-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LywmXmsevBY0Nyd+5V3ivtR75aW95Rqora8/IFEGNT8sjNz1T7L+4JdqvjgX35xG EPoSOyenGZ6zQE+aL7aEXw== 0001005229-06-000011.txt : 20060607 0001005229-06-000011.hdr.sgml : 20060607 20060607161122 ACCESSION NUMBER: 0001005229-06-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20060607 FILED AS OF DATE: 20060607 DATE AS OF CHANGE: 20060607 FILER: COMPANY DATA: COMPANY CONFORMED NAME: YALE INDUSTRIAL PRODUCTS INC CENTRAL INDEX KEY: 0001062624 IRS NUMBER: 710585582 STATE OF INCORPORATION: MO FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-53759-06 FILM NUMBER: 06891746 BUSINESS ADDRESS: STREET 1: 140 JOHN JAMES AUDUBON PARKWAY CITY: AMHERST STATE: NY ZIP: 19228-1197 BUSINESS PHONE: 7166895400 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRANE EQUIPMENT & SERVICE INC CENTRAL INDEX KEY: 0001263400 IRS NUMBER: 731515437 STATE OF INCORPORATION: OK FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-109730-02 FILM NUMBER: 06891745 BUSINESS ADDRESS: STREET 1: 140 JOHN JAMES AUDUBON PARKWAY CITY: AMHERST STATE: NY ZIP: 14428 BUSINESS PHONE: 7166895405 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUDUBON EUROPE S A R L CENTRAL INDEX KEY: 0001263401 IRS NUMBER: 421542436 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-109730-04 FILM NUMBER: 06891744 BUSINESS ADDRESS: STREET 1: 140 JOHN JAMES AUDUBON PARKWAY CITY: AMHERST STATE: NY ZIP: 14428 BUSINESS PHONE: 7166895405 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBUS MCKINNON CORP CENTRAL INDEX KEY: 0001005229 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION MACHINERY & EQUIP [3531] IRS NUMBER: 160547600 STATE OF INCORPORATION: NY FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27618 FILM NUMBER: 06891743 BUSINESS ADDRESS: STREET 1: 140 JOHN JAMES AUDUBON PKWY CITY: AMHERST STATE: NY ZIP: 14228-1197 BUSINESS PHONE: 7166895400 MAIL ADDRESS: STREET 1: 140 JOHN JAMES AUDUBON PARKWAY CITY: AMHERST STATE: NY ZIP: 14228-1197 10-K 1 kpag.txt FISCAL 2006 10K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED MARCH 31, 2006 COMMISSION FILE NUMBER 0-27618 ----------------- COLUMBUS MCKINNON CORPORATION (Exact name of Registrant as specified in its charter) NEW YORK 16-0547600 (State of Incorporation) (I.R.S. Employer Identification Number) 140 JOHN JAMES AUDUBON PARKWAY AMHERST, NEW YORK 14228-1197 (Address of principal executive offices, including zip code) (716) 689-5400 (Registrant's telephone number, including area code) ----------------- Securities pursuant to section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $0.01 PAR VALUE (AND RIGHTS ATTACHED THERETO) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [ X ] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [ X ] Indicate by checkmark 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 [ ] No [X] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) 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 [ ]. Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Act. Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of September 30, 2005 was approximately $315 million, based upon the closing price of the Company's common shares as quoted on the Nasdaq Stock Market on such date. The number of shares of the Registrant's common stock outstanding as of May 31, 2006 was 18,708,522 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's proxy statement for its 2006 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the Registrant's fiscal year ended March 31, 2006 are incorporated by reference into Part III of this report. COLUMBUS MCKINNON CORPORATION 2006 ANNUAL REPORT ON FORM 10-K This annual report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from the results expressed or implied by such statements, including general economic and business conditions, conditions affecting the industries served by us and our subsidiaries, conditions affecting our customers and suppliers, competitor responses to our products and services, the overall market acceptance of such products and services, the integration of acquisitions and other factors set forth herein under "Management's Discussion and Analysis of Results of Operations and Financial Condition - Factors Affecting Our Operating Results." We use words like "will," "may," "should," "plan," "believe," "expect," "anticipate," "intend," "future" and other similar expressions to identify forward looking statements. These forward looking statements speak only as of their respective dates and we do not undertake and specifically decline any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated changes. Our actual operating results could differ materially from those predicted in these forward-looking statements, and any other events anticipated in the forward-looking statements may not actually occur. PART I ------ ITEM 1. BUSINESS GENERAL We are a leading manufacturer and marketer of hoists, cranes, chain, conveyors, material handling systems, lift tables and component parts serving a wide variety of commercial and industrial end-user markets. Our products are used to efficiently and ergonomically move, lift, position or secure objects and loads. We are the domestic market leader in hoists, our principal line of products, which we believe provides us with a strategic advantage in selling our other products. We have achieved this leadership position through strategic acquisitions, our extensive and well-established distribution channels and our commitment to product innovation and quality. We have one of the most comprehensive product offerings in the industry and we believe we have more overhead hoists in use in North America than all of our competitors combined. Our brand names, including CM, Coffing, Duff-Norton, Shaw-Box and Yale, are among the most recognized and well-respected in our marketplace. THE BUILDING OF OUR BUSINESS Founded in 1875, we have grown to our current size and leadership position largely as the result of the 14 businesses we acquired since February 1994. These acquisitions have significantly broadened our product lines and services and expanded our geographic, end-user markets and our customer base. Our senior management has substantial experience in the acquisition and integration of businesses, aggressive cost management, efficient manufacturing techniques and global operations, all of which are critical to our long-term growth strategy. We have a proven track record of acquiring complementary businesses and product lines, integrating their activities into our organization, and aggressively managing their cost structures to improve operating efficiencies. The history of our Products and Solutions acquisitions since 1994 is outlined below (purchase price in millions): 1
PURCHASE DATE OF ACQUISITION ACQUIRED COMPANY PRICE PRODUCTS/SERVICES - ------------------- ---------------- ----- ----------------- April 1999 Washington Equipment Company $ 6.4 Overhead cranes March 1999 GL International (1) 20.6 Overhead cranes January 1999 Camlok/Tigrip 10.6 Plate clamps, crane weighers December 1998 Gautier 2.9 Rotary unions, swivel joints August 1998 Abell-Howe Crane 7.0 Overhead cranes March 1998 ASI (2) 155.0 Design and manufacture of custom conveyor systems January 1998 Univeyor 15.0 Design and manufacture of powered roller conveyor systems December 1996 Lister (3) 7.0 Cement kiln, anchor and buoy chain October 1996 Yale (4) 270.0 Hoists, scissor lift tables, actuators, jacks and rotary unions November 1995 Lift-Tech 63.0 Hoists October 1995 Endor 2.0 Hoists January 1995 Cady Lifters 0.8 Below-the-hook lifters December 1994 Conco 0.8 Operator controlled manipulators February 1994 Durbin-Durco 2.4 Load securing equipment and attachments - -------------------- (1) In January 2002, we sold Handling Systems & Conveyors, Inc., a subsidiary of GL International. (2) In May 2002, we sold substantially all of the assets of Automatic Systems, Inc. ("ASI") and in March 2003, we sold LICO Steel, Inc., a subsidiary of Audubon West, formerly ASI. (3) In February 2004, we sold the assets of the Lister Chain & Forge division. (4) In August 1998, we sold the Mechanical Products division of Yale.
OUR POSITION IN THE INDUSTRY The $60 billion U.S. material handling industry is generally divided into the following sectors: o overhead material handling and lifting devices; o continuous materials movement; o wheeled handling devices; o pallets, containers and packaging; o storage equipment and shop furniture; o automation systems and robots; and o services and unbundled software. The breadth of our products and services enables us to participate in each of these sectors, except for pallets, containers and packaging and storage equipment and shop furniture. This diversification, together with our extensive and varied distribution channels, minimizes our dependence on any particular product, market or customer. We believe that none of our competitors offers the variety of products or services in the markets we serve. We believe that the demand for our products and services has increased during the last twelve months and we believe the demand will continue to increase in the future as a result of several favorable trends. These trends include: FAVORABLE INDUSTRY TRENDS. The U.S. industrial economy has improved since 2003, as U.S. industrial capacity utilization rates have increased from cyclical lows. Our business performance is influenced by the state of the U.S. industrial economy. PRODUCTIVITY ENHANCEMENT. In recent years, employers have responded to competitive pressures by seeking to maximize productivity and efficiency. Our hoists and other lifting and positioning products allow loads to be lifted and placed quickly, precisely, with little effort and fewer people, thereby increasing productivity and reducing cycle time. 2 SAFETY REGULATIONS AND CONCERNS. Driven by federal and state workplace safety regulations such as the Occupational Safety and Health Act and the Americans with Disabilities Act, and by the general competitive need to reduce costs such as health insurance premiums and workers' compensation expenses, employers seek safer ways to lift and position loads. Our lifting and positioning products enable these tasks to be performed with reduced risk of personal injury. CONSOLIDATION OF SUPPLIERS. In an effort to reduce costs and increase productivity, our customers and end-users are increasingly consolidating their suppliers. We believe that our competitive strengths will enable us to benefit from this consolidation and enhance our market share. OUR COMPETITIVE STRENGTHS LEADING MARKET POSITIONS. We are a leading manufacturer of hoists and alloy and high strength carbon steel chain in North America. We have developed our leading market positions over our 131-year history by emphasizing technological innovation, manufacturing excellence and superior after-sale service. Approximately 74% of our domestic net sales for the year ended March 31, 2006 were from product categories in which we believe we hold the number one market share. We believe that the strength of our established products and brands and our leading market positions provide us with significant competitive advantages, including preferred supplier status with a majority of our largest customers. Our large installed base of products also provides us with a significant competitive advantage in selling our products to existing customers as well as providing repair and replacement parts. The following table summarizes the product categories where we believe we are the market leader:
PERCENTAGE OF PRODUCT CATEGORY U.S. MARKET SHARE U.S. MARKET POSITION DOMESTIC NET SALES - ---------------- ----------------- -------------------- ------------------ Powered Hoists (1) 53% #1 27% Manual Hoists & Trolleys (1) 66% #1 14% Forged Attachments (1) 46% #1 10% Lifting and Sling Chains (1) 59% #1 6% Hoist Parts (2) 60% #1 9% Mechanical Actuators (3) 40% #1 5% Tire Shredders (4) 80% #1 2% Jib Cranes (5) 45% #1 1% ----- 74% - ------------- (1) Market share and market position data are internal estimates derived from survey information collected and provided by our trade associations. (2) Market share and market position data are internal estimates based on our market shares of Powered Hoists and Manual Hoists & Trolleys, which we believe are good proxies for our Hoist Parts market share because we believe most end-users purchase Hoist Parts from the original equipment supplier. (3) Market share and market position data are internal estimates derived by comparison of our net sales to net sales of one of our competitors based on discussions with that competitor, and to estimates of total market sales from a trade association. (4) Market share and market position data are internal estimates derived by comparing the number of our tire shredders in use and their capacity to estimates of the total number of tires shredded published by a trade association. (5) Market share and market position are internal estimates derived from both the number of bids we win as a percentage of the total projects for which we submit bids and from estimates of our competitors' net sales based on their relative position in distributor catalogues.
COMPREHENSIVE PRODUCT LINES AND STRONG BRAND NAME RECOGNITION. We believe we offer the most comprehensive product lines in the markets we serve. We are the only major supplier of material handling equipment offering full lines of hoists, chain and attachments. Our capability as a full-line supplier has allowed us to (i) provide our customers with "one-stop shopping" for material handling equipment, which meets some customers' desires to reduce the number of their supply relationships in order to lower their costs, (ii) leverage our engineering, research and development and marketing costs over a larger sales base and (iii) achieve purchasing efficiencies on common materials used across our product lines. 3 In addition, our brand names, including Budgit, Chester, CM, Coffing, Duff-Norton, Little Mule, Shaw-Box and Yale, are among the most recognized and respected in the industry. The CM name has been synonymous with overhead hoists since manual hoists were first developed and marketed under the name in the early 1900s. We believe that our strong brand name recognition has created customer loyalty and helps us maintain existing business, as well as capture additional business. No single product comprises more than 1% of our sales, a testament to our broad and diversified product offering. DISTRIBUTION CHANNEL DIVERSITY AND STRENGTH. Our products are sold to over 20,000 general and specialty distributors and OEMs. We enjoy long-standing relationships with, and are a preferred provider to, the majority of our largest distributors and industrial buying groups. Over the past decade, there has been significant consolidation among distributors of material handling equipment. We have benefited from this consolidation and have maintained and enhanced our relationships with our leading distributors, as well as formed new relationships. We believe our extensive North American distribution channels provide a significant competitive advantage and allow us to effectively market new product line extensions and promote cross-selling. EXPANDING INTERNATIONAL MARKETS. We have significantly grown our international sales since becoming a public company in 1996. Our international sales have grown from $34.3 million (representing 16% of total sales) in fiscal 1996 to $198.3 million (representing 36% of our total sales) during the year ended March 31, 2006. This growth has occurred primarily in Europe, South America and Asia-Pacific where we have recently opened additional sales offices. Our international business has provided us, and we believe will continue to provide us, with significant growth opportunities and new markets for our products. LOW-COST MANUFACTURING WITH SIGNIFICANT OPERATING LEVERAGE. We believe we are a low-cost manufacturer and we will continue to consolidate our manufacturing operations and reduce our manufacturing costs through the initiatives summarized below. Our low-cost manufacturing capability continues to positively impact our operating performance as volumes increase. -- RATIONALIZATION AND CONSOLIDATION. From fiscal 2002 through fiscal 2004, we closed 10 manufacturing plants and three warehouses, as more fully described in "Our Strategy" below. -- LEAN MANUFACTURING. In fiscal 2002, we initiated Lean Manufacturing techniques, facilitating substantial inventory reductions, a significant decline in required manufacturing floor area, a decrease in product lead time and improved productivity and on-time deliveries. -- PURCHASING COUNCIL. We continue to leverage our company-wide purchasing power through our Purchasing Council to reduce our costs. -- SELECTIVE VERTICAL INTEGRATION. We manufacture many of the critical parts and components used in the manufacture of our hoists and cranes, resulting in reduced costs. -- INTERNATIONAL EXPANSION. Our continued expansion of our manufacturing facilities in China and Mexico provides us with another cost efficient platform to manufacture and distribute certain of our products. We now operate 26 manufacturing facilities in nine countries, with 26 stand alone sales and service offices in 12 countries, and nine stand alone warehouse facilities in five countries. STRONG AFTER-MARKET SALES AND SUPPORT. We believe that we retain customers and attract new customers due to our ongoing commitment to customer service and satisfaction. We have a large installed base of hoists and chain that drives our after-market sales for components and repair parts and is a stable source of higher margin business. We maintain strong relationships with our customers and provide prompt aftermarket service to end-users of our products through our authorized network of 13 chain repair stations and over 350 hoist service and repair stations. LONG HISTORY OF FREE CASH FLOW GENERATION AND SIGNIFICANT DEBT REDUCTION. We have consistently generated positive free cash flow (which we define as net cash provided by operating activities less capital expenditures) by continually reducing our costs, increasing our inventory turnover and reducing the capital intensity of our manufacturing operations. From the beginning of fiscal 2004 through fiscal 2006, we have reduced total debt by $106.5 million, from $316.3 million to $209.8 million, which includes application of $47.6 million of net proceeds from our November 2005 secondary offering. 4 EXPERIENCED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY OWNERSHIP. Our senior management team provides a depth and continuity of experience in the material handling industry. Our management has experience in aggressive cost management, balance sheet management, efficient manufacturing techniques, acquiring and integrating businesses and global operations, all of which are critical to our long-term growth. Our directors and executive officers, as a group, own an aggregate of approximately 7% of our outstanding common stock. OUR STRATEGY INCREASE OUR DOMESTIC ORGANIC GROWTH. We intend to leverage our strong competitive advantages to increase our domestic market share across all of our product lines by: -- LEVERAGING OUR STRONG COMPETITIVE POSITION. Our large diversified customer base, our extensive distribution channels and our close relationship with our distributors provide us with insights into customer preferences and product requirements that allow us to anticipate and address the future needs of end-users. -- INTRODUCING NEW AND CROSS-BRANDED PRODUCTS. We continue to expand our business by developing new material handling products and services and expanding the breadth of our product lines to address customer needs. Over the past three years, we have developed over 100 new or cross-branded products, representing approximately $27.5 million in fiscal 2006 revenues. During fiscal 2004, we established a dedicated hoist product development team. The majority of the hoist products under development are guided by the Federation of European Manufacturing, or FEM, standard. We believe these FEM hoist products will facilitate our global sales expansion strategy as well as improve our cost competitiveness against internationally made products imported into the U.S. Recent new product introductions include: o global wire rope hoists used in overhead cranes; o Hand hoists and lever tools manufactured at our Chinese plants; o a variety of new forged lifting attachments; o pallet layer picking systems; o high-speed, light-weight, mini-load cranes, used in warehouse applications; and o Techlink crane and hoist maintenance and inspection software. -- LEVERAGING OUR BRAND PORTFOLIO TO MAXIMIZE MARKET COVERAGE. Most industrial distributors carry one or two lines of material handling products on a semi-exclusive basis. Unlike many of our competitors, we have developed and acquired multiple well-recognized brands that are viewed by both distributors and end-users as discrete product lines. As a result, we are able to sell our products to multiple distributors in the same geographic area. This strategy maximizes our market coverage and provides the largest number of end-users with access to our products. CONTINUE TO GROW IN INTERNATIONAL MARKETS. Our international sales of $198.3 million comprised 36% of our net sales for the year ended March 31, 2006, as compared to $34.3 million, or 16% of our net sales, in fiscal 1996, the year we became a public company. We sell to distributors in over 50 countries and have our primary international facilities in Canada, Mexico, Germany, the United Kingdom, Denmark, France and China. In addition to new product introductions, we continue to expand our sales and service presence in the major market areas of Europe, Asia-Pacific and South America through our sales offices and warehouse facilities in Europe, Thailand, Brazil, Uruguay and Mexico. We intend to increase our sales by manufacturing and exporting a broader array of high quality, low-cost products and components from our facilities in Mexico and China for distribution in Europe and Asia-Pacific. We have developed and are continuing to expand upon new hoist products in compliance with FEM standards to enhance our global distribution. FURTHER REDUCE OUR OPERATING COSTS AND INCREASE MANUFACTURING PRODUCTIVITY. Our objective is to remain a low-cost producer. We continually seek ways to reduce our operating costs and increase our manufacturing productivity including through our on-going expansion of our manufacturing capacity in low-cost regions, including Mexico and China. In furtherance of this objective, we have undertaken the following: 5 -- RATIONALIZATION OF FACILITIES. From fiscal 2002 through fiscal 2004, we closed 10 manufacturing plants and three warehouses, consolidated a number of similar product lines and standardized certain component parts resulting in an aggregate cost savings of approximately $14 million. We have sufficient capacity to meet current and future demand. We are currently investigating opportunities for further facility rationalization. -- IMPLEMENTATION OF LEAN MANUFACTURING. We expect to continue to identify potential efficiencies in our operations through Lean Manufacturing initiated in fiscal 2002. Through fiscal 2006, we have instituted Lean Manufacturing at 16 of our major facilities resulting in the recapture of approximately 164,000 square feet of manufacturing floor area and the consolidation of an additional 920,000 square feet from closed facilities. Additionally, we have reduced inventories by approximately $34.1 million, or 31.3%, improved productivity and achieved significant reductions in product lead times. Specifically, in fiscal 2006 and 2005, we improved inventory turns by 7.5% to 5.7x for the fourth quarter of fiscal 2006 from 5.3x for the fourth quarter of fiscal 2004. Our Lean Manufacturing initiative has complemented our strategy of rationalizing our manufacturing facilities. -- LEVERAGE OUR PURCHASING POWER. Our Purchasing Council was formed in fiscal 1998 to centralize and leverage our overall purchasing power, which has grown through acquisitions and has resulted in significant savings for our company. REDUCE OUR DEBT. We intend to continue our focus on cash generation for debt reduction through the following initiatives: -- INCREASE OPERATING CASH FLOW. As a result of the execution of our strategies to reduce our operating costs, increase our domestic organic growth and increase our penetration of international markets, we believe that we will continue to realize favorable operating leverage. We further believe that such operating leverage will result in increased operating cash flow available for debt reduction, as well as investment into new products and new markets. -- REDUCE WORKING CAPITAL. As described above, we believe that our Lean Manufacturing activities are facilitating inventory reduction, improving product lead times and increasing our productivity. We believe our improved working capital management and increased productivity will further result in increased free cash flow available for debt reduction. -- SALE OF EXCESS REAL ESTATE. As a result of our Lean Manufacturing and plant rationalization initiatives, we have identified excess real estate to be sold. During fiscal 2006, we generated $2.1 million from such real estate sales. The proceeds of such sales have been, and will continue to be, used to repay our outstanding debt. OUR SEGMENTS We currently report our operations in two business segments, Products and Solutions. Our Products segment designs, manufactures and distributes a broad range of material handling products for various industrial applications and for consumer use. Products in this segment include a wide variety of electric, lever, hand and air-powered hoists; hoist trolleys; industrial crane systems such as bridge, gantry and jib cranes; alloy, carbon steel and kiln chain; closed-die forged attachments, such as hooks, shackles, logging tools and loadbinders; industrial components, such as mechanical and electromechanical actuators, mechanical jacks and rotary unions; and below-the-hook special purpose lifters. These products are typically manufactured for stock or assembled to order from standard components and are sold through a variety of commercial distributors and to end-users. The end-users of our products are in manufacturing plants, power utility facilities and warehouses. Some of our products have farming, mining and logging applications, and we serve a niche market for the entertainment industry. We also sell some of our products to the consumer market through a variety of retailers and wholesalers. Our Solutions segment is engaged primarily in the design, fabrication and installation of integrated workstation and facility-wide material handling systems and in the design and manufacture of tire shredders. This segment also included our Positech manipulator business which was divested in February 2004. The products and services of this segment are highly engineered, are typically built to order and are primarily sold directly to end-users for specific applications in a variety of industries. 6 Note 20 to our consolidated financial statements included elsewhere herein provides information related to our business segments in accordance with U.S. generally accepted accounting principles. Summary information concerning our business segments for fiscal 2006, 2005 and 2004 is set forth below.
FISCAL YEARS ENDED MARCH 31, ----------------------------------------------------------------------------------------------------- 2006 2005 2004 --------------------------------- ----------------------------- ----------------------------- % OF % OF % OF TOTAL TOTAL TOTAL AMOUNT SALES AMOUNT SALES AMOUNT SALES --------------- ---------- --------------- ----------- ------------- ------------ (DOLLARS IN MILLIONS) Net Sales Products.................$ 493.9 88.8 $ 453.1 88.0 $ 394.2 88.7 Solutions................. 62.1 11.2 61.7 12.0 50.4 11.3 --------------- ---------- --------------- ----------- ------------- ------------ Total...............$ 556.0 100.0 $ 514.8 100.0 $ 444.6 100.0 =============== ========== =============== =========== ============= ============ % OF % OF % OF SEGMENT SEGMENT SEGMENT /TOTAL /TOTAL /TOTAL AMOUNT SALES AMOUNT SALES AMOUNT SALES --------------- ---------- --------------- ----------- ------------- ------------ Income from Operations Products.................$ 55.9 11.3 $ 39.4 8.7 $ 32.3 8.2 Solutions................. 2.0 3.2 1.3 2.1 (2.4) (4.9) --------------- ---------- --------------- ----------- ------------- ------------ Total...............$ 57.9 10.4 $ 40.7 7.9 $ 29.9 6.7 =============== ========== =============== =========== ============= ============
PRODUCTS SEGMENT PRODUCTS Our Products segment primarily designs, manufactures and distributes a broad range of material handling, lifting and positioning products for various applications in industry and for consumer use and has total assets of approximately $530.6 million as of March 31, 2006. These products are typically manufactured for stock or assembled to order from standard components and are sold through a variety of distributors. Approximately 75% of our Products segment net sales is derived from the sale of products that we sell at a unit price of less than $5,000. In fiscal 2006, net sales of the Products segment were approximately $493.9 million or approximately 88.8% of our net sales, of which approximately $342.5 million, or 69.4% were domestic and $151.4 million, or 30.6% were international. The following table sets forth certain sales data for the products of our Products segment, expressed as a percentage of net sales of this segment for fiscal 2006 and 2005: FISCAL YEARS ENDED MARCH 31, ---------------------------- 2006 2005 ------------ ------------ Hoists........................ 52% 50% Chain......................... 15 16 Forged attachments............ 12 12 Industrial cranes............. 13 14 Industrial components......... 8 8 ------------ ------------ 100% 100% HOISTS. We manufacture a variety of electric chain hoists, electric wire rope hoists, hand-operated hoists, lever tools and air-powered balancers and hoists. Load capacities for our hoist product lines range from one-eighth of a ton to 100 tons. These products are sold under our Budgit, Chester, CM, Coffing, Little Mule, Shaw-Box, Yale and other recognized trademarks. Our hoists are sold for use in a variety of general industrial applications, as well as for use in the entertainment, consumer, rental and other markets. We also supply hoist trolleys, driven manually or by electric motors, for the industrial, consumer and OEM markets. 7 We offer a line of custom-designed, below-the-hook tooling, clamps, pallet trucks and textile strappings. Below-the-hook tooling and clamps are specialized lifting apparatus used in a variety of lifting activities performed in conjunction with hoist and chain applications. Textile strappings are below-the-hook attachments, frequently used in conjunction with hoists. CHAIN. We manufacture alloy and carbon steel chain for various industrial and consumer applications. Federal regulations require the use of alloy chain, which we first developed, for overhead lifting applications because of its strength and wear characteristics. A line of our alloy chain is sold under the Herc-Alloy brand name for use in overhead lifting, pulling and restraining applications. In addition, we also sell specialized load chain for use in hoists, as well as three grades and multiple sizes of carbon steel welded-link chain for various load securing and other non-overhead lifting applications. We also manufacture kiln chain sold primarily to the cement manufacturing market. In addition, we previously sold anchor and buoy chain to the U.S. and Canadian governments through our Lister Chain & Forge division which was sold in February 2004. FORGED ATTACHMENTS. We also produce a complete line of alloy and carbon steel closed-die forged attachments, including hooks, shackles, hitch pins and master links. These forged attachments are used in chain, wire rope and textile rigging applications in a variety of industries, including transportation, mining, construction, marine, logging, petrochemical and agriculture. In addition, we manufacture carbon steel forged and stamped products, such as loadbinders, logging tools and other securing devices, for sale to the industrial, consumer and logging markets through industrial distributors, hardware distributors, mass merchandiser outlets and OEMs. INDUSTRIAL CRANES. We entered the crane manufacturing market through our August 1998 acquisition of Abell-Howe, a Chicago-based regional manufacturer of jib and overhead bridge cranes. Our March 1999 acquisition of GL International, which included the Gaffey and Larco brands, and our April 1999 acquisition of Washington Equipment Company established us as a significant participant in the crane building and servicing markets. Crane builders represent a specialized distribution channel for electric wire rope hoists, chain hoists and other crane components. INDUSTRIAL COMPONENTS. Through our Duff-Norton division, we design and manufacture industrial components such as mechanical and electromechanical actuators, mechanical jacks and rotary unions for sale domestically and abroad. Actuators are linear motion devices used in a variety of industries, including the paper, steel and aerospace industries. Mechanical jacks are heavy duty lifting devices used in the repair and maintenance of railroad equipment, locomotives and industrial machinery. Rotary unions are devices that transfer a liquid or gas from a fixed pipe or hose to a rotating drum, cylinder or other device. These unions are unique in that they connect a moving or rotating component of a machine to fixed plumbing without major spillage or leakage. Rotary unions are used in a variety of industries including pulp and paper, printing, textile and fabric manufacturing, rubber and plastic. SALES AND MARKETING Our sales and marketing efforts in support of our Products segment consist of the following programs: FACTORY-DIRECT FIELD SALES AND CUSTOMER SERVICE. We sell our products through our direct sales forces of more than 125 salespersons and through independent sales agents worldwide. Our sales are further supported by our more than 230 company-trained customer service correspondents and sales application engineers. We compensate our sales force through a combination of base salary and a commission plan based on top line sales and a pre-established sales quota. PRODUCT ADVERTISING. We promote our products by regular advertising in leading trade journals as well as producing and distributing high quality information catalogs. We support our product distribution by running cooperative "pull-through" advertising in over 15 vertical trade magazines and directories aimed toward theatrical, international, consumer and crane builder markets. We run targeted advertisements for chain, hoists, forged attachments, scissor lift tables, actuators, hydraulic jacks, hardware programs, cranes and light-rail systems. TRADE SHOW PARTICIPATION. Trade shows are central to the promotion of our products, and we participate in more than 30 regional, national and international trade shows each year. Shows in which we participate range from global events held in Germany to local "markets" and "open houses" organized by individual hardware and industrial distributors. We also attend specialty shows for the entertainment, rental and safety markets, as well as general purpose industrial and consumer hardware shows. In fiscal 2006, we participated in trade shows in the U.S., Canada, Mexico, Germany, the United Kingdom, France, China and Brazil. 8 INDUSTRY ASSOCIATION MEMBERSHIP AND PARTICIPATION. As a recognized industry leader, we have a long history of work and participation in a variety of industry associations. Our management is directly involved at the officer and director levels of numerous industry associations including the following: ISA (Industrial Supply Association), AWRF (Associated Wire Rope Fabricators), PTDA (Power Transmission and Distributors Association), SCRA (Specialty Carriers and Riggers Association), WSTDA (Web Sling and Tie Down Association), MHI (Material Handling Institute), HMI (Hoist Manufacturers Institute), CMAA (Crane Manufacturers Association of America), ESTA (Entertainment Services and Technology Association), NACM (National Association of Chain Manufacturers) and ARA (American Rental Association). PRODUCT STANDARDS AND SAFETY TRAINING CLASSES. We conduct on-site training programs worldwide for distributors and end-users to promote and reinforce the attributes of our products and their safe use and operation in various material handling applications. WEB SITES. In addition to our main corporate web site at www.cmworks.com, we currently sponsor an additional 25 brand specific web sites and sell hand pallet trucks on one of these sites. Our web site at www.cmindustrial.com currently includes electronic catalogs of CM brand hoist and chain products and list prices. Current and potential customers can browse through our diverse product offering or search for specific products by name or classification code and obtain technical product specifications. We continue to add additional product catalogs, maintenance manuals, advertisements and customer service information on our various web sites. Many of the web sites allow distributors to search for personalized pricing information, order status and product serial number data and to enter sales orders. DISTRIBUTION AND MARKETS The distribution channels for the Products segment include a variety of commercial distributors. In addition, the Products segment sells overhead bridge, jib and gantry cranes directly to end-users. We also sell to the consumer market through wholesalers. Our products are sold through the following distribution channels: GENERAL DISTRIBUTION CHANNELS. Our general distribution channels consist of: -- Industrial distributors that serve local or regional industrial markets and sell a variety of products for maintenance, repair, operating and production, or MROP, applications through their own direct sales force. -- Rigging shops that are distributors with expertise in rigging, lifting, positioning and load securing. Most rigging shops assemble and distribute chain, wire rope and synthetic slings and distribute off-the-shelf hoists and attachments, chain slings and other off-the-shelf products. -- Independent crane builders that design, build, install and service overhead crane and light-rail systems for general industry and also sell a wide variety of hoists and lifting attachments. We sell electric wire rope hoists and chain hoists as well as crane components, such as end trucks, trolleys, drives and electrification systems to crane builders. CRANE END-USERS. We sell overhead bridge, jib and gantry cranes, parts and services to end-users through our wholly owned crane builders (Abell-Howe, Gaffey, Larco and Washington Equipment) within the CraneMart(TM) network. Our wholly owned crane builders design, manufacture, install and service a variety of cranes with capacities up to 100 tons. SPECIALTY DISTRIBUTION CHANNELS. Our specialty distribution channels consist of: -- Catalog houses that market a variety of MROP supplies, including material handling products, either exclusively through large, nationally distributed catalogs, or through a combination of catalog and internet sales and a field sales force. More recently, catalog houses, particularly W.W. Grainger, Inc., are pursuing e-commerce through their web sites. The customer base served by catalog houses, which traditionally included smaller industrial companies and consumers, has grown to include large industrial accounts and integrated suppliers. -- Material handling specialists and integrators that design and assemble systems incorporating hoists, overhead rail systems, trolleys, scissor lift tables, manipulators, air balancers, jib arms and other material handling products to provide end-users with solutions to their material handling problems. 