, after
giving effect to the proposed borrowing, the following statements are true and
correct on the date of borrowing: (i) there exists no Default (as defined below)
or event which, with giving of notice, or lapse of time, or both, would be a
Default and (ii) the representations and warranties set forth in Article VI of
the Agreement are true and correct. Any request by the Borrower for a borrowing
hereunder shall be deemed to be a representation and warranty by the Borrower
that the statements set forth in the previous sentence are true and correct in
all material respects.
(f) Concurrently herewith, the Borrower is entering into letter agreements
of even date herewith (collectively, together with this letter, the "Line
Letters") with The First National Bank of Chicago, Bank of America Illinois and
Harris Trust and Savings Bank (collectively, together with the Lender, the
"Banks"), pursuant to which each of them is establishing a line of credit in
favor of the Borrower in the amount of $50,000,000. The Borrower hereby agrees
that (i) all borrowings by it under the Line Letters shall be pro rata, in
proportion to the respective lines of credit established by the Banks thereunder
and (ii) all payments or prepayments on account of principal, interest or fees
under the Line Letters or the related promissory notes shall be made by it pro
rata, in proportion to the principal amount of the Banks' loans then outstanding
under the Line Letter.
(g) All outstanding loans and accrued and unpaid interest, at the option of
the Lender, may be declared immediately due and payable without notice if there
exists any Default hereunder. "Default" means (i) any failure by the Borrower to
pay principal when due or interest, fees, or other obligations within 5 days of
when due under this letter, the Note, or any other agreement or arrangement with
the Lender, (ii) the existence of any default under the Note or the Guaranty (as
defined below), or any violation or failure to comply with any provision of the
Note or the Guaranty, or lack of enforceability of the Guaranty or (iii) the
existence of any Event of
<PAGE>
Default under and as defined in the Agreement.
(h) The full amount of this line of credit will be fully guaranteed by that
certain guaranty dated March 10, 1998 (the "Guaranty") executed by each of the
Guarantors (identified on Schedule 6.16 of the Agreement).
(i) The Lender may make assignments and sell participations in this line of
credit, the Note and the loans made hereunder, and may disclose information
pertaining to the Borrower to prospective assignees and participants. Any
assignment will release the Lender of its funding obligation with respect to the
amount assigned and may be made only with the Borrower's consent (which consent
will not unreasonably be withheld). The Borrower agrees that if it fails to pay
any loan when due, any purchaser of a participation interest in such loan shall
be entitled to seek enforcement of this note if the purchaser is permitted to do
so pursuant to the terms of the participation agreement between the Lender and
such purchaser.
(j) This line of credit shall be effective as of the date of this letter
when the Borrower has signed and returned to the Lender a copy of this letter
and has provided the Lender with executed originals of the Note, the Guaranty,
the fee letter supplied by the Lender (and any fees identified therein as due),
resolutions, incumbency certificates, and an opinion of counsel in form and
substance satisfactory to the Lender.
(k) THIS LETTER AND THE NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF ILLINOIS. THE BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION
OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS AND OF
ANY ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS FOR THE PURPOSES OF ALL
LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS LETTER, THE LINE OF CREDIT
ESTABLISHED PURSUANT HERETO, THE NOTE, AND ANY TRANSACTIONS CONTEMPLATED HEREBY.
THE BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. BOTH PARTIES
HERETO HEREBY WAIVE TRIAL BY JURY IN THE EVENT THIS LETTER OR THE NOTE BECOMES
THE SUBJECT OF A DISPUTE.
<PAGE>
If this letter reflects the Borrower's understanding, please cause it to be
executed and returned to my attention, together with the other items referred to
in paragraph (j).
Very truly yours,
Credit Lyonnais, Chicago Branch
By:
Title:
Accepted and agreed:
CULLIGAN WATER TECHNOLOGIES, INC.
By:
Title: Vice President, Finance
Date:
<PAGE>
MASTER NOTE
Chicago, Illinois
$50,000,000.00 Date: March 10, 1998
FOR VALUE RECEIVED, CULLIGAN WATER TECHNOLOGIES, INC. (the "Borrower")
promises to pay to the order of CREDIT LYONNAIS, CHICAGO BRANCH (the "Lender"),
in lawful money of the United States at the office of the Lender at 227 West
Monroe Street, Chicago, Illinois, or as the Lender may otherwise direct, the
lesser of U.S. Dollars fifty million ($50,000,000.00) or the aggregate
outstanding unpaid principal amount of loans advanced hereunder, together with
interest as provided below. All principal amounts outstanding under this Note,
together with any unpaid interest, shall be due and payable on the Maturity
Date.
The Borrower and the Lender may agree to a fixed interest rate and a
specific maturity for a loan (a "fixed rate loan") at the time of borrowing.
Interest on each fixed rate loan shall be payable upon the maturity of such
fixed rate loan and, in the case of a fixed rate loan with an original maturity
in excess of three months, interest shall also be payable on the last day of
each three-month interval while such fixed rate loan is outstanding.
Any fixed rate loan not paid at maturity and any other loan as to which a
fixed rate is not agreed shall bear interest at a rate equal to the sum of the
corporate base rate of interest announced by the Lender from time to time,
changing when and as the corporate base rate changes. Interest on all loans
bearing interest at a rate related to the corporate base rate shall be payable
on the last day of each quarter, on the maturity date of this Note (whether due
to acceleration or otherwise) and on demand thereafter.
Any person authorized to borrow on behalf of the Borrower (an "authorized
person") may request a loan hereunder by telephone or telex. The Borrower agrees
that, in implementing this arrangement, the Lender is authorized to honor
requests which it believes, in good faith, to emanate from an authorized person
acting pursuant to this note, whether in fact that be the case or not. If the
Lender requests a written confirmation, the Borrower will confirm the terms of
each loan so requested by mailing a confirmation letter to the Lender signed by
any authorized person. If the Lender elects to confirm the terms of a loan to
the Borrower, the Borrower will notify the Lender in writing within 10 days
after the Borrower's receipt of such confirmation if it believes such
confirmation to be inaccurate, and the Borrower hereby waives any right to
contest the accuracy of such confirmation after such 10-day period.
The Borrower hereby authorizes the Lender to record loans, maturities,
repayments, interest rates and payment dates on the schedule attached to this
note or otherwise in accordance with the Lender's usual practice. The obligation
of the Borrower to repay each loan made hereunder shall be absolute and
unconditional notwithstanding any failure of the Lender to enter such amounts of
such schedule or to receive written confirmation of the transaction from the
<PAGE>
Borrower and, in the event of disagreement as to the terms of a transaction, the
Lender's records shall govern, absent manifest error. The Borrower hereby
authorizes the Lender to deposit the proceeds of loans to, and to charge
payments of principal and interest against, the Borrower's deposit account with
the Lender.
Each payment of principal or interest hereunder shall be made in
immediately available funds. If any payment shall become due and payable on a
Saturday, Sunday or legal holiday under the laws of Illinois, such payment shall
be made on the next succeeding business day in Illinois and any such extended
time of the payment of principal or interest shall be included in computing
interest at the rate this note bears in connection with such payment. All
interest hereunder shall be computed for the actual number of days elapsed on a
360-day year basis.
If any change in any law, rule, regulation or directive (including,
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System) imposes any condition the result of which is to increase the
cost to the Lender of making, funding or maintaining any fixed rate loan
hereunder or reduces any amount receivable by the Lender hereunder in connection
with a fixed rate loan, the Borrower shall pay the Lender the amount of such
increased expense incurred or the reduction in any amount received which the
Lender determines is attributable to making, funding and maintaining the fixed
rate loans hereunder. A fixed rate loan may not be prepaid prior to the agreed
maturity of the loan without the written consent of the Lender. If, for any
reason, any payment of a fixed rate loan occurs prior to maturity of that loan,
the Borrower will indemnify the Lender for any loss or cost resulting therefrom,
including, without limitation, any loss or cost in liquidating or employing
deposits acquired to fund or maintain the fixed rate loan. Loans bearing
interest at a rate related to the corporate base rate may be prepaid by the
Borrower, without premium or penalty.
The Borrower expressly waives any presentment, demand, protest or notice in
connection with this note now, or hereafter, required by applicable law and
agrees to pay all costs and expenses of collection. This note shall be governed
by the internal law (and not the law of conflicts) of the State of Illinois,
giving effect, however, to federal laws applicable to national Lenders.