9 -- Entertainment equipment distributors that design, supply and install a variety of material handling and rigging equipment for concerts, theaters, ice shows, sports arenas, convention centers and night clubs. SERVICE-AFTER-SALE DISTRIBUTION CHANNEL. Service-after-sale distributors include our authorized network of 13 chain repair service stations and over 350 hoist service and repair stations. This service network is designed for easy parts and service access for our large installed base of hoists and related equipment in North America. OEM/GOVERNMENT DISTRIBUTION CHANNELS. This channel consists of: -- OEMs that supply various component parts directly to other industrial manufacturers as well as private branding and packaging of our traditional products for material handling, lifting, positioning and special purpose applications. -- Government agencies, including the U.S. and Canadian Navies and Coast Guards, that purchase primarily load securing chain and forged attachments. CONSUMER DISTRIBUTION. Consumer sales, consisting primarily of carbon steel chain and assemblies, forged attachments and hand powered hoists, are made through five distribution channels: two-step wholesale hardware distribution; one-step distribution direct to retail outlets; trucking and transportation distributors; farm hardware distributors; and rental outlets. INTERNATIONAL DISTRIBUTION. We distribute virtually all of our products in over 50 countries on six continents through a variety of distribution channels. CUSTOMER SERVICE AND TRAINING We maintain customer service departments staffed by trained personnel for all of our Products segment sales divisions, and regularly schedule product and service training schools for all customer service representatives and field sales personnel. Training programs for distribution and service station personnel, as well as for end-users, are scheduled on a regular basis at most of our facilities and in the field. We have more than 350 service and repair stations worldwide that provide local and regional repair, warranty and general service work for distributors and end-users. End-user trainees attending our various programs include representatives of General Motors, DuPont, 3M, GTE, Cummins Engine, General Electric and many other industrial and entertainment organizations. We also provide, in multiple languages, a variety of collateral material in video, cassette, CD-ROM, slide and print format addressing relevant material handling topics such as the care, use and inspection of chains and hoists, and overhead lifting and positioning safety. In addition, we sponsor advisory boards made up of representatives of our primary distributors and service-after-sale network members who are invited to participate in discussions focused on improving products and service. These boards enable us and our primary distributors to exchange product and market information relevant to industry trends. BACKLOG Our Products segment backlog of orders at March 31, 2006 was approximately $53.6 million compared to approximately $42.3 million at March 31, 2005. Our orders for standard products are generally shipped within one week. Orders for products that are manufactured to customers' specifications are generally shipped within four to twelve weeks. Given the short product lead times, we do not believe that the amount of our Products segment backlog of orders is a reliable indication of our future sales. COMPETITION Despite recent consolidation, the material handling industry remains highly fragmented. We face competition from a wide range of regional, national and international manufacturers in both domestic and international markets. In addition, we often compete with individual operating units of larger, highly diversified companies. The principal competitive factors affecting our Products segment include product performance, functionality, price, brand, reputation, reliability and availability, as well as customer service and support. Other important factors include distributor relationships, territory coverage and the ability to service the distributor with on-time delivery and repair services. 10 Major competitors with our Products segment for hoists are Demag, Kito-Harrington, Ingersoll-Rand, KCI Konecranes and Morris Material Handling; for chain are Campbell Chain, Peerless Chain Company and American Chain and Cable Company; for forged attachments are The Crosby Group and Brewer Tichner Company; for crane building are Demag, KCI Konecranes, Morris Material Handling and a variety of independent crane builders; and for industrial components are Deublin, Joyce-Dayton and Nook Industries. SOLUTIONS SEGMENT The Solutions segment is engaged primarily in the design, fabrication and installation of integrated work station and facility-wide material handling systems and in the manufacture and distribution of lift tables and tire shredders and has total assets of $35.4 million as of March 31, 2006. Net sales of the Solutions segment in fiscal 2006 were $62.1 million, or 11.2% of our total net sales, of which $15.1 million, or 24.4% were domestic and $47.0 million, or 75.6% were international. The following table sets forth certain sales data for the products and services of our Solutions segment, expressed as a percentage of this segment's net sales for fiscal 2006 and 2005: FISCAL YEARS ENDED MARCH 31, ---------------------------- 2006 2005 ------------ ------------ Integrated material handling conveyor systems.. 69% 70% Lift tables.................................... 12 13 Light-rail systems............................. 4 4 Other.......................................... 15 13 ------------ ------------ 100% 100% PRODUCTS AND SERVICES INTEGRATED MATERIAL HANDLING CONVEYOR SYSTEMS. Conveyors are an important component of many material handling systems, reflecting their high functionality for transporting material throughout manufacturing and warehouse facilities. We specialize in designing computer-controlled and automated powered roller conveyors for use in warehouse operations and distribution systems. Since fiscal 2003, we have been executing a revenue growth strategy by developing our capabilities to function as a turnkey integrator of material handling systems, while continuing to provide the conveyors required for the systems. LIFT TABLES. Our American Lifts division manufactures powered lift tables. These products enhance workplace ergonomics and are sold primarily to customers in the manufacturing, construction, general industrial and air cargo industries. LIGHT-RAIL SYSTEMS. Introduced in fiscal 2001, light-rail systems are portable steel overhead beam configurations used at workstations, from which hoists are frequently suspended. SALES AND MARKETING The products and services of the Solutions segment are sold primarily to large sophisticated corporate end-users, including Federal Express, UPS, United Biscuits, Lego, John Deere, Lowe's and other industrial companies, systems integrators and distributors. In the sale of our integrated material handling conveyor systems, we act as a prime contractor with turnkey responsibility or as a supplier working closely with the customer's general contractor. Sales are generated by internal sales personnel and rely heavily on engineer-to-engineer interactions with the customer. The process of generating client contract awards for integrated conveyor systems generally entails receiving a request-for-quotation from customers and undergoing a competitive bidding process. The Solutions segment also sells light-rail systems and scissor lift tables through its internal sales force and through specialized independent distributors and manufacturers representatives. CUSTOMER SERVICE AND TRAINING The Solutions segment offers a wide range of value-added services to customers including: an engineering review of the customer's processes; an engineering solution for identified material handling problems; project management; and custom design, manufacturing and installation services. We also offer after-sales services including operator training, maintenance and hot-line support. The typical length of after-sales service varies depending on customer requirements and supplemental training courses are offered as needed. 11 BACKLOG Revenues from our Solutions segment are generally recognized within one to six months. Our backlog of orders at March 31, 2006 was approximately $13.0 million compared to approximately $9.6 million at March 31, 2005. COMPETITION The principal competitive factors affecting the market for the products and services of our Solutions segment include application solutions, performance and price. The process of generating client contract awards for these businesses generally entails receiving a request-for-quotation from end-users and undergoing a competitive bidding process. Our Solutions segment competes primarily with Crisplant, Diafuku, Swisslog, Gorbel and Southworth. EMPLOYEES At March 31, 2006, our continuing operations had 3,081 employees; 1,957 in the U.S., 122 in Canada, 159 in Mexico/South America and 843 in Europe and Asia. Approximately 698 of our employees are represented under seven separate U.S. or Canadian collective bargaining agreements which terminate at various times between August 2006 and May 2009. The contract which expires in August 2006 currently covers 137 employees. Preliminary informal negotiations for an extension of this agreement have begun. There is another contract which expires in March 2007 and currently covers 156 employees. We believe that our relationship with our employees is good. RAW MATERIALS AND COMPONENTS Our principal raw materials and components are steel, consisting of structural steel, processed steel bar, forging bar steel, steel rod and wire, steel pipe and tubing and tool steel; electric motors; bearings; gear reducers; castings; and electro-mechanical components. These commodities are all available from multiple sources. We purchase most of these raw materials and components from a limited number of strategic and preferred suppliers under long-term agreements which are negotiated on a company-wide basis through our Purchasing Council to take advantage of volume discounts. As the steel industry is cyclical and steel prices can fluctuate significantly, beginning in approximately January 2004 we saw significant cost increases in certain types of steel in certain markets. We generally seek to pass on materials price increases to our distribution channel partners and end-user customers, although a lag period often exists. We believe we have been successful in instituting surcharges and price increases to pass on these material cost increases. We will continue to monitor our costs and reevaluate our pricing policies. Our ability to pass on these increases is determined by market conditions. MANUFACTURING We manufacture approximately 90% of the products we sell. Additionally, we outsource components and finished goods from an established global network of suppliers. We regularly upgrade our manufacturing facilities and invest in tooling, equipment and technology. We have implemented Lean Manufacturing in our plants which has resulted in inventory reductions, reductions in required manufacturing floor area, shorter product lead time and increased productivity. Our manufacturing operations are highly integrated. Although raw materials and some components such as motors, bearings, gear reducers, castings and electro-mechanical components, are purchased, our vertical integration enables us to produce many of the components used in the manufacturing of our products. We manufacture hoist lifting chain, steel forged gear blanks, lift wheels, trolley wheels, and hooks and other attachments for incorporation into our hoist products. These products are also sold as spare parts for hoist repair. Additionally, our hoists are used as components in the manufacture of crane systems by us and by our crane-builder customers. We believe this vertical integration results in lower production costs, greater manufacturing flexibility and higher product quality, and reduces our reliance on outside suppliers. 12 ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATION Like most manufacturing companies, we are subject to various federal, state and local laws relating to the protection of the environment. To address the requirements of such laws, we have adopted a corporate environmental protection policy which provides that all of our owned or leased facilities shall, and all of our employees have the duty to, comply with all applicable environmental regulatory standards, and we have initiated an environmental auditing program for our facilities to ensure compliance with such regulatory standards. We have also established managerial responsibilities and internal communication channels for dealing with environmental compliance issues that may arise in the course of our business. We have made and could be required to continue to make significant expenditures to comply with environmental requirements. Because of the complexity and changing nature of environmental regulatory standards, it is possible that situations will arise from time to time requiring us to incur additional expenditures in order to ensure environmental regulatory compliance. However, we are not aware of any environmental condition or any operation at any of our facilities, either individually or in the aggregate, which would cause expenditures having a material adverse effect on our results of operations, financial condition or cash flows and, accordingly, have not budgeted any material capital expenditures for environmental compliance for fiscal 2007. Certain environmental laws, such as the U.S. federal Superfund laws and similar state statutes, can impose liability on current or former owners or operators of a site, or on parties who disposed of waste at a site, for the entire cost of cleaning up a site contaminated by hazardous substances. These costs may be assessed regardless of whether the party owned or operated the site at the time of the releases or the lawfulness of the original disposal activity. The required remedial activities are usually performed in the context of administrative or judicial enforcement proceedings brought by regulatory authorities, or in the context of voluntary cleanup agreements entered into with such regulatory authorities. We could incur substantial costs, including cleanup costs and third-party claims, as a result of liabilities under such environmental laws. For example, we have been identified by the New York State Department of Environmental Conservation, or NYSDEC, along with other companies, as a potentially responsible party, or PRP, at the Frontier Chemical Site in Pendleton, New York, a site listed on NYSDEC's Registry of Inactive Hazardous Waste Disposal sites. From 1958 to 1977, the Pendleton Site had been operated as a commercial waste treatment and disposal facility. We sent waste pickling liquor generated at our facility in Tonawanda, New York, to the Pendleton Site during the period from approximately 1969 to 1977, and we participated with other PRPs in conducting the remediation of the Pendleton Site under a consent order with NYSDEC. Construction in connection with the remediation has been completed and this project is currently in its operations and maintenance phase. As a result of a negotiated cost allocation among the participating PRPs, we have paid our pro rata share of the remediation construction costs and accrued our share of the ongoing operations and maintenance costs. As of March 31, 2006, we have paid approximately $1.0 million in remediation and ongoing operations and maintenance costs associated with the Pendleton Site. The participating PRPs have identified and commenced a cost recovery action against a number of other parties who sent hazardous substances to the Pendleton Site. Full settlements have been reached with all defendants in the cost recovery action. All settlement payments in connection with the Pendleton Site litigation have been made, and we have received $0.2 million as our share of the settlement proceeds. We have also entered into a settlement agreement with one of our insurance carriers in the amount of $0.7 million in connection with the Pendleton Site and have received payment in full of the settlement amount. We are investigating past waste disposal activities at a facility in Cleveland, Texas, operated by our subsidiary, Crane Equipment and Service, Inc., and we have entered into a voluntary agreement with the Texas Commission on Environmental Quality to investigate and, as appropriate, remediate environmental conditions at this site. At this time site investigation activities are ongoing and it is not possible to determine the costs of site remediation, if any, but we believe any such costs will not have a material adverse effect on our operating results or financial condition. We have filed a lawsuit in federal district court against the persons we believe are responsible for the past waste disposal activities. The purpose of the lawsuit is to recover our costs of investigating and remediating site conditions caused by such activities. For all of the currently known environmental matters, we have accrued a total of $0.8 million as of March 31, 2006, which, in our opinion, is sufficient to deal with such matters. Further, our management believes that the environmental matters known to, or anticipated by, us should not, individually or in the aggregate, have a material adverse effect on our operating results or financial condition. However, there can be no assurance that potential liabilities and expenditures associated with unknown environmental matters, unanticipated events, or future compliance with environmental laws and regulations will not have a material adverse effect on us. Our operations are also governed by many other laws and regulations, including those relating to workplace safety and worker health, principally OSHA and regulations thereunder. We believe that we are in material compliance with these laws and regulations and do not believe that future compliance with such laws and regulations will have a material adverse effect on our operating results or financial condition. 13 AVAILABLE INFORMATION Our internet address is WWW.CMWORKS.COM. We make available free of charge through our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the Securities and Exchange Commission. ITEM 1A. RISK FACTORS Columbus McKinnon is subject to a number of risk factors that could negatively affect our results from business operations or cause actual results to differ materially from those projected or indicated in any forward looking statement. Such factors include, but are not limited to, the following: OUR BUSINESS IS CYCLICAL AND IS AFFECTED BY INDUSTRIAL ECONOMIC CONDITIONS, AND OVER THE PAST SEVERAL YEARS WE EXPERIENCED SUBSTANTIALLY REDUCED DEMAND FOR OUR PRODUCTS. Many of the end-users of our products are in highly cyclical industries, such as general manufacturing and construction, that are sensitive to changes in general economic conditions. Their demand for our products, and thus our results of operations, is directly related to the level of production in their facilities, which changes as a result of changes in general economic conditions and other factors beyond our control. In fiscal 2003 and 2004, for example, we experienced significantly reduced demand for our products, generally as a result of the global economic slowdown, and more specifically as a result of the dramatic decline in capital goods spending in the industries in which our end-users operate. These lower levels of demand resulted in a 24.2% decline in net sales from fiscal 2001 to fiscal 2004, from $586.2 million to $444.6 million. This decline in net sales resulted in a 54.6% decrease in our income from operations during the same period. We have seen a significant improvement in demand for our products in fiscal 2005 and 2006. Our net sales for fiscal 2006 were $556.0 million, up $111.4 million or 25.1% from fiscal 2004 sales. If the current upturn does not continue or if there is deterioration in the general economy or in the industries we serve, our business, results of operations and financial condition could be materially adversely affected. In addition, the cyclical nature of our business could at times also adversely affect our liquidity and ability to borrow under our revolving credit facility. WE RELY IN LARGE PART ON INDEPENDENT DISTRIBUTORS FOR SALES OF OUR PRODUCTS. We depend on independent distributors to sell our products and provide service and aftermarket support to our end-user customers. Distributors play a significant role in determining which of our products are stocked at the branch locations, and hence are most readily accessible to aftermarket buyers, and the price at which these products are sold. Almost all of the distributors with whom we transact business offer competitive products and services to our end-user customers. We do not have written agreements with our distributors located in the United States. The loss of a substantial number of these distributors or an increase in the distributors' sales of our competitors' products to our ultimate customers could materially reduce our sales and profits. WE ARE SUBJECT TO CURRENCY FLUCTUATIONS FROM OUR INTERNATIONAL SALES. Our products are sold in many countries around the world. Thus, a portion of our revenues (approximately $161.4 million in fiscal year 2006) is generated in foreign currencies, including principally the euro and the Canadian dollar, while a portion of the costs incurred to generate those revenues are incurred in other currencies. Since our financial statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our earnings. We currently do not have exchange rate hedges in place to reduce the risk of an adverse currency exchange movement. Currency fluctuations may impact our financial performance in the future. 14 OUR INTERNATIONAL OPERATIONS POSE CERTAIN RISKS THAT MAY ADVERSELY IMPACT SALES AND EARNINGS. We have operations and assets located outside of the United States, primarily in Canada, Mexico, Germany, the United Kingdom, Denmark, France and China. In addition, we import a portion of our hoist product line from Asia, and sell our products to distributors located in approximately 50 countries. In fiscal year 2006, approximately 36% of our net sales were derived from non-U.S. markets. These international operations are subject to a number of special risks, in addition to the risks of our domestic business, including currency exchange rate fluctuations, differing protections of intellectual property, trade barriers, labor unrest, exchange controls, regional economic uncertainty, differing (and possibly more stringent) labor regulation, risk of governmental expropriation, domestic and foreign customs and tariffs, current and changing regulatory environments, difficulty in obtaining distribution support, difficulty in staffing and managing widespread operations, differences in the availability and terms of financing, political instability and risks of increases in taxes. Also, in some foreign jurisdictions we may be subject to laws limiting the right and ability of entities organized or operating therein to pay dividends or remit earnings to affiliated companies unless specified conditions are met. These factors may adversely affect our future profits. Part of our strategy is to expand our worldwide market share and reduce costs by strengthening our international distribution capabilities and sourcing basic components in foreign countries, in particular in Mexico and China. Implementation of this strategy may increase the impact of the risks described above, and we cannot assure you that such risks will not have an adverse effect on our business, results of operations or financial condition. OUR BUSINESS IS HIGHLY COMPETITIVE AND INCREASED COMPETITION COULD REDUCE OUR SALES, EARNINGS AND PROFITABILITY. The principal markets that we serve within the material handling industry are fragmented and highly competitive. Competition is based primarily on performance, functionality, price, brand recognition, customer service and support, and product availability. Our competition in the markets in which we participate comes from companies of various sizes, some of which have greater financial and other resources than we do. Increased competition could force us to lower our prices or to offer additional services at a higher cost to us, which could reduce our gross margins and net income. The greater financial resources or the lower amount of debt of certain of our competitors may enable them to commit larger amounts of capital in response to changing market conditions. Certain competitors may also have the ability to develop product or service innovations that could put us at a disadvantage. In addition, some of our competitors have achieved substantially more market penetration in certain of the markets in which we operate, including crane building. If we are unable to compete successfully against other manufacturers of material handling equipment, we could lose customers and our revenues may decline. There can also be no assurance that customers will continue to regard our products favorably, that we will be able to develop new products that appeal to customers, that we will be able to improve or maintain our profit margins on sales to our customers or that we will be able to continue to compete successfully in our core markets. OUR PRODUCTS INVOLVE RISKS OF PERSONAL INJURY AND PROPERTY DAMAGE, WHICH EXPOSES US TO POTENTIAL LIABILITY. Our business exposes us to possible claims for personal injury or death and property damage resulting from the products that we sell. We maintain insurance through a combination of self-insurance retentions and excess insurance coverage. We monitor claims and potential claims of which we become aware and establish accrued liability reserves for the self-insurance amounts based on our liability estimates for such claims. We cannot give any assurance that existing or future claims will not exceed our estimates for self-insurance or the amount of our excess insurance coverage. In addition, we cannot give any assurance that insurance will continue to be available to us on economically reasonable terms or that our insurers would not require us to increase our self-insurance amounts. Claims brought against us that are not covered by insurance or that result in recoveries in excess of insurance coverage could have a material adverse effect on our results and financial condition. 15 OUR FUTURE OPERATING RESULTS MAY BE AFFECTED BY FLUCTUATIONS IN STEEL PRICES. WE MAY NOT BE ABLE TO PASS ON INCREASES IN RAW MATERIAL COSTS TO OUR CUSTOMERS. The principal raw material used in our chain, forging and crane building operations is steel. The steel industry as a whole is highly cyclical, and at times pricing can be volatile due to a number of factors beyond our control, including general economic conditions, labor costs, competition, import duties, tariffs and currency exchange rates. During 2004, the market price of steel increased significantly but has stabilized, or even decreased in some steel categories during 2005 and 2006. This volatility can significantly affect our raw material costs. In an environment of increasing raw material prices, competitive conditions will determine how much of the steel price increases we can pass on to our customers. During 2004 through 2006, we were successful in adding and maintaining a surcharge to the prices of our high steel content products or incorporating them as price increases, reflecting the increased cost of steel. In the future, to the extent we are unable to pass on any steel price increases to our customers, our profitability could be adversely affected. WE DEPEND ON OUR SENIOR MANAGEMENT TEAM AND THE LOSS OF ANY MEMBER COULD ADVERSELY AFFECT OUR OPERATIONS. Our success is dependent on the management and leadership skills of our senior management team. The loss of any of these individuals or an inability to attract, retain and maintain additional personnel could prevent us from implementing our business strategy. We cannot assure you that we will be able to retain our existing senior management personnel or to attract additional qualified personnel when needed. Effective August 4, 2005, our former Chief Financial Officer, Robert R. Friedl, resigned as an employee of the company. We have not entered into employment agreements with any of our senior management personnel. WE ARE SUBJECT TO VARIOUS ENVIRONMENTAL LAWS WHICH MAY REQUIRE US TO EXPEND SIGNIFICANT CAPITAL AND INCUR SUBSTANTIAL COST. Our operations and facilities are subject to various federal, state, local and foreign requirements relating to the protection of the environment, including those governing the discharges of pollutants in the air and water, the generation, management and disposal of hazardous substances and wastes and the cleanup of contaminated sites. We have made, and will continue to make, expenditures to comply with such requirements. Violations of, or liabilities under, environmental laws and regulations, or changes in such laws and regulations (such as the imposition of more stringent standards for discharges into the environment), could result in substantial costs to us, including operating costs and capital expenditures, fines and civil and criminal sanctions, third party claims for property damage or personal injury, clean-up costs or costs relating to the temporary or permanent discontinuance of operations. Certain of our facilities have been in operation for many years, and we have remediated contamination at some of our facilities. Over time, we and other predecessor operators of such facilities have generated, used, handled and disposed of hazardous and other regulated wastes. Additional environmental liabilities could exist, including clean-up obligations at these locations or other sites at which materials from our operations were disposed, which could result in substantial future expenditures that cannot be currently quantified and which could reduce our profits or have an adverse effect on our financial condition. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 16 ITEM 2. PROPERTIES We maintain our corporate headquarters in Amherst, New York and, as of March 31, 2006, conducted our principal manufacturing at the following facilities:
SQUARE OWNED OR BUSINESS LOCATION PRODUCTS/OPERATIONS FOOTAGE LEASED SEGMENT - ----------------------------------- -------------------------------------------------- ------------ ------------ ------------ UNITED STATES: Muskegon, MI Hoists 441,225 Owned Products Charlotte, NC Industrial components 243.750 Owned Products Wadesboro, NC Hoists 186,057 Owned Products Lexington, TN Chain 175,700 Owned Products Cedar Rapids, IA Forged attachments 100,000 Owned Products Eureka, IL Cranes 91,300 Owned Products Damascus, VA Hoists 90,338 Owned Products Chattanooga, TN Forged attachments 77,000 Owned Products Greensburg, IN Scissor lifts 70,000 Owned Solutions Lisbon, OH Hoists 36,600 Owned Products Cleveland, TX Cranes 35,000 Owned Products Tonawanda, NY Light-rail crane systems 35,000 Owned Solutions Chattanooga, TN Forged attachments 33,000 Owned Products Sarasota, FL Tire shredders 24,954 Owned Solutions INTERNATIONAL: Santiago, Tianguistenco, Mexico Hoists and chain 85,000 Owned Products Velbert, Germany Hoists 72,200 Leased Products Arden, Denmark Project design and conveyors 71,500 Owned Solutions Hangzhou, China Hoists and hand pallet trucks 50,000 Leased Products Stoney Creek, Ontario, Canada Cranes 44,255 Owned Products Hangzhou, China Metal fabrication, textiles and textile strappings 37,000 Leased Products Hangzhou, China Textile strappings 30,000 Leased Products Chester, United Kingdom Plate clamps 28,100 Leased Products Romeny-sur-Marne, France Rotary unions 21,550 Owned Products Arden, Denmark Project construction 19,500 Leased Solutions Velbert, Germany Hoists 12,800 Leased Products Szekesfeher, Hungary Textiles and textile strappings 10,000 Leased Products
In addition, we have a total of 35 sales offices, distribution centers and warehouses. We believe that our properties have been adequately maintained, are in generally good condition and are suitable for our business as presently conducted. We also believe our existing facilities provide sufficient production capacity for our present needs and for our anticipated needs in the foreseeable future. Upon the expiration of our current leases, we believe that either we will be able to secure renewal terms or enter into leases for alternative locations at market terms. ITEM 3. LEGAL PROCEEDINGS From time to time, we are named a defendant in legal actions arising out of the normal course of business. We are not a party to any pending legal proceeding other than ordinary, routine litigation incidental to our business. We do not believe that any of our pending litigation will have a material impact on our business. We maintain comprehensive general liability insurance against risks arising out of the normal course of business through our wholly-owned insurance subsidiary of which we are the sole policy holder. The limits of this coverage are currently $3.0 million per occurrence ($2.0 million through March 31, 2003) and $6.0 million aggregate ($5.0 million through March 31, 2003) per year. We obtain additional insurance coverage from independent insurers to cover potential losses in excess of these limits. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 17 PART II ------- ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Our common stock is traded on the Nasdaq Stock Market under the symbol "CMCO." As of May 31, 2006, there were 488 holders of record of our common stock. We paid quarterly cash dividends on our common stock from 1988 through the second quarter of fiscal 2002. In January 2002, we announced that we were indefinitely suspending the payment of cash dividends on our common stock in order to dedicate our cash resources to the repayment of outstanding indebtedness. Our current credit agreement allows, but limits our ability to pay dividends. We may reconsider or revise this policy from time to time based upon conditions then existing, including, without limitation, our earnings, financial condition, capital requirements, restrictions under credit agreements or other conditions our Board of Directors may deem relevant. The following table sets forth, for the fiscal periods indicated, the high and low sale prices per share for our common stock as reported on the Nasdaq Stock Market. PRICE RANGE OF COMMON STOCK ------------ HIGH LOW ---- --- YEAR ENDED MARCH 31, 2004 First Quarter................................. $ 2.72 $ 1.30 Second Quarter................................ 4.84 2.31 Third Quarter................................. 7.80 4.58 Fourth Quarter............................. 11.72 6.35 YEAR ENDED MARCH 31, 2005 First Quarter................................. $ 8.62 $ 4.87 Second Quarter................................ 9.81 6.69 Third Quarter.............................. 9.38 6.80 Fourth Quarter................................ 14.31 8.20 YEAR ENDED MARCH 31, 2006 First Quarter................................. $ 13.82 $ 8.35 Second Quarter................................ 25.15 10.70 Third Quarter.............................. 26.00 18.64 Fourth Quarter................................ 28.64 20.86 On May 31, 2006, the closing price of our common stock on the Nasdaq Stock Market was $26.30 per share. 18 ITEM 6. SELECTED FINANCIAL DATA The consolidated balance sheets as of March 31, 2006 and 2005 and the related statements of operations, cash flows and shareholders' equity for the three years ended March 31, 2006 and notes thereto appear elsewhere in this annual report. The selected consolidated financial data presented below should be read in conjunction with, and are qualified in their entirety by "Management's Discussion and Analysis of Results of Operations and Financial Condition," our consolidated financial statements and the notes thereto and other financial information included elsewhere in this annual report.