This Note is issued pursuant to, and is entitled to the benefits of, the
Line of Credit Letter, dated as of March 10, 1998 (the "Letter") addressed by
the Lender to the Borrower to which Letter, as it may be amended from time to
time, reference is hereby made for a statement of the terms and conditions
governing this Note, including (i) the terms and conditions under which the
maturity date hereof may be accelerated and (ii) a reference to the Guaranty
which supports this Note. Capitalized terms used herein and not otherwise
defined herein are used with the meanings attributed to them in the Letter.
CULLIGAN WATER TECHNOLOGIES, INC.
By:
Title: Vice President, Finance
<PAGE>
SCHEDULE
to be attached and become a part of
the Master Note dated March 10, 1998
executed by Culligan Water Technologies, Inc.
and payable to
Credit Lyonnais, Chicago Branch
<TABLE>
<CAPTION>
Unpaid Initials
Amount of Principal of Person
Date of Amount of Interest Principal Balance Making
Transaction Loan Maturity Rate Payment of Note Notation
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
SUBSIDIARY GUARANTY
THIS SUBSIDIARY GUARANTY (this "Guaranty") is made as of March 10,
1998, by the entities listed on Schedule "1" attached hereto (collectively, the
"Subsidiary Guarantors") in favor of the Lender under the Line of Credit
referred to below;
WITNESSETH:
WHEREAS, CULLIGAN WATER TECHNOLOGIES, INC., a Delaware corporation
(the "Principal") and Credit Lyonnais, Chicago Branch (together with its
successors and assigns, the "Lender") have entered into a certain letter
agreement dated as of even date herewith evidencing a line of credit (as same
may be amended or modified from time to time, the "Line of Credit"), providing,
subject to the terms and conditions thereof, for extensions of credit to be made
by the Lender to the Principal;
WHEREAS, it is a condition precedent to the Lender's executing the
Line of Credit that each of the Subsidiary Guarantors execute and deliver this
Guaranty whereby each of the Subsidiary Guarantors shall guarantee the payment
when due, subject to Section 9 hereof, of all principal, interest and other
amounts that shall be at any time payable by the Principal under the Line of
Credit, the Notes and any other documents executed in connection therewith (the
"Loan Documents"); and
WHEREAS, in consideration of the financial and other support that the
Principal has provided, and such financial and other support as the Principal
may in the future provide, to the Subsidiary Guarantors, and in order to induce
the Lender to enter into the Line of Credit, each of the Subsidiary Guarantors
is willing to guarantee the obligations of the Principal under the Line of
Credit, the Notes, and the other Loan Documents;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION l. Definitions. Terms defined in the Line of Credit and not
otherwise defined herein have, as used herein, the respective meanings provided
for therein.
SECTION 2.01 Representations and Warranties. Each of the Subsidiary
Guarantors represents and warrants (which representations and warranties shall
be deemed to have been
<PAGE>
renewed upon each borrowing date under the Line of Credit) that:
(a) it (i) is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation; (ii) has all
requisite corporate power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on
its business as now being or as proposed to be conducted; and (iii) is qualified
to do business in all jurisdictions in which the nature of the business
conducted by it makes such qualification necessary and where failure so to
qualify would have a Material Adverse Effect.
(b) it has all necessary corporate power and authority to execute,
deliver and perform its obligations under this Guaranty; the execution, delivery
and performance of this Guaranty have been duly authorized by all necessary
corporate action; and this Guaranty has been duly and validly executed and
delivered by it and constitutes its legal, valid and binding obligation,
enforceable in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization, or moratorium or other
similar laws relating to the enforcement of creditors' rights generally and by
general equitable principles.
(c) neither the execution and delivery by it of this Guaranty nor
compliance with the terms and provisions hereof will conflict with or result in
a breach of, or require any consent under, its articles or certificate of
incorporation or by-laws or any applicable law or regulation, or any order,
writ, injunction or decree of any court or governmental authority or agency, or
any agreement or instrument to which it is a party or by which it is bound or to
which it is subject, or constitute a default under any such agreement or
instrument, or result in the creation or imposition of any Lien upon any of its
revenues or assets pursuant to the terms of any such agreement or instrument.
SECTION 2.02 Covenants. Each of the Subsidiary Guarantors covenants
that, so long as the Lender has any commitment outstanding under the Line of
Credit or any amount payable under the Line of Credit or any Note shall remain
unpaid, that it will, and, if necessary, will enable the Principal to fully
comply with those covenants and agreements incorporated by reference into the
Line of Credit.
SECTION 3. The Guaranty. Subject to Section 9 hereof, each of the
Subsidiary Guarantors hereby unconditionally guarantees the full and punctual
payment (whether at stated maturity, upon acceleration or otherwise) of the
principal of and interest on each Note issued by the Principal pursuant to the
Line of Credit, and the full and punctual payment of all other amounts payable
by the Principal under the Line of Credit and the other Loan Documents (all of
the foregoing, subject to the provisions of Section 9 hereof, being referred to
collectively as the "Guaranteed Obligations"). Upon failure by the Principal to
pay punctually any such amount, each of the Subsidiary Guarantors agrees that it
shall forthwith on demand pay the amount not so paid at the place and in the
manner specified in the Line of Credit, any Note or the relevant Loan Document,
as the case may be.
SECTION 4. Guaranty Unconditional. Subject to Section 9 hereof, the
obligations of
<PAGE>
each of the Subsidiary Guarantors hereunder shall be unconditional and absolute
and, without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
(i) any extension, renewal, settlement, compromise, waiver or release
in respect of any obligation of the Principal under the Line of Credit, any
Note, or any other Loan Document, by operation of law or otherwise or any
obligation of any other guarantor of any of the Guaranteed Obligations;
(ii) any modification or amendment of or supplement to the Line of
Credit, any Note, or any other Loan Document;
(iii) any release, nonperfection or invalidity of any direct or
indirect security for any obligation of the Principal under the Line of Credit,
any Note, any Loan Document, or any obligations of any other guarantor of any of
the Guaranteed Obligations;
(iv) any change in the corporate existence, structure or ownership of
the Principal or any other guarantor of any of the Guaranteed Obligations, or
any insolvency, bankruptcy, reorganization or other similar proceeding affecting
the Principal, or any other guarantor of the Guaranteed Obligations, or its
assets or any resulting release or discharge of any obligation of the Principal,
or any other guarantor of any of the Guaranteed Obligations;
(v) the existence of any claim, setoff or other rights which the
Subsidiary Guarantors may have at any time against the Principal, any other
guarantor of any of the Guaranteed Obligations, the Lender or any other Person,
whether in connection herewith or any unrelated transactions;
(vi) any invalidity or unenforceability relating to or against the
Principal, or any other guarantor of any of the Guaranteed Obligations, for any
reason related to the Line of Credit, any other Loan Document, or any provision
of applicable law or regulation purporting to prohibit the payment by the
Principal, or any other guarantor of the Guaranteed Obligations, of the
principal of or interest on any Note or any other amount payable by the
Principal under the Line of Credit, the Notes, or any other Loan Document; or
(vii) any other act or omission to act or delay of any kind by the
Principal, any other guarantor of the Guaranteed Obligations, the Lender or any
other Person or any other circumstance whatsoever which might, but for the
provisions of this paragraph, constitute a legal or equitable discharge of any
Subsidiary Guarantor's obligations hereunder.
SECTION 5. Discharge Only Upon Payment In Full: Reinstatement In
Certain Circumstances. Each of the Subsidiary Guarantor's obligations hereunder
shall remain in full force and effect until all Guaranteed Obligations shall
have been paid in full and the commitment under the Line of Credit shall have
terminated or expired. If at any time any payment of the principal of or
interest on any Note or any other amount payable by the Principal or any other
<PAGE>
party under the Line of Credit or any other Loan Document is rescinded or must
be otherwise restored or returned upon the insolvency, bankruptcy or
reorganization of the Principal or otherwise, each of the Subsidiary Guarantor's
obligations hereunder with respect to such payment shall be reinstated as though
such payment had been due but not made at such time.
SECTION 6. Waiver of Notice. Each of the Subsidiary Guarantors
irrevocably waives acceptance hereof, presentment, demand, protest and, to the
fullest extent permitted by law, any notice not provided for herein, as well as
any requirement that at any time any action be taken by any Person against the
Principal, any other guarantor of the Guaranteed Obligations, or any other
Person.