FISCAL YEARS ENDED MARCH 31, ------------------------------------------------------------- 2006 2005 2004 2003 2002 ----------- --------- --------- ---------- --------- (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) ------------------------------------------------------------- STATEMENT OF OPERATIONS DATA (1): Net sales $ 556.0 $ 514.8 $ 444.6 $ 453.3 $ 480.0 Cost of products sold 408.4 388.9 339.8 346.0 359.5 ------------------------------------------------------------- Gross profit 147.6 125.9 104.8 107.3 120.5 Selling expenses 54.3 52.3 48.3 47.4 43.5 General and administrative expenses 33.6 31.7 25.0 26.6 28.3 Restructuring charges (2) 1.6 0.9 1.2 3.7 9.6 Write-off/amortization of intangibles (3) 0.2 0.3 0.4 4.2 11.0 ------------------------------------------------------------- Income from operations 57.9 40.7 29.9 25.4 28.1 Interest and debt expense 24.7 27.6 28.9 32.0 29.4 Other (income) and expense, net 5.0 (5.2) (4.2) (2.1) 2.4 ------------------------------------------------------------- Income (loss) before income taxes 28.2 18.3 5.2 (4.5) (3.7) Income tax (benefit) expense (30.9) 2.2 4.0 1.5 2.3 ------------------------------------------------------------- Income (loss) from continuing operations 59.1 16.1 1.2 (6.0) (6.0) Income (loss) from discontinued operations (1) 0.7 0.6 -- -- (7.9) Loss on disposition of discontinued operations (1) -- -- -- -- (121.4) ------------------------------------------------------------- Total income (loss) from discontinued operations 59.8 0.6 -- -- (129.3) Cumulative effect of change in accounting principle (3) -- -- -- (8.0) -- ------------------------------------------------------------- Net income (loss) $ 59.8 $ 16.7 $ 1.2 $ (14.0) $ (135.3) ============================================================= Diluted earnings (loss) per share from continuing $ 3.56 $ 1.09 $ 0.08 $ (0.42) $ (0.41) operations Basic earnings (loss) per share from continuing operations $ 3.69 $ 1.10 $ 0.08 $ (0.42) $ (0.41) Weighted average shares outstanding - assuming dilution 16.6 14.8 14.6 14.5 14.4 Weighted average shares outstanding - basic 16.1 14.6 14.6 14.5 14.4 BALANCE SHEET DATA (AT END OF PERIOD): Total assets (4) $ 566.0 $ 480.9 $ 473.4 $ 482.6 $ 524.3 Total debt (5) 209.8 270.9 293.4 316.3 350.4 Total shareholders' equity 204.4 81.8 63.0 52.7 71.6 OTHER FINANCIAL DATA: Net cash provided by operating activities 48.5 17.2 26.4 14.2 49.8 Net cash provided by (used in) investing activities (6.4) 3.1 4.3 16.0 (1.6) Net cash used in financing activities (6.4) (21.9) (21.5) (41.9) (48.5) Capital expenditures 8.4 5.9 3.6 5.0 4.7 Cash dividends per common share 0.00 0.00 0.00 0.00 0.14 - ------------- 19 (1) Statement of Operations data represents our continuing operations for all periods presented and has been restated to remove ASI results from the continuing operations data. In May 2002, the Company sold substantially all of the assets of ASI. The Company received $20,600,000 in cash and an 8% subordinated note in the principal amount of $6,800,000 which is payable over 10 years beginning in August 2004. The full amount of this note has been reserved due to the uncertainty of collection. Principal payments received on the note are recorded as income from discontinued operations at the time of receipt. All interest and principal payments required under the note have been made to date. The Company recorded an after-tax loss of $121,475,000 or $8.43 per diluted share and reflected ASI as a discontinued operation in the fourth quarter of fiscal 2002. The loss included closing costs from the transaction and estimated operating losses of the discontinued operation through the date of the sale, May 10, 2002. The loss was due primarily to the write-off of $104,000,000 of goodwill and a $17,475,000 loss related to the write-off of the remaining net assets in excess of the selling price. Refer to Note 3 to our consolidated financial statements for additional information on Discontinued Operations. (2) Refer to "Results of Operations" in "Item 7. Management's Discussion and Analysis of Results of Operation and Financial Condition" for a discussion of the restructuring charges related to fiscal 2006, 2005, and 2004. Restructuring charges for fiscal 2003 related to the closure, merging, or significant reorganization of five facilities. These costs included $1.8 million of severance relating to approximately 215 employees, $1.0 million of lease termination, facility wind-down, preparation for sale and maintenance of non-operating facilities prior to disposal and $0.9 million for facility closure costs on projects begun in 2002. Restructuring charges for 2002 include exit costs of $2.4 million for severance relating to approximately 250 employees and $7.2 million of lease termination, facility wind-down, and maintenance of non-operating facilities prior to disposal. Included in the restructuring charges was approximately $8.3 million to terminate a facility lease, resulting in the purchase of the property with an estimated fair value of approximately $2.3 million which was recorded as an offset to the restructuring charges. (3) As a result of our adoption of SFAS 142 effective April 1, 2002, goodwill is no longer amortized. The charge in fiscal 2003 represents a $4.0 million impairment write-off. In addition, the cumulative effect of change in accounting principle represents the impact of adopting SFAS 142. (4) Total assets include net assets of discontinued operations of $21.5 million as of March 31, 2002. (5) Total debt includes long-term debt, including the current portion, notes payable and subordinated debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION This section should be read in conjunction with our consolidated financial statements included elsewhere in this annual report. Comments on the results of operations and financial condition below refer to our continuing operations, except in the section entitled "Discontinued Operations." EXECUTIVE OVERVIEW We are a leading manufacturer and marketer of hoists, cranes, chain, conveyors, material handling systems, lift tables and component parts serving a wide variety of commercial and industrial end-user markets. Our products are used to efficiently and ergonomically move, lift, position or secure objects and loads. Our Products segment sells a wide variety of powered and manually operated wire rope and chain hoists, industrial crane systems, chain, hooks and attachments, actuators and rotary unions. Our Solutions segment designs, manufactures, and installs application-specific material handling systems and solutions for end-users to improve workstation and facility-wide work flow. Founded in 1875, we have grown to our current leadership position through organic growth and also as the result of the 14 businesses we acquired between February 1994 and April 1999. We have developed our leading market position over our 131-year history by emphasizing technological innovation, manufacturing excellence and superior after-sale service. In addition, the acquisitions significantly broadened our product lines and services and expanded our geographic reach, end-user markets and customer base. Integration of the operations of the acquired businesses with our previously existing businesses is substantially complete. Ongoing integration of these businesses includes improving our productivity, further reducing our excess manufacturing capacity and extending our sales activities to the European and Asian marketplaces. We are executing those initiatives through our Lean Manufacturing efforts, facility rationalization program, new product development and expanded sales activities. Shareholder value will be enhanced through continued emphasis on the improvement of the fundamentals including manufacturing efficiency, cost containment, efficient capital investment, market expansion and renewed customer focus. 20 We maintain a strong domestic market share with significant leading North American market positions in hoists, lifting and sling chain, and forged attachments. To broaden our product offering in markets where we have a strong competitive position as well as to facilitate penetration into new geographic markets, we have heightened our new product development activities. This includes development of hoist lines in accordance with international standards, to complement our current offering of hoist products designed in accordance with U.S. standards. To further expand our global sales, we are introducing certain of our products that historically have been distributed only in North America and also introducing new products through our existing European distribution network. Furthermore, we are working to build a distribution network in China to capture an anticipated growing demand for material handling products as that economy continues to industrialize. These investments in international markets and new products are part of our focus on our greatest opportunities for growth. International sales increased 3.7% from approximately $191,300 to $198,300 during fiscal 2006 and overall sales increased 8.0% over the same period last year. Management believes that the growth rate of total sales may moderate in future periods due to more difficult comparisons with our fiscal 2006 periods. We monitor such indicators as U.S. Industrial Capacity Utilization, which has been increasing since July 2003. In addition, we continue to monitor the potential impact of global and domestic trends, including rising energy costs, steel price fluctuations, rising interest rates and uncertainty in some end-user markets around the globe. Our Lean Manufacturing efforts are fundamentally changing our manufacturing processes to be more responsive to customer demand and improving on-time delivery and productivity. From 2001 to 2004 under our facility rationalization program, we closed 13 facilities and consolidated several product lines. During fiscal 2006, certain families within our mechanical jack line were eliminated and several smaller sales offices were closed with potential opportunity for further rationalization. We also continue to undergo assessments for possible divestiture of several less-strategic businesses. Our manipulator and specialty marine chain businesses were sold in fiscal 2004 and two others remain as possible divestiture candidates, our conveyor business which comprises a majority of our Solutions segment and a specialty crane business within our Products segment. During fiscal 2006, we completed the sale and partial leaseback of warehouse in Ontario, Canada at a $0.6 million gain as well as the sale of an unused parcel of land in Charlotte, North Carolina. Fiscal 2005 saw the completion of the sale of a Chicago-area property resulting in a $2.7 million gain and the sale and partial leaseback of our corporate headquarters building in Amherst, New York at a $2.2 million gain, of which $1.0 million was recorded in fiscal 2005 and the remainder is being recognized pro-rata over the life of the 10-year leaseback period. Additionally during 2005, we sold a small parcel of land in Virginia. We will continue to sell surplus real estate resulting from our facility rationalization projects and those sales may result in gains or losses. Consistent with most companies, over the past several years we have been facing significantly increased costs for fringe benefits such as health insurance, workers compensation insurance and pension. Combined, those benefits cost us over $35 million in fiscal 2006 and we work diligently to balance cost control with the need to provide competitive employee benefits packages for our associates. Another cost area of focus is steel. We utilize approximately $35 million to $40 million of steel annually in a variety of forms including rod, wire, bar, structural and others. With increases in worldwide demand for steel and fluctuating scrap steel prices, we experienced fluctuations in our costs that we reflected as price increases and surcharges to our customers. We believe we have been successful in instituting surcharges and price increases to pass on these material cost increases. We will continue to monitor our costs and reevaluate our pricing policies. RESULTS OF OPERATIONS Net sales of our Products and Solutions segments, in millions of dollars and with percentage changes for each segment, were as follows:
CHANGE CHANGE FISCAL YEARS ENDED MARCH 31, 2006 VS. 2005 2005 VS. 2004 ---------------------------- ------------- ------------- 2006 2005 2004 AMOUNT % AMOUNT % ---- ---- ---- ------ - ------ - Products segment............. $ 493.9 $ 453.1 $ 394.2 $ 40.8 9.0 $ 58.9 14.9 Solutions segment............ 62.1 61.7 50.4 0.4 0.6 11.3 22.4 -------- -------- -------- --------- ------ --------- ------ Total net sales......... $ 556.0 $ 514.8 $ 444.6 $ 41.2 8.0 $ 70.2 15.8 ======== ======== ======== ========= =========
21 Fiscal 2006 saw continued improvement in the industrial sector of North America and Europe which began in fiscal 2005 compared to the downturn in the general North American and European economies and the industrial sectors in particular that had been occurring through fiscal 2004. In addition, sales growth was fostered by the expansion of international selling efforts. Net sales for fiscal 2006 of $556.0 increased by $41.2 million or 8.0% from fiscal 2005, and net sales for fiscal 2005 of $514.8 million increased by $70.2 million, or 15.8%, from fiscal 2004. The Products segment for fiscal 2006 experienced a net sales increase of 9.0% over the prior year. The increase was due to a combination of increased volume on the continued growth of the North American industrial economy as well as price increases ($17.8 million). The Products segment for fiscal 2005 experienced a net sales increase of 14.9% over the prior year. The increase was due to a combination of higher volume as the North American industrial economy recovered as well as price increases ($19.7 million) including surcharges specifically in response to rising steel costs. Fiscal 2005 was impacted by the weakening U.S. dollar relative to other currencies, particularly the euro, and reported Products segment sales were favorably affected by $6.2 million. For fiscal 2006, our Solutions segment net sales were flat as increased volume was offset by the strengthening U.S. dollar relative to the Danish Krone resulting in an unfavorable impact of $0.9 million. For fiscal 2005, our Solutions segment net sales increased 22.4% as a result of increased volume in Europe at our conveyor business. Gross profit of the Products and Solutions segments, in millions of dollars and as a percentage of total segment net sales, was as follows:
FISCAL YEARS ENDED MARCH 31, -------------------------------------------------------------- 2006 2005 2004 ---- ---- ---- AMOUNT % AMOUNT % AMOUNT % ------ - ------ - ------ - Products segment............ $ 138.1 28.0 $ 117.1 25.8 $ 99.2 25.2 Solutions segment........... 9.5 15.3 8.8 14.3 5.6 11.1 --------- ---- --------- ---- -------- ---- Total gross profit..... $ 147.6 26.5 $ 125.9 24.5 $ 104.8 23.6 ========= ========= ========
Our gross profit margins were approximately 26.5%, 24.5% and 23.6% in fiscal 2006, 2005 and 2004, respectively. The Products segment for fiscal 2006 and fiscal 2005 continues to see improved gross margins as a result of operational leverage at increased volumes from the prior years and the impact of previous facility rationalization projects and lean manufacturing activities. The Solutions segment's gross profit margins increased in Fiscal 2006 as a result of a shift in product mix at our European conveyor business to more internally developed product costs from resale products, increased volume at certain facilities, and some rationalization cost savings. The Solutions segment's gross profit margins increased in Fiscal 2005 as a result of the recovery of European markets which led to increased volume for one division, as well as the divestiture of a poor performing, non-strategic business at the end of fiscal 2004. Selling expenses were $54.3 million, $52.3 million and $48.3 million in fiscal 2006, 2005 and 2004, respectively. As a percentage of net sales, selling expenses were 9.8%, 10.2% and 10.9% in fiscal 2006, 2005 and 2004, respectively. The fiscal 2006 increase includes additional salaries ($1.2 million), increased advertising, marketing, warehousing and travel ($1.3 million), and new market costs ($0.4 million) offset by a decrease in foreign pension costs ($0.4 million) and lower commission expense ($0.8 million). Fiscal 2005 includes a $1.2 million increase resulting from the weakening of the U.S. dollar relative to foreign currencies, particularly the euro, upon translation of foreign operating results into U.S. dollars for reporting purposes. Fiscal 2005 also includes increases related to variable costs associated with the increase sales volume, mainly commissions ($1.3 million), increased foreign pension costs ($0.5 million) and increased investments in international markets ($0.5 million). General and administrative expenses were $33.6 million, $31.7 million and $25.0 million in fiscal 2006, 2005 and 2004, respectively. As a percentage of net sales, general and administrative expenses were 6.1%, 6.2% and 5.6% in fiscal 2006, 2005 and 2004, respectively. The Fiscal 2006 increase includes increases in salaries/personnel including variable compensation ($3.0 million), employee development/professional fees ($0.7 million), offset by lower foreign pension costs ($1.0 million), decreased external Sarbanes-Oxley Section 404 savings ($0.9 million) and currency translation ($0.2 million). Fiscal 2005 increases include variable compensation ($2.3 million), compliance costs associated with Sarbanes-Oxley Section 404 implementation ($1.4 million), increasing foreign pension costs ($1.2 million), translation of foreign currencies into the weaker U.S. dollar for reporting purposes ($0.7 million) and increases in bad debt reserves based on increased accounts receivable levels ($0.5 million). Restructuring charges of $1.6 million, $0.9 million and $1.2 million, or 0.3%, 0.2% and 0.3% of net sales in fiscal 2006, 2005 and 2004, respectively, were primarily attributable to the ongoing organizational rationalizations occurring at the company. The fiscal 2006 charges consist of the cost of removal of certain environmentally hazardous materials ($0.6 million), inventory disposal costs related to the rationalization of certain product families within our mechanical jack lines ($0.4 million), the ongoing maintenance costs of a 22 non-operating facility accrued based on anticipated sale date ($0.3 million) and other facility rationalization projects ($0.3 million). The fiscal 2005 restructuring charges consist of $0.5 million of costs related to facility rationalizations being expensed on an as incurred basis as a result of the project timing being subsequent to the adoption of SFAS No. 144. Fiscal 2005 also included $0.3 million of write-down on the net realizable value of a facility based on changes in market conditions and a reassessment of its net realizable value. During fiscal 2004, we recorded restructuring charges of $1.2 million related to various employee termination benefits and facility costs as a result of our continued closure, merging and reorganization and completion of two open projects from fiscal 2003. The remaining liability of as of March 31, 2006 relates to the accrued costs for the removal of the environmentally hazardous materials ($0.5 million) and the ongoing maintenance costs of a non-operating facility ($0.3 million). Write-off/amortization of intangibles was $0.2 million, $0.3 million and $0.4 million in fiscal 2006, 2005 and 2004, respectively. Interest and debt expense was $24.7 million, $27.6 million and $28.9 million in fiscal 2006, 2005 and 2004, respectively. As a percentage of net sales, interest and debt expense was 4.4%, 5.4% and 6.5% in fiscal 2006, 2005 and 2004, respectively. The fiscal 2006 and 2005 decreases primarily resulted from lower debt levels as we continue to execute our strategy of debt reduction and increasing our financial flexibility. Other (income) and expense, net was $5.0 million, ($5.2) million and ($4.2) million in fiscal 2006, 2005 and 2004, respectively. Fiscal 2006 includes $9.2 million of redemption costs associated with the repurchase of outstanding senior secured and senior subordinated notes, offset by $3.1 million from investment and interest income and $0.8 million of gains from sales of real estate. Fiscal 2005 includes $3.7 million in gains from sales of real estate, $2.1 million from investment and interest income, offset by $0.3 million of additional losses from 2004 business divestitures. The income in fiscal 2004 included $5.7 million from asset sales and $1.9 million from an interest rate swap partially offset by $3.9 million of losses upon business divestitures. Income taxes as a percentage of income before income taxes were not reflective of U.S statutory rates in fiscal 2006, 2005 or 2004. A valuation allowance of $50.5 million existed at March 31, 2005 due to the uncertainly of whether our U.S. federal net operating loss carryforwards ("NOLs"), deferred tax assets and capital loss carryforwards might ultimately be realized. We utilized $14.9 million of the U.S. federal NOLs in fiscal 2006 reducing the valuation allowance by $5.2 million. As a result of our increased operating performance over the past several years, we reevaluated the certainty as to whether our remaining U.S. federal NOLs and other deferred tax assets may ultimately be realized. As a result of the determination that it is more likely than not that nearly all of the remaining deferred tax assets will be realized, $38.6 million of the remaining valuation allowance was reversed as of March 31, 2006. The fiscal 2005 effective tax rate varies due to the benefit received from the utilization of the domestic net operating loss carry-forwards that had fully reserved and jurisdictional mix. Income tax expense primarily results from non-U.S. taxable income and state taxes on U.S. taxable income. The fiscal 2004 effective tax rate varies due to jurisdictional mix and the existence of losses at certain subsidiaries for which no benefit was recorded. LIQUIDITY AND CAPITAL RESOURCES In March 2006, we amended and expanded our revolving credit facility. The Revolving Credit Facility currently provides availability up to a maximum of $75 million with an opportunity for expansion up to $125 million. At March 31, 2006, the unused Revolving Credit Facility totaled $64.8 million, net of outstanding borrowings of $0.0 million and outstanding letters of credit of $10.2 million. Interest on the revolver is payable at varying Eurodollar rates based on LIBOR or prime plus a spread determined by our leverage ratio amounting to 100 or 0 basis points, respectively, at March 31, 2006. The Revolving Credit Facility is secured by all domestic inventory, receivables, equipment, real property, subsidiary stock (limited to 65% for foreign subsidiaries) and intellectual property. In November 2005, we registered an additional 3,350,000 shares of our common stock which were sold at $20.00 per share. The number of shares offered by us was 3,000,000 and 350,000 were offered by a selling shareholder. We did not receive any proceeds from the sale of shares by the selling shareholder. This stock offering increased our weighted average common stock outstanding by 1.8 million for the year ended March 31, 2006. A portion of the proceeds received by us were used to redeem $47.6 million of 10% Senior Secured Notes (10% Notes). The repurchase of the 10% Notes occurred at a premium resulting in a pre-tax loss on early extinguishment of debt of $4.8 million. As a result of the repurchase of the 10% Notes, $1.1 million of pre-tax deferred financing costs were written-off. The net effect of these items, a $5.9 million pre-tax loss in fiscal 2006, is shown as part of other (income) and expense, net. The balance of the proceeds is available for other general corporate purposes to advance our strategy of global growth, including additional debt repayment, investments and acquisitions. 23 In September 2005, we issued $136 million of 8 7/8% Senior Subordinated Notes (8 7/8% Notes) due November 1, 2013. Proceeds from the 8 7/8% Notes and cash on hand were used to repurchase all of the outstanding 8 1/2% Senior Subordinated Notes (8 1/2% Notes). The repurchase of the 8 1/2% Notes occurred at a premium resulting in a pre-tax loss on early extinguishment of debt of $2.3 million. As a result of the repurchase of the 8 1/2% Notes, $0.9 million of pre-tax deferred financing costs and $0.1 million of the original issue discount were written-off. The net effect of these items, a $3.3 million pre-tax loss in fiscal 2006, is shown as part of other (income) and expense, net. Provisions of the 8 7/8% Notes include, without limitation, restrictions on indebtedness, asset sales, and dividends and other restricted payments. Until November 1, 2008, we may redeem up to 35% of the outstanding notes at a redemption price of 108.875% with the proceeds of equity offerings, subject to certain restrictions. The 8 7/8% Notes are redeemable at the option of us, in whole or in part, at prices declining annually from the Make-Whole Price (as defined in the 8 7/8% Notes agreement) to 100% on and after November 1, 2011. In the event of a Change of Control (as defined in the indenture for such notes), each holder of the 8 7/8% Notes may require us to repurchase all or a portion of such holder's 8 7/8% Notes at a purchase price equal to 101% of the principal amount thereof. The 8 7/8% Notes are guaranteed by certain existing and future domestic subsidiaries and are not subject to any sinking fund requirements. In July 2003, we issued $115.0 million of 10% Senior Secured Notes due August 1, 2010 of which $67.8 million remain outstanding at March 31, 2006. During April and May of 2006, the Company repurchased an additional $32.1 million of the outstanding 10% Senior Secured Notes, resulting in a remaining balance of $35.7 million. The proceeds from the 10% Notes offering were used for the repayment in full of a then outstanding Senior Second Secured Term Loan ($66.8 million), the repurchase of $35.7 million of Senior Subordinated 8 1/2% Notes at a discount ($30.1 million), the repayment of a portion of the outstanding Revolving Credit Facility ($10.0 million), the repayment of a portion of the Term Loan ($3.9 million), the payment of financing costs ($2.8 million) and the payment of accrued interest ($1.4 million). Provisions of the 10% Notes include, without limitation, restrictions on liens, indebtedness, asset sales, and dividends and other restricted payments. The 10% Notes are redeemable at our option, in whole or in part, at prices declining annually from the Make-Whole Price (as defined in the Indenture for the Notes). In the event of a Change of Control (as defined), each holder of the 10% Notes may require us to repurchase all or a portion of such holder's 10% Notes at a purchase price equal to 101% of the principal amount thereof. The 10% Notes are guaranteed by certain existing and future domestic subsidiaries and are not subject to any sinking fund requirements. The 10% Notes are also secured, in a second lien position, by all domestic inventory, receivables, equipment, real property, subsidiary stock (limited to 65% for foreign subsidiaries) and intellectual property. The redemption in fiscal 2004 of the 8 1/2% Senior Subordinated Notes occurred at a discount resulting in a $5.6 million pre-tax gain on early extinguishment of debt. As a result of the repayment of the Senior Second Secured Term Loan and a portion of the Term Loan and 8 1/2% Senior Subordinated Notes, $4.9 million of pre-tax deferred financing costs were written-off in fiscal 2004. The net effect of these two items, a $0.7 million pre-tax gain, is shown as part of other (income) and expense, net. The corresponding credit agreement associated with the Revolving Credit Facility places certain debt covenant restrictions on us, including certain financial requirements and a restriction on dividend payments, with which we were in compliance as of March 31, 2006. From time to time, we manage our debt portfolio by using interest rate swaps to achieve an overall desired position of fixed and floating rates. In June 2001, we entered into an interest rate swap agreement to effectively convert $40 million of variable-rate debt to fixed-rate debt, which matured in June 2003. That cash flow hedge was considered effective and the gain or loss on the change in fair value was reported in other comprehensive income, net of tax. In August 2003, we entered into an interest rate swap agreement to convert $93.5 million of fixed-rate debt (10%) to variable-rate debt (LIBOR plus 578.2 basis points) through August 2008 and $57.5 million from August 2008 through August 2010 at the same rate. That interest rate swap was considered an ineffective hedge and therefore the change in fair value was recognized in income as a gain. The swap was terminated in January 2004 and a pre-tax gain of $1.9 million was recognized in fiscal 2004 as other income, net as a result of changes in the fair value of the swap. We believe that our cash on hand, cash flows, and borrowing capacity under our Revolving Credit Facility will be sufficient to fund our ongoing operations and budgeted capital expenditures for at least the next twelve months. This belief is dependent upon a steady economy and successful execution of our current business plan which includes cash generation for debt repayment. The business plan focuses on continued implementation of lean manufacturing, possible facility rationalization projects, divestiture of excess facilities, improving working capital components, including inventory reductions, and new market and new product development. Net cash provided by operating activities was $48.5 million, $17.2 million and $26.4 million in fiscal 2006, 2005 and 2004, respectively. The $31.3 million increase in fiscal 2006 relative to fiscal 2005 was primarily due to stronger operating performance in fiscal 2006 ($19.9 million) and improved working capital components ($11.4 million). The working capital changes come from 24 favorable changes in inventory ($9.3 million), accounts payable and accrued liabilities ($9.9 million), offset by unfavorable changes in prepaids ($3.8 million) and accounts receivables ($4.1 million). The $9.2 million decrease in fiscal 2005 relative to fiscal 2004 was primarily due to stronger operating performance in fiscal 2005 ($4.0 million) offset by changes in working capital components ($13.2 million). The working capital changes come from favorable changes in prepaids/other ($3.3 million), accounts payable and accrued liabilities ($6.7 million), offset by unfavorable changes in and accounts receivables ($8.0 million) and inventory ($15.2 million). Net cash (used) provided by investing activities was ($6.4) million, $3.1 million and $4.3 million in fiscal 2006, 2005 and 2004, respectively. The fiscal 2006 change in cash (used) provided by investing activities is the result of increased capital expenditures and lower proceeds from asset sales. The fiscal 2005 change in cash (used) provided by investing activities is primarily the result of increased capital expenditures. The fiscal 2006, 2005 and 2004 amounts included $2.1 million, $7.1 million and $7.8 million, respectively, from business and property divestitures. Net cash used in financing activities was $6.4 million, $21.9 million and $21.5 million in fiscal 2006, 2005 and 2004, respectively. The decrease for fiscal 2006 was the result of $56.6 million of proceeds from the November 2005 stock offering and $7.0 million from the exercise of employee stock options. The fiscal 2006, 2005 and 2004 amounts included $67.8 million, $22.9 million and $17.7 million of debt repayment, respectively. We also paid $2.8 million and $4.4 million of financing costs in fiscal 2006 and 2004, respectively, to effect the capital transactions previously described. CONTRACTUAL OBLIGATIONS The following table reflects a summary of our contractual obligations in millions of dollars as of March 31, 2006, by period of estimated payments due:
FISCAL FISCAL 2008- FISCAL 2010- MORE THAN TOTAL 2007 FISCAL 2009 FISCAL 2011 FIVE YEARS ----- ---- ----------- ----------- ---------- Long-term debt obligations (a). $ 204.0 $ 0.1 $ 0.2 $ 67.4 $ 136.3 Operating lease obligations (b) 13.3 3.4 5.6 3.5 0.8 Purchase obligations (c) ...... -- -- -- -- -- Interest obligations (d)....... 119.8 18.8 37.6 32.2 31.2 Letter of credit obligations... 10.2 10.2 -- -- -- Other long-term liabilities reflected on the Company's balance sheet under GAAP (e)... 50.7 0.0 29.0 20.0 1.7 -------- ------ ------- -------- ------- Total..................... $ 398.0 $ 32.5 $ 72.4 $ 123.1 $ 170.0 ======== ====== ======= ======== ======= (a) As described in note 10 to our consolidated financial statements. (b) As described in note 18 to our consolidated financial statements. (c) We have no purchase obligations specifying fixed or minimum quantities to be purchased. We estimate that, at any given point in time, our open purchase orders to be executed in the normal course of business approximate $40 million. (d) Estimated for our Senior Secured Notes due 8/1/10 and Senior Subordinated Notes due 11/1/13. (e) As described in note 9 to our consolidated financial statements.
We have no additional off-balance sheet obligations that are not reflected above. CAPITAL EXPENDITURES In addition to keeping our current equipment and plants properly maintained, we are committed to replacing, enhancing and upgrading our property, plant and equipment to support new product development, reduce production costs, increase flexibility to respond effectively to market fluctuations and changes, meet environmental requirements, enhance safety and promote ergonomically correct work stations. Further, our facility rationalization program underway between fiscal 2002-2004 reduced our annual capital expenditure requirements and also provided for transfers of equipment from the rationalized facilities to other operating facilities. Our capital expenditures for fiscal 2006, 2005 and 2004 were $8.4 million, $5.9 million and $3.6 million, respectively. Higher capital expenditures in fiscal 2006 and 2005 were the result of new product development and productivity enhancing equipment along with normal maintenance items. We expect capital expenditure spending in fiscal 2007 to be in the range of $8-$10 million. 25 INFLATION AND OTHER MARKET CONDITIONS Our costs are affected by inflation in the U.S. economy and, to a lesser extent, in foreign economies including those of Europe, Canada, Mexico and the Pacific Rim. We do not believe that general inflation has had a material effect on our results of operations over the periods presented primarily due to overall low inflation levels over such periods and our ability to generally pass on rising costs through annual price increases and surcharges. However, employee benefits costs such as health insurance, workers compensation insurance, pensions as well as energy and business insurance have exceeded general inflation levels. In the future, we may be further affected by inflation that we may not be able to pass on as price increases. With changes in worldwide demand for steel and fluctuating scrap steel prices over the past several years, we experienced fluctuations in our costs that we have reflected as price increases and surcharges to our customers. We believe we have been successful in instituting surcharges and price increases to pass on these material cost increases. We will continue to monitor our costs and reevaluate our pricing policies. SEASONALITY AND QUARTERLY RESULTS Our quarterly results may be materially affected by the timing of large customer orders, periods of high vacation and holiday concentrations, restructuring charges and other costs attributable to our facility rationalization program, divestitures, acquisitions and the magnitude of rationalization integration costs. Therefore, our operating results for any particular fiscal quarter are not necessarily indicative of results for any subsequent fiscal quarter or for the full fiscal year. DISCONTINUED OPERATIONS In May 2002, we completed the divestiture of substantially all of the assets of ASI which comprised the principal business unit in our former Solutions - Automotive segment. Proceeds from this sale included cash of $15.9 million and an 8% subordinated note in the principal amount of $6.8 million payable over 10 years. Due to the uncertainty surrounding the financial viability of the new organization, the note has been recorded at the estimated net realizable value of $0. Principal payments received on the note are recorded as income from discontinued operations at the time of receipt. Accordingly, $0.7 million of income from discontinued operations was recorded in fiscal 2006. All interest and principal payments required under the note have been made to date. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We continually evaluate the estimates and their underlying assumptions, which form the basis for making judgments about the carrying value of our assets and liabilities. Actual results inevitably will differ from those estimates. We have identified below the accounting policies involving estimates that are critical to our financial statements. Other accounting policies are more fully described in note 2 of notes to our consolidated financial statements. PENSION AND OTHER POSTRETIREMENT BENEFITS.The determination of the obligations and expense for pension and postretirement benefits is dependent on our selection of certain assumptions that are used by actuaries in calculating such amounts. Those assumptions are disclosed in Notes 11 and 13, respectively, to our fiscal 2006 consolidated financial statements and include the discount rates, expected long-term rate of return on plan assets and rates of future increases in compensation and healthcare costs. The pension discount rate assumptions of 5 3/4%, 6%, 6 1/4% as of March 31, 2006, 2005 and 2004, respectively, are based on long-term bond rates. The decrease in discount rates for fiscal 2006 and 2005 resulted in $3.9 million and $3.0 million increases in the projected benefit obligations as of March 31, 2006 and 2005, respectively. The rate of return on plan assets assumptions of 7 1/2%, 8 1/4% and 8.4% for the years ended March 31, 2006, 2005 and 2004, respectively, are based on the composition of the asset portfolios (approximately 56% equities and 44% fixed income at March 31, 2006) and their long-term historical returns. The actual assets realized gains of $6.8 and $5.5 million in fiscal 2006 and 2005. Our funded status as of March 31, 2006 and 2005 was negative by $33.9 million and $29.3 million, or 25.3% and 24.3%, respectively. Our pension contributions during fiscal 2006 and 2005 were approximately $7.8 and $9.7 million, respectively. The negative funded status may result in future pension expense increases. Pension expense for the March 31, 2007 fiscal year is expected to approximate $7.8 million, which is up from the fiscal 2006 amount of $7.0 million. The factors outlined above will result in increases in funding requirements over time, unless there is continued significant market appreciation in the asset values. However, pension funding contributions for the March 31, 2007 fiscal year are expected to decrease by approximately $1.8 million compared to fiscal 2006. The compensation increase assumption of 4% as of March 31, 2006, 2005 and 2004 is based on historical trends. 26 The healthcare inflation assumptions of 9 3/4%, 10 1/2% and 12% for fiscal 2006, 2005 and 2004, respectively are based on anticipated trends. Healthcare costs in the United States have increased substantially over the last several years. If this trend continues, the cost of postretirement healthcare will increase in future years. INSURANCE RESERVES. Our accrued general and product liability reserves as described in Note 15 to our consolidated financial statements involve actuarial techniques including the methods selected to estimate ultimate claims, and assumptions including emergence patterns, payment patterns, initial expected losses and increased limit factors. Other insurance reserves such as workers compensation and group health insurance are based on actual historical and current claim data provided by third party administrators or internally maintained. INVENTORY AND ACCOUNTS RECEIVABLE RESERVES. Slow-moving and obsolete inventory reserves are judgmentally determined based on historical and expected future usage within a reasonable timeframe. We reassess trends and usage on a regular basis and if we identify changes, we revise our estimated allowances. Allowances for doubtful accounts and credit memo reserves are also judgmentally determined based on historical bad debt write-offs and credit memos issued, assessing potentially uncollectible customer accounts and analyzing the accounts receivable agings. LONG-LIVED ASSETS. Property, plant and equipment and certain intangibles are depreciated or amortized over their assigned lives. These assets as well as goodwill are also periodically measured for impairment. The assigned lives and the projected cash flows used to test impairment are subjective. If actual lives are shorter than anticipated or if future cash flows are less than anticipated, we could incur a future impairment charge or a loss on disposal relating to these assets. MARKETABLE SECURITIES. On a quarterly basis, we review our marketable securities for declines in market value that may be considered other than temporary. We consider market value declines to be other than temporary if they are declines for a period longer than six months and in excess of 20% of original cost. DEFERRED TAX ASSET VALUATION ALLOWANCE. As of March 31, 2006, we had $56.7 million of total net deferred tax assets before valuation allowances. As described in Note 17 to the consolidated financial statements, $29.1 million of the assets pertain to U.S. federal net operating loss carryforwards ("NOLs") and the remainder relate principally to liabilities including employee benefit plans, insurance reserves, accrued vacation and incentive costs and also to asset valuation reserves such as inventory obsolescence reserves and bad debt reserves. The U.S. federal NOLs expire in 2023. We reduced the deferred tax assets by $5.2 million as a result of utilizing U.S. federal NOLs in fiscal 2006. As a result of our increased operating performance over the past several years, we reevaluated the certainty as to whether our remaining NOLs and other deferred tax assets may ultimately be realized. As a result of the determination that it is more likely than not that nearly all of the remaining deferred tax assets will be realized, a significant portion of the remaining valuation allowance was reversed in fiscal 2006. Our ability to realize our deferred tax assets is primarily dependent on generating sufficient future taxable income. If we do not generate sufficient taxable income, we could be required to record a valuation allowance. REVENUE RECOGNITION. Sales are recorded when title passes to the customer, which is generally at the time of shipment to the customer, except for long-term construction-type contracts. For long-term construction-type contracts, we recognize contract revenues under the percentage of completion method, measured by comparing direct costs incurred to total estimated direct costs. Changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements, may result in revisions to costs and income and are recognized in the period in which the revisions are determined. In the event that a loss is anticipated on an uncompleted contract, a provision for the estimated loss is made at the time it is determined. Billings on contracts may precede or lag revenues earned, and such differences are reported in the balance sheet as current liabilities (accrued liabilities) and current assets (unbilled revenues), respectively. Customers do not routinely return product. However, sales returns are permitted in specific situations and typically include a restocking charge or the purchase of additional product. We have established an allowance for returns based upon historical trends. EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 151, "Inventory Costs," as an amendment to ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage). This Statement requires that these items be recognized as current-period charges and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. This Statement becomes effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not expect the adoption of SFAS No. 151 to have a material impact on our consolidated financial statements. 