SECTION 7. Subrogation. Each of the Subsidiary Guarantors hereby
agrees not to assert any right, claim or cause of action, including, without
limitation, a claim for subrogation, reimbursement, indemnification or
otherwise, against the Principal arising out of or by reason of this Guaranty or
the obligations hereunder, including, without limitation, the payment or
securing or purchasing of any of the Guaranteed Obligations by any of the
Subsidiary Guarantors unless and until the Guaranteed Obligations are paid in
full and any commitment to lend under the Line of Credit and other Loan
Documents is terminated.
SECTION 8. Stay of Acceleration. If acceleration of the time for
payment of any amount payable by the Principal under the Line of Credit, any
Note or any other Loan Document is stayed upon the insolvency, bankruptcy or
reorganization of the Principal, all such amounts otherwise subject to
acceleration under the terms of the Line of Credit, any Note or any other Loan
Document shall nonetheless be payable by each of the Subsidiary Guarantors
hereunder forthwith on demand by the Lender.
SECTION 9. Limitation on Obligations. (a) It is the intention of
each of the Subsidiary Guarantors and the Lenders that each of the Subsidiary
Guarantor's obligations hereunder shall be in, but not in excess of, as of any
date, the greater of the following (such greater amount determined hereunder
being the relevant Subsidiary Guarantor's "Maximum Liability"): (i) the
aggregate amount of all monies received by the Subsidiary Guarantor from the
Principal after the date hereof (whether by loan, capital infusion or other
means), or (ii) the maximum amount (such amount being the Subsidiary Guarantor's
"Alternative Limitation") not subject to avoidance under Title 11 of the United
States Code, as same may be amended from time to time, or any applicable state
law (collectively, the "Bankruptcy Code"). As to the Alternative Limitation of
the Subsidiary Guarantors, to the extent such obligations would otherwise be
subject to avoidance under the Bankruptcy Code if the Subsidiary Guarantor is
not deemed to have received valuable consideration, fair value or reasonably
equivalent value for its obligations hereunder, any Subsidiary Guarantor's
obligations hereunder shall be reduced to that amount which, after giving effect
thereto, would not render the Subsidiary Guarantor insolvent, or leave the
Subsidiary Guarantor with an unreasonably small capital to conduct its business,
or cause the Subsidiary Guarantor to have incurred debts (or intended to have
incurred debts) beyond its ability to pay such debts as they mature, at the time
such obligations are deemed to have been incurred under the Bankruptcy Code. As
used herein, the terms "insolvent" and "unreasonably
<PAGE>
small capital" shall likewise be determined in accordance with the Bankruptcy
Code. This Section 9(a) with respect to the Alternative Limitation of the
Subsidiary Guarantor is intended solely to preserve the rights of the Agent
hereunder to the maximum extent not subject to avoidance under the Bankruptcy
Code, and neither the Subsidiary Guarantor nor any other person or entity shall
have any right or claim under this Section 9(a) with respect to the Alternative
Limitation, except to the extent necessary so that the obligations of the
Subsidiary Guarantor hereunder shall not be rendered voidable under the
Bankruptcy Code.
(b) Each of the Subsidiary Guarantors agrees that the Guaranteed
Obligations may at any time and from time to-time exceed the Maximum Liability
of each Subsidiary Guarantor, and may exceed the aggregate Maximum Liability of
all other Subsidiary Guarantors, without impairing this Guaranty or affecting
the rights and remedies of the Lender hereunder. Nothing in this Section 9(b)
shall be construed to increase any Subsidiary Guarantor's obligations hereunder
beyond its Maximum Liability.
(c) In the event any Subsidiary Guarantor (a "Paying Subsidiary
Guarantor") shall make any payment or payments under this Guaranty or shall
suffer any loss as a result of any realization upon any collateral granted by it
to secure its obligations under this Guaranty, each other Subsidiary Guarantor
(each a "Non-Paying Subsidiary Guarantor") shall contribute to such Paying
Subsidiary Guarantor an amount equal to such Non-Paying Subsidiary Guarantor's
"Pro Rata Share" of such payment or payments made, or losses suffered, by such
Paying Subsidiary Guarantor. For the purposes hereof, each Non-Paying
Subsidiary Guarantor's "Pro Rata Share" with respect to any such payment or loss
by a Paying Subsidiary Guarantor shall be determined as of the date on which
such payment or loss was made by reference to the ratio of (i) such Non-Paying
Subsidiary Guarantor's Maximum Liability as of such date (without giving effect
to any right to receive, or obligation to make, any contribution hereunder) to
(ii) the aggregate Maximum Liability of all Subsidiary Guarantors hereunder
(including such Paying Subsidiary Guarantor) as of such date (without giving
effect to any right to receive, or obligation to make, any contribution
hereunder). Nothing in this Section 9 (c) shall affect any Subsidiary
Guarantor's several liability for the entire amount of the Guaranteed
Obligations (up to such Subsidiary Guarantor's Maximum Liability). Each of the
Subsidiary Guarantors covenants and agrees that its right to receive any
contribution under this Guaranty from a Non-Paying Subsidiary Guarantor shall be
subordinate and junior in right of payment to all the Guaranteed Obligations.
The provisions of this Section 9(c) are for the benefit of both the Agent and
the Subsidiary Guarantors and may be enforced by any one, or more, or all of
them in accordance with the terms hereof.
SECTION 10. Notices. All notices, requests and other communications
to any party hereunder shall be given or made by telecopier or other writing and
telecopied, or mailed or delivered to the intended recipient in care of the
Principal at its address or telecopier number set forth in the Agreement or such
other address or telecopy number as the Principal may hereafter specify for such
purpose by notice to the Lender. Except as otherwise provided in this Guaranty,
all such communications shall be deemed to have been duly given when transmitted
by telecopier, or personally delivered or, in the case of a mailed notice sent
by certified mail return-
<PAGE>
receipt requested, on the date set forth on the receipt (provided, that any
refusal to accept any such notice shall be deemed to be notice thereof as of the
time of any such refusal), in each case given or addressed as aforesaid.
SECTION 11. No Waivers. No failure or delay by the Lender in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies provided in this Guaranty, the Line of Credit, the
Notes, and the other Loan Documents shall be cumulative and not exclusive of any
rights or remedies provided by law.
SECTION 12. Successors and Assigns. This Guaranty is for the benefit
of the Lender and its successors and permitted assigns and in the event of an
assignment of any amounts payable under the Line of Credit, the Notes, or the
other Loan Documents, the rights hereunder, to the extent applicable to the
indebtedness so assigned, may be transferred with such indebtedness. This
Guaranty shall be binding upon each of the Subsidiary Guarantors and their
respective successors and permitted assigns.
SECTION 13. Changes in Writing. Neither this Guaranty nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only in writing signed by each of the Subsidiary Guarantors and the Lender.
SECTION 14. GOVERNING LAW SUBMISSION TO JURISDICTION WAIVER OF JURY
TRIAL. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAW OF THE STATE OF ILLINOIS. EACH OF THE SUBSIDIARY GUARANTORS HEREBY SUBMITS
TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS AND OF ANY ILLINOIS STATE COURT SITTING IN
CHICAGO, ILLINOIS AND FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS GUARANTY (INCLUDING, WITHOUT LIMITATION, ANY OF THE OTHER LOAN
DOCUMENTS) OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE SUBSIDIARY
GUARANTORS IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE
OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH OF THE SUBSIDIARY GUARANTORS, AND THE LENDER ACCEPTING THIS GUARANTY,
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
SECTION 15. Taxes. etc. All payments required to be made by any of
the Subsidiary Guarantors hereunder shall be made without setoff or counterclaim
and free and clear of and
<PAGE>
without deduction or withholding for or on account of, any present or future
taxes, levies, imposts, duties or other charges of whatsoever nature imposed by
any government or any political or taxing authority thereof, provided, however,
that if any of the Subsidiary Guarantors is required by law to make such
deduction or withholding, such Subsidiary Guarantor shall forthwith pay to the
Lender, such additional amount as results in the net amount received by the
Lender, equaling the full amount which would have been received by the Lender,
had no such deduction or withholding been made.
IN WITNESS WHEREOF, each of the Subsidiary Guarantors has caused this
Guaranty to be duly executed, under seal, by its authorized officer as of the
day and year first above written.