27 In December 2004, the FASB issued SFAS No. 123(R) (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Statement 123(R) was to be adopted for interim or annual periods beginning after June 15, 2005. On April 14th, 2005, the SEC announced that it would provide for a phased-in implementation process for FASB statement No. 123(R). The SEC is requiring that registrants adopt statement 123(R)'s fair value method of accounting for share-based payments to employees no later than the beginning of the first fiscal year beginning after June 15, 2005. We expect to adopt 123(R) in the first quarter of Fiscal 2007. Statement 123(R) permits public companies to adopt its requirements using one of two methods: 1. A "modified prospective" method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123(R) for all share-based payments granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date. 2. A "modified retrospective" method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on amounts previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. We are still evaluating the method we plan to use when we adopt statement 123(R). As permitted by Statement 123, we currently account for share-based payments to employees using Opinion 25's intrinsic value method and, as such, recognize no compensation cost for employee stock options. Accordingly, adoption of Statement 123(R)'s fair value method will have an impact on our results of operations, although it will have no impact on our overall financial position. The impact of adoption of 123(R) cannot be predicted at this time because it will depend on levels of share based payments granted in the future. However, had we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of statement 123 as described in the disclosure of pro forma net income and earnings per share in Note 2 to our consolidated financial statements. In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" which replaces APB Opinion No. 20, "Accounting Changes," and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements." SFAS No. 154 changes the requirements for and reporting of a change in accounting principle. This Statement becomes effective for changes in accounting methods during fiscal years beginning after December 15, 2005. We do not expect the adoption of SFAS No. 154 will have a material impact on our consolidated results of operations and financial condition. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates. We are exposed to various market risks, including commodity prices for raw materials, foreign currency exchange rates and changes in interest rates. We may enter into financial instrument transactions, which attempt to manage and reduce the impact of such changes. We do not enter into derivatives or other financial instruments for trading or speculative purposes. Our primary commodity risk is related to changes in the price of steel. We control this risk through negotiating purchase contracts on a consolidated basis and by attempting to build changes in raw material costs into the selling prices of our products. We also evaluate our steel cost increases and assess the need for price increases and surcharges to our customers. We have not entered into financial instrument transactions related to raw material costs. In fiscal 2006, 29% of our net sales were from manufacturing plants and sales offices in foreign jurisdictions. We manufacture our products in the United States, Mexico, China, Denmark, the United Kingdom, France and Germany and sell our products and solutions in over 50 countries. Our results of operations could be affected by factors such as changes in foreign currency rates or weak economic conditions in foreign markets. Our operating results are exposed to fluctuations between the U.S. dollar and the Canadian dollar, European currencies and the Mexican peso. For example, when the U.S. dollar strengthens against the Canadian dollar, the value of our net sales and net income denominated in Canadian dollars decreases when translated into U.S. dollars for inclusion in our consolidated results. We are also exposed to foreign currency fluctuations in relation to purchases denominated in foreign currencies. Our foreign currency risk is mitigated since the majority of our 28 foreign operations' net sales and the related expense transactions are denominated in the same currency so therefore a significant change in foreign exchange rates would likely have a very minor impact on net income. For example, a 10% decline in the rate of exchange between the euro and the U.S. dollar impacts net income by approximately $0.5 million. In addition, the majority of our export sale transactions are denominated in U.S. dollars. Accordingly, we currently have not invested in derivative instruments, such as foreign exchange contracts, to hedge foreign currency transactions. We control risk related to changes in interest rates by structuring our debt instruments with a combination of fixed and variable interest rates and by periodically entering into financial instrument transactions as appropriate. At March 31, 2006, we do not have any material swap agreements or similar financial instruments in place. At March 31, 2006 and 2005, approximately 97% and 96%, respectively, of our outstanding debt had fixed interest rates. At those dates, we had approximately $6.4 million and $11.4 million, respectively, of outstanding variable rate debt. A 1% fluctuation in interest rates in fiscal 2006 and 2005 would have changed interest expense on that outstanding variable rate debt by approximately $0.1 million for both years. Like many industrial manufacturers, we are involved in asbestos-related litigation. In continually evaluating costs relating to its estimated asbestos-related liability, we review, among other things, the incidence of past and recent claims, the historical case dismissal rate, the mix of the claimed illnesses and occupations of the plaintiffs, its recent and historical resolution of the cases, the number of cases pending against it, the status and results of broad-based settlement discussions, and the number of years such activity might continue. Based on this review, we have estimated its share of liability to defend and resolve probable asbestos-related personal injury claims. This estimate is highly uncertain due to the limitations of the available data and the difficulty of forecasting with any certainty the numerous variables that can affect the range of the liability. We will continue to study the variables in light of additional information in order to identify trends that may become evident and to assess their impact on the range of liability that is probable and estimable. Based on actuarial information, we have estimated our asbestos-related aggregate liability through March 31, 2031 and March 31, 2082 to range between $5.5 million and $19.0 million using actuarial parameters of continued claims for a period of 25 to 76 years. Our estimation of our asbestos-related aggregate liability that is probable and estimable, in accordance with U.S. generally accepted accounting principles, is through March 31, 2031 and ranges from $5.5 million to $6.5 million as of March 31, 2006. The range of probable and estimable liability reflects uncertainty in the number of future claims that will be filed and the cost to resolve those claims, which may be influenced by a number of factors, including the outcome of the ongoing broad-based settlement negotiations, defensive strategies, and the cost to resolve claims outside the broad-based settlement program. Based on the underlying actuarial information, we have reflected $6.3 million as a liability in the consolidated financial statements in accordance with U.S. generally accepted accounting principles. The increase in the recorded liability from the amount of $4.8 million at March 31, 2005 is due to a change in actuarial parameters used to calculate required asbestos liability reserve levels. The recorded liability does not consider the impact of any potential favorable federal legislation such as the "FAIR Act". Of this amount, management expects to incur asbestos liability payments of approximately $0.5 million over the next 12 months. Because payment of the liability is likely to extend over many years, management believes that the potential additional costs for claims will not have a material after-tax effect on our financial condition or our liquidity, although the net after-tax effect of any future liabilities recorded could be material to earnings in a future period. 29 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS COLUMBUS MCKINNON CORPORATION Audited Consolidated Financial Statements as of March 31, 2006: Report of Independent Registered Public Accounting Firm.......... F-2 Consolidated Balance Sheets...................................... F-3 Consolidated Statements of Operations............................ F-4 Consolidated Statements of Shareholders' Equity.................. F-5 Consolidated Statements of Cash Flows............................ F-6 Notes to Consolidated Financial Statements 1. Description of Business................................. F-7 2. Accounting Principles and Practices..................... F-7 3. Discontinued Operations................................. F-11 4. Unbilled Revenues and Excess Billings................... F-11 5. Inventories............................................. F-12 6. Marketable Securities................................... F-12 7. Property, Plant, and Equipment.......................... F-13 8. Goodwill and Intangible Assets.......................... F-14 9. Accrued Liabilities and Other Non-current Liabilities... F-15 10. Debt.................................................... F-16 11. Retirement Plans........................................ F-18 12. Employee Stock Ownership Plan (ESOP).................... F-20 13. Postretirement Benefit Obligation....................... F-20 14. Earnings per Share and Stock Plans...................... F-22 15. Loss Contingencies...................................... F-24 16. Restructuring Charges................................... F-26 17. Income Taxes............................................ F-27 18. Rental Expense and Lease Commitments.................... F-29 19. Summary Financial Information........................... F-30 20. Business Segment Information............................ F-34 21. Selected Quarterly Financial Data (unaudited)........... F-36 22. Accumulated Other Comprehensive Loss.................... F-37 23. Effects of New Accounting Pronouncements................ F-38 24. Subsequent Events....................................... F-39 Schedule II - Valuation and Qualifying Accounts............... F-40 F-1 Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders of Columbus McKinnon Corporation We have audited the accompanying consolidated balance sheets of Columbus McKinnon Corporation and subsidiaries as of March 31, 2006 and 2005, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended March 31, 2006. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Columbus McKinnon Corporation and subsidiaries at March 31, 2006 and 2005, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2006, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Columbus McKinnon Corporation's internal control over financial reporting as of March 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 1, 2006 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP June 1, 2006 Buffalo, New York F-2 COLUMBUS MCKINNON CORPORATION CONSOLIDATED BALANCE SHEETS
---------------------------------- MARCH 31, ---------------------------------- 2006 2005 ---- ---- (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current assets: Cash and cash equivalents...................................................... $ 45,598 $ 9,479 Trade accounts receivable, less allowance for doubtful accounts ($3,417 and $3,015, respectively).......................................... 95,726 88,974 Unbilled revenues.............................................................. 12,061 8,848 Inventories.................................................................... 74,845 77,626 Prepaid expenses................................................................. 15,676 14,198 ---------------------------------- Total current assets.................................................................. 243,906 199,125 Net property, plant, and equipment.................................................... 55,132 57,237 Goodwill, net......................................................................... 184,917 185,443 Other intangibles, net................................................................ 2,410 1,842 Marketable securities................................................................. 27,596 24,615 Deferred taxes on income.............................................................. 46,065 6,122 Other assets.......................................................................... 6,018 6,487 ---------------------------------- Total assets.......................................................................... $ 566,044 $ 480,871 ================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable to banks........................................................... $ 5,798 $ 4,839 Trade accounts payable........................................................... 39,311 33,688 Accrued liabilities.............................................................. 61,264 52,328 Restructuring reserve............................................................ 793 144 Current portion of long-term debt................................................ 127 5,819 ---------------------------------- Total current liabilities............................................................. 107,293 96,818 Senior debt, less current portion..................................................... 67,841 115,735 Subordinated debt..................................................................... 136,000 144,548 Other non-current liabilities......................................................... 50,489 42,003 ---------------------------------- Total liabilities..................................................................... 361,623 399,104 Shareholders' equity: Voting common stock; 50,000,000 shares authorized; 18,575,454 and 14,948,172 shares issued................................... 185 149 Additional paid-in capital....................................................... 170,081 104,078 Retained earnings (accumulated deficit).......................................... 51,152 (8,644) ESOP debt guarantee; 249,821 and 284,695 shares.................................. (3,996) (4,554) Unearned restricted stock; 2,000 and 1,000 shares................................ (22) (6) Accumulated other comprehensive loss............................................. (12,979) (9,256) ---------------------------------- Total shareholders' equity............................................................ 204,421 81,767 ---------------------------------- Total liabilities and shareholders' equity............................................ $ 566,044 $ 480,871 ==================================
See accompanying notes. F-3 COLUMBUS MCKINNON CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
----------------------------------------------------------- YEAR ENDED MARCH 31, ----------------------------------------------------------- 2006 2005 2004 ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales.......................................................... $ 556,007 $ 514,752 $ 444,591 Cost of products sold.............................................. 408,385 388,844 339,745 ----------------------------------------------------------- Gross profit....................................................... 147,622 125,908 104,846 Selling expenses................................................... 54,255 52,291 48,331 General and administrative expenses................................ 33,640 31,730 25,026 Restructuring charges.............................................. 1,609 910 1,239 Amortization of intangibles........................................ 249 312 383 ----------------------------------------------------------- Income from operations............................................. 57,869 40,665 29,867 Interest and debt expense.......................................... 24,667 27,620 28,856 Other (income) and expense, net.................................... 5,048 (5,218) (4,191) ----------------------------------------------------------- Income from continuing operations before income tax (benefit) expense.......................................... 28,154 18,263 5,202 Income tax (benefit) expense....................................... (30,946) 2,196 4,009 ----------------------------------------------------------- Income from continuing operations.................................. 59,100 16,067 1,193 Income from discontinued operations (net of tax)................... 696 643 - ----------------------------------------------------------- Net income......................................................... $ 59,796 $ 16,710 $ 1,193 =========================================================== Average basic shares outstanding................................... 16,052 14,594 14,553 Average diluted shares outstanding................................. 16,628 14,803 14,554 Basic income per share: Income from continuing operations............................. $ 3.69 $ 1.10 $ 0.08 Income from discontinued operations........................... 0.04 0.04 - ----------------------------------------------------------- Basic income per share........................................ $ 3.73 $ 1.14 $ 0.08 =========================================================== Diluted income per share: Income from continuing operations............................. $ 3.56 $ 1.09 $ 0.08 Income from discontinued operations........................... 0.04 0.04 - ----------------------------------------------------------- Diluted income per share...................................... $ 3.60 $ 1.13 $ 0.08 ===========================================================
See accompanying notes. F-4
COLUMBUS MCKINNON CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) COMMON ADDI- RETAINED ACCUMULATED STOCK TIONAL EARNINGS ESOP UNEARNED OTHER TOTAL ($.01 PAID-IN (ACCUMULATED DEBT RESTRICTED COMPREHENSIVE SHAREHOLDERS' PAR VALUE) CAPITAL DEFICIT) GUARANTEE STOCK LOSS EQUITY ---------------------------------------------------------------------------------------- Balance at March 31, 2003.......... $ 149 $104,412 $ (26,547) $ (5,709) $ (208) $ (19,390) $ 52,707 Comprehensive income: Net income 2004.................... -- -- 1,193 -- -- -- 1,193 Change in foreign currency translation adjustment........... -- -- -- -- -- 6,389 6,389 Net unrealized gain on investments, net of tax of $918.. -- -- -- -- -- 1,706 1,706 Net change in unrealized loss on derivatives qualifying as hedges, net of tax of $127....... -- -- -- -- -- 191 191 Change in minimum pension liability adjustment, net of tax of $352...................... -- -- -- -- -- 528 528 --------- Total comprehensive income......... 10,007 Earned 37,049 ESOP shares.......... -- (393) -- 593 -- -- 200 Earned portion and adjustment of restricted shares................ -- (105) -- -- 169 -- 64 ---------------------------------------------------------------------------------------- Balance at March 31, 2004.......... $ 149 $103,914 $ (25,354) $ (5,116) $ (39) $ (10,576) $ 62,978 Comprehensive income: Net income 2005.................... -- -- 16,710 -- -- -- 16,710 Change in foreign currency translation adjustment........... -- -- -- -- -- 2,830 2,830 Net unrealized loss on investments, net of tax benefit of $70........................... -- -- -- -- -- (131) (131) Change in minimum pension liability adjustment, net of tax benefit of $27............... -- -- -- -- -- (1,379) (1,379) --------- Total comprehensive income......... 18,030 Earned 35,108 ESOP shares.......... -- (266) -- 562 -- -- 296 Stock options exercised, 52,000 shares........................... -- 428 -- -- -- -- 428 Earned portion of restricted shares -- 2 -- -- 33 -- 35 ---------------------------------------------------------------------------------------- Balance at March 31, 2005.......... $ 149 $104,078 $ (8,644) $ (4,554) $ (6) $ (9,256) $ 81,767 Comprehensive income: Net income 2006.................... -- -- 59,796 -- -- -- 59,796 Change in foreign currency translation adjustment........... -- -- -- -- -- (1,846) (1,846) Net unrealized gain on investments, net of tax of $354.. -- -- -- -- -- 658 658 Change in minimum pension liability adjustment, net of tax benefit of $1,681............ -- -- -- -- -- (2,535) (2,535) --------- Total comprehensive income......... 56,073 Common stock issued, 3,000,000 shares........................... 30 56,589 -- -- -- -- 56,619 Stock options exercised, 626,282 shares........................... 6 7,143 -- -- -- -- 7,149 Tax benefit from exercise of stock options................... -- 2,154 -- -- -- -- 2,154 Earned 34,874 ESOP shares.......... -- 95 -- 558 -- -- 653 Restricted common stock granted, 1,000 shares............ -- 22 -- -- (22) -- -- Earned portion of restricted shares -- -- -- -- 6 -- 6 ---------------------------------------------------------------------------------------- Balance at March 31, 2006.......... $ 185 $170,081 $ 51,152 $ (3,996) $ (22) $ (12,979) $ 204,421 ========================================================================================
See accompanying notes. F-5
COLUMBUS MCKINNON CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------------------ YEAR ENDED MARCH 31, ------------------------------------------------ 2006 2005 2004 ---- ---- ---- (IN THOUSANDS) OPERATING ACTIVITIES: Income from continuing operations....................................... $ 59,100 $ 16,067 $ 1,193 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation and amortization...................................... 8,824 9,171 10,126 Deferred income taxes.............................................. (36,968) (971) 6,413 Loss on divestitures............................................... 87 330 3,875 Gain on sale of real estate/investments............................ (2,100) (4,632) (5,143) Loss (gain) on early retirement of bonds........................... 7,083 40 (5,590) Amortization/write-off of deferred financing costs................. 3,297 1,575 6,613 Tax benefit from exercise of stock options......................... 2,154 -- -- Other.............................................................. -- -- 67 Changes in operating assets and liabilities net of effects of business divestitures: Trade accounts receivable and unbilled revenues.............. (11,025) (6,896) 1,140 Inventories................................................... 2,518 (6,834) 8,351 Prepaid expenses.............................................. (2,026) 1,796 (1,332) Other assets.................................................. 207 10 (181) Trade accounts payable........................................ 6,099 3,192 (976) Accrued and non-current liabilities........................... 11,267 4,313 1,813 ------------------------------------------------ Net cash provided by operating activities............................... 48,517 17,161 26,369 ------------------------------------------------ INVESTING ACTIVITIES: (Purchase) sale of marketable securities, net........................... (888) 1,314 110 Capital expenditures.................................................... (8,430) (5,925) (3,619) Proceeds from sale of facilities and surplus real estate................ 2,091 6,742 4,015 Proceeds from sale of property, plant, and equipment.................... -- -- 387 Proceeds from net assets held for sale.................................. -- 375 3,376 Proceeds from discontinued operations note receivable - revised......... 857 643 -- ------------------------------------------------ Net cash (used) provided by investing activities........................ (6,370) 3,149 4,269 ------------------------------------------------ FINANCING ACTIVITIES: Proceeds from issuance of common stock.................................. 56,619 -- -- Proceeds from exercise of stock options................................. 7,149 428 -- Payments under revolving line-of-credit agreements...................... (47,669) (345,664) (332,218) Borrowings under revolving line-of-credit agreements.................... 49,030 344,541 325,326 Repayment of debt....................................................... (205,167) (21,745) (125,764) Proceeds from issuance of long-term debt................................ 136,000 -- 115,000 Payment of deferred financing costs..................................... (2,877) (24) (4,432) Change in ESOP debt guarantee........................................... 558 562 593 ------------------------------------------------ Net cash used in financing activities................................... (6,357) (21,902) (21,495) EFFECT OF EXCHANGE RATE CHANGES ON CASH................................. 329 (30) 15 ------------------------------------------------ Net change in cash and cash equivalents................................. 36,119 (1,622) 9,158 Cash and cash equivalents at beginning of year.......................... 9,479 11,101 1,943 ------------------------------------------------ Cash and cash equivalents at end of year................................ $ 45,598 $ 9,479 $ 11,101 ================================================ Supplementary cash flows data: Interest paid...................................................... $ 26,565 $ 28,133 $ 30,002 Income taxes paid (received), net.................................. $ 5,035 $ 2,029 $ (9,683)
See accompanying notes. F-6 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (TABULAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) 1. DESCRIPTION OF BUSINESS Columbus McKinnon Corporation (the Company) is a leading U.S. designer and manufacturer of material handling products, systems and services which efficiently and ergonomically move, lift, position and secure material. Key products include hoists, cranes, chain and forged attachments. The Company's material handling products are sold, domestically and internationally, principally to third party distributors through diverse distribution channels, and to a lesser extent directly to end-users. The Company's integrated material handling solutions businesses deal primarily with end users and sales are concentrated, domestically and internationally (primarily Europe), in the consumer products, manufacturing, warehousing and, to a lesser extent, the steel, construction, automotive and other industrial markets. During fiscal 2006, approximately 64% of sales were to customers in the United States. 2. ACCOUNTING PRINCIPLES AND PRACTICES ADVERTISING Costs associated with advertising are expensed in the year incurred and are included in selling expense in the statement of operations. Advertising expenses were $3,343,000, $2,521,000, and $2,406,000 in fiscal 2006, 2005, and 2004, respectively. CASH AND CASH EQUIVALENTS The Company considers as cash equivalents all highly liquid investments with an original maturity of three months or less. CONCENTRATIONS OF LABOR Approximately 23% of the Company's employees are represented by seven separate domestic and Canadian collective bargaining agreements which terminate at various times between August 2006 and May 2009. Approximately 10% of the labor force is covered by collective bargaining agreements that will expire within one year. CONSOLIDATION These consolidated financial statements include the accounts of the Company and its domestic and foreign subsidiaries; all significant intercompany accounts and transactions have been eliminated. DERIVATIVES AND FINANCIAL INSTRUMENTS Derivative instruments held by the Company that have high correlation with the underlying exposure and are highly effective in offsetting underlying price movements are designated as hedges. Accordingly, gains and losses from changes in derivatives fair values are deferred until the underlying transaction occurs at which point they are then recognized in the statement of operations. When derivatives are not designated as hedges, the gains and losses from changes in fair value are recorded currently in the statement of operations. All derivates are carried at fair value in the balance sheet. The fair values of derivatives are determined by reference to quoted market prices. The Company's use of derivative instruments has historically been limited to cash flow hedges of certain interest rate risks. The carrying value of the Company's current assets and current liabilities approximate their fair values based upon the relatively short maturity of those instruments. For the fair value of the Company's marketable securities and debt instruments, see Notes 6 and 10, respectively. F-7 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOREIGN CURRENCY TRANSLATIONS The Company translates foreign currency financial statements as described in Financial Accounting Standards (FAS) No. 52. Under this method, all items of income and expense are translated to U.S. dollars at average exchange rates for the year. All assets and liabilities are translated to U.S. dollars at the year-end exchange rate. Gains or losses on translations are recorded in accumulated other comprehensive loss in the shareholders' equity section of the balance sheet. The functional currency is the foreign currency in which the foreign subsidiaries conduct their business. Gains and losses from foreign currency transactions are reported in other income and expense, net. There was an approximate $100,000 loss, $200,000 gain and $600,000 loss on transactions with foreign subsidiaries in fiscal 2006, 2005 and fiscal 2004, respectively. GOODWILL Goodwill is not amortized but is periodically tested for impairment, in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. The fair value of a reporting unit is determined using a discounted cash flow methodology. The Company's reporting units are determined based upon whether discrete financial information is available and regularly reviewed, whether those units constitute a business, and the extent of economic similarities between those reporting units for purposes of aggregation. As a result of this analysis, the reporting units identified under SFAS No. 142 were at the component level, or one level below the reporting segment level as defined under SFAS No. 131. The Products segment was subdivided into three reporting units and the Solutions segment was subdivided into two reporting units. Identifiable intangible assets acquired in a business combination are amortized over their useful lives unless their useful lives are indefinite, in which case those intangible assets are tested for impairment annually and not amortized until their lives are determined to be finite. See Note 8 for further discussion of goodwill and intangible assets. INVENTORIES Inventories are valued at the lower of cost or market. Cost of approximately 58% of inventories at March 31, 2006 (57% in 2005) has been determined using the LIFO (last-in, first-out) method. Costs of other inventories have been determined using the FIFO (first-in, first-out) or average cost method. FIFO cost approximates replacement cost. MARKETABLE SECURITIES All of the Company's marketable securities, which consist of equity securities and corporate and governmental obligations, have been classified as available-for-sale securities and are therefore recorded at their fair values with the unrealized gains and losses, net of tax, reported in accumulated other comprehensive loss within shareholders' equity unless unrealized losses are deemed to be other than temporary. In such instance, the unrealized losses are reported in the statement of operations within other (income) and expense, net. Estimated fair value is based on published trading values at the balance sheet dates. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The cost of securities sold is based on the specific identification method. Interest and dividend income are included in other (income) and expense, net in the consolidated statements of operations. The marketable securities are carried as long-term assets since they are held for the settlement of the Company's general and products liability insurance claims filed through CM Insurance Company, Inc., a wholly owned captive insurance subsidiary. F-8 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are stated at cost and depreciated principally using the straight-line method over their respective estimated useful lives (buildings and building equipment--15 to 40 years; machinery and equipment--3 to 18 years). When depreciable assets are retired, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operating results. RECLASSIFICATION/REVISIONS Certain prior year amounts have been reclassified to conform to the current year presentation. In 2006, the Company has disclosed the investing portions of the cash flows attributable to its discontinued operations within the investing section of the consolidated statements of cash flows, whereas in prior years they were reported as a separate component on the consolidated statements of cash flows. RESEARCH AND DEVELOPMENT Research and development costs as defined in FAS No. 2, for the years ended March 31, 2006, 2005 and 2004 were $1,614,000, $1,289,000 and $1,625,000, respectively and are classified as general and administrative expense in the consolidated statements of operations. REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK Sales are recorded when title passes to the customer which is generally at time of shipment to the customer, except for long-term construction contracts as described below. The Company performs ongoing credit evaluations of its customers' financial condition, but generally does not require collateral to support customer receivables. The credit risk is controlled through credit approvals, limits and monitoring procedures. Accounts receivable are reported at net realizable value and do not accrue interest. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other factors. Accounts receivable are charged against the allowance for doubtful accounts once all collection efforts have been exhausted. The Company does not routinely permit customers to return product. However, sales returns are permitted in specific situations and typically include a restocking charge or the purchase of additional product. The Company has established an allowance for returns based upon historical trends. The Company recognizes contract revenues under the percentage of completion method, measured by comparing direct costs incurred to total estimated direct costs. Changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements, may result in revisions to costs and income and are recognized in the period in which the revisions are determined. In the event that a loss is anticipated on an uncompleted contract, a provision for the estimated loss is made at the time it is determined. Billings on contracts may precede or lag revenues earned, and such differences are reported in the balance sheet as current liabilities (accrued liabilities) and current assets (unbilled revenues), respectively. F-9 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SALE-LEASEBACK TRANSACTIONS On January 28, 2005, the Company sold its corporate headquarters property and entered into a leaseback for a portion of the facility under a 10-year lease agreement. Net proceeds to the Company for the sale of the property were approximately $2.7 million and the gain on the transaction was $2.2 million. Of the total gain, $1.0 million was recognized in 2005 under the caption other income, and $1.2 million was deferred and will be recognized as income over the 10-year leaseback period. Additionally, $0.5 million of non-cash value (rent abatement) will be recognized on a straight-line basis as lower operating expenses over the 10-year leaseback period. SHIPPING AND HANDLING COSTS Shipping and handling costs are a component of cost of products sold. STOCK-BASED COMPENSATION At March 31, 2006, the Company has two stock-based employee compensation plans in effect, which are described more fully in Note 14. The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations. No stock based employee compensation cost is reflected in net income, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant and the number of options granted was fixed. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition of SFAS No. 123 "Accounting for Stock-Based Compensation", to stock-based employee compensation:
----------------------------------------------- YEAR ENDED MARCH 31, ----------------------------------------------- 2006 2005 2004 ----------------------------------------------- Net income, as reported..................................... $ 59,796 $ 16,710 $ 1,193 Deduct: Total stock based employee compensation expenses determined under fair value based method for all awards, net of related tax effects............... (577) (1,135) (504) ----------------------------------------------- Net income, pro forma.................................... $ 59,219 $ 15,575 $ 689 =============================================== Basic income per share: As reported.............................................. $ 3.73 $ 1.14 $ 0.08 =============================================== Pro forma................................................ $ 3.69 $ 1.07 $ 0.05 =============================================== Diluted income per share: As reported.............................................. $ 3.60 $ 1.13 $ 0.08 =============================================== Pro forma................................................ $ 3.56 $ 1.05 $ 0.05 ===============================================
USE OF ESTIMATES The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. F-10 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) WARRANTIES The Company offers warranties for certain of the products it sells. The specific terms and conditions of those warranties vary depending upon the product sold and the country in which the Company sold the product. The Company generally provides a basic limited warranty, including parts and labor for any product deemed to be defective for a period of one year. The Company estimates the costs that may be incurred under its basic limited warranty, based largely upon actual warranty repair costs history, and records a liability in the amount of such costs in the month that the product revenue is recognized. The resulting accrual balance is reviewed during the year. Factors that affect the Company's warranty liability include the number of units sold, historical and anticipated rate of warranty claims, and cost per claim. Changes in the Company's product warranty accrual are as follows: --------------------------------- MARCH 31, --------------------------------- 2006 2005 ---- ---- Balance at beginning of year....... $ 832 $ 889 Accrual for warranties issued...... 4,658 2,475 Warranties settled................. (3,358) (2,532) --------------------------------- Balance at end of year............. $ 2,132 $ 832 ================================= 3. DISCONTINUED OPERATIONS In May 2002, the Company sold substantially all of the assets of Automatic Systems, Inc. (ASI). The ASI business was the principal business unit in the Company's former Solutions - Automotive segment. The Company received $20,600,000 in cash and an 8% subordinated note in the principal amount of $6,800,000 which is payable at a rate of $214,000 per quarter over eight years beginning August 2004. Due to the uncertainty surrounding the financial viability of the new organization, the note has been recorded at the estimated net realizable value of $0. Principal payments received on the note are recorded as income from discontinued operations at the time of receipt. All interest and principal payments required under the note have been made to date. The gross value of the note as of March 31, 2006 is approximately $5,100,000. 4. UNBILLED REVENUES AND EXCESS BILLINGS -------------------- MARCH 31, -------------------- 2006 2005 ---- ---- Costs incurred on uncompleted contracts........... $ 52,615 $ 34,154 Estimated earnings................................ 15,361 11,498 -------------------- Revenues earned to date........................... 67,976 45,652 Less billings to date............................. 56,331 37,133 -------------------- $ 11,645 $ 8,519 ==================== The net amounts above are included in the consolidated balance sheets under the following captions: -------------------- MARCH 31, -------------------- 2006 2005 ---- ---- Unbilled revenues................................... $ 12,061 $ 8,848 Accrued liabilities................................. (416) (329) -------------------- $ 11,645 $ 8,519 ==================== F-11 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. INVENTORIES Inventories consisted of the following: ----------------------------- MARCH 31, ----------------------------- 2006 2005 ---- ---- At cost--FIFO basis: Raw materials......................... $ 41,134 $ 42,283 Work-in-process....................... 12,199 10,238 Finished goods........................ 33,424 35,800 ----------------------------- 86,757 88,321 LIFO cost less than FIFO cost.............. (11,912) (10,695) ----------------------------- Net inventories............................ $ 74,845 $ 77,626 ============================= 6. MARKETABLE SECURITIES Marketable securities are held for the settlement of the Company's general and products liability insurance claims filed through the Company's subsidiary, CM Insurance Company, Inc. (see Notes 2 and 15). On a quarterly basis, the Company reviews its marketable securities for declines in market value that may be considered other than temporary. The Company considers market value declines to be other than temporary if they are declines for a period longer than six months and in excess of 20% of original cost. The following is a summary of available-for-sale securities at March 31, 2006:
GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---------------------------------------------------------- Government securities................................ $ 10,859 $ 150 $ 25 $ 10,984 Equity securities.................................... 13,828 3,013 229 16,612 ---------------------------------------------------------- $ 24,687 $ 3,163 $ 254 $ 27,596 ==========================================================
As of March 31, 2006, in accordance with FAS No. 115, the Company reduced the cost bases of certain equity securities since it was determined that the unrealized losses on those securities were other than temporary in nature. This determination resulted in the recognition of a pre-tax charge to earnings of $78,000 for the year ended March 31, 2006, classified within other (income) and expense, net. The above schedule reflects the reduced cost bases. The aggregate fair value of investments and unrealized losses on available-for-sale securities in an unrealized loss position at March 31, 2006 are as follows:
AGGREGATE UNREALIZED FAIR VALUE LOSSES --------------------------------------------- Equity securities held for less than 12 months in a loss position $ 1,553 $ 154 Equity securities held for more than 12 months in a loss position 1,012 75 --------------------------------------------- $ 2,565 $ 229 =============================================
The net gain related to sales of marketable securities totaled $1,436,000, $706,000 and $1,861,000 in fiscal 2006, 2005 and 2004, respectively. F-12 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following is a summary of available-for-sale securities at March 31, 2005:
GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------------------------------------------------------ Government securities................................ $ 7,967 $ 251 $ - $ 8,218 Equity securities.................................... 14,751 2,076 430 16,397 ------------------------------------------------------------ $ 22,718 $ 2,327 $ 430 $ 24,615 ============================================================
As of March 31, 2005, in accordance with FAS No. 115, the Company reduced the cost bases of certain equity securities since it was determined that the unrealized losses on those securities were other than temporary in nature. This determination resulted in the recognition of a pre-tax charge to earnings of $280,000 and $110,000 for the years ended March 31, 2005 and 2004, respectively, classified within other (income) and expense, net. The above schedule reflects the reduced cost bases. The amortized cost and estimated fair value of debt and equity securities at March 31, 2006, by contractual maturity, are shown below: ESTIMATED FAIR COST VALUE ---------------------- Due in one year or less............................ $ 5,064 $ 5,068 Due in one to five years........................... 2,008 2,015 Due in five to ten years........................... 3,787 3,901 ---------------------- 10,859 10,984 Equity securities.................................. 13,828 16,612 ---------------------- $ 24,687 $ 27,596 ====================== Net unrealized gain included in the balance sheet amounted to $2,909,000 at March 31, 2006 and $1,897,000 at March 31, 2005. The amounts, net of related income taxes of $1,018,000 and $664,000 at March 31, 2006 and 2005, respectively, are reflected as a component of accumulated other comprehensive loss within shareholders' equity. 7. PROPERTY, PLANT, AND EQUIPMENT Consolidated property, plant, and equipment of the Company consisted of the following:
--------------------------- MARCH 31, --------------------------- 2006 2005 ---- ---- Land and land improvements......................................................... $ 4,564 $ 5,183 Buildings.......................................................................... 33,755 33,991 Machinery, equipment, and leasehold improvements................................... 102,485 99,147 Construction in progress........................................................... 1,736 2,089 --------------------------- 142,540 140,410 Less accumulated depreciation...................................................... 87,408 83,173 --------------------------- Net property, plant, and equipment................................................. $ 55,132 $ 57,237 ===========================
Depreciation expense was $8,575,000, $8,859,000, and $9,743,000 for the years ended March 31, 2006, 2005 and 2004, respectively. F-13 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. GOODWILL AND INTANGIBLE ASSETS As discussed in Note 2, goodwill is not amortized but is periodically tested for impairment, in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. The fair value of a reporting unit is determined using a discounted cash flow methodology. The Company's reporting units are determined based upon whether discrete financial information is available and regularly reviewed, whether those units constitute a business, and the extent of economic similarities between those reporting units for purposes of aggregation. As a result of this analysis, the reporting units identified under SFAS No. 142 were at the component level, or one level below the reporting segment level as defined under SFAS No. 131. The Products segment was subdivided into three reporting units and the Solutions segment was subdivided into two reporting units. Identifiable intangible assets acquired in a business combination are amortized over their useful lives unless their useful lives are indefinite, in which case those intangible assets are tested for impairment annually and not amortized until their lives are determined to be finite. No impairment charges were recorded during fiscal 2006, 2005 or 2004. A summary of changes in goodwill during the years ended March 31, 2006 and 2005 by business segment is as follows:
PRODUCTS SOLUTIONS TOTAL ------------------------------------------- Balance at March 31, 2004............................. $ 184,994 $ - $ 184,994 Currency translation.................................. 449 - 449 ------------------------------------------- Balance at March 31, 2005............................. $ 185,443 $ - $ 185,443 Currency translation.................................. (526) - (526) ------------------------------------------- Balance at March 31, 2006............................. $ 184,917 $ - $ 184,917 ===========================================
Other intangibles, net consists of the following: ------------------- MARCH 31, ------------------- 2006 2005 ---- ---- Intangible pension assets............................. $ 2,148 $ 1,537 Patents and other, net................................ 262 305 ------------------- Other intangibles, net................................ $ 2,410 $ 1,842 =================== Only the patents and other, net is subject to amortization. Based on the current amount of patents and other, net, the estimated amortization expense for each of the succeeding five years is expected to be $100,000, $75,000, $50,000, $28,000, and 9,000, respectively. F-14 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. ACCRUED LIABILITIES AND OTHER NON-CURRENT LIABILITIES Consolidated accrued liabilities of the Company consisted of the following: ------------------------ MARCH 31, ------------------------ 2006 2005 ---- ---- Accrued payroll.................................. $ 18,736 $ 15,895 Accrued pension cost............................. 5,987 4,325 Interest payable................................. 6,199 8,097 Accrued workers compensation..................... 2,959 2,959 Accrued income taxes payable..................... 6,493 4,237 Accrued postretirement benefit obligation........ 1,620 2,100 Accrued health insurance......................... 2,891 2,550 Accrued general and product liability costs...... 4,000 3,500 Other accrued liabilities........................ 12,379 8,665 ------------------------ $ 61,264 $ 52,328 ======================== Consolidated other non-current liabilities of the Company consisted of the following: ------------------------ MARCH 31, ------------------------ 2006 2005 ---- ---- Accumulated postretirement benefit obligation.... $ 4,856 $ 5,273 Accrued general and product liability costs...... 16,969 12,594 Accrued pension cost............................. 20,285 18,637 Accrued workers compensation..................... 5,383 3,134 Other non-current liabilities.................... 2,996 2,365 ------------------------ $ 50,489 $ 42,003 ======================== F-15 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 10. DEBT Consolidated debt of the Company consisted of the following:
------------------------------- MARCH 31, ------------------------------- 2006 2005 ---- ---- Revolving Credit Facility due February 22, 2010..................................... $ - $ - Previous Term Loan repaid and retired April 2005.................................... - 5,819 10% Senior Secured Notes due August 1, 2010 with interest payable in semi-annual installments ............................................. 67,384 115,000 Other senior debt................................................................... 584 735 ------------------------------- Total senior debt................................................................... 67,968 121,554 8 7/8% Senior Subordinated Notes due November 1, 2013 with interest payable in semi-annual installments.............................................. 136,000 - 8 1/2% Senior Subordinated Notes repaid and retired in October 2005................. - 144,548 ------------------------------- Total............................................................................... 203,968 266,102 Less current portion................................................................ 127 5,819 ------------------------------- $ 203,841 $ 260,283 ===============================
On March 16, 2006, the Company amended and expanded its revolving credit facility. The Revolving Credit Facility provides availability up to a maximum of $75,000,000. Provided there is no default, the Company may on a one-time basis, request an increase in the availability of the Revolving Credit Facility by an amount not exceeding $50,000,000 if all Senior Secured Notes have been repaid in full or will be repaid in full contemporaneously with such increase, or $25,000,000 in the event that any Senior Secured Notes remain outstanding. The unused Revolving Credit Facility totaled $64,800,000, net of outstanding borrowings of $0 and outstanding letters of credit of $10,200,000. Interest on the revolver is payable at varying Eurodollar rates based on LIBOR or prime plus a spread determined by our leverage ratio amounting to 100 or 0 basis points, respectively, at March 31, 2006. The Revolving Credit Facility is secured by all domestic inventory, receivables, equipment, real property, subsidiary stock (limited to 65% for foreign subsidiaries) and intellectual property. On September 2, 2005, the Company issued $136,000,000 of 8 7/8% Senior Subordinated Notes (8 7/8% Notes) due November 1, 2013. Proceeds from the 8 7/8% Notes and cash on hand were used to repurchase all of the outstanding 8 1/2% Senior Subordinated Notes (8 1/2% Notes). The repurchase of the 8 1/2% Notes occurred at a premium resulting in a pre-tax loss on early extinguishment of debt of $2,298,000. As a result of the repurchase of the 8 1/2% Notes, $922,000 of pre-tax deferred financing costs and $110,000 of the original issue discount were written-off. The net effect of these items, a $3,330,000 pre-tax loss in fiscal 2006, is shown as part of other (income) and expense, net. On July 22, 2003, the Company issued $115,000,000 of 10% Senior Secured Notes (10% Notes) due August 1, 2010. Proceeds from this offering were used for the repayment of various outstanding debt instruments including the repurchase of $35,700,000 of the 8 1/2% Notes at a discount ($30,060,000). The redemption in fiscal 2004 of the 8 1/2% Notes occurred at a discount resulting in a $5,640,000 pre-tax gain on early extinguishment of debt. As a result of the repayment of the various outstanding debt instruments including the 8 1/2% Notes, $4,925,000 of pre-tax deferred financing costs were written-off in fiscal 2004. The net effect of these two items, a $715,000 pre-tax gain, is shown as part of other (income) and expense, net. During fiscal 2006, the Company used a portion of the proceeds from its stock offering (see Note 14) to repurchase $47,616,000 of the outstanding 10% Notes. The repurchase of the 10% Notes occurred at a premium resulting in a pre-tax loss on early extinguishment of debt of $4,786,000. As a result of the repurchase of the 10% Notes, $1,085,000 of pre-tax deferred financing costs was written-off. The net effect of these items, a $5,871,000 pre-tax loss in fiscal 2006, is shown as part of other (income) and expense, net. During April and May of 2006, the Company repurchased an additional $32,128,000 of the outstanding 10% Notes (see Note 24). F-16 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The corresponding credit agreement associated with the Revolving Credit Facility places certain debt covenant restrictions on the Company, including certain financial requirements and a restriction on dividend payments, with which the Company was in compliance as of March 31, 2006. From time to time, the Company manages its debt portfolio by using interest rate swaps to achieve an overall desired position of fixed and floating rates. In June 2001, the Company entered into an interest rate swap agreement to effectively convert $40,000,000 of variable-rate debt to fixed-rate debt, which matured in June 2003. This cash flow hedge was considered effective and the gain or loss on the change in fair value was reported in other comprehensive income, net of tax. In August 2003, the Company entered into an interest rate swap agreement to convert $93,500,000 of fixed-rate debt (10%) to variable-rate debt (LIBOR plus 578.2 basis points) through August 2008 and $57,500,000 from August 2008 through August 2010. This interest rate swap was considered an ineffective hedge and therefore the change in fair value was recognized in income as a gain. The swap was terminated in January 2004 and a pre-tax gain of $1,900,000 was recognized as other income as a result of changes in the fair value of the swap. Provisions of the 8 7/8% Notes include, without limitation, restrictions on indebtedness, asset sales, and dividends and other restricted payments. Until November 1, 2008, the Company may redeem up to 35% of the outstanding notes at a redemption price of 108.875% with the proceeds of equity offerings, subject to certain restrictions. The 8 7/8% Notes are redeemable at the option of the Company, in whole or in part, at prices declining annually from the Make-Whole Price (as defined in the 8 7/8% Notes agreement) to 100% on and after November 1, 2011. In the event of a Change of Control (as defined in the indenture for such notes), each holder of the 8 7/8% Notes may require us to repurchase all or a portion of such holder's 8 7/8% Notes at a purchase price equal to 101% of the principal amount thereof. The 8 7/8% Notes are guaranteed by certain existing and future domestic subsidiaries and are not subject to any sinking fund requirements. Provisions of the 10% Notes include, without limitation, restrictions on liens, indebtedness, asset sales, and dividends and other restricted payments. The 10% Notes are redeemable at the option of the Company, in whole or in part, at prices declining annually from the Make-Whole Price (as defined in the 10% Notes agreement) to 100% on and after August 1, 2009. In the event of a Change of Control (as defined in the indenture for such notes), each holder of the 10% Notes may require the Company to repurchase all or a portion of such holder's 10% Notes at a purchase price equal to 101% of the principal amount thereof. The 10% Notes are guaranteed by certain existing and future domestic subsidiaries and are not subject to any sinking fund requirements. The 10% Notes are also secured, in a second lien position, by all domestic inventory, receivables, equipment, real property, subsidiary stock (limited to 65% for foreign subsidiaries) and intellectual property. The carrying amount of the Company's revolving credit facility approximates the fair value based on current market rates. The Company's Senior Secured Notes and Senior Subordinated Notes have an approximate fair market value of $74,207,000 and $142,800,000, respectively, based on quoted market prices, the total of which is more than their aggregate carrying amount of $203,384,000. The principal payments scheduled to be made as of March 31, 2006 on the above debt, for the next five annual periods subsequent thereto, are as follows (in thousands): 2007 $ 127 2008 117 2009 53 2010 33 2011 67,411 F-17 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11. RETIREMENT PLANS The Company provides defined benefit pension plans to certain employees. The Company uses December 31 as the measurement date for all of its pension plans. The following provides a reconciliation of benefit obligation, plan assets, and funded status of the plans:
---------------------------------- MARCH 31, ---------------------------------- 2006 2005 ---- ---- Change in benefit obligation: Benefit obligation at beginning of year..................................... $ 120,634 $ 110,865 Service cost................................................................ 4,004 4,285 Interest cost............................................................... 7,213 6,718 Actuarial loss.............................................................. 7,003 2,888 Benefits paid............................................................... (4,860) (4,410) Foreign exchange rate changes............................................... 154 288 ---------------------------------- Benefit obligation at end of year........................................... $ 134,148 $ 120,634 ================================== Change in plan assets: Fair value of plan assets at beginning of year.............................. $ 91,323 $ 80,564 Actual gain on plan assets.................................................. 5,795 5,250 Employer contribution....................................................... 7,816 9,673 Benefits paid............................................................... (4,860) (4,410) Foreign exchange rate changes............................................... 132 246 ---------------------------------- Fair value of plan assets at end of year.................................... $ 100,206 $ 91,323 ================================== Funded status .............................................................. $ (33,942) $ (29,311) Unrecognized actuarial loss................................................. 35,282 29,744 Unrecognized prior service cost............................................. 2,148 1,537 ---------------------------------- Net amount recognized....................................................... $ 3,488 $ 1,970 ================================== Amounts recognized in the consolidated balance sheets are as follows: ---------------------------------- MARCH 31, ---------------------------------- 2006 2005 ---- ---- Intangible asset............................................................ $ 2,148 $ 1,537 Accrued liabilities......................................................... (5,987) (4,325) Other non-current liabilities............................................... (20,284) (18,637) Deferred tax effect of accumulated other comprehensive loss................. 11,038 8,823 Accumulated other comprehensive loss........................................ 16,573 14,572 ---------------------------------- Net amount recognized....................................................... $ 3,488 $ 1,970 ==================================
Net periodic pension cost included the following components:
------------------------------------------------ YEAR ENDED MARCH 31, ------------------------------------------------ 2006 2005 2004 ---- ---- ---- Service costs--benefits earned during the period.................... $ 4,004 $ 4,285 $ 3,921 Interest cost on projected benefit obligation....................... 7,213 6,719 6,711 Expected return on plan assets...................................... (6,753) (6,666) (5,404) Net amortization.................................................... 2,518 4,033 1,978 ------------------------------------------------ Net periodic pension cost........................................... $ 6,982 $ 8,371 $ 7,206 ================================================
The fiscal 2005 pension expense includes a one-time, non-cash charge of $2,037,000 relating to a defined benefit plan at one of our foreign operations. The accumulated benefit obligation for all defined benefit plans was $126,196,000 and $113,486,000 as of March 31, 2006 and 2005, respectively. F-18 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Information for pension plans with a projected benefit obligation in excess of plan assets is as follows: -------------------------- MARCH 31, -------------------------- 2006 2005 ---- ---- Projected benefit obligation.............. $ 134,148 $ 120,634 Fair value of plan assets................. 100,206 91,323 Information for pension plans with an accumulated benefit obligation in excess of plan assets is as follows: -------------------------- MARCH 31, -------------------------- 2006 2005 ---- ---- Accumulated benefit obligation............ $ 126,196 $ 113,486 Fair value of plan assets................. 100,206 91,323 Unrecognized gains and losses are amortized on a straight-line basis over the average remaining service period of active participants. The weighted-average assumptions in the following table represent the rates used to develop the actuarial present value of the projected benefit obligation for the year listed and also net periodic pension cost for the following year:
MARCH 31, -------------------------------------------------------- 2006 2005 2004 2003 -------------------------------------------------------- Discount rate........................................ 5.75% 6.00% 6.25% 6.75% Expected long-term rate of return on plan assets..... 7.50 8.25 8.40 8.50 Rate of compensation increase........................ 4.00 4.00 4.00 4.00
The expected rate of return on plan asset assumptions are determined considering historical averages and real returns on each asset class. The Company's retirement plan target and actual asset allocations are as follows:
MARCH 31, -------------------------------------------------------- TARGET ACTUAL --------------- ----------------------------- 2007 2006 2005 --------------- ----------------------------- Equity securities.................................... 70% 56% 55% Fixed income......................................... 30 44 45 --------------- ----------------------------- Total plan assets.................................... 100% 100% 100% =============== =============================
The Company has an investment objective for domestic pension plans to adequately provide for both the growth and liquidity needed to support all current and future benefit payment obligations. The investment strategy is to invest in a diversified portfolio of assets which are expected to satisfy the aforementioned objective and produce both absolute and risk adjusted returns competitive with a benchmark that is a blend of the S&P 500 and an aggregate bond fund. The shift to the targeted allocation is the result of management's re-evaluation of its investment allocation. The targeted allocation will be accomplished as some plan assets governed by collective bargaining contracts will be transferred from fixed income into equity securities, as well as reallocation of remaining assets to achieve the desired balance during fiscal 2007. The Company's funding policy with respect to the defined benefit pension plans is to contribute annually at least the minimum amount required by the Employee Retirement Income Security Act of 1974 (ERISA). Additional contributions may be made to minimize PBGC premiums. The Company expects to contribute $5,987,000 to its pension plans in fiscal 2007. F-19 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Information about the expected benefit payments for the Company's defined benefit plans is as follows: 2007 $ 5,079 2008 6,174 2009 5,888 2010 6,487 2011 7,084 2012-2016 46,221 The Company also sponsors defined contribution plans covering substantially all domestic employees. Participants may elect to contribute basic contributions. These plans provide for employer contributions based primarily on employee participation. The Company recorded a charge for such contributions of approximately $1,476,000, $673,000 and $635,000 for the years ended March 31, 2006, 2005 and 2004, respectively. 12. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) The AICPA Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans" requires that compensation expense for ESOP shares be measured based on the fair value of those shares when committed to be released to employees, rather than based on their original cost. Also, dividends on those ESOP shares that have not been allocated or committed to be released to ESOP participants are not reflected as a reduction of retained earnings. Rather, since those dividends are used for debt service, a charge to compensation expense is recorded. Furthermore, ESOP shares that have not been allocated or committed to be released are not considered outstanding for purposes of calculating earnings per share. The obligation of the ESOP to repay borrowings incurred to purchase shares of the Company's common stock is guaranteed by the Company; the unpaid balance of such borrowings, if any, would be reflected in the consolidated balance sheet as a liability. An amount equivalent to the cost of the collateralized common stock and representing deferred employee benefits has been recorded as a deduction from shareholders' equity. Substantially all of the Company's domestic non-union employees are participants in the ESOP. Contributions to the plan result from the release of collateralized shares as debt service payments are made. Compensation expense amounting to $653,000, $296,000 and $200,000 in fiscal 2006, 2005 and 2004, respectively, is recorded based on the guaranteed release of the ESOP shares at their fair market value. Dividends on allocated ESOP shares, if any, are recorded as a reduction of retained earnings and are applied toward debt service. At March 31, 2006 and 2005, 723,618 and 795,791 of ESOP shares, respectively, were allocated or available to be allocated to participants' accounts. At March 31, 2006 and 2005, 249,821 and 284,695 of ESOP shares were pledged as collateral to guarantee the ESOP term loans. The fair market value of unearned ESOP shares at March 31, 2006 amounted to $6,728,000. 13. POSTRETIREMENT BENEFIT OBLIGATION The Company sponsors defined benefit postretirement health care plans that provide medical and life insurance coverage to certain domestic retirees and their dependents of one of its subsidiaries. Prior to the acquisition of this subsidiary, the Company did not sponsor any postretirement benefit plans. The Company pays the majority of the medical costs for certain retirees and their spouses who are under age 65. For retirees and dependents of retirees who retired prior to January 1, 1989, and are age 65 or over, the Company contributes 100% toward the American Association of Retired Persons ("AARP") premium frozen at the 1992 level. For retirees and dependents of retirees who retired after January 1, 1989, the Company contributes $35 per month toward the AARP premium. The life insurance plan is noncontributory. F-20 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On December 8, 2003, Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ("Medicare Act"). In March 2004, the FASB issued Staff Position No FAS 106-2 "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of 2003 ("FSP No 106-2")," which provides accounting guidance on how to account for the effects of the Medicare Act on postretirement plans that provide prescription drug benefits. The Medicare Act also requires certain disclosures regarding the effect of the subsidy provided by the Medicare Act. Additionally, FSP 106-2 provides two transition methods - retroactive to the date of enactment or prospective from the date of adoption. The Company elected to adopt FAS 106-2 and apply the prospective transition method in the second quarter of fiscal 2005. The accumulated post retirement benefit obligation decreased $2,339,000 as of July 4, 2004 and net periodic postretirement benefit cost decreased by $225,000 for fiscal 2005. As a result of delays in filing the required paperwork to receive the prescription drug benefits under the Medicare Act, the benefit obligation has been adjusted at March 31, 2006 to reflect an increase in the liability that will be charged to net periodic postretirement benefit cost over the average remaining service period of the participants. The Company still expects to file the required paperwork at some point in the future to receive the benefit. The impact of the delayed filing was not material to the benefit obligation at March 31, 2006 or net periodic postretirement benefit cost for the year end March 31, 2006. The Company's postretirement health benefit plans are not funded. In accordance with FAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits," the following sets forth a reconciliation of benefit obligation and the funded status of the plan:
---------------------------------- MARCH 31, ---------------------------------- 2006 2005 ---- ---- Change in benefit obligation: Benefit obligation at beginning of year................................. $ 12,927 $ 15,984 Service cost............................................................ 6 17 Interest cost........................................................... 751 834 Amendment............................................................... - (2,339) Actuarial loss.......................................................... 601 460 Benefits paid........................................................... (2,064) (2,029) ---------------------------------- Benefit obligation at end of year.................................... $ 12,221 $ 12,927 ================================== Funded status .......................................................... $ (12,221) $ (12,927) Unrecognized actuarial loss............................................. 5,745 5,554 ---------------------------------- Net amount recognized in accrued and other non-current liabilities...... $ (6,476) $ (7,373) ==================================
Net periodic postretirement benefit cost included the following:
--------------------------------------- YEAR ENDED MARCH 31, --------------------------------------- 2006 2005 2004 ---- ---- ---- Service cost--benefits attributed to service during the period.......... $ 6 $ 17 $ 11 Interest cost........................................................... 751 834 869 Amortization of prior service gain...................................... - - (153) Amortization of plan net losses......................................... 411 460 643 --------------------------------------- Net periodic postretirement benefit cost........................... $1,168 $1,311 $1,370 =======================================
For measurement purposes, healthcare costs were assumed to increase 9% in fiscal 2007, grading down over time to 5% in seven years. The discount rate used in determining the accumulated postretirement benefit obligation was 5.75% and 6.00% as of March 31, 2006 and 2005, respectively. F-21 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Information about the expected benefit payments for the Company's postretirement health benefit plans is as follows: 2007 $ 1,620 2008 1,529 2009 1,441 2010 1,323 2011 1,315 2012-2016 5,250 Assumed medical claims cost trend rates have an effect on the amounts reported for the health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects:
ONE PERCENTAGE ONE PERCENTAGE POINT INCREASE POINT DECREASE --------------------------------------------- Effect on total of service and interest cost components........ $ 40 $ (36) Effect on postretirement obligation............................ 724 (656)
14. EARNINGS PER SHARE AND STOCK PLANS EARNINGS PER SHARE The Company calculates earnings per share in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FAS No. 128). Basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share includes any dilutive effects of stock options. The following table sets forth the computation of basic and diluted earnings per share:
----------------------------------------------------- YEAR ENDED MARCH 31, ----------------------------------------------------- 2006 2005 2004 ---- ---- ---- Numerator for basic and diluted earnings per share: Income from continuing operations........................... $ 59,100 $ 16,067 $ 1,193 Income from discontinued operations......................... 696 643 - ----------------------------------------------------- Net income ............................................... $ 59,796 $ 16,710 $ 1,193 ===================================================== Denominators: Weighted-average common stock outstanding-- denominator for basic EPS................................. 16,052 14,594 14,553 Effect of dilutive employee stock options................... 576 209 1 ----------------------------------------------------- Adjusted weighted-average common stock outstanding and assumed conversions-- denominator for diluted EPS............................... 16,628 14,803 14,554 =====================================================
The weighted-average common stock outstanding shown above is net of unallocated ESOP shares (see Note 12). During fiscal 2006, the Company registered an additional 3,350,000 shares of its common stock which were sold at $20.00 per share. The number of shares offered by the Company was 3,000,000 and 350,000 were offered by a selling shareholder. The Company did not receive any proceeds from the sale of shares by the selling shareholder. This stock offering increased the Company's weighted average common stock outstanding by 1,134,000 shares for fiscal 2006. A portion of the proceeds received by the Company were used to redeem $47,616,000 principal amount of the Company's outstanding 10% Senior Secured Notes. The balance of the proceeds is available for other general corporate purposes to advance the Company's strategy of global growth, additional debt repayment, investments and acquisitions. F-22 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) STOCK PLANS The Company maintains two stock option plans, a Non-Qualified Stock Option Plan (Non-Qualified Plan) and an Incentive Stock Option Plan (Incentive Plan). Under the Non-Qualified Plan, options may be granted to officers and other key employees of the Company as well as to non-employee directors and advisors. As of March 31, 2006, no options have been granted to non-employees. Options granted under the Non-Qualified and Incentive Plans become exercisable over a four-year period at the rate of 25% per year commencing one year from the date of grant at an exercise price of not less than 100% of the fair market value of the common stock on the date of grant. Any option granted under the Non-Qualified plan may be exercised not earlier than one year from the date such option is granted. Any option granted under the Incentive Plan may be exercised not earlier than one year and not later than 10 years from the date such option is granted. A summary of option transactions during each of the three fiscal years in the period ended March 31, 2006 is as follows:
WEIGHTED-AVERAGE SHARES EXERCISE PRICE -------------------------------------------------- Balance at March 31, 2003....................................... 1,311,750 $ 14.05 Granted...................................................... 45,000 6.92 Cancelled.................................................... (126,900) 14.28 -------------------------------------------------- Balance at March 31, 2004....................................... 1,229,850 $ 13.77 Granted...................................................... 741,500 6.41 Exercised.................................................... (52,000) 8.25 Cancelled.................................................... (116,550) 13.82 -------------------------------------------------- Balance at March 31, 2005....................................... 1,802,800 $ 10.89 Granted...................................................... 45,000 21.61 Exercised.................................................... (626,282) 11.41 Cancelled.................................................... (89,400) 7.76 -------------------------------------------------- Balance at March 31, 2006....................................... 1,132,118 $ 11.28 ==================================================
A summary of exercisable and available for grant options is as follows:
---------------------------------------------- YEAR ENDED MARCH 31, ---------------------------------------------- 2006 2005 2004 ---- ---- ---- Exercisable at end of year........................................... 605,243 926,050 851,425 Available for grant at end of year................................... 172,100 127,700 752,650
Exercise prices for options outstanding as of March 31, 2006, ranged from $5.46 to $29.00. The following table provides certain information with respect to stock options outstanding at March 31, 2006:
WEIGHTED-AVERAGE STOCK OPTIONS WEIGHTED-AVERAGE REMAINING CONTRACTUAL RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE LIFE ------------------------ ----------- -------------- ---- Up to $10.00...................... 702,000 $ 6.91 7.3 $10.01 to $20.00.................. 175,568 14.32 4.9 $20.01 to $30.00.................. 254,550 21.25 4.1 ------------------------------------------------------------------------- 1,132,118 $ 11.28 6.2 =========================================================================
The following table provides certain information with respect to stock options exercisable at March 31, 2006:
STOCK OPTIONS WEIGHTED-AVERAGE RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE ------------------------ ----------- -------------- Up to $10.00............................................. 276,375 $ 8.95 $10.01 to $20.00......................................... 119,318 14.51 $20.01 to $30.00......................................... 209,550 21.18 -------------- ------------ 605,243 $ 14.28 ============== ============
F-23 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FAS No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the grant date and the number of options granted is fixed, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by FAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The fair value for issued options in fiscal 2006, 2005 and 2004 was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:
YEAR ENDED YEAR ENDED YEAR ENDED MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2004 ------------------------------------------------------- Assumptions: Risk-free interest rate.................... 4.5 % 4.9 % 4.5 % Dividend yield--Incentive Plan............. 0.0 % 0.0 % 0.0 % Volatility factor.......................... 0.615 0.569 0.567 Expected life--Incentive Plan.............. 5 years 5 years 5 years