CULLIGAN INTERNATIONAL COMPANY
By:
Title: Vice President, Finance
BRUNER CORPORATION
By:
Title: Vice President, Finance
CULLIGAN DES PLAINES VALLEY
WATER CONDITIONING, INC.
By:
Title: Vice President, Finance
CULLIGAN DISTRIBUTION SERVICES, INC.
By:
Title: Vice President, Finance
<PAGE>
CULLIGAN PENINSULA INDUSTRIAL
WATER CONDITIONING CO.
By:
Title: Vice President, Finance
CULLIGAN WATER COMPANY OF
SAN DIEGO, INC.
By:
Title: Vice President, Finance
CULLIGAN WATER CONDITIONING OF
ORANGE COUNTY
By:
Title: Vice President, Finance
CULLIGAN WATER CONDITIONING OF
SOUTH BEND, INC
By:
Title: Vice President, Finance
CWC FINANCE CORP.
By:
Title: Vice President, Finance
EVERPURE, INC.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
------------------------------
State/Country of Incorporation
------------------------------
CULLIGAN INTERNATIONAL COMPANY Delaware
Bruner Corporation Delaware
Burr Ridge Insurance Company Vermont
Culligan Acquisition Corp. Delaware
Culligan Acquisition Corporation Minnesota
Winokur Water Conditioning, Inc. Connecticut
Winokur Water Treatment Co., Inc. Connecticut
Winokur Water Systems, Inc. Connecticut
Winokur Water Systems Corp. New York
Culligan of Canada, Ltd. Canada
Culligan Water Conditioning (Ontario) Ltd. Canada
Water Conditioning Finance Ltd. Canada
Zyza Chem Limited British Columbia
Culligan Consumer Direct, Inc. Delaware
Culligan Des Plaines Valley Water Conditioning, Inc. Illinois
Culligan Distribution Services, Inc. Iowa
Culligan Dutchess-Putnam Water Conditioning, Inc. New York
Culligan Espana S.A. Spain
Culligan of Florida, Inc. Florida
R&S McCoy Corporation Florida
Florida Bottled Water Company Florida
McCoy Transport, Inc. Florida
H2O Ventures, Inc. Florida
Gold Coast Water Technologies, Inc. Florida
Culligan France S.A. France
Aqua Franche Comte France
A.T.S. (Acqua Technologies Services) France
Blanchard Aqua Service France
C.E.A.E. (Comptoir Europeen d' Affinage de l'Eau) France
Culligan Aquitaine France
Culligan Lorraine France
Culligan Somme-Oise France
E.A.U. (Exploitation Adoucisseurs unites
de traitements) France
G.E.A. (Generale Eco Affinage) France
Sofadim France
Technino France
Traitement Des Eaux Du Littoral France
Loire Affinage France
Pierre Moret S.A. France
Culligan Hungary Vizkezelesi Rt Hungary
Culligan International (UK) Ltd. England
Aqua-Dial Ltd. England
<PAGE>
Culligan London Ltd. England
Culligan Anglia Ltd. England
Dewplan Ltd. England
Waterside plc England
Culligan Italiana S.p.A. Italy
Idracos spa Italy
Tecnoservice srl Italy
Tecnoacque srl Italy
PTA srl Italy
Culligan N.V. Belgium
Aqua Europe Belgium
Culligan Operating Services, Inc. Delaware
Culligan Peninsula Industrial Water Conditioning Co. California
Culligan Sales Company, Inc. Delaware
Culligan (Switzerland) S.A. Switzerland
Culligan Water Company, Inc. Delaware
Culligan Water Company of El Paso, Inc. Delaware
Culligan Water Company of Nebraska, Inc. Delaware
Culligan Water Company of New York Delaware
Culligan Water Company of Ohio, Inc. Delaware
225 V.C., Inc. Ohio
Central Ohio Water Treatment Systems, Inc. Ohio
Culligan Water Conditioning of Cleveland, Inc. Ohio
Culligan Water Conditioning of Richmond, Indiana Indiana Partnership
Southern Ohio Water Treatment Systems,
Inc. - Zanesville Ohio
Southern Ohio Water Treatment Systems,
Inc. - Springfield Ohio
Southern Ohio Water Treatment Systems, Inc. Ohio
Southern Ohio Water Treatment Systems,
Inc. - Middletown Ohio
Culligan Water Company of San Diego, Inc. Delaware
Culligan Water Company of Tennessee, Inc. Delaware
Culligan Water Company of Washington, Inc. Delaware
Water Quality Control, Inc. Washington
Culligan Water Conditioning, Inc. Wisconsin
Culligan Water Conditioning of Battle Creek, Inc. Michigan
Culligan Water Conditioning of Butler, Inc. Pennsylvania
Culligan Water Conditioning of Greater Detroit Michigan
Culligan Water Conditioning of Houston, Inc. Texas
Culligan Water Conditioning of Orange County California
Layton Soft Water, Inc. California
Layton Manufacturing Corp. California
Culligan Water Conditioning of South Bend, Inc. Indiana
Culligan Water Conditioning of Tippecanoe County, Inc. Indiana
CWC Finance Corp. Illinois
CWC, Inc. New Jersey
CWC International, Inc. Delaware
CWG, Inc. Delaware
Culligan Wassertechnik GmbH Germany
CWM International, Inc. Delaware
Culligan de Mexico S.A. de C.V. Mexico
Dallas-Ft. Worth Water Quality, Inc. Texas
<PAGE>
Elkhart Water Conditioning, Inc. Indiana
Enerserve N.V. Netherlands Antilles
Enerserve (Antigua) Limited Antigua
Enersave Company Limited Anguilla
Everpure, Inc. Nevada
Everpure Japan, Inc. Japan
N.V. Everpure (Europe) S.A. Belgium
Greater Chicago Culligan Water Conditioning, Inc. Illinois
High Quality Water Service, Inc. California
Indiana Soft Water Services, Inc. Indiana
Inland Empire Dealership Property, Inc. California
St. Louis Soft Water Service, Inc. Missouri
Santa Barbara Dealership Property, Inc. California
Sparkling S.A. Argentina
Ultra Pure Systems, Inc. Minnesota
U.S. Water Products, Inc. California
CULLIGAN (UK) LIMITED England
Protean plc England
Protean (UK) Holdings Ltd. England
Elga Ltd. England
DWA Verwaltungs GmbH (Germany) Germany
DWA GmbH & Co. KG (Germany) Germany
Elga Environmental Ltd. England
Elga Group Services Ltd. England
Chromacol Ltd. England
Epsom Glass Industries Ltd. England
LIP (Equipment & Services) Ltd. England
Jenway Ltd. England
Wittersley Ltd. England
HPLC Technology Company Ltd. England
Lenton Thermal Designs Ltd. England
Carbolite Furnaces Ltd. England
Protean (overseas) Holdings Ltd. England
Protean Inc. (USA)
Techne Inc. (USA)
Techne Cambridge Ltd. (UK)
FTS Systems Inc. (USA) New York
Jenway Inc. (USA) Delaware
Carbolite Inc. (USA) Wisconsin
Elga Inc. (USA) Delaware
Amchro Inc. (USA) Delaware
Elga GmbH (Germany) Germany
Elga Ltd. (Ireland) Ireland
Elga SA (France) France
DWA SARL (France) France
SDICO SARL (France) France
PLYMOUTH PRODUCTS, INC. Delaware
Ametek Filters, Limited England
APIC International S.A. France
AFIMO S.A.M. Monaco
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JANUARY 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1997
<CASH> 14,293
<SECURITIES> 0
<RECEIVABLES> 132,923
<ALLOWANCES> 0
<INVENTORY> 74,740
<CURRENT-ASSETS> 110,284
<PP&E> 189,882
<DEPRECIATION> (45,251)
<TOTAL-ASSETS> 858,263
<CURRENT-LIABILITIES> 164,613
<BONDS> 0
0
0
<COMMON> 258
<OTHER-SE> 297,770
<TOTAL-LIABILITY-AND-EQUITY> 858,263
<SALES> 505,744
<TOTAL-REVENUES> 505,744
<CGS> 288,851
<TOTAL-COSTS> 288,851
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,903
<INCOME-PRETAX> 28,357
<INCOME-TAX> 32,638
<INCOME-CONTINUING> (5,200)
<DISCONTINUED> 0
<EXTRAORDINARY> (422)
<CHANGES> 0
<NET-INCOME> (5,622)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