The weighted-average fair value of options granted in 2006, 2005 and 2004 was $12.13, $3.45 and $3.68 per share, respectively. The Company maintains a Restricted Stock Plan, under which the Company had 48,000 and 49,000 shares reserved for issuance at March 31, 2006 and 2005, respectively. The Company charges unearned compensation, a component of shareholders' equity, for the market value of shares, as they are issued. It is then ratably amortized over the restricted period. Grantees that remain continuously employed with the Company become vested in their shares five years after the date of the grant. 1,000 shares were issued during the year ended March 31, 2006. No shares were issued during the years ended March 31, 2005 or 2004. 15. LOSS CONTINGENCIES From time to time, the Company is named a defendant in legal actions arising out of the normal course of business. The Company is not a party to any pending legal proceeding other than ordinary, routine litigation incidental to our business. The Company does not believe that any of our pending litigation will have a material impact on its business. GENERAL AND PRODUCT LIABILITY-- During the fourth quarter of fiscal 2006, the Company reevaluated the predictability of future cash flows associated with its self-insured product liability and asbestos reserves and concluded that future cash payments related to reserves for nonasbestos claims could no longer be discounted due to their underlying uncertainty. Reserves for asbestos claims continue to be discounted at a risk free rate. This change in estimate resulted in a reduction in the discount recorded by the company of approximately $1,578,000 ($0.09 diluted EPS impact for fiscal 2006). The gross reserves as of March 31, 2006 and 2005 were $23,329,000 and $19,653,000, respectively. This liability is funded by investments in marketable securities (see Notes 2 and 6). F-24 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table provides a reconciliation of the beginning and ending balances for accrued general and product liability:
--------------------------------------------------- YEAR ENDED MARCH 31, --------------------------------------------------- 2006 2005 2004 ---- ---- ---- Accrued general and product liability, beginning of year.. $ 16,094 $ 15,930 $ 14,439 Add impact of change in discount estimate................. 1,578 - - Add provision for claims.................................. 6,342 5,780 5,398 Deduct payments for claims................................ (3,045) (5,616) (3,907) --------------------------------------------------- Accrued general and product liability, end of year........ $ 20,969 $ 16,094 $ 15,930 ===================================================
The per occurrence limits on our self-insurance for general and product liability coverage to Columbus McKinnon were $2,000,000 from inception through fiscal 2003 and $3,000,000 for fiscal 2004 and thereafter. In addition to the per occurrence limits, the Company's coverage is also subject to an annual aggregate limit, applicable to losses only. These limits range from $2,000,000 to $6,000,000 for each policy year from inception through fiscal 2006. Along with other manufacturing companies, the Company is subject to various federal, state and local laws relating to the protection of the environment. To address the requirements of such laws, the Company has adopted a corporate environmental protection policy which provides that all of its owned or leased facilities shall, and all of its employees have the duty to, comply with all applicable environmental regulatory standards, and the Company has initiated an environmental auditing program for our facilities to ensure compliance with such regulatory standards. The Company has also established managerial responsibilities and internal communication channels for dealing with environmental compliance issues that may arise in the course of our business. Because of the complexity and changing nature of environmental regulatory standards, it is possible that situations will arise from time to time requiring the Company to incur expenditures in order to ensure environmental regulatory compliance. However, the Company is not aware of any environmental condition or any operation at any of its facilities, either individually or in the aggregate, which would cause expenditures having a material adverse effect on its results of operations, financial condition or cash flows and, accordingly, has not budgeted any material capital expenditures for environmental compliance for fiscal 2007. Like many industrial manufacturers, the Company is involved in asbestos-related litigation. In continually evaluating costs relating to its estimated asbestos-related liability, the Company reviews, among other things, the incidence of past and recent claims, the historical case dismissal rate, the mix of the claimed illnesses and occupations of the plaintiffs, its recent and historical resolution of the cases, the number of cases pending against it, the status and results of broad-based settlement discussions, and the number of years such activity might continue. Based on this review, the Company has estimated its share of liability to defend and resolve probable asbestos-related personal injury claims. This estimate is highly uncertain due to the limitations of the available data and the difficulty of forecasting with any certainty the numerous variables that can affect the range of the liability. The Company will continue to study the variables in light of additional information in order to identify trends that may become evident and to assess their impact on the range of liability that is probable and estimable. F-25 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Based on actuarial information, the Company has estimated its asbestos-related aggregate liability through March 31, 2031 and March 31, 2082 to range between $5,500,000 and $19,000,000 using actuarial parameters of continued claims for a period of 25 to 76 years. The Company's estimation of its asbestos-related aggregate liability that is probable and estimable, in accordance with U.S. generally accepted accounting principles, is through March 31, 2031 and ranges from $5,500,000 to $6,500,000 as of March 31, 2006. The range of probable and estimable liability reflects uncertainty in the number of future claims that will be filed and the cost to resolve those claims, which may be influenced by a number of factors, including the outcome of the ongoing broad-based settlement negotiations, defensive strategies, and the cost to resolve claims outside the broad-based settlement program. Based on the underlying actuarial information, the Company has reflected $6,300,000 as a liability in the consolidated financial statements in accordance with U.S. generally accepted accounting principles. The increase in the recorded liability from the amount of $4,800,000 at March 31, 2005 is due to a change in actuarial parameters used to calculate required asbestos liability reserve levels. The recorded liability does not consider the impact of any potential favorable federal legislation such as the "FAIR Act." Of this amount, management expects to incur asbestos liability payments of approximately $500,000 over the next 12 months. Because payment of the liability is likely to extend over many years, management believes that the potential additional costs for claims will not have a material after-tax effect on the financial condition of the Company or its liquidity, although the net after-tax effect of any future liabilities recorded could be material to earnings in a future period. 16. RESTRUCTURING CHARGES The Company has analyzed its global capacity requirements and, as a result, began a series of facility rationalization projects in early fiscal 2002. The decision to close or significantly reorganize the facilities identified was based upon the cost structure of those facilities relative to others within the Company. Production operations were transferred to other facilities within the same reporting segment, to better utilize their available capacity. During fiscal 2006, the Company recorded restructuring costs of $1,609,000 related to environmental remediation charges, inventory disposal costs, and facility costs as a result of the continued closure, merging and reorganization of the Company. $1,000,000 and $600,000 of these costs are related to the Products and Solutions segments, respectively. The charges primarily relate to the cost of removal of certain environmentally hazardous materials in accordance with SFAS No. 143 "Accounting for Asset Retirement Obligations" and FIN 47 ($600,000) and inventory disposal related to the rationalization of certain product families within our mechanical jacks line ($400,000). In addition, we have accrued additional costs of maintenance of a non-operating facility based on anticipated sale date ($300,000). The costs associated with the disposal of this facility were originally accrued as a result of the restructuring occurring prior to the adoption of SFAS No. 146 SFAS No. 146 "Accounting for the Costs Associated with Exit or Disposal Activities." As of March 31, 2006, the liability primarily consists of costs associated with the preparation and maintenance of a non-operating facility and environmental remediation costs which were accrued in accordance with SFAS No. 143. The Company has one facility that is completely closed and prepared for disposal. During fiscal 2005, the Company recorded restructuring costs of $910,000 related to various employee termination benefits and facility costs as a result of the continued closure, merging and reorganization of the Company. $600,000 and $300,000 of these costs are related to the Products and Solutions segments, respectively. The charges primarily relate to the maintenance of facilities being expensed on an as incurred basis in accordance with SFAS No. 146. As of March 31, 2005, the liability primarily consisted of costs associated with the preparation and maintenance of a non-operating facility prior to disposal which were accrued prior to the adoption of SFAS No. 146. Due to changes in the real estate market and a reassessment of the fair value of the property, the asset was written-down by $300,000 during fiscal 2005. During fiscal 2004, the Company recorded restructuring costs of $1,239,000 related to various employee termination benefits and facility costs as a result of the continued closure, merging and reorganization of the Company and completion of the two open projects from fiscal 2003. $800,000 and $400,000 of these costs are related to the Products and Solutions segments, respectively. Approximately 130 employees were terminated at the various facilities. As of March 31, 2004, the liability consisted of severance payments and costs associated with the preparation and maintenance of non-operating facilities prior to disposal which were accrued prior to the adoption of SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities." F-26 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following provides a reconciliation of the activity related to restructuring reserves:
--------------------------------------- EMPLOYEE FACILITY TOTAL Reserve at March 31, 2003................................................. $ 922 $ 1,409 $ 2,331 Fiscal 2004 restructuring charges......................................... 1,005 234 1,239 Cash payments............................................................. (1,766) (1,243) (3,009) --------------------------------------- Reserve at March 31, 2004................................................. $ 161 $ 400 $ 561 Fiscal 2005 restructuring charges......................................... 81 829 910 Cash payments............................................................. (226) (801) (1,027) Write-down of non-operating property...................................... - (300) (300) --------------------------------------- Reserve at March 31, 2005................................................. $ 16 $ 128 $ 144 Fiscal 2006 restructuring charges......................................... 358 1,251 1,609 Cash payments............................................................. (315) (645) (960) --------------------------------------- Reserve at March 31, 2006................................................. $ 59 $ 734 $ 793 =======================================
17. INCOME TAXES The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income from continuing operations before income tax expense. The sources and tax effects of the difference were as follows:
---------------------------------------------- YEAR ENDED MARCH 31, ---------------------------------------------- 2006 2005 2004 ---- ---- ---- Expected tax at 35%.................................................. $ 9,854 $ 6,617 $ 1,821 State income taxes net of federal benefit............................ 705 363 614 Foreign taxes greater (less) than statutory provision................ 41 (579) 905 Permanent items...................................................... 370 - - Benefit of worthless stock deduction................................. - - (44,815) Research and development credit...................................... - - (1,058) Valuation allowance.................................................. (44,237) (4,435) 46,974 Other................................................................ 2,321 230 (432) ---------------------------------------------- Actual tax (benefit) provision....................................... $ (30,946) $ 2,196 $ 4,009 ============================================== The provision for income tax (benefit) expense consisted of the following: ---------------------------------------------- YEAR ENDED MARCH 31, ---------------------------------------------- 2006 2005 2004 ---- ---- ---- Current income tax expense (benefit): United States Federal........................................... $ 856 $ (426) $ 147 State taxes..................................................... 1,084 559 928 Foreign......................................................... 4,082 3,034 2,779 Deferred income tax (benefit) expense: United States................................................... (37,099) - 880 Foreign......................................................... 131 (971) (725) ---------------------------------------------- $ (30,946) $ 2,196 $ 4,009 ==============================================
F-27 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company applies the liability method of accounting for income taxes as required by FAS Statement No. 109, "Accounting for Income Taxes." The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
----------------------------------- MARCH 31, ----------------------------------- 2006 2005 ---- ---- Deferred tax assets: Federal net operating loss carryforwards..................................... $ 29,075 $ 34,292 State net operating loss carryforwards....................................... 6,301 6,750 Employee benefit plans....................................................... 9,518 7,929 Asset reserves............................................................... 2,384 2,596 Insurance reserves........................................................... 7,283 6,558 Accrued vacation and incentive costs......................................... 1,980 2,077 Capital loss carryforwards................................................... - 708 Other........................................................................ 6,337 6,543 Valuation allowance.......................................................... (6,301) (50,538) ----------------------------------- Gross deferred tax assets 56,577 16,915 ----------------------------------- Deferred tax liabilities: Inventory reserves........................................................... (3,398) (3,050) Property, plant, and equipment............................................... (2,822) (4,321) ----------------------------------- Gross deferred tax liabilities............................................. (6,220) (7,371) ----------------------------------- Net deferred tax assets................................................. $ 50,357 $ 9,544 ===================================
As of March 31, 2006, the Company had U.S. federal net operating loss carryforwards of approximately $83,070,000. The net operating loss carryforwards arose in fiscal 2004 primarily as a result of a worthless stock deduction taken on the Company's March 31, 2003 federal income tax return relating to the sale of substantially all of the assets of a domestic subsidiary. If not utilized, these carryforwards will expire in fiscal years 2023 and 2024. A valuation allowance of $50,538,000 existed at March 31, 2005 due to the uncertainly of whether the Company's operating loss carryforwards, deferred tax assets and capital loss carryforwards might ultimately be realized. We were able to utilize $14,906,000 of the federal operating loss carryforwards in fiscal 2006 which reduced the valuation allowance by $5,217,000. As a result of the increased operating performance of the Company over the past several years, the Company reevaluated the certainty as to whether the Company's remaining net operating loss carryforwards and other deferred tax assets may ultimately be realized. As a result of the determination that it is more likely than not that all of the remaining deferred tax assets will be realized with the exception of state net operating loss carryforwards, a significant portion of the remaining valuation allowance was reversed in fiscal 2006. Deferred income taxes are classified within the consolidated balance sheets based on the following breakdown: -------------------------- MARCH 31, -------------------------- 2006 2005 ---- ---- Net current deferred tax asset................ $ 6,513 $ 4,977 Net non-current deferred tax asset............ 46,065 6,122 Net current deferred tax liability............ (1,189) (816) Net non-current deferred tax liability........ (1,032) (739) -------------------------- Net deferred tax asset................... $ 50,357 $ 9,544 ========================== The net current deferred tax asset, net current deferred tax liability, and net non-current deferred tax liability are included in prepaid expenses, accrued liabilities, and other non-current liabilities, respectively. F-28 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Income from continuing operations before income tax (benefit) expense includes foreign subsidiary income of $13,034,000, $8,588,000 and $3,687,000 for the years ended March 31, 2006, 2005, and 2004, respectively. As of March 31, 2006, the Company had unrecognized deferred tax liabilities related to approximately $24 million of cumulative undistributed earnings of foreign subsidiaries. These earnings are considered to be permanently invested in operations outside the United States. Determination of the amount of unrecognized deferred U.S. income tax liability with respect to such earnings is not practicable. In the year ended March 31, 2006, 581,064 shares of common stock were issued through the exercise of non-qualified stock options or through the disqualifying disposition of incentive stock options. The total tax benefit to the Company from these transactions, which is credited to additional paid-in capital rather than recognized as a reduction of income tax expense, was $2,154,000 in 2006. This tax benefit has also been recognized in the consolidated balance sheet as a reduction of deferred income taxes payable. The Company reviewed the provisions of the American Jobs Creation Act of 2004. The American Jobs Creation Act had no material impact on the operations of the Company for fiscal year 2006. 18. RENTAL EXPENSE AND LEASE COMMITMENTS Rental expense for the years ended March 31, 2006, 2005 and 2004 was $3,914,000, $3,718,000, and $3,594,000, respectively. The following amounts represent future minimum payment commitments as of March 31, 2006 under non-cancelable operating leases extending beyond one year: VEHICLES AND YEAR ENDED MARCH 31, REAL PROPERTY EQUIPMENT TOTAL -------------------- ------------- --------- ----- 2007.................... $ 1,279 $ 2,156 $ 3,435 2008.................... 1,333 1,645 2,978 2009.................... 1,267 1,305 2,572 2010.................... 1,108 975 2,083 2011.................... 704 676 1,380 F-29 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 19. SUMMARY FINANCIAL INFORMATION The following information sets forth the condensed consolidating summary financial information of the parent and guarantors, which guarantee the 10% Senior Secured Notes and the 8 7/8% Senior Subordinated Notes, and the nonguarantors. The guarantors are wholly owned and the guarantees are full, unconditional, joint and several. As of and for the year ended March 31, 2006:
NON PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED -------------------------------------------------------------------------- AS OF MARCH 31, 2006: Current assets: Cash.................................... $ 27,531 $ (1,461) $ 19,528 $ -- $ 45,598 Trade accounts receivable and unbilled revenues............................. 60,808 157 46,822 -- 107,787 Inventories............................. 32,708 18,177 26,325 (2,365) 74,845 Prepaid expenses........................ 4,777 1,446 8,903 550 15,676 -------------------------------------------------------------------------- Total current assets................. 125,824 18,319 101,578 (1,815) 243,906 Net property, plant, and equipment........... 24,651 11,703 18,778 -- 55,132 Goodwill and other intangibles, net.......... 89,808 58,036 39,483 -- 187,327 Intercompany balances........................ 92,325 (93,637) (73,697) 75,009 -- Other non-current assets..................... 96,548 197,328 25,939 (240,136) 79,679 -------------------------------------------------------------------------- Total assets......................... $ 429,156 $ 191,749 $ 112,081 $ (166,942) $ 566,044 ========================================================================== Current liabilities.......................... $ 48,146 $ 15,368 $ 43,306 $ 473 $ 107,293 Long-term debt, less current portion......... 203,384 -- 457 -- 203,841 Other non-current liabilities................ 16,305 8,676 25,508 -- 50,489 -------------------------------------------------------------------------- Total liabilities.................... 267,835 24,044 69,271 473 361,623 Shareholders' equity......................... 161,321 167,705 42,810 (167,415) 204,421 -------------------------------------------------------------------------- Total liabilities and shareholders' equity.......................... $ 429,156 $ 191,749 $ 112,081 $ (166,942) $ 566,044 ========================================================================== FOR THE YEAR ENDED MARCH 31, 2006: Net sales.................................... $ 268,570 $ 152,181 $ 163,787 $ (28,531) $ 556,007 Cost of products sold........................ 200,639 114,042 120,842 (27,138) 408,385 -------------------------------------------------------------------------- Gross profit................................. 67,931 38,139 42,945 (1,393) 147,622 -------------------------------------------------------------------------- Selling, general and administrative expenses. 40,811 16,003 31,081 -- 87,895 Restructuring charges........................ 1,635 -- (26) -- 1,609 Amortization of intangibles.................. 179 3 67 -- 249 -------------------------------------------------------------------------- Income from operations....................... 25,306 22,133 11,823 (1,393) 57,869 Interest and debt expense.................... 19,558 4,876 233 -- 24,667 Other (income) and expense, net.............. 8,055 20 (3,027) -- 5,048 -------------------------------------------------------------------------- (Loss) income from continuing operations before income tax (benefit) expense....... (2,307) 17,237 14,617 (1,393) 28,154 Income tax (benefit) expense................. (37,950) 2,912 4,263 (171) (30,946) -------------------------------------------------------------------------- Income from continuous operations............ 35,643 14,325 10,354 (1,222) 59,100 Income from discontinued operations.......... 696 -- -- -- 696 -------------------------------------------------------------------------- Net income................................... $ 36,339 $ 14,325 $ 10,354 $ (1,222) $ 59,796 ========================================================================== F-30 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NON PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED -------------------------------------------------------------------------- FOR THE YEAR ENDED MARCH 31, 2006: OPERATING ACTIVITIES: Cash provided by operating activities........ $ 28,512 $ 8,418 $ 11,587 $ -- $ 48,517 INVESTING ACTIVITIES: Purchases of marketable securities, net...... -- -- (888) -- (888) Capital expenditures......................... (4,759) (800) (2,871) -- (8,430) Proceeds from sale of businesses and surplus real estate............................... -- 468 1,623 -- 2,091 Proceeds from discontinued operations note receivable - revised...................... 857 -- -- -- 857 -------------------------------------------------------------------------- Net cash used in investing activities........ (3,902) (332) (2,136) -- (6,370) FINANCING ACTIVITIES: Proceeds from issuance of common stock....... 56,619 -- -- -- 56,619 Proceeds from exercise of stock options...... 7,149 -- -- -- 7,149 Net borrowings under revolving line-of-credit agreements................................ 240 -- 1,121 -- 1,361 Repayment of debt............................ (204,832) -- (335) -- (205,167) Proceeds from issuance of long-term debt..... 136,000 -- -- -- 136,000 Deferred financing costs incurred............ (2,877) -- -- -- (2,877) Dividends paid............................... 9,067 (8,854) (213) -- -- Other........................................ 558 -- -- -- 558 -------------------------------------------------------------------------- Net cash provided by (used in) financing activities................................ 1,924 (8,854) 573 -- (6,357) EFFECT OF EXCHANGE RATE CHANGES ON CASH...... -- 4 325 -- 329 -------------------------------------------------------------------------- Net change in cash and cash equivalents...... 26,534 (764) 10,349 -- 36,119 Cash and cash equivalents at beginning of year....................... 997 (697) 9,179 -- 9,479 -------------------------------------------------------------------------- Cash and cash equivalents at end of year..... $ 27,531 $ (1,461) $ 19,528 $ -- $ 45,598 ========================================================================== As of and for the year ended March 31, 2005: AS OF MARCH 31, 2005: Current assets: Cash.................................... $ 1,019 $ (697) $ 9,157 $ -- $ 9,479 Trade accounts receivable and unbilled revenues............................. 57,707 197 39,918 -- 97,822 Inventories............................. 33,651 18,919 26,028 (972) 77,626 Prepaid expenses........................ 7,297 973 5,928 -- 14,198 -------------------------------------------------------------------------- Total current assets................. 99,674 19,392 81,031 (972) 199,125 Net property, plant, and equipment........... 25,107 12,847 19,283 -- 57,237 Goodwill and other intangibles, net.......... 90,027 57,287 39,971 -- 187,285 Intercompany balances........................ 98,964 (102,189) (70,216) 73,441 -- Other non-current assets..................... 55,396 197,864 24,159 (240,195) 37,224 -------------------------------------------------------------------------- Total assets......................... $ 369,168 $ 185,201 $ 94,228 $ (167,726) $ 480,871 ========================================================================== Current liabilities.......................... $ 47,189 $ 14,450 $ 36,653 $ (1,474) $ 96,818 Long-term debt, less current portion......... 259,520 -- 763 -- 260,283 Other non-current liabilities................ 11,032 8,199 22,772 -- 42,003 -------------------------------------------------------------------------- Total liabilities.................... 317,741 22,649 60,188 (1,474) 399,104 Shareholders' equity......................... 51,427 162,552 34,040 (166,252) 81,767 -------------------------------------------------------------------------- Total liabilities and shareholders' equity.......................... $ 369,168 $ 185,201 $ 94,228 $ (167,726) $ 480,871 ========================================================================== F-31 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NON PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED -------------------------------------------------------------------------- FOR THE YEAR ENDED MARCH 31, 2005: Net sales.................................... $ 245,166 $ 141,324 $ 151,741 $ (23,479) $ 514,752 Cost of products sold........................ 188,499 110,455 113,369 (23,479) 388,844 -------------------------------------------------------------------------- Gross profit................................. 56,667 30,869 38,372 -- 125,908 -------------------------------------------------------------------------- Selling, general and administrative expenses. 34,290 18,957 30,774 -- 84,021 Restructuring charges........................ 782 -- 128 -- 910 Amortization of intangibles.................. 242 3 67 -- 312 -------------------------------------------------------------------------- Income from operations....................... 21,353 11,909 7,403 -- 40,665 Interest and debt expense.................... 23,916 3,378 326 -- 27,620 Other income, net............................ (1,562) (2,560) (1,096) -- (5,218) -------------------------------------------------------------------------- (Loss) income from continuing operations before income tax (benefit) expense....... (1,001) 11,091 8,173 -- 18,263 Income tax (benefit) expense................. (1,424) 1,487 2,133 -- 2,196 -------------------------------------------------------------------------- Income from continuous operations............ 423 9,604 6,040 -- 16,067 Income from discontinued operations.......... 643 -- -- -- 643 -------------------------------------------------------------------------- Net income................................... $ 1,066 $ 9,604 $ 6,040 $ -- $ 16,710 ========================================================================== FOR THE YEAR ENDED MARCH 31, 2005: OPERATING ACTIVITIES: Cash (used in) provided by operating activities................................ $ (54,146) $ 64,479 $ 6,828 $ -- $ 17,161 INVESTING ACTIVITIES: Proceeds from marketable securities, net..... 705 -- 609 -- 1,314 Capital expenditures......................... (3,718) (610) (1,597) -- (5,925) Proceeds from sale of businesses and surplus real estate............................... 3,439 3,303 -- -- 6,742 Net assets held for sale..................... -- 375 -- -- 375 Proceeds from discontinued operations note receivable - revised...................... 643 -- -- -- 643 -------------------------------------------------------------------------- Net cash provided by (used in) investing activities................................ 1,069 3,068 (988) -- 3,149 FINANCING ACTIVITIES: Proceeds from exercise of stock options...... 428 -- -- -- 428 Net payments under revolving line-of-credit agreements................................ (219) -- (904) -- (1,123) Repayment of debt............................ (21,666) -- (79) -- (21,745) Deferred financing costs incurred............ (24) -- -- -- (24) Dividends paid............................... 68,168 (68,000) (168) -- -- Other........................................ 562 -- -- -- 562 -------------------------------------------------------------------------- Net cash provided by (used in) financing activities................................ 47,249 (68,000) (1,151) -- (21,902) EFFECT OF EXCHANGE RATE CHANGES ON CASH...... (134) 85 19 -- (30) -------------------------------------------------------------------------- Net change in cash and cash equivalents...... (5,962) (368) 4,708 -- (1,622) Cash and cash equivalents at beginning of year....................... 6,981 (329) 4,449 -- 11,101 -------------------------------------------------------------------------- Cash and cash equivalents at end of year..... $ 1,019 $ (697) $ 9,157 $ -- $ 9,479 ========================================================================== F-32 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) For the year ended March 31, 2004: NON PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED -------------------------------------------------------------------------- FOR THE YEAR ENDED MARCH 31, 2004: Net sales.................................... $ 226,631 $ 114,987 $ 124,116 $ (21,143) $ 444,591 Cost of products sold........................ 173,269 94,677 93,785 (21,986) 339,745 -------------------------------------------------------------------------- Gross profit................................. 53,362 20,310 30,331 843 104,846 -------------------------------------------------------------------------- Selling, general and administrative expenses. 35,046 12,854 25,457 -- 73,357 Restructuring charges........................ 1,281 -- (42) -- 1,239 Amortization of intangibles.................. 245 3 135 -- 383 -------------------------------------------------------------------------- Income from operations....................... 16,790 7,453 4,781 843 29,867 Interest and debt expense.................... 28,390 (263) 729 -- 28,856 Other (income) and expense, net.............. 888 (12,573) (1,456) 8,950 (4,191) -------------------------------------------------------------------------- (Loss) income from continuing operations before income tax (benefit) expense....... (12,488) 20,289 5,508 (8,107) 5,202 Income tax (benefit) expense................. (1,306) 3,181 2,134 -- 4,009 -------------------------------------------------------------------------- Net (loss) income............................ $ (11,182) $ 17,108 $ 3,374 $ (8,107) $ 1,193 ========================================================================== FOR THE YEAR ENDED MARCH 31, 2004: OPERATING ACTIVITIES: Cash provided by (used in) operating activities................................ $ 19,359 $ (2,644) $ 18,623 $ (8,969) $ 26,369 INVESTING ACTIVITIES: Proceeds from marketable securities, net..... -- -- 110 -- 110 Capital expenditures......................... (2,635) (700) (284) -- (3,619) Proceeds from sale of businesses............. 4,015 -- -- -- 4,015 Proceeds from sale of property, plant and equipment................................. -- 387 -- -- 387 Net assets held for sale..................... -- 3,376 -- -- 3,376 -------------------------------------------------------------------------- Net cash provided by (used in) investing activities................................ 1,380 3,063 (174) -- 4,269 FINANCING ACTIVITIES: Proceeds from issuance of common stock....... -- -- (19) 19 -- Net (payments) borrowings under revolving line-of-credit agreements................. (9,925) -- 3,033 -- (6,892) Repayment of debt............................ (115,147) -- (10,617) -- (125,764) Proceeds from issuance of long term debt..... 115,000 -- -- -- 115,000 Deferred financing costs incurred............ (4,432) -- -- -- (4,432) Dividends paid............................... 174 -- (9,124) 8,950 -- Other........................................ 593 -- -- -- 593 -------------------------------------------------------------------------- Net cash (used in) provided by financing activities................................ (13,737) -- (16,727) 8,969 (21,495) EFFECT OF EXCHANGE RATE CHANGES ON CASH...... (78) 72 21 -- 15 -------------------------------------------------------------------------- Net change in cash and cash equivalents...... 6,924 491 1,743 -- 9,158 Cash and cash equivalents at beginning of year....................... 57 (820) 2,706 -- 1,943 -------------------------------------------------------------------------- Cash and cash equivalents at end of year..... $ 6,981 $ (329) $ 4,449 $ -- $ 11,101 ==========================================================================
F-33 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 20. BUSINESS SEGMENT INFORMATION As a result of the way the Company manages the business, its reportable segments are strategic business units that offer products with different characteristics. The most defining characteristic is the extent of customized engineering required on a per-order basis. In addition, the segments serve different customer bases through differing methods of distribution. The Company has two reportable segments: Products and Solutions. The Company's Products segment sells hoists, industrial cranes, chain, attachments, and other material handling products principally to third party distributors through diverse distribution channels, and to a lesser extent directly to end-users. The Solutions segment sells engineered material handling systems such as conveyors and lift tables primarily to end-users in the consumer products, manufacturing, warehousing, and, to a lesser extent, the steel, construction, automotive, and other industrial markets. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Intersegment sales are not significant. The Company evaluates performance based on the operating earnings of the respective business units. Segment information as of and for the years ended March 31, 2006, 2005 and 2004 is as follows: --------------------------------------------- YEAR ENDED MARCH 31, 2006 --------------------------------------------- PRODUCTS SOLUTIONS TOTAL -------- --------- ----- Sales to external customers...... $ 493,896 $ 62,111 $ 556,007 Income from operations........... 55,849 2,020 57,869 Depreciation and amortization.... 7,805 1,019 8,824 Total assets..................... 530,600 35,444 566,044 Capital expenditures............. 7,931 499 8,430 --------------------------------------------- YEAR ENDED MARCH 31, 2005 --------------------------------------------- PRODUCTS SOLUTIONS TOTAL -------- --------- ----- Sales to external customers...... $ 453,105 $ 61,647 $ 514,752 Income from operations........... 39,392 1,273 40,665 Depreciation and amortization.... 8,092 1,079 9,171 Total assets..................... 449,284 31,587 480,871 Capital expenditures............. 4,203 1,722 5,925 --------------------------------------------- YEAR ENDED MARCH 31, 2004 --------------------------------------------- PRODUCTS SOLUTIONS TOTAL -------- --------- ----- Sales to external customers...... $ 394,160 $ 50,431 $ 444,591 Income from operations........... 32,326 (2,459) 29,867 Depreciation and amortization.... 8,996 1,130 10,126 Total assets..................... 446,069 27,294 473,363 Capital expenditures............. 3,362 257 3,619 F-34 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Financial information relating to the Company's operations by geographic area is as follows:
------------------------------------------------- YEAR ENDED MARCH 31, ------------------------------------------------- 2006 2005 2004 ---- ---- ---- NET SALES: United States.......................................................... $ 394,657 $ 360,917 $ 319,815 Europe................................................................. 112,868 108,717 86,518 Canada................................................................. 30,492 28,778 27,736 Other.................................................................. 17,990 16,340 10,522 ------------------------------------------------- Total.................................................................. $ 556,007 $ 514,752 $ 444,591 ================================================= ------------------------------------------------- YEAR ENDED MARCH 31, ------------------------------------------------- 2006 2005 2004 ---- ---- ---- TOTAL ASSETS: United States.......................................................... $ 411,199 $ 341,645 $ 347,488 Europe................................................................. 123,694 115,241 105,120 Canada................................................................. 20,444 17,442 14,628 Other.................................................................. 10,707 6,543 6,127 ------------------------------------------------- Total.................................................................. $ 566,044 $ 480,871 $ 473,363 ================================================= ------------------------------------------------- YEAR ENDED MARCH 31, ------------------------------------------------- 2006 2005 2004 ---- ---- ---- LONG-LIVED ASSETS: United States.......................................................... $ 184,448 $ 185,518 $ 187,202 Europe................................................................. 53,357 54,181 53,051 Canada................................................................. 1,869 2,672 3,283 Other.................................................................. 2,785 2,151 1,979 ------------------------------------------------- Total.................................................................. $ 242,459 $ 244,522 $ 245,515 ================================================= Sales by major product group are as follows: ------------------------------------------------- YEAR ENDED MARCH 31, ------------------------------------------------- 2006 2005 2004 ---- ---- ---- Hoists ............................................................... $ 258,082 $ 227,789 $ 197,400 Chain and forged attachments........................................... 134,301 127,300 110,681 Industrial cranes...................................................... 61,967 62,468 53,276 Other.................................................................. 101,657 97,195 83,234 ------------------------------------------------- Total.......................................................... $ 556,007 $ 514,752 $ 444,591 =================================================
F-35 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Below is selected quarterly financial data for fiscal 2006 and 2005:
---------------------------------------------------------------- THREE MONTHS ENDED ---------------------------------------------------------------- JULY 3, OCTOBER 2, JANUARY 1, MARCH 31, 2005 2005 2006 2006 ---- ---- ---- ---- Net sales................................ $ 140,877 $ 134,712 $ 133,322 $ 147,096 Gross profit............................. 36,543 35,158 34,931 40,990 Income from operations................... 14,622 13,267 13,114 16,866 Net income............................... $ 7,322 $ 3,263 $ 1,413 $ 47,798 ================================================================ Net income per share - basic............. $ 0.50 $ 0.22 $ 0.09 $ 2.63 ================================================================ Net income per share - diluted........... $ 0.49 $ 0.21 $ 0.08 $ 2.53 ================================================================
Results include pre-tax losses on early extinguishment of debt of $3,341,000, $4,950,000 and $920,000 for the quarters ended October 2, 2005, January 1, 2006 and March 31, 2006 respectively. Net income includes tax benefit due to the reversal of a valuation allowance of $38,571,000 for the quarter ended March 31, 2006.
---------------------------------------------------------------- THREE MONTHS ENDED ---------------------------------------------------------------- JULY 4, OCTOBER 3, JANUARY 2, MARCH 31, 2004 2004 2005 2005 ---- ---- ---- ---- Net sales................................ $ 121,658 $ 122,711 $ 125,913 $ 144,470 Gross profit............................. 31,451 29,943 29,999 34,515 Income from operations................... 11,156 9,896 9,456 10,157 Net income............................... $ 3,362 $ 2,594 $ 2,405 $ 8,349 ================================================================ Net income per share - basic............. $ 0.23 $ 0.18 $ 0.16 $ 0.57 ================================================================ Net income per share - diluted........... $ 0.23 $ 0.18 $ 0.16 $ 0.56 ================================================================
Results for the quarter ended March 31, 2005 include a one-time, non-cash charge of $2,037,000 ($1,170,000 net of tax) relating to a defined benefit plan at one of our foreign operations and $3,919,000 of gains from the sale of surplus real estate. F-36 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 22. ACCUMULATED OTHER COMPREHENSIVE LOSS The components of accumulated other comprehensive loss are as follows:
-------------------------------- MARCH 31, -------------------------------- 2006 2005 -------------------------------- Net unrealized investment gains - net of tax................................. $ 1,891 $ 1,233 Minimum pension liability adjustment - net of tax............................ (17,107) (14,572) Foreign currency translation adjustment...................................... 2,237 4,083 -------------------------------- Accumulated other comprehensive loss......................................... $ (12,979) $ (9,256) ================================
The deferred taxes associated with the items included in accumulated other comprehensive loss were $9,486,000 and $8,159,000 for 2006 and 2005, respectively. As a result of the recording of a deferred tax asset valuation allowance in fiscal 2005, the Company recorded as an offsetting entry a $534,000 charge in the minimum pension liability component of other comprehensive income. With the reversal of that valuation allowance in fiscal 2006 (see Note 17), the Company recorded the reversal of the valuation allowance as a reduction of income taxes in the statement of operations. This is in accordance with FASB Statement No. 109, "Accounting for Income Taxes," even though the valuation allowance was initially established by a charge against comprehensive income. This amount will remain indefinitely as a component of minimum pension liability adjustment. The activity by year related to investments, including reclassification adjustments for activity included in earnings is as follows (all items shown net of tax):
------------------------------------------- YEAR ENDED MARCH 31, ------------------------------------------- 2006 2005 2004 ------------------------------------------- Net unrealized investment gains (losses) at beginning of year..... $ 1,233 $ 1,364 $ (342) Unrealized holdings gains arising during the period............ 1,591 328 2,916 Reclassification adjustments for (gains) included in earnings......................................... (933) (459) (1,210) ------------------------------------------- Net change in unrealized gains (losses) on investments............ 658 (131) 1,706 ------------------------------------------- Net unrealized investment gains at end of year.................... $ 1,891 $ 1,233 $ 1,364 ===========================================
F-37 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 23. EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 151, "Inventory Costs," as an amendment to ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage). This Statement requires that these items be recognized as current-period charges and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. This Statement becomes effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 151 to have a material impact on the Company's consolidated financial statements. In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Statement 123(R) was to be adopted for interim or annual periods beginning after June 15, 2005. On April 14th, 2005, the SEC announced that it would provide for a phased-in implementation process for FASB statement No. 123(R). The SEC is requiring that registrants adopt statement 123(R)'s fair value method of accounting for share-based payments to employees no later than the beginning of the first fiscal year beginning after June 15, 2005. We expect to adopt 123(R) in the first quarter of Fiscal 2007. Statement 123(R) permits public companies to adopt its requirements using one of two methods: 1. A "modified prospective" method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123(R) for all share-based payments granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date. 2. A "modified retrospective" method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on amounts previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. The Company is still evaluating the method it plans to use when it adopts statement 123(R). As permitted by Statement 123, the Company currently accounts for share-based payments to employees using Opinion 25's intrinsic value method and, as such, recognizes no compensation cost for employee stock options. Accordingly, adoption of Statement 123(R)'s fair value method will have an impact on our results of operations, although it will have no impact on our overall financial position. The impact of adoption of 123(R) cannot be predicted at this time because it will depend on levels of share based payments granted in the future. However, had we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of statement 123 as described in the disclosure of pro forma net income and earnings per share in Note 2 to the Company's consolidated financial statements. In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" which replaces APB Opinion No. 20, "Accounting Changes," and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements." SFAS No. 154 changes the requirements for and reporting of a change in accounting principle. This Statement becomes effective for changes in accounting methods during fiscal years beginning after December 15, 2005. The Company does not expect the adoption of SFAS No. 154 will have a material impact on the Company's consolidated results of operations and financial condition. F-38 COLUMBUS MCKINNON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 24. SUBSEQUENT EVENTS During April and May of 2006, the Company repurchased $32,128,000 of the outstanding 10% Senior Secured Notes. The repurchase of the 10% Notes occurred at a premium resulting in a pre-tax loss on early extinguishment of debt of $3,194,000. As a result of the repurchase of the 10% Notes, approximately $671,000 of pre-tax deferred financing costs was written-off. The net effect of these items, a $3,865,000 pre-tax loss will be shown as part of other (income) and expense, net for the first quarter of fiscal 2007. F-39
COLUMBUS MCKINNON CORPORATION SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS MARCH 31, 2006, 2005 AND 2004 DOLLARS IN THOUSANDS ADDITIONS --------------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD --------------------------------------------------------------------------------------------------------------------------- Year ended March 31, 2006: Deducted from asset accounts: Allowance for doubtful accounts $ 3,015 $ 1,628 $ -- $ 1,226 (1) $ 3,417 Slow-moving and obsolete inventory 6,413 2,617 -- 1,395 (2) 7,635 Deferred tax asset valuation allowance 50,538 (38,571) -- 5,666 6,301 -------- ---------- -------- ------- -------- Total $ 59,966 $ (34,326) $ -- $ 8,287 $ 17,353 ======== ========== ======== ======= ======== Reserves on balance sheet: Accrued general and product liability costs $ 16,094 $ 7,920 $ -- $ 3,045 (3) $ 20,969 ======== ========== ======== ======= ======== Year ended March 31, 2005: Deducted from asset accounts: Allowance for doubtful accounts $ 2,811 $ 2,191 $ -- $ 1,987 (1) $ 3,015 Slow-moving and obsolete inventory 5,878 1,182 -- 647 (2) 6,413 Deferred tax asset valuation allowance 55,456 1,175 -- 6,093 50,538 -------- ---------- -------- ------- -------- Total $ 64,145 $ 4,548 $ -- $ 8,727 $ 59,966 ======== ========== ======== ======= ======== Reserves on balance sheet: Accrued general and product liability costs $ 15,930 $ 5,780 $ -- $ 5,616 (3) $ 16,094 ======== ========== ======== ======= ======== Year ended March 31, 2004: Deducted from asset accounts: Allowance for doubtful accounts $ 2,743 $ 1,761 $ -- $ 1,693 (1) $ 2,811 Slow-moving and obsolete inventory 5,699 2,333 (126) (4) 2,028 (2) 5,878 Deferred tax asset valuation allowance -- 55,456 -- -- 55,456 -------- ---------- -------- ------- -------- Total $ 8,442 $ 59,550 $ (126) $ 3,721 $ 64,145 ======== ========== ======== ======= ======== Reserves on balance sheet: Accrued general and product liability costs $ 14,439 $ 5,398 $ -- $ 3,907 (3) $ 15,930 ======== ========== ======== ======= ========
- -------- (1) Uncollectible accounts written off, net of recoveries (2) Obsolete inventory disposals (3) Insurance claims and expenses paid (4) Reserves at date of disposal of subsidiary F-40 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. ITEM 9A. CONTROLS AND PROCEDURES MANAGEMENT'S EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES As of March 31, 2006, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of March 31, 2006. There were no changes in our internal controls or in other factors during our fourth quarter ended March 31, 2006. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2006 based on the framework in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of March 31, 2006. Management's assessment of the effectiveness of our internal control over financial reporting as of March 31, 2006 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of Columbus McKinnon Corporation We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that Columbus McKinnon Corporation and subsidiaries maintained effective internal control over financial reporting as of March 31, 2006, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Columbus McKinnon Corporation's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. 30 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, management's assessment the Columbus McKinnon Corporation maintained effective internal control over financial reporting as of March 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Columbus McKinnon Corporation maintained, in all material respects, effective internal control over financial reporting as of March 31, 2006, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Columbus McKinnon Corporation and subsidiaries as of March 31, 2006 and 2005, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended March 31, 2006 of Columbus McKinnon Corporation and subsidiaries, and our report dated June 1, 2006 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP June 1, 2006 Buffalo, New York ITEM 9B. OTHER INFORMATION None. PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding Directors and Executive Officers of the Registrant will be included in a Proxy Statement to be filed with the Commission prior to July 29, 2006 and upon the filing of such Proxy Statement, is incorporated by reference herein. The charters of our Audit Committee, Compensation Committee, Nomination/Succession Committee and Governance Committee are available on our website at WWW.CMWORKS.COM and are available to any shareholder upon request to the Corporate Secretary. The information on the Company's website is not incorporated by reference into this Annual Report on Form 10-K. We have adopted a code of ethics that applies to all of our employees, including our principal executive officer, principal financial officer and principal accounting officer, as well as our directors. Our code of ethics, the Columbus McKinnon Corporation Legal Compliance & Business Ethics Manual, is available on our website at WWW.CMWORKS.COM. We intend to disclose any amendment to, or waiver from, the code of ethics that applies to our principal executive officer, principal financial officer or principal accounting officer otherwise required to be disclosed under Item 10 of Form 8-K by posting such amendment or waiver, as applicable, on our website. ITEM 11. EXECUTIVE COMPENSATION The information regarding Executive Compensation will be included in a Proxy Statement to be filed with the Commission prior to July 29, 2006 and upon the filing of such Proxy Statement, is incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information regarding Security Ownership of Certain Beneficial Owners and Management will be included in a Proxy Statement to be filed with the Commission prior to July 29, 2006 and upon the filing of such Proxy Statement, is incorporated by reference herein. 31 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information regarding Certain Relationships and Related Transactions will be included in a Proxy Statement to be filed with the Commission prior to July 29, 2006 and upon the filing of such Proxy Statement, is incorporated by reference herein. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information regarding Principal Accountant Fees and Services will be included in a Proxy Statement to be filed with the Commission prior to July 29, 2006 and upon the filing of such Proxy Statement, is incorporated by reference herein. PART IV ------- ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (1) FINANCIAL STATEMENTS: The following consolidated financial statements of Columbus McKinnon Corporation are included in Item 8: REFERENCE PAGE NO. --------- -------- Report of Independent Registered Public Accounting Firm F-2 Consolidated balance sheets - March 31, 2006 and 2005 F-3 Consolidated statements of operations - Years ended March 31, 2006, 2005 and 2004 F-4 Consolidated statements of shareholders' equity - Years ended March 31, 2006, 2005 and 2004 F-5 Consolidated statements of cash flows - Years ended March 31, 2006, 2005 and 2004 F-6 Notes to consolidated financial statements F-7 to F-39 (2) FINANCIAL STATEMENT SCHEDULE: PAGE NO. Schedule II - Valuation and qualifying accounts F-40 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. (3) EXHIBITS: EXHIBIT NUMBER EXHIBIT ------ ------- 3.1 Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). 3.2 Amended By-Laws of the Registrant (incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated May 17, 1999). 4.1 Specimen common share certificate (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995.) 32 4.2 First Amendment and Restatement of Rights Agreement, dated as of October 1, 1998, between Columbus McKinnon Corporation and American Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 29, 2003). 4.3 Indenture, dated as of March 31, 1998, among Columbus McKinnon Corporation, the guarantors named on the signature pages thereto and State Street Bank and Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated April 9, 1998). 4.4 Supplemental Indenture among LICO, Inc., Automatic Systems, Inc., LICO Steel, Inc., Columbus McKinnon Corporation, Yale Industrial Products, Inc., Mechanical Products, Inc., Minitec Corporation and State Street Bank and Trust Company, N.A., as trustee, dated March 31, 1998 (incorporated by reference to Exhibit 4.3 to the Company's Current Report on form 8-K dated April 9, 1998). 4.5 Second Supplemental Indenture among Abell-Howe Crane, Inc., LICO, Inc., Automatic Systems, Inc. LICO Steel, Inc., Columbus McKinnon Corporation, Yale Industrial Products Inc. and State Street Bank and Trust Company, N.A., as trustee, dated as of February 12, 1999 (incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999). 4.6 Third Supplemental Indenture among G.L. International, Inc., Gaffey, Inc., Handling Systems and Conveyors, Inc., Larco Material Handling Inc., Abell-Howe Crane, Inc., LICO, Inc., Automatic Systems, Inc., LICO Steel, Inc., Columbus McKinnon Corporation, Yale Industrial Products, Inc. and State Street Bank and Trust Company, N.A., as trustee, dated as of March 1, 1999 (incorporated by reference to Exhibit 4.7 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999). 4.7 Fourth Supplemental Indenture among Washington Equipment Company, G.L. International, Inc., Gaffey, Inc., Handling Systems and Conveyors, Inc., Larco Material Handling Inc., Abell-Howe Crane, Inc., Automatic Systems, Inc., LICO Steel, Inc., Columbus McKinnon Corporation, Yale Industrial Products, Inc. and State Street Bank and Trust Company, N.A., as trustee, dated as of November 1, 1999 (incorporated by reference to Exhibit 10.2 to the Company's quarterly report on form 10-Q for the quarterly period ended October 3, 1999). 4.8 Fifth Supplemental Indenture among Columbus McKinnon Corporation, Crane Equipment & Service, Inc., Automatic Systems, Inc., LICO Steel, Inc., Yale Industrial Products, Inc. and State Street Bank and Trust Company, N.A., as trustee, dated as of April 4, 2002 (incorporated by reference to Exhibit 4.8 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2002). 4.9 Sixth Supplemental Indenture among Columbus McKinnon Corporation, Audubon West, Inc., Crane Equipment & Service, Inc., LICO Steel, Inc., Yale Industrial Products, Inc., Audubon Europe S.a.r.l. and State Street Bank and Trust Company, N.A., as trustee, dated as of August 5, 2002 (incorporated by reference to Exhibit 4.9 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2002). 4.10 Seventh Supplemental Indenture among Columbus McKinnon Corporation, Crane Equipment & Service, Inc., Yale Industrial Products, Inc., Audubon Europe S.a.r.l. and U.S. Bank National Trust Association, as trustee, dated as of August 30, 2005 (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended October 2, 2005). 4.11 Indenture, dated as of July 22, 2003, among Columbus McKinnon Corporation, the guarantors named on the signature pages thereto and U.S. Bank Trust National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 29, 2003). 4.12 First Supplemental Indenture, dated as of September 19, 2003, among Columbus McKinnon Corporation, the guarantors named on the signature pages thereto and U.S. Bank Trust National Association, as trustee (incorporated by reference to Exhibit 4.13 to Amendment No. 1 to the Company's Registration Statement No. 333-109730 on Form S-4/A dated November 7, 2003). 33 4.13 Indenture among Columbus McKinnon Corporation, Audubon Europe S.a.r.l., Crane Equipment & Service, Inc., Yale Industrial Products, Inc.. and U.S. Bank National Association., as trustee, dated as of September 2, 2005 (incorporated by reference to Exhibit 4.5 to the Company's Registration Statement No. 33-129142 on Form S-3 dated October 19, 2005). 4.14 Registration Rights Agreement among Columbus McKinnon Corporation, Audubon Europe S.a.r.l., Crane Equipment & Service, Inc., Yale Industrial Products, Inc., and Credit Suisse First Boston LLC, acting on behalf of itself and as Representative of the Initial Purchasers, dated as of September 2, 2005 (incorporated by reference to Exhibit 4.6 to the Company's Registration Statement No. 33-129142 on Form S-3 dated October 19, 2005). 10.1 Agreement by and among Columbus McKinnon Corporation Employee Stock Ownership Trust, Columbus McKinnon Corporation and Marine Midland Bank, dated November 2, 1995 (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). #10.2 Columbus McKinnon Corporation Employee Stock Ownership Plan Restatement Effective April 1, 1989 (incorporated by reference to Exhibit 10.23 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). #10.3 Amendment No. 1 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of April 1, 1989, dated March 2, 1995 (incorporated by reference to Exhibit 10.24 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). #10.4 Amendment No. 2 to the Columbus McKinnon Corporation Employee Stock Ownership Plan, dated October 17, 1995 (incorporated by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997). #10.5 Amendment No. 3 to the Columbus McKinnon Corporation Employee Stock Ownership Plan, dated March 27, 1996 (incorporated by reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997). #10.6 Amendment No. 4 of the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of April 1, 1989, dated September 30, 1996 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996). #10.7 Amendment No. 5 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of April 1, 1989, dated August 28, 1997 (incorporated by reference to Exhibit 10.37 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998). #10.8 Amendment No. 6 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of April 1, 1989, dated June 24, 1998 (incorporated by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998). #10.9 Amendment No. 7 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of April 1, 1989, dated April 30, 2000 (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2000). #10.10 Amendment No. 8 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of April 1, 1989, dated March 26, 2002 (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2002). #10.11 Amendment No. 9 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of April 1, 1989, dated March 27, 2003 (incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2003). 34 #10.12 Amendment No. 10 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of April 1, 1989, dated February 28, 2004 (incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2004). #10.13 Amendment No. 11 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of April 1, 1989, dated December 19, 2003 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 28, 2003). #10.14 Amendment No. 12 to the Columbus McKinnon Corporation Employee Stock Ownership Plan as Amended and Restated as of April 1, 1989, dated March 17, 2005 (incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2005). #10.15 Columbus McKinnon Corporation Personal Retirement Account Plan Trust Agreement, dated April 1, 1987 (incorporated by reference to Exhibit 10.25 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). #10.16 Amendment No. 1 to the Columbus McKinnon Corporation Employee Stock Ownership Trust Agreement (formerly known as the Columbus McKinnon Corporation Personal Retirement Account Plan Trust Agreement) effective November 1, 1988 (incorporated by reference to Exhibit 10.26 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). #10.17 Amendment and Restatement of Columbus McKinnon Corporation 1995 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999). #10.18 Second Amendment to the Columbus McKinnon Corporation 1995 Incentive Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 29, 2002). #10.19 Columbus McKinnon Corporation Restricted Stock Plan, as amended and restated (incorporated by reference to Exhibit 10.28 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). #10.20 Second Amendment to the Columbus McKinnon Corporation Restricted Stock Plan (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 29, 2002). #10.21 Amendment and Restatement of Columbus McKinnon Corporation Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999). #10.22 Columbus McKinnon Corporation Thrift [401(k)] Plan 1989 Restatement Effective January 1, 1998 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 27, 1998). #10.23 Amendment No. 1 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated December 10, 1998 (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999). #10.24 Amendment No. 2 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401 (k)] Plan, dated June 1, 2000 (incorporated by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2000). #10.25 Amendment No. 3 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401 (k)] Plan, dated March 26, 2002 (incorporated by reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2002). 35 #10.26 Amendment No. 4 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated May 10, 2002 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 29, 2002). #10.27 Amendment No. 5 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated December 20, 2002 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 29, 2002). #10.28 Amendment No. 6 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated May 22, 2003 (incorporated by reference to Exhibit 10.46 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2003). #10.29 Amendment No. 7 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated April 14, 2004 (incorporated by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2004). #10.30 Amendment No. 8 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated December 19, 2003 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 28, 2003). #10.31 Amendment No. 9 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated March 16, 2004 (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2004). #10.32 Amendment No. 10 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated July 12, 2004 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended July 4, 2004). #10.33 Amendment No. 11 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated March 31, 2005 (incorporated by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2005). *#10.34 Amendment No. 12 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Thrift [401(k)] Plan, dated December 27, 2005. #10.35 Columbus McKinnon Corporation Thrift 401(k) Plan Trust Agreement Restatement Effective August 9, 1994 (incorporated by reference to Exhibit 10.32 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). #10.36 Columbus McKinnon Corporation Monthly Retirement Benefit Plan Restatement Effective April 1, 1998 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 27, 1998). #10.37 Amendment No. 1 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan, dated December 10, 1998 (incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999). #10.38 Amendment No. 2 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan, dated May 26, 1999 (incorporated by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999). #10.39 Amendment No. 3 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan, dated March 26, 2002 (incorporated by reference to Exhibit 10.44 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2002). 36 #10.40 Amendment No. 4 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan, dated December 20, 2002 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 29, 2002). #10.41 Amendment No. 5 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan, dated February 28, 2004 (incorporated by reference to Exhibit 10.37 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2004). #10.42 Amendment No. 6 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan, dated March 17, 2005 (incorporated by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2005). *#10.43 Amendment No. 7 to the 1998 Plan Restatement of the Columbus McKinnon Corporation Monthly Retirement Benefit Plan, dated December 28, 2005. #10.44 Columbus McKinnon Corporation Monthly Retirement Benefit Plan Trust Agreement Effective as of April 1, 1987 (incorporated by reference to Exhibit 10.34 to the Company's Registration Statement No. 33-80687 on Form S-1 dated December 21, 1995). #10.45 Form of Change in Control Agreement as entered into between Columbus McKinnon Corporation and each of Timothy T. Tevens, Derwin R. Gilbreath, Ned T. Librock, Karen L. Howard, Joseph J. Owen, Richard A. Steinberg, and Timothy R. Harvey, (incorporated by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K for the fiscal year ended March, 31, 1998). 10.46 Intercreditor Agreement dated as of July 22, 2003 among Columbus McKinnon Corporation, the subsidiary guarantors as listed thereon, Fleet Capital Corporation, as Credit Agent, and U.S. Bank Trust National Association, as Trustee (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 29, 2003). 10.47 Second Amended and Restated Credit and Security Agreement, dated as of November 21, 2002 and amended and restated as of January 2, 2004, among Columbus McKinnon Corporation, as Borrower, Larco Industrial Services Ltd., Columbus McKinnon Limited, the Guarantors Named Herein, the Lenders Party Hereto From Time to Time, Fleet Capital Corporation, as Administrative Agent, Fleet National Bank, as Issuing Lender, Congress Financial Corporation (Central), Syndication Agent, Merrill Lynch Capital, a Division of Merrill Lynch Business Financial Services Inc., as Documentation Agent, and Fleet Securities, Inc., as Arranger (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 28, 2003). #10.48 Columbus McKinnon Corporation Corporate Management Variable Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended October 3, 2004). 10.49 First Amendment to that certain Second Amended and Restated Credit and Security Agreement, dated as of November 21, 2002 and amended and restated as of January 2, 2004, among Columbus McKinnon Corporation, as Borrower, Larco Industrial Services Ltd., Columbus McKinnon Limited, the Guarantors From Time to Time Party Thereto, the Lenders From Time to Time Party Thereto, Bank of America, N.A. as Administrative Agent for such Lenders and as Issuing Lender dated April 29, 2005 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated April 29, 2005). 10.50 Second amendment, dated as of August 5, 2005, to that certain Second Amended and Restated Credit and Security Agreement, dated as of November 21, 2002 and amended and restated as of January 2, 2004 (as amended by that certain First Amendment to that certain Second Amended and Restated Credit and Security Agreement, dated as of April 29, 2005, and as further modified and supplemented and in effect from time to time, the "Credit Agreement"), among Columbus McKinnon Corporation, a corporation organized under the laws of New York (the "Borrower"), Larco Industrial Services Ltd., a business corporation organized under the laws of the Province of Ontario, Columbus McKinnon Limited, a business corporation organized under the laws of Canada, the Guarantors from time to time party thereto, the Lenders from time to time party 37 thereto (collectively, the "Lenders"), Bank of America, N.A., as Administrative Agent for such Lenders (the "Agent") and as Issuing Lender (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q dated October 2, 2005). 10.51 Third amendment, dated as of August 22, 2005, to that certain Second Amended and Restated Credit and Security Agreement, dated as of November 21, 2002 and amended and restated as of January 2, 2004 (as amended by that certain First Amendment to that certain Second Amended and Restated Credit and Security Agreement, dated as of April 29, 2005, by that certain Second Amendment to that certain Second Amended and Restated Credit and Security Agreement, dated as of August 5, 2005, and as further modified and supplemented and in effect from time to time, the "Credit Agreement"), among Columbus McKinnon Corporation, a corporation organized under the laws of New York (the "Borrower"), Larco Industrial Services Ltd., a business corporation organized under the laws of the Province of Ontario, Columbus McKinnon Limited, a business corporation organized under the laws of Canada, the Guarantors from time to time party thereto, the Lenders from time to time party thereto (collectively, the "Lenders"), Bank of America, N.A., as Administrative Agent for such Lenders (the "Agent") and as Issuing Lender (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q dated October 2, 2005). 10.52 Fourth amendment, dated as of October 17, 2005, to that certain Second Amended and Restated Credit and Security Agreement, dated as of November 21, 2002 and amended and restated as of January 2, 2004, and amended by that certain First Amendment to the Credit Agreement, dated as of April 29, 2005, and by that certain Second Amendment to the Credit Agreement, dated as of August 5, 2005, and by that certain Third Amendment to the Credit Agreement, dated as of August 22, 2005 (as further amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Columbus McKinnon Corporation (the "Borrower"), Larco Industrial Services Ltd., Columbus McKinnon Limited, the Guarantors named therein, the lending institutions party thereto, and Bank of America, N.A., as Administrative Agent and Issuing Lender. Capitalized terms used herein and not defined herein shall have the meanings ascribed thereto in the Credit Agreement (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q dated October 2, 2005). *10.53 Third Amended and Restated Credit and Security Agreement, dated as of March 16, 2006 among Columbus McKinnon Corporation, as the Borrower, Bank of America, N.A., as Administrative Agent and Issuing Lender, and Other Lenders Party Hereto, and Bank of America Securities LLC, as Arranger. *21.1 Subsidiaries of the Registrant. *23.1 Consent of Ernst & Young LLP. *31.1 Certification of the principal executive officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. *31.2 Certification of the principal financial officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. *32.1 Certification of the principal executive officer and the principal financial officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended and 18 U.S.C. Section 1350, as adopted by pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. The information contained in this exhibit shall not be deemed filed with the Securities and Exchange Commission nor incorporated by reference in any registration statement foiled by the Registrant under the Securities Act of 1933, as amended. - ----------------- * Filed herewith # Indicates a Management contract or compensation plan or arrangement 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: June 7, 2006 COLUMBUS MCKINNON CORPORATION By: /S/ TIMOTHY T. TEVENS ------------------------------------- Timothy T. Tevens President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- /S/ TIMOTHY T. TEVENS President, Chief Executive June 7, 2006 - ------------------------- Officer and Director TIMOTHY T. TEVENS (PRINCIPAL EXECUTIVE OFFICER) /S/ KAREN L. HOWARD Vice President - Finance June 7, 2006 - ------------------------- and Chief Financial Officer KAREN L. HOWARD (PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER) /S/ ERNEST R. VEREBELYI Chairman of the Board of Directors June 7, 2006 - ------------------------- ERNEST R. VEREBELYI /S/ CARLOS PASCUAL Director June 7, 2006 - ------------------------- CARLOS PASCUAL /S/ RICHARD H. FLEMING Director June 7, 2006 - ------------------------- RICHARD H. FLEMING /S/ HERBERT P. LADDS, JR. Director June 7, 2006 - ------------------------- HERBERT P. LADDS, JR. /S/ WALLACE W. CREEK Director June 7, 2006 - ------------------------- WALLACE W. CREEK /S/ LINDA A. GOODSPEED Director June 7, 2006 - ------------------------- LINDA A. GOODSPEED /S/ STEPHEN RABINOWITZ Director June 7, 2006 - ------------------------- STEPHEN RABINOWITZ 39 EX-10.34 2 thrift410kplanamend12.txt AMENDMENT #12 TO 401(K) PLAN COLUMBUS MCKINNON CORPORATION THRIFT 401(K) PLAN AMENDMENT NO. 12 OF THE 1998 PLAN RESTATEMENT Columbus McKinnon Corporation (the "Corporation") hereby amends the Columbus McKinnon Corporation Thrift 401(K) Plan (the "Plan"), as amended and restated in its entirety effective January 1, 1998, and as further amended by Amendment Nos. 1through 11, as permitted under Section 14.1 of the Plan, as follows: 1. New Section 1.13A, entitled "Electronic Administration System," is added to the Plan effective January 1, 2006 to read as follows: "1.13A ELECTRONIC ADMINISTRATION SYSTEM MEANS ANY TELEPHONIC OR COMPUTER OPERATED SYSTEM INCLUDING, BUT NOT LIMITED TO, A VOICE RESPONSE SYSTEM ACCESSED BY TELEPHONE AND A WEBSITE ACCESSED BY INTERNET, THAT PERMITS A PARTICIPANT TO COMMUNICATE INSTRUCTIONS REGARDING THE EXERCISE OF A PARTICIPANT RIGHT OR ELECTION UNDER THE PLAN TO THE COMMITTEE OR ITS DESIGNEE." 2. Section 2.4, entitled "Notice and Enrollment", is amended effective January 1, 2006 to read as follows: "2.4 AUTOMATIC ENROLLMENT OF NEW ELIGIBLE EMPLOYEES. (A) DEEMED ELECTION TO MAKE SALARY REDUCTION CONTRIBUTIONS. AN ELIGIBLE EMPLOYEE SHALL BE DEEMED TO ELECT TO MAKE SALARY REDUCTION CONTRIBUTIONS AT THE RATE OF 2 PERCENT OF BASE PAY WHICH ELECTION SHALL BE EFFECTIVE FOR THE FIRST PAY PERIOD BEGINNING ON OR AFTER THE DATE ON WHICH THE EMPLOYEE BECOMES A PARTICIPANT UNDER SECTION 2.1(B) SUBJECT TO THE FURTHER PROVISIONS OF THIS SECTION 2.4. A DEEMED ELECTION UNDER THIS SECTION 2.4 SHALL REMAIN IN EFFECT FROM YEAR TO YEAR, UNTIL IT IS SUPERSEDED BY AN AFFIRMATIVE ELECTION DESCRIBED IN SECTION 3.1. (B) NOTICE REGARDING AFFIRMATIVE ELECTIONS. NO DEEMED ELECTION UNDER SECTION 2.4(A) SHALL BE GIVEN EFFECT UNLESS THE EMPLOYEE IS GIVEN A NOTICE IN WRITING OR BE E-MAIL THAT THE EMPLOYEE MAY AFFIRMATIVELY ELECT, DURING A PERIOD OF NOT LESS THAN 10 DAYS FOLLOWING THE RECEIPT OF SUCH NOTICE (THE "INITIAL ELECTION PERIOD"), TO MAKE ANY ELECTION PERMITTED UNDER SECTION 3.1, INCLUDING AN ELECTION TO MAKE NO SALARY REDUCTION CONTRIBUTIONS. THE NOTICE SHALL ADVISE THE EMPLOYEE THAT HE MAY CHANGE HIS ELECTION (WHETHER IT IS A DEEMED ELECTION OR AN AFFIRMATIVE ELECTION) AT ANY TIME BY MAKING A NEW ELECTION, AND THAT THE NEW ELECTION SHALL BE EFFECTIVE AS PROVIDED IN SECTION 3.1(B). THE NOTICE SHALL ALSO DESCRIBE THE MANNER IN WHICH THE EMPLOYEE MUST MAKE AN AFFIRMATIVE ELECTION. (C) EFFECT OF AN AFFIRMATIVE ELECTION. AN AFFIRMATIVE ELECTION MADE WITHIN THE INITIAL ELECTION PERIOD UNDER SECTION 2.4(B) SHALL SUPERSEDE THE DEEMED ELECTION UNDER SECTION 2.4(A) BEGINNING ON THE DATE THE DEEMED ELECTION WOULD OTHERWISE HAVE BEEN EFFECTIVE. AN AFFIRMATIVE ELECTION MADE BY AN EMPLOYEE AFTER THE INITIAL ELECTION PERIOD UNDER SECTION 2.4(B) SHALL BE GIVEN EFFECT AS PROVIDED IN SECTION 3.1(B)." 3. Section 3.1, entitled "Salary Reduction Contributions", is amended effective January 1, 2006 by changing subsections (a) and (b) thereof to read as follows: "(A) ELECTION OF SALARY REDUCTION CONTRIBUTIONS. (1) IN GENERAL. AN ELIGIBLE EMPLOYEE MAY ELECT THAT HIS BASE PAY BE REDUCED BY A SPECIFIED FULL PERCENTAGE OF AT LEAST 1 PERCENT AND NOT MORE THAN 30 PERCENT AND TO HAVE SUCH AMOUNT CONTRIBUTED BY HIS EMPLOYER TO THE PLAN ON HIS BEHALF. SUCH ELECTION SHALL BE EFFECTIVE COMMENCING AS SOON AS PRACTICABLE AFTER THE ELECTION IS MADE AND SHALL CONTINUE IN EFFECT UNTIL CHANGED OR DISCONTINUED. (2) DEEMED ELECTION OF NEW ELIGIBLE EMPLOYEE. AN ELIGIBLE EMPLOYEE WHO IS DEEMED TO ELECT A SALARY REDUCTION CONTRIBUTION OF 2 PERCENT UNDER SECTION 2.4 MAY IN LIEU OF SUCH DEEMED ELECTION MAKE AN ELECTION UNDER THIS SECTION 3.1 TO MAKE A CONTRIBUTION OF A DIFFERENT PERCENTAGE (BETWEEN 1 AND 30 PERCENT) OR TO MAKE NO CONTRIBUTION AND SUCH ELECTION SHALL BE EFFECTIVE AS OF THE TIME THE DEEMED ELECTION WOULD HAVE BEEN EFFECTIVE. (3) HIGHLY COMPENSATED EMPLOYEES. THE PERCENTAGE ELECTED BY ANY ELIGIBLE EMPLOYEE WHO IS A HIGHLY COMPENSATED EMPLOYEE IS SUBJECT TO REDUCTION BY THE COMMITTEE TO THE EXTENT IT DEEMS ADVISABLE IN ORDER TO INSURE COMPLIANCE WITH SECTION 4.2 (B) CHANGE OR DISCONTINUANCE OF ELECTION. (1) IN GENERAL. A PARTICIPANT MAY DISCONTINUE HIS SALARY REDUCTION OR CHANGE HIS RATE OF SALARY REDUCTION (WITHIN THE LIMITS OF SECTION 3.1 AND SUBJECT TO ARTICLE 4 AND ARTICLE 5) BY MAKING A NEW ELECTION UNDER SECTION 3.1(A) AT SUCH TIME AND IN SUCH MANNER AS THE COMMITTEE MAY PRESCRIBE. SUCH DISCONTINUANCE OR CHANGE SHALL BE EFFECTIVE COMMENCING AS SOON AS PRACTICABLE AFTER THE NEW ELECTION IS MADE, AND SHALL CONTINUE IN EFFECT UNTIL CHANGED OR DISCONTINUED BY A SUBSEQUENT ELECTION. (2) AUTOMATIC CONTRIBUTION INCREASE. A PARTICIPANT MAY ELECT TO HAVE HIS RATE OF SALARY REDUCTION CONTRIBUTION AUTOMATICALLY INCREASED BY SUCH AMOUNTS AND AT SUCH TIMES AS THE PARTICIPANT MAY DETERMINE (SUBJECT TO ANY LIMITS IMPOSED BY THE COMMITTEE) BY MAKING AN ELECTION BY AT SUCH TIME AND IN SUCH MANNER AS THE COMMITTEE MAY PRESCRIBE. THE ELECTION SHALL BE EFFECTIVE COMMENCING AS SOON AS PRACTICABLE AFTER IT IS MADE, AND SHALL CONTINUE IN EFFECT UNTIL CHANGED OR DISCONTINUED BY A SUBSEQUENT ELECTION." 4. Section 6.4, entitled "Notice to Participants," is amended effective January 1, 2006 to read as follows: "6.4 NOTICE TO PARTICIPANTS. THE COMMITTEE SHALL NOTIFY EACH PARTICIPANT (AND EACH ALTERNATE PAYEE UNDER A QDRO AND EACH BENEFICIARY OF A DECEASED PARTICIPANT) OF THE BALANCE IN SUCH PERSON'S ACCOUNT AS OF THE LAST DAY OF EACH PLAN YEAR. THE COMMITTEE MAY IN ITS DISCRETION NOTIFY SUCH PERSONS OF THE BALANCES IN THEIR ACCOUNTS AT MORE FREQUENT INTERVALS AND MAKE SUCH INFORMATION AVAILABLE TO PARTICIPANTS BY MEANS OF AN ELECTRONIC ADMINISTRATION SYSTEM." 5. Article 7, entitled "Funding and Investments," is amended effective January 1, 2006 to read as follows: "ARTICLE 7 FUNDING AND INVESTMENTS 7.1 FUNDING METHOD AND POLICY. (A) IN GENERAL. THE FUNDING METHOD AND POLICY OF THE PLAN IS THE PAYMENT OF ALL CONTRIBUTIONS TO THE TRUSTEE, WITH THE CONTRIBUTIONS TO BE HELD BY THE TRUSTEE IN ACCORDANCE WITH THE TERMS OF THE TRUST AGREEMENT, AND THE INVESTMENT OF CONTRIBUTIONS AND OTHER AMOUNTS ALLOCATED TO THE ACCOUNT OF EACH PARTICIPANT IN THE INVESTMENT FUND OR FUNDS DESIGNATED BY THE PARTICIPANT IN ACCORDANCE WITH THIS ARTICLE 7. (B) COMMITTEE TO MAKE INVESTMENT FUNDS AVAILABLE. THE COMMITTEE SHALL MAKE AVAILABLE THREE OR MORE INVESTMENT FUNDS FOR THE INVESTMENT OF PLAN ASSETS. EACH OF THE INVESTMENT FUNDS SHALL HAVE SUCH INVESTMENT OBJECTIVES AS THE COMMITTEE SHALL APPROVE, IT BEING INTENDED THAT EACH PARTICIPANT SHALL BE OFFERED A NUMBER OF INVESTMENT CHOICES, AT LEAST SOME OF WHICH HAVE MATERIALLY DIFFERENT RISK AND RETURN CHARACTERISTICS, WHICH WILL PERMIT THE SELECTION BY THE PARTICIPANT OF AN INVESTMENT PORTFOLIO SUITABLE TO HIS INVESTMENT OBJECTIVES. EACH OF THE INVESTMENT FUNDS SHALL CONSIST OF ONE OR MORE INVESTMENT VEHICLES SELECTED BY THE COMMITTEE, INCLUDING WITHOUT LIMITATION, POOLED FUNDS AND/OR MUTUAL FUNDS. ASSETS OF ANY INVESTMENT FUND MAY BE TEMPORARILY HELD IN CASH OR INVESTED IN SHORT-TERM FIXED INCOME OBLIGATIONS ISSUED BY GOVERNMENTS, GOVERNMENT AGENCIES, OR CORPORATIONS, INCLUDING BANK DEPOSITS. (C) INFORMATION PROVIDED TO PARTICIPANTS. THE COMMITTEE SHALL PROVIDE SUFFICIENTLY DETAILED INFORMATION TO THE PARTICIPANTS WITH RESPECT TO THE INVESTMENT FUNDS TO ENABLE PARTICIPANTS TO EXERCISE CONTROL OVER THE PLAN ASSETS ALLOCATED TO THEIR ACCOUNTS WITHIN THE MEANING OF SECTION 404(C) OF ERISA. (D) VOTING OF SHARES. THE TRUSTEE SHALL VOTE ALL SHARES HELD IN ALL INVESTMENT FUNDS, INCLUDING WITHOUT LIMITATION, SHARES OF A MUTUAL FUND. 7.2 CHANGES IN INVESTMENT FUNDS. (A) RIGHT TO CHANGE INVESTMENT FUNDS. THE COMMITTEE IS AUTHORIZED TO MAKE AVAILABLE SUCH ADDITIONAL OR DIFFERENT INVESTMENT FUNDS AS IT MAY DEEM APPROPRIATE. WITHOUT LIMITING THE FOREGOING, THE COMMITTEE IS AUTHORIZED AT ANY TIME AND FROM TIME TO TIME TO ADD ADDITIONAL INVESTMENT FUNDS HAVING SUCH INVESTMENT OBJECTIVES AS IT SHALL DETERMINE, TO MODIFY THE PROVISIONS GOVERNING ANY EXISTING INVESTMENT FUND, OR TO ELIMINATE ONE OR MORE EXISTING INVESTMENT FUNDS. (B) PLAN ASSETS HELD IN DISCONTINUED FUNDS. IN THE EVENT AN EXISTING INVESTMENT FUND IS ELIMINATED IN ACCORDANCE WITH THIS SECTION 7.2 AND A PARTICIPANT WITH PLAN ASSETS INVESTED IN THE FUND FAILS TO GIVE TIMELY INSTRUCTIONS TO THE COMMITTEE TO REINVEST SUCH ASSETS IN A DIFFERENT INVESTMENT FUND, THE PARTICIPANT'S ASSETS SHALL BE REINVESTED IN THE CONTINUING INVESTMENT FUND THAT CONTAINS INVESTMENTS MOST SIMILAR TO THOSE THAT WERE DISCONTINUED OR IN SUCH OTHER DEFAULT INVESTMENT FUND AS THE COMMITTEE MAY SELECT IN ITS DISCRETION. 7.3 INVESTMENT OF FUTURE CONTRIBUTIONS. (A) RIGHT TO ELECT INVESTMENTS. AT THE TIME HE BECOMES A PARTICIPANT AND FROM TIME TO TIME THEREAFTER, EACH PARTICIPANT MAY ELECT THE INVESTMENT FUND OR FUNDS AND THE PORTION THEREOF IN WHICH HIS FUTURE SALARY REDUCTION CONTRIBUTIONS, RELATED MATCHING CONTRIBUTIONS AND ROLLOVER CONTRIBUTIONS, IF ANY, ARE TO BE INVESTED. INVESTMENT FUNDS SHALL BE ELECTED IN MULTIPLES OF 5% OF CONTRIBUTIONS, OR IN SUCH OTHER PERCENTAGES AS THE COMMITTEE SHALL AUTHORIZE. ALL CONTRIBUTIONS SHALL BE INVESTED IN THE SAME PORTIONS, IN THE SAME INVESTMENT FUND OR FUNDS. (B) MANNER OF ELECTING INVESTMENTS. INVESTMENT FUNDS SHALL BE ELECTED BY THE PARTICIPANT FILING A WRITTEN INVESTMENT SELECTION ON A FORM PRESCRIBED BY THE COMMITTEE, BY THE PARTICIPANT ENTERING THE APPROPRIATE INFORMATION INTO AN ELECTRONIC ADMINISTRATION SYSTEM IN A FORM PRESCRIBED BY THE ADMINISTRATIVE COMMITTEE, OR IN SUCH OTHER MANNER AS MAY BE AUTHORIZED BY THE ADMINISTRATIVE COMMITTEE. (C) WHEN ELECTIONS BECOME EFFECTIVE. AN INVESTMENT ELECTION UNDER THIS SECTION 7.3 SHALL BECOME EFFECTIVE AS SOON AS PRACTICABLE AS DETERMINED BY THE COMMITTEE. (D) EFFECT OF AN ELECTION. AN INVESTMENT ELECTION UNDER THIS SECTION 7.3 SHALL APPLY TO ALL CONTRIBUTIONS CREDITED TO THE PARTICIPANT'S ACCOUNT ON AND AFTER THE EFFECTIVE DATE OF THE ELECTION AND SHALL REMAIN EFFECTIVE UNTIL A NEW ELECTION UNDER THIS SECTION 7.3 BECOMES EFFECTIVE. (E) FAILURE TO ELECT INVESTMENTS. IF A PARTICIPANT FAILS TO MAKE AN ELECTION OF INVESTMENT FUND OR FUNDS UNDER THIS SECTION 7.3, HE SHALL BE DEEMED TO HAVE ELECTED THAT HIS FUTURE CONTRIBUTIONS BE INVESTED 100% IN THE INVESTMENT FUND OR FUNDS DESIGNATED FROM TIME TO TIME BY THE COMMITTEE. 7.4 REINVESTMENT OF EXISTING ACCOUNT BALANCE. (A) RIGHT TO REINVEST. A PARTICIPANT MAY AT ANY TIME ELECT THAT THE ENTIRE BALANCE OF HIS ACCOUNT BE REINVESTED IN SUCH DIFFERENT INVESTMENT FUND OR FUNDS, OR IN SUCH DIFFERENT PERCENTAGES PERMITTED UNDER SECTION 7.3, AS HE SHALL DIRECT. EACH SUB-ACCOUNT SHALL BE REINVESTED IN THE SAME PORTIONS, IN THE SAME INVESTMENT FUND OR FUNDS. ELECTIONS TO REINVEST ACCOUNT BALANCES SHALL BE MADE IN A MANNER SIMILAR TO ELECTIONS PERMITTED UNDER SECTION 7.3 AND SHALL BECOME EFFECTIVE AS PROVIDED UNDER SECTION 7.3(C). (B) RETROSPECTIVE EFFECT. A REINVESTMENT ELECTION UNDER THIS SECTION 7.4 SHALL APPLY ONLY TO AMOUNTS CREDITED TO THE PARTICIPANT'S ACCOUNTS AS OF THE APPLICABLE VALUATION DATE AND SHALL NOT APPLY TO CONTRIBUTIONS RECEIVED AFTER THAT DATE. (C) AUTOMATIC REBALANCING ELECTION. A PARTICIPANT MAY ELECT TO HAVE HIS INVESTMENT PORTFOLIO UNDER THE PLAN AUTOMATICALLY REINVESTED FROM TIME TO TIME IN SUCH INVESTMENT FUNDS AND IN SUCH PERCENTAGES AS THE PARTICIPANT MAY DETERMINE. AN ELECTION UNDER THIS SECTION 7.4(C) SHALL BE MADE IN SUCH MANNER AND AT SUCH TIME AS THE COMMITTEE SHALL PRESCRIBE AND SHALL REMAIN IN EFFECT UNTIL SUPERSEDED BY AN ELECTION UNDER THIS SECTION 7.4(C) THAT CHANGES OR CANCELS THE PREVIOUS ELECTION. (D) AUTOMATIC REBALANCING NOTIFICATION. A PARTICIPANT MAY ELECT TO RECEIVE A NOTICE FROM THE COMMITTEE WHENEVER THE PERCENTAGES OF THE PARTICIPANT'S ACCOUNT INVESTED IN VARIOUS INVESTMENT FUNDS INCREASE OR DECREASE BEYOND SPECIFIED LIMITS. SUCH NOTICES SHALL BE GIVEN WITH SUCH FREQUENCY AND IN SUCH FORM AS THE COMMITTEE MAY PRESCRIBE FROM TIME TO TIME. AN ELECTION UNDER THIS SECTION 7.4(D) SHALL BE MADE IN SUCH MANNER AND AT SUCH TIME AS THE COMMITTEE SHALL PRESCRIBE AND SHALL REMAIN IN EFFECT UNTIL SUPERSEDED BY AN ELECTION UNDER THIS SECTION 7.4(D) THAT CHANGES OR CANCELS THE PREVIOUS ELECTION. 7.5 ALLOCATION OF WITHDRAWALS, LOANS AND DISTRIBUTIONS. WHERE A PARTICIPANT'S CONTRIBUTIONS ARE INVESTED IN MORE THAN ONE INVESTMENT FUND, THE AMOUNT OF ANY WITHDRAWAL, LOAN, OR DISTRIBUTION SHALL BE CHARGED AGAINST EACH SUCH INVESTMENT FUND IN PROPORTION TO THE PARTICIPANT'S ACCOUNT BALANCE IN EACH, UNLESS THE COMMITTEE SHALL ESTABLISH PROCEDURES PERMITTING PARTICIPANTS TO DESIGNATE THE SOURCE OF A LOAN, WITHDRAWAL OR DISTRIBUTION AND THE PARTICIPANT SHALL HAVE MADE A DESIGNATION. 7.6 MERGED PLAN INVESTMENTS. THE COMMITTEE MAY DIRECT THE TRUSTEE TO RETAIN ANY INVESTMENT MADE UNDER A TAX-QUALIFIED PLAN THAT IS MERGED INTO THE PLAN FOR SUCH LENGTH OF TIME AS THE COMMITTEE MAY DEEM APPROPRIATE IN ORDER TO FACILITATE THE MERGER OF SUCH PLAN INTO THE PLAN, FACILITATE THE ADMINISTRATION OF THE PLAN, AVOID WITHDRAWAL PENALTIES, OR TO ACCOMPLISH ANY SIMILAR GOAL. THE INVESTMENTS OF MERGED PLANS THAT ARE RETAINED UNDER THE PLAN MAY INCLUDE, BUT ARE NOT LIMITED TO, GUARANTEED INVESTMENT CONTRACTS AND INVESTMENTS UNDER GROUP ANNUITY CONTRACTS ISSUED BY INSURANCE COMPANIES. THE EARNINGS AND LOSSES INCURRED WITH RESPECT TO SUCH INVESTMENTS SHALL, TO THE EXTENT PRACTICABLE, BE ALLOCATED TO PARTICIPANTS WHO WERE PARTICIPANTS IN THE RELEVANT MERGED PLANS, IN ACCORDANCE WITH THEIR RESPECTIVE ACCOUNT BALANCES AND INVESTMENT SELECTIONS UNDER THE MERGED PLANS." 6. New Section 9.7, entitled "Forfeiture of Uncashed Checks," is added to the Plan effective January 1, 2006 and shall read as follows: `9.7 FORFEITURE OF UNCASHED CHECKS. IN THE EVENT THAT A DISTRIBUTION PAYMENT IS MADE BY THE PLAN TO A PARTICIPANT OR BENEFICIARY BY MEANS OF A CHECK, AND THE CHECK IS NOT CASHED WITHIN ONE YEAR FOLLOWING THE DATE OF ISSUE, AND THE COMMITTEE DETERMINES THAT THE CHECK IS UNLIKELY TO BE CASHED IN THE FUTURE, THEN THE COMMITTEE MAY STOP PAYMENT ON THE CHECK, IN WHICH CASE THE AMOUNT OF THE CHECK SHALL BE FORFEITED TO THE PLAN AND USED TO PAY PLAN EXPENSES. IN SUCH CASE, THE AMOUNT OF THE CHECK, WITHOUT INTEREST, SHALL BE PAID TO THE PARTICIPANT OR BENEFICIARY (OR OTHER PERSON ENTITLED TO THE PAYMENT) IF AT ANY LATER TIME A CLAIM IS MADE BY THE PARTICIPANT OR BENEFICIARY (OR OTHER PERSON ENTITLED TO THE PAYMENT). NOTHING IN THIS SECTION 9.7 SHALL DIMINISH THE DUTY OF THE COMMITTEE TO SEARCH FOR LOST PARTICIPANTS AND BENEFICIARIES AND TO TAKE SUCH ACTIONS AS MAY BE REASONABLE UNDER THE CIRCUMSTANCES TO ENSURE THAT DISTRIBUTION CHECKS ARE CASHED." 7. Section 10.3, entitled "Hardship Withdrawals," is amended effective January 1, 2005 by changing Section 10.3(d)(2) to read as follows: "(2) DEEMED IMMEDIATE AND HEAVY FINANCIAL NEED. A WITHDRAWAL SHALL BE DEEMED TO BE MADE ON ACCOUNT OF AN IMMEDIATE AND HEAVY FINANCIAL NEED OF THE PARTICIPANT IF THE WITHDRAWAL IS ON ACCOUNT OF ONE OF THE FOLLOWING: (A) EXPENSES FOR (OR NECESSARY TO OBTAIN) MEDICAL CARE THAT WOULD BE DEDUCTIBLE UNDER CODE SECTION 213(D) (DETERMINED WITHOUT REGARD TO WHETHER THE EXPENSES EXCEED 7.5% OF ADJUSTED GROSS INCOME); (B) COSTS DIRECTLY RELATED TO THE PURCHASE OF A PRINCIPAL RESIDENCE FOR THE PARTICIPANT (EXCLUDING MORTGAGE PAYMENTS); (C) PAYMENT OF TUITION, RELATED EDUCATIONAL FEES, AND ROOM AND BOARD EXPENSES, FOR UP TO THE NEXT 12 MONTHS OF POST-SECONDARY EDUCATION FOR THE PARTICIPANT, OR THE PARTICIPANT'S SPOUSE, CHILDREN, OR DEPENDENTS (AS DEFINED IN CODE SECTION 152, AND, FOR TAXABLE YEARS BEGINNING ON OR AFTER JANUARY 1, 2005, WITHOUT REGARD TO CODE SECTION 152(B)(1), (B)(2) AND (D)(1)(B)); OR (D) PAYMENTS NECESSARY TO PREVENT THE EVICTION OF THE PARTICIPANT FROM THE PARTICIPANT'S PRINCIPAL RESIDENCE OR FORECLOSURE ON THE MORTGAGE ON THAT RESIDENCE; (E) PAYMENT FOR BURIAL OR FUNERAL EXPENSES FOR THE PARTICIPANT'S PARENT, SPOUSE, CHILD OR DEPENDENT; OR (F) PAYMENT OF EXPENSES FOR THE REPAIR OF DAMAGE TO THE PARTICIPANT'S PRINCIPAL RESIDENCE PROVIDED SUCH EXPENSES WOULD QUALIFY FOR A CASUALTY DEDUCTION UNDER CODE SECTION 165 (DETERMINED WITHOUT REGARD TO WHETHER THE LOSS EXCEEDS 10% OF THE PARTICIPANT'S ADJUSTED GROSS INCOME." 8. Section 10.5, entitled "Loan Documents and Policy," is amended effective January 1, 2006 to read as follows: "10.5 LOAN DOCUMENTS AND POLICY. (A) LOAN DOCUMENTS. THE COMMITTEE SHALL PREPARE THE FOLLOWING LOAN DOCUMENTS, WHICH SHALL BE EXECUTED BY THE PARTICIPANT AND DELIVERED TO THE COMMITTEE PRIOR TO THE DISBURSEMENT OF ANY LOAN PROCEEDS: [1] A PROMISSORY NOTE PAYABLE TO THE TRUSTEE AND CONTAINING SUCH TERMS AND CONDITIONS AS THE COMMITTEE SHALL DETERMINE; [2] A SECURITY AGREEMENT GRANTING TO THE TRUSTEE A LIEN ON ONE-HALF THE VALUE OF THE PARTICIPANT'S ACCOUNT; AND [3] AN AGREEMENT AUTHORIZING THE EMPLOYER TO DEDUCT INSTALLMENTS OF PRINCIPAL AND INTEREST FROM HIS WAGES DURING THE PERIOD THAT THE LOAN REMAINS OUTSTANDING. ALTERNATIVELY, THE COMMITTEE MAY ESTABLISH PROCEDURES WHERE APPLICATIONS FOR LOANS ARE MADE VIA AN ELECTRONIC ADMINISTRATION SYSTEM AND THE ONLY DOCUMENTATION OF THE LOAN, INCLUDING THE PARTICIPANT'S AGREEMENT TO THE TERMS AND CONDITIONS OF THE LOAN, ARE [1] RESPONSES GIVEN BY THE PARTICIPANT VIA THE ELECTRONIC ADMINISTRATION SYSTEM AND [2] THE NEGOTIATION OF A DRAFT ISSUED TO THE PARTICIPANT IN THE AMOUNT OF THE LOAN PROCEEDS, AND/OR [3] SUCH ADDITIONAL DOCUMENTATION AS THE COMMITTEE DEEMS APPROPRIATE. (B) WRITTEN LOAN POLICY. THE COMMITTEE IS AUTHORIZED TO IMPOSE TERMS AND CONDITIONS ON LOANS THAT ARE IN ADDITION TO AND/OR DIFFERENT FROM THE TERMS AND CONDITIONS SET FORTH IN SECTION 10.4, AND TO CHANGE SUCH TERMS AND CONDITIONS FROM TIME TO TIME, AS IT DEEMS APPROPRIATE. SUCH ADDITIONAL AND/OR DIFFERENT TERMS AND CONDITIONS SHALL BE SET FORTH IN A WRITTEN LOAN POLICY WHICH MAY CONSIST IN WHOLE OR PART IN THE LANGUAGE INCORPORATED IN ADMINISTRATIVE FORMS AND/OR THE PROGRAMMING IN AN ELECTRONIC ADMINISTRATION SYSTEM." 9. Section 11.3, entitled "Authority of Committee," is amended effective January 1, 2006 by adding new subsection (e) thereto, to read as follows: "(E) PLAN ADMINISTRATION PROCEDURES. BY WAY OF ADDITIONAL EXPLANATION, AND WITHOUT MEANING TO IMPLY ANY LIMITATION ON THE AUTHORITY GRANTED TO THE COMMITTEE UNDER SECTION 11.3(A), THE COMMITTEE MAY DETERMINE THE METHODS BY WHICH COMMITTEE DECISIONS, PARTICIPANT ELECTIONS AND OTHER MATTERS ARE COMMUNICATED UNDER THE PLAN. TO THE EXTENT PERMITTED BY APPLICABLE LAW AND REGULATIONS, AND NOTWITHSTANDING REFERENCES ELSEWHERE IN THE PLAN DOCUMENT TO "FORMS" AND "WRITING," SUCH ITEMS MAY BE COMMUNICATED BY MEANS OF ELECTRONIC ADMINISTRATION SYSTEMS IN ADDITION TO OR IN LIEU OF WRITTEN COMMUNICATIONS." WITNESS WHEREOF, this instrument of amendment has been executed by a duly authorized officer of the Corporation this 27th day of December, 2005. COLUMBUS McKINNON CORPORATION By Timothy R. Harvey ----------------------------- Title: General Counsel and Secretary ----------------------------- EX-10.43 3 mrbplanamend7.txt AMENDMENT #7 TO MRB PLAN COLUMBUS MCKINNON CORPORATION MONTHLY RETIREMENT BENEFIT PLAN PROPOSED AMENDMENT NO. 7 OF THE 1998 PLAN RESTATEMENT Columbus McKinnon Corporation (the "Company") hereby amends the Columbus McKinnon Corporation Monthly Retirement Benefit Plan (the "Plan"), as amended and restated in its entirety effective April 1, 1998, and as further amended by Amendment Nos. 1through 6, as permitted under Section 10.1 of the Plan, as follows: 1. Section 5.1, entitled "Commencement of Benefit", is amended effective January 1, 2003 by changing Section 5.1(a)(2) to read as follows: "(2) TERMINATION OF EMPLOYMENT. THE PARTICIPANT HAS CEASED TO BE AN EMPLOYEE (EXCEPT THAT AN EMPLOYEE WHO IS NOT A "5-PERCENT OWNER" WITHIN THE MEANING OF SECTION 5.5(F)(4) MAY ELECT TO COMMENCE BENEFIT PAYMENTS ON OR AFTER APRIL 1ST OF THE CALENDAR YEAR FOLLOWING THE CALENDAR YEAR IN WHICH THE EMPLOYEE ATTAINS AGE 70-1/2 WITHOUT CEASING TO BE AN EMPLOYEE)." 2. Section 5.1, entitled "Commencement of Benefit", is amended effective April 1, 2004 by changing Section 5.1(c)(1)(B) to read as follows: "(B) RETROACTIVE ANNUITY STARTING DATES. A PARTICIPANT SHALL NOT BE GIVEN THE NOTICE DESCRIBED IN SECTION 5.2(D) AFTER HIS ANNUITY STARTING DATE EXCEPT AS PERMITTED UNDER SECTION 5.9." 3. Section 5.5, entitled "Required Minimum Distributions" is amended effective January 1, 2003 to read as follows: "5.5 REQUIRED MINIMUM DISTRIBUTIONS. (A) GENERAL RULES. (1) EFFECTIVE DATE. THE PROVISIONS OF THIS SECTION 5.5 SHALL APPLY FOR PURPOSES OF DETERMINING REQUIRED MINIMUM DISTRIBUTIONS FOR CALENDAR YEARS BEGINNING WITH THE 2003 CALENDAR YEAR. (2) PRECEDENCE. THE REQUIREMENTS OF THIS SECTION 5.5 SHALL TAKE PRECEDENCE OVER ANY INCONSISTENT PROVISIONS OF THE PLAN. (3) REQUIREMENTS OF TREASURY REGULATIONS INCORPORATED. ALL DISTRIBUTIONS REQUIRED UNDER THIS SECTION 5.5 SHALL BE DETERMINED AND MADE IN ACCORDANCE WITH THE TREASURY REGULATIONS UNDER SECTION 401(A)(9) OF THE CODE. (4) TEFRA SECTION 242(B)(2) ELECTIONS. NOTWITHSTANDING THE OTHER PROVISIONS OF THIS SECTION 5.5, DISTRIBUTIONS MAY BE MADE UNDER A DESIGNATION MADE BEFORE JANUARY 1, 1984, IN ACCORDANCE WITH SECTION 242(B)(2) OF THE TAX EQUITY AND FISCAL RESPONSIBILITY ACT (TEFRA) AND THE PROVISIONS OF THE PLAN THAT RELATE TO SECTION 242(B)(2) OF TEFRA. (5) THIS SECTION DOES NOT GRANT RIGHTS. THE PROVISIONS OF THIS SECTION 5.5 ARE INCLUDED IN THE PLAN AS LIMITATIONS REQUIRED BY THE CODE, AND NO PROVISION HEREOF SHALL BE CONSTRUED TO EXPAND THE AVAILABILITY OF FORMS OF DISTRIBUTION, WHICH SHALL BE DETERMINED EXCLUSIVELY UNDER SECTION 5.2. (B) TIME AND MANNER OF DISTRIBUTION. (1) REQUIRED BEGINNING DATE. THE PARTICIPANT'S ENTIRE INTEREST WILL BE DISTRIBUTED, OR BEGIN TO BE DISTRIBUTED, TO THE PARTICIPANT NO LATER THAN THE PARTICIPANT'S REQUIRED BEGINNING DATE. (2) DEATH OF PARTICIPANT BEFORE DISTRIBUTIONS BEGIN. IF THE PARTICIPANT DIES BEFORE DISTRIBUTIONS BEGIN, THE PARTICIPANT'S ENTIRE INTEREST WILL BE DISTRIBUTED, OR BEGIN TO BE DISTRIBUTED, NO LATER THAN AS FOLLOWS: (A) IF THE PARTICIPANT'S SURVIVING SPOUSE IS THE PARTICIPANT'S SOLE DESIGNATED BENEFICIARY, THEN, EXCEPT AS PROVIDED IN THE PLAN OUTSIDE THIS SECTION 5.5, DISTRIBUTIONS TO THE SURVIVING SPOUSE WILL BEGIN BY DECEMBER 31 OF THE CALENDAR YEAR IMMEDIATELY FOLLOWING THE CALENDAR YEAR IN WHICH THE PARTICIPANT DIED, OR BY DECEMBER 31 OF THE CALENDAR YEAR IN WHICH THE PARTICIPANT WOULD HAVE ATTAINED AGE 70-1/2, IF LATER. (B) IF THE PARTICIPANT'S SURVIVING SPOUSE IS NOT THE PARTICIPANT'S SOLE DESIGNATED BENEFICIARY, THEN, EXCEPT AS PROVIDED IN THE PLAN OUTSIDE THIS SECTION 5.5, DISTRIBUTIONS TO THE DESIGNATED BENEFICIARY WILL BEGIN BY DECEMBER 31 OF THE CALENDAR YEAR IMMEDIATELY FOLLOWING THE CALENDAR YEAR IN WHICH THE PARTICIPANT DIED. (C) IF THERE IS NO DESIGNATED BENEFICIARY AS OF SEPTEMBER 30 OF THE YEAR FOLLOWING THE YEAR OF THE PARTICIPANT'S DEATH, THE PARTICIPANT'S ENTIRE INTEREST WILL BE DISTRIBUTED BY DECEMBER 31 OF THE CALENDAR YEAR CONTAINING THE 5TH ANNIVERSARY OF THE PARTICIPANT'S DEATH. (D) IF THE PARTICIPANT'S SURVIVING SPOUSE IS THE PARTICIPANT'S SOLE DESIGNATED BENEFICIARY AND THE SURVIVING SPOUSE DIES AFTER THE PARTICIPANT BUT BEFORE DISTRIBUTIONS TO THE SURVIVING SPOUSE BEGIN, THIS SECTION 0(B)(2), OTHER THAN SECTION 5.5(B)(2)(A), WILL APPLY AS IF THE SURVIVING SPOUSE WERE THE PARTICIPANT. FOR PURPOSES OF THIS SECTION 5.5(B)(2) AND SECTION 5.5(E), DISTRIBUTIONS ARE CONSIDERED TO BEGIN ON THE PARTICIPANT'S REQUIRED BEGINNING DATE (OR, IF SECTION 5.5(B)(2)(D) APPLIES, THE DATE DISTRIBUTIONS ARE REQUIRED TO BEGIN TO THE SURVIVING SPOUSE UNDER SECTION 5.5(B)(2)(A)). IF ANNUITY PAYMENTS IRREVOCABLY COMMENCE TO THE PARTICIPANT BEFORE THE PARTICIPANT'S REQUIRED BEGINNING DATE (OR TO THE PARTICIPANT'S SURVIVING SPOUSE BEFORE THE DATE DISTRIBUTIONS ARE REQUIRED TO BEGIN TO THE SURVIVING SPOUSE UNDER SECTION 5.5(B)(2)(A)), THE DATE DISTRIBUTIONS ARE CONSIDERED TO BEGIN IS THE DATE DISTRIBUTIONS ACTUALLY COMMENCE. (3) FORM OF DISTRIBUTION. THE PARTICIPANT'S INTEREST MUST BE DISTRIBUTED IN THE FORM OF AN ANNUITY OR IN A SINGLE SUM ON OR BEFORE THE REQUIRED BEGINNING DATE. IF THE PARTICIPANT'S INTEREST IS DISTRIBUTED IN THE FORM OF AN ANNUITY, DISTRIBUTIONS THEREUNDER WILL BE MADE IN ACCORDANCE WITH THE REQUIREMENTS OF SECTION 401(A)(9) OF THE CODE AND THE TREASURY REGULATIONS. (C) DETERMINATION OF AMOUNT TO BE DISTRIBUTED EACH YEAR. (1) GENERAL ANNUITY REQUIREMENTS. IF THE PARTICIPANT'S INTEREST IS PAID IN THE FORM OF ANNUITY DISTRIBUTIONS UNDER THE PLAN, PAYMENTS UNDER THE ANNUITY SHALL SATISFY THE FOLLOWING REQUIREMENTS: (A) THE ANNUITY DISTRIBUTIONS SHALL BE PAID IN PERIODIC PAYMENTS MADE AT INTERVALS NOT LONGER THAN ONE YEAR; (B) THE DISTRIBUTION PERIOD SHALL BE OVER A LIFE (OR LIVES) OR OVER A PERIOD CERTAIN NOT LONGER THAN THE PERIOD DESCRIBED IN SECTION 5.5(D) OR 5.5(E); (C) PAYMENTS SHALL EITHER BE NONINCREASING OR INCREASE ONLY AS FOLLOWS: (I) BY AN ANNUAL PERCENTAGE INCREASE THAT DOES NOT EXCEED THE ANNUAL PERCENTAGE INCREASE IN A COST-OF-LIVING INDEX THAT IS BASED ON PRICES OF ALL ITEMS AND ISSUED BY THE BUREAU OF LABOR STATISTICS; (II) TO THE EXTENT OF THE REDUCTION IN THE AMOUNT OF THE PARTICIPANT'S PAYMENTS TO PROVIDE FOR A SURVIVOR BENEFIT UPON DEATH, BUT ONLY IF THE BENEFICIARY WHOSE LIFE WAS BEING USED TO DETERMINE THE DISTRIBUTION PERIOD DESCRIBED IN SECTION 5.5(D) DIES OR IS NO LONGER THE PARTICIPANT'S BENEFICIARY PURSUANT TO A QUALIFIED DOMESTIC RELATIONS ORDER WITHIN THE MEANING OF SECTION 414(P); (III) TO PROVIDE CASH REFUNDS OF EMPLOYEE CONTRIBUTIONS UPON THE PARTICIPANT'S DEATH; OR (IV) TO PAY INCREASED BENEFITS THAT RESULT FROM A PLAN AMENDMENT. (2) AMOUNT REQUIRED TO BE DISTRIBUTED BY REQUIRED BEGINNING DATE. THE AMOUNT THAT MUST BE DISTRIBUTED ON OR BEFORE THE PARTICIPANT'S REQUIRED BEGINNING DATE (OR, IF THE PARTICIPANT DIES BEFORE DISTRIBUTIONS BEGIN, THE DATE DISTRIBUTIONS ARE REQUIRED TO BEGIN UNDER SECTION 5.5(B)(2)(A) OR 5.5(B)(2)(B)) IS THE PAYMENT THAT IS REQUIRED FOR ONE PAYMENT INTERVAL. THE SECOND PAYMENT NEED NOT BE MADE UNTIL THE END OF THE NEXT PAYMENT INTERVAL EVEN IF THAT PAYMENT INTERVAL ENDS IN THE NEXT CALENDAR YEAR. PAYMENT INTERVALS ARE THE PERIODS FOR WHICH PAYMENTS ARE RECEIVED, E.G., BI-MONTHLY, MONTHLY, SEMI-ANNUALLY, OR ANNUALLY. ALL OF THE PARTICIPANT'S BENEFIT ACCRUALS AS OF THE LAST DAY OF THE FIRST DISTRIBUTION CALENDAR YEAR SHALL BE INCLUDED IN THE CALCULATION OF THE AMOUNT OF THE ANNUITY PAYMENTS FOR PAYMENT INTERVALS ENDING ON OR AFTER THE PARTICIPANT'S REQUIRED BEGINNING DATE. (3) ADDITIONAL ACCRUALS AFTER FIRST DISTRIBUTION CALENDAR YEAR. ANY ADDITIONAL BENEFITS ACCRUING TO THE PARTICIPANT IN A CALENDAR YEAR AFTER THE FIRST DISTRIBUTION CALENDAR YEAR SHALL BE DISTRIBUTED BEGINNING WITH THE FIRST PAYMENT INTERVAL ENDING IN THE CALENDAR YEAR IMMEDIATELY FOLLOWING THE CALENDAR YEAR IN WHICH SUCH AMOUNT ACCRUES. (D) REQUIREMENTS FOR ANNUITY DISTRIBUTIONS THAT COMMENCE DURING PARTICIPANT'S LIFETIME. (1) JOINT LIFE ANNUITIES WHERE THE BENEFICIARY IS NOT THE PARTICIPANT'S SPOUSE. IF THE PARTICIPANT'S INTEREST IS BEING DISTRIBUTED IN THE FORM OF A JOINT AND SURVIVOR ANNUITY FOR THE JOINT LIVES OF THE PARTICIPANT AND A NONSPOUSE BENEFICIARY, ANNUITY PAYMENTS TO BE MADE ON OR AFTER THE PARTICIPANT'S REQUIRED BEGINNING DATE TO THE DESIGNATED BENEFICIARY AFTER THE PARTICIPANT'S DEATH MUST NOT AT ANY TIME EXCEED THE APPLICABLE PERCENTAGE OF THE ANNUITY PAYMENT FOR SUCH PERIOD THAT WOULD HAVE BEEN PAYABLE TO THE PARTICIPANT USING THE TABLE SET FORTH IN Q&A-2 OF SECTION 1.401(A)(9)-6 OF THE TREASURY REGULATIONS. IF THE FORM OF DISTRIBUTION COMBINES A JOINT AND SURVIVOR ANNUITY FOR THE JOINT LIVES OF THE PARTICIPANT AND A NONSPOUSE BENEFICIARY AND A PERIOD CERTAIN ANNUITY, THE REQUIREMENT IN THE PRECEDING SENTENCE SHALL APPLY TO ANNUITY PAYMENTS TO BE MADE TO THE DESIGNATED BENEFICIARY AFTER THE EXPIRATION OF THE PERIOD CERTAIN. (2) PERIOD CERTAIN ANNUITIES. UNLESS THE PARTICIPANT'S SPOUSE IS THE SOLE DESIGNATED BENEFICIARY AND THE FORM OF DISTRIBUTION IS A PERIOD CERTAIN AND NO LIFE ANNUITY, THE PERIOD CERTAIN FOR AN ANNUITY DISTRIBUTION COMMENCING DURING THE PARTICIPANT'S LIFETIME MAY NOT EXCEED THE APPLICABLE DISTRIBUTION PERIOD FOR THE PARTICIPANT UNDER THE UNIFORM LIFETIME TABLE SET FORTH IN SECTION 1.401(A)(9)-9 OF THE TREASURY REGULATIONS FOR THE CALENDAR YEAR THAT CONTAINS THE ANNUITY STARTING DATE. IF THE ANNUITY STARTING DATE PRECEDES THE YEAR IN WHICH THE PARTICIPANT REACHES AGE 70, THE APPLICABLE DISTRIBUTION PERIOD FOR THE PARTICIPANT IS THE DISTRIBUTION PERIOD FOR AGE 70 UNDER THE UNIFORM LIFETIME TABLE SET FORTH IN SECTION 1.401(A)(9)-9 OF THE TREASURY REGULATIONS PLUS THE EXCESS OF 70 OVER THE AGE OF THE PARTICIPANT AS OF THE PARTICIPANT'S BIRTHDAY IN THE YEAR THAT CONTAINS THE ANNUITY STARTING DATE. IF THE PARTICIPANT'S SPOUSE IS THE PARTICIPANT'S SOLE DESIGNATED BENEFICIARY AND THE FORM OF DISTRIBUTION IS A PERIOD CERTAIN AND NO LIFE ANNUITY, THE PERIOD CERTAIN MAY NOT EXCEED THE LONGER OF THE PARTICIPANT'S APPLICABLE DISTRIBUTION PERIOD, AS DETERMINED UNDER THIS SECTION 5.5(D)(2), OR THE JOINT LIFE AND LAST SURVIVOR EXPECTANCY OF THE PARTICIPANT AND THE PARTICIPANT'S SPOUSE AS DETERMINED UNDER THE JOINT AND LAST SURVIVOR TABLE SET FORTH IN SECTION 1.401(A)(9)-9 OF THE TREASURY REGULATIONS, USING THE PARTICIPANT'S AND SPOUSE'S ATTAINED AGES AS OF THE PARTICIPANT'S AND SPOUSE'S BIRTHDAYS IN THE CALENDAR YEAR THAT CONTAINS THE ANNUITY STARTING DATE. (E) REQUIREMENTS FOR MINIMUM DISTRIBUTIONS WHERE PARTICIPANT DIES BEFORE DATE DISTRIBUTIONS BEGIN. (1) PARTICIPANT SURVIVED BY DESIGNATED BENEFICIARY. IF THE PARTICIPANT DIES BEFORE THE DATE DISTRIBUTION OF HIS OR HER INTEREST BEGINS AND THERE IS A DESIGNATED BENEFICIARY, THE PARTICIPANT'S ENTIRE INTEREST SHALL BE DISTRIBUTED, BEGINNING NO LATER THAN THE TIME DESCRIBED IN SECTION 5.5(B)(2)(A) OR 5.5(B)(2)(B), OVER THE LIFE OF THE DESIGNATED BENEFICIARY OR OVER A PERIOD CERTAIN NOT EXCEEDING: (A) UNLESS THE ANNUITY STARTING DATE IS BEFORE THE FIRST DISTRIBUTION CALENDAR YEAR, THE LIFE EXPECTANCY OF THE DESIGNATED BENEFICIARY DETERMINED USING THE BENEFICIARY'S AGE AS OF THE BENEFICIARY'S BIRTHDAY IN THE CALENDAR YEAR IMMEDIATELY FOLLOWING THE CALENDAR YEAR OF THE PARTICIPANT'S DEATH; OR (B) IF THE ANNUITY STARTING DATE IS BEFORE THE FIRST DISTRIBUTION CALENDAR YEAR, THE LIFE EXPECTANCY OF THE DESIGNATED BENEFICIARY DETERMINED USING THE BENEFICIARY'S AGE AS OF THE BENEFICIARY'S BIRTHDAY IN THE CALENDAR YEAR THAT CONTAINS THE ANNUITY STARTING DATE. (2) NO DESIGNATED BENEFICIARY. IF THE PARTICIPANT DIES BEFORE THE DATE DISTRIBUTIONS BEGIN AND THERE IS NO DESIGNATED BENEFICIARY AS OF SEPTEMBER 30 OF THE YEAR FOLLOWING THE YEAR OF THE PARTICIPANT'S DEATH, DISTRIBUTION OF THE PARTICIPANT'S ENTIRE INTEREST SHALL BE COMPLETED BY DECEMBER 31 OF THE CALENDAR YEAR CONTAINING THE FIFTH ANNIVERSARY OF THE PARTICIPANT'S DEATH. (3) DEATH OF SURVIVING SPOUSE BEFORE DISTRIBUTIONS TO SURVIVING SPOUSE BEGIN. IF THE PARTICIPANT DIES BEFORE THE DATE DISTRIBUTION OF HIS OR HER INTEREST BEGINS, THE PARTICIPANT'S SURVIVING SPOUSE IS THE PARTICIPANT'S SOLE DESIGNATED BENEFICIARY, AND THE SURVIVING SPOUSE DIES BEFORE DISTRIBUTIONS TO THE SURVIVING SPOUSE BEGIN, THIS SECTION 5.5(E) SHALL APPLY AS IF THE SURVIVING SPOUSE WERE THE PARTICIPANT, EXCEPT THAT THE TIME BY WHICH DISTRIBUTIONS MUST BEGIN SHALL BE DETERMINED WITHOUT REGARD TO SECTION 5.5(B)(2)(A). (F) DEFINITIONS. (1) DESIGNATED BENEFICIARY. THE SPOUSE OR OTHER INDIVIDUAL WHO IS DESIGNATED AS THE BENEFICIARY UNDER SECTION 5.2 OF THE PLAN IS THE "DESIGNATED BENEFICIARY" UNDER SECTION 401(A)(9) OF THE CODE AND SECTION 1.401(A)(9)-4, OF THE TREASURY REGULATIONS. (2) DISTRIBUTION CALENDAR YEAR. A CALENDAR YEAR FOR WHICH A MINIMUM DISTRIBUTION IS REQUIRED. FOR DISTRIBUTIONS BEGINNING BEFORE THE PARTICIPANT'S DEATH, THE FIRST "DISTRIBUTION CALENDAR YEAR" IS THE CALENDAR YEAR IMMEDIATELY PRECEDING THE CALENDAR YEAR WHICH CONTAINS THE PARTICIPANT'S REQUIRED BEGINNING DATE. FOR DISTRIBUTIONS BEGINNING AFTER THE PARTICIPANT'S DEATH, THE FIRST "DISTRIBUTION CALENDAR YEAR" IS THE CALENDAR YEAR IN WHICH DISTRIBUTIONS ARE REQUIRED TO BEGIN PURSUANT TO SECTION 5.5(B)(2). (3) LIFE EXPECTANCY. LIFE EXPECTANCY IS COMPUTED BY USE OF THE SINGLE LIFE TABLE IN SECTION 1.401(A)(9)-9 OF THE TREASURY REGULATIONS. (4) REQUIRED BEGINNING DATE. (A) EXCEPT AS PROVIDED IN SECTION 5.5(F)(4)(B) WITH RESPECT TO A 5-PERCENT OWNER, AS DEFINED IN SECTION 5.5(F)(4)(C), THE TERM "REQUIRED BEGINNING DATE" MEANS APRIL 1 OF THE CALENDAR YEAR FOLLOWING THE LATER OF THE CALENDAR YEAR IN WHICH THE EMPLOYEE ATTAINS AGE 70-1/2 OR THE CALENDAR YEAR IN WHICH THE EMPLOYEE CEASES TO BE AN EMPLOYEE. (B) IN THE CASE OF AN EMPLOYEE WHO IS A 5-PERCENT OWNER, THE TERM "REQUIRED BEGINNING DATE" MEANS APRIL 1 OF THE CALENDAR YEAR FOLLOWING THE CALENDAR YEAR IN WHICH THE EMPLOYEE ATTAINS AGE 70-1/2. (C) FOR PURPOSES OF THIS SECTION 5.5, A 5-PERCENT OWNER IS, IF THE EMPLOYER IS A CORPORATION, ANY PERSON WHO OWNS (OR IS CONSIDERED AS OWNING WITHIN THE MEANING OF CODE SECTION 318) MORE THAN 5 PERCENT OF THE OUTSTANDING STOCK OF THE CORPORATION OR STOCK POSSESSING MORE THAN 5 PERCENT OF THE TOTAL COMBINED VOTING POWER OF ALL STOCK OF THE CORPORATION AND, IF THE EMPLOYER IS NOT A CORPORATION, ANY PERSON WHO OWNS MORE THAN 5 PERCENT OF THE CAPITAL OR PROFITS INTEREST IN THE EMPLOYER". 4. New Section 5.9, entitled "Retroactive Annuity Starting Dates," is added to the Plan effective April 1, 2004 and shall read as follows: "5.9 RETROACTIVE ANNUITY STARTING DATES. (A) WHEN PERMITTED. IN ANY CASE WHERE BECAUSE OF ADMINISTRATIVE DELAY, OVERSIGHT OR SIMILAR CIRCUMSTANCE, A PARTICIPANT IS GIVEN THE NOTICE DESCRIBED IN SECTION 5.2(D) AFTER THE DATE THAT THE PARTICIPANT DESIRES TO BE HIS ANNUITY STARTING DATE, THE PARTICIPANT SHALL BE PERMITTED TO ELECT IN A MANNER PRESCRIBED BY THE COMMITTEE TO HAVE HIS BENEFIT PAYMENT COMMENCE AS OF THE DATE THE PARTICIPANT DESIRES TO BE HIS ANNUITY STARTING DATE. IN GENERAL, A PARTICIPANT WILL NOT BE PERMITTED TO ELECT A RETROACTIVE ANNUITY STARTING DATE IN CASES WHERE THE FAILURE OF THE PARTICIPANT TO RECEIVE THE NOTICE DESCRIBED IN SECTION 5.2(D) IN A TIMELY MANNER RESULTS FROM THE FAILURE OF THE PARTICIPANT TO CONTACT THE COMMITTEE TO REQUEST THE COMMENCEMENT OF BENEFITS. THE COMMITTEE SHALL DETERMINE WHEN PARTICIPANTS MAY ELECT RETROACTIVE ANNUITY STARTING DATES USING OBJECTIVE CRITERIA IN A CONSISTENT, NONDISCRIMINATORY MANNER. (B) CONDITIONS FOR RETROACTIVE ANNUITY STARTING DATE. IN ANY CASE WHERE A PARTICIPANT ELECTS A RETROACTIVE ANNUITY STARTING DATE, THE PAYMENT OF THE BENEFIT SHALL COMPLY WITH TREAS. REG. SS.1.417(E)-1(B)(3)(IV) AND (V). WITHOUT LIMITING THE GENERALITY FOREGOING, IF A PARTICIPANT ELECTS A RETROACTIVE ANNUITY STARTING DATE: (1) MAKE-UP PAYMENTS. THE PARTICIPANT SHALL RECEIVE MAKE-UP PAYMENTS WITH INTEREST (DETERMINED AT A RATE SET BY THE COMMITTEE WITH REFERENCE TO AN OBJECTIVE INDEX) SO THAT HE IS PUT IN THE SAME POSITION FINANCIALLY AS IF BENEFIT PAYMENT HAD IN FACT BEGUN ON THE ANNUITY STARTING DATE. (2) CODE SECTION 415(B) COMPLIANCE. THE BENEFIT MUST SATISFY THE REQUIREMENTS ON CODE SECTION 415(B) AS OF THE ANNUITY STARTING DATE AND, EXCEPT IN CASES OF BENEFITS NOT SUBJECT TO CODE SECTION 417(E) THAT BEGIN WITHIN 12 MONTHS OF THE ANNUITY STARTING DATE, MUST ALSO SATISFY CODE SECTION 415(B) AS OF THE DATE ON WHICH BENEFITS ACTUALLY COMMENCE. (3) CODE SECTION 417(E) COMPLIANCE. IN THE CASE OF A BENEFIT SUBJECT TO CODE SECTION 417(E), THE BENEFIT SHALL BE CALCULATED USING THE APPLICABLE INTEREST RATE AND APPLICABLE MORTALITY TABLE DETERMINED AS OF THE ANNUITY STARTING DATE BUT SHALL NOT BE LESS THAN THE SAME BENEFIT CALCULATED USING THE APPLICABLE INTEREST RATE AND APPLICABLE MORTALITY TABLE DETERMINED AS OF THE DATE ON WHICH BENEFITS ACTUALLY COMMENCE. (4) SPOUSE'S CONSENT. THE PARTICIPANT'S SPOUSE, IF ANY, MUST CONSENT (IN THE MANNER PROVIDED UNDER SECTION 5.2(E)) TO THE USE OF A RETROACTIVE ANNUITY STARTING DATE IF THE BENEFIT IS PAYABLE IN THE FORM OF JOINT AND SURVIVOR ANNUITY (OR JOINT AND SURVIVOR ANNUITY WITH PERIOD CERTAIN) WITH THE SPOUSE AS THE SURVIVOR ANNUITANT AND IF THE SURVIVOR BENEFIT IS LESS THAN THE SURVIVOR BENEFIT WOULD HAVE BEEN IN THE CASE OF A JOINT AND 50% SURVIVOR ANNUITY IF THE DATE ON WHICH BENEFITS ACTUALLY COMMENCE WERE THE ANNUITY STARTING DATE. (C) REVOCATION OF ELECTION. A PARTICIPANT WHO ELECTS A RETROACTIVE ANNUITY STARTING DATE SHALL BE PERMITTED TO CHANGE HIS ELECTION OF FORM OF BENEFIT DURING THE 30 DAY PERIOD FOLLOWING THE DATE ON WHICH HE IS GIVEN THE NOTICE DESCRIBED IN SECTION 5.2(D)." 5. Section 2.8.3 of Schedule 2, entitled "Cash-out of Minimum Benefit", is amended effective December 31, 1998 to read as follows: "(A) MANDATORY DISTRIBUTION. IN THE EVENT THAT A NUHP PARTICIPANT CEASES TO BE AN EMPLOYEE AT A TIME WHEN THE ACTUARIAL PRESENT VALUE OF HIS MRB PLAN BENEFIT DETERMINED UNDER SECTION 2.3.2 IS $5,000 OR LESS, THE PARTICIPANT SHALL BE PAID THE BENEFIT AS PROVIDED IN SECTION 5.4 OF THE MRB PLAN." 6. Section 3.9.5 of Schedule 3, entitled "Cash-out of Minimum Benefit", is amended effective June 30, 1998 to read as follows: "(A) MANDATORY DISTRIBUTION. IN THE EVENT THAT THE EMPLOYEE STATUS OF A DNSP PARTICIPANT CEASES AT A TIME WHEN THE ACTUARIAL PRESENT VALUE OF HIS MRB PLAN BENEFIT DETERMINED UNDER SECTION 3.4.2 IS $5,000 OR LESS, THE PARTICIPANT SHALL BE PAID THE BENEFIT AS PROVIDED IN SECTION 5.4 OF THE MRB PLAN." 7. Appendix S3-A of Schedule 3, entitled "Actuarial Assumptions, Tables and Factors for Computing Plan Benefits," is amended effective December 31, 2002 by changing Section I.(1) to read as follows: "(1) MORTALITY: THE APPLICABLE MORTALITY TABLE." 8. Section 4.8.4 of Schedule 4, entitled "Cash-out of Minimum Benefit", is amended effective June 30, 1998 to read as follows: "(A) MANDATORY DISTRIBUTION. IN THE EVENT THAT THE EMPLOYEE STATUS OF A WADESBORO PARTICIPANT CEASES AT A TIME WHEN THE ACTUARIAL PRESENT VALUE OF HIS MRB PLAN BENEFIT DETERMINED UNDER SECTION 4.3.2 IS $5,000 OR LESS, THE PARTICIPANT SHALL BE PAID THE BENEFIT AS PROVIDED IN SECTION 5.4 OF THE MRB PLAN." 9. Appendix S4-A of Schedule 4, entitled "Actuarial Assumptions, Tables and Factors for Computing Plan Benefits," is amended effective December 31, 2002 by changing Section I.(1) to read as follows: "(1) MORTALITY: THE APPLICABLE MORTALITY TABLE." 10. Section 5.8.4 of Schedule 5, entitled "Cash-out of Minimum Benefit", is amended effective December 31, 1998 to read as follows: "(A) MANDATORY DISTRIBUTION. IN THE EVENT THAT THE EMPLOYEE STATUS OF A YALE PARTICIPANT CEASES AT A TIME WHEN THE ACTUARIAL PRESENT VALUE OF HIS MRB PLAN BENEFIT DETERMINED UNDER SECTION 5.3.2 IS $5,000 OR LESS, THE PARTICIPANT SHALL BE PAID THE BENEFIT AS PROVIDED IN SECTION 5.4 OF THE MRB PLAN." 11. Appendix S5-A of Schedule 5, entitled "Actuarial Assumptions, Tables and Factors for Computing Plan Benefits," is amended effective December 31, 2002 by changing Section I.(1) to read as follows: "(1) MORTALITY: THE APPLICABLE MORTALITY TABLE." 12. Section 6.8.2 of Schedule 6, entitled "Cash-out of Minimum Benefit", is amended effective February 28, 1999 to read as follows: "(A) MANDATORY DISTRIBUTION. IN THE EVENT THAT THE EMPLOYEE STATUS OF AN AMLIFTS PARTICIPANT CEASES AT A TIME WHEN THE ACTUARIAL PRESENT VALUE OF HIS MRB PLAN BENEFIT DETERMINED UNDER SECTION 6.3.2 IS $5,000 OR LESS, THE PARTICIPANT SHALL BE PAID THE BENEFIT AS PROVIDED IN SECTION 5.4 OF THE MRB PLAN." 13. Appendix S6-A of Schedule 6, entitled "Actuarial Assumptions, Tables and Factors for Computing Plan Benefits," is amended effective December 31, 2002 by changing Section I.(1) to read as follows: "(1) MORTALITY: THE APPLICABLE MORTALITY TABLE." IN WITNESS WHEREOF, this instrument of amendment has been executed by a duly authorize officer of the Corporation this 28th day of December, 2005, to be effective as of the dates recited herein. COLUMBUS McKINNON CORPORATION By Timothy R. Harvey ----------------------------- Title: General Counsel and Secretary ----------------------------- EX-10.53 4 creditfacility03162006.txt THIRD AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT ================================================================================ Published CUSIP Number: 19933MAD5 THIRD AMENDED AND RESTATED CREDIT AGREEMENT Dated as of March 16, 2006 among COLUMBUS MCKINNON CORPORATION, as the Borrower, BANK OF AMERICA, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and The Other Lenders Party Hereto BANC OF AMERICA SECURITIES LLC, as Sole Lead Arranger and Sole Book Manager TABLE OF CONTENTS ----------------- Page ---- ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS........................2 1.01. Defined Terms...............................................2 1.02. Other Interpretive Provisions..............................27 1.03. Accounting Terms...........................................28 1.04. Rounding...................................................28 1.05. Times of Day...............................................28 1.06. Letter of Credit Amounts...................................28 ARTICLE II. THE COMMITMENTS AND CREDIT EXTENSIONS..................29 2.01. Committed Loans............................................29 2.02. Borrowings, Conversions and Continuations of Committed Loans............................................29 2.03. Letters of Credit..........................................31 2.04. Swing Line Loans...........................................39 2.05. Prepayments................................................42 2.06. Termination or Reduction of Commitments....................43 2.07. Repayment of Loans.........................................44 2.08. Interest...................................................45 2.09. Fees.......................................................46 2.10. Computation of Interest and Fees...........................46 2.11. Evidence of Debt...........................................47 2.12. Payments Generally; Administrative Agent's Clawback........47 2.13. Sharing of Payments by Lenders.............................49 2.14. Increase in Commitments....................................50 2.15. Collateral Security........................................51 ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY.................51 3.01. Taxes......................................................51 3.02. Illegality.................................................53 3.03. Inability to Determine Rates...............................54 3.04. Increased Costs; Reserves on Eurodollar Rate Loans.........54 3.05. Compensation for Losses....................................56 3.06. Mitigation Obligations; Replacement of Lenders.............56 i TABLE OF CONTENTS ----------------- (continued) Page ---- 3.07. Survival...................................................57 ARTICLE IV. CONDITIONS PRECEDENT TO CREDIT EXTENSIONS..............57 4.01. Conditions of Initial Credit Extension.....................57 4.02. Conditions to all Credit Extensions........................59 ARTICLE V. REPRESENTATIONS AND WARRANTIES.........................60 5.01. Existence, Qualification and Power.........................60 5.02. Authorization; No Contravention............................60 5.03. Governmental Authorization; Other Consents.................60 5.04. Binding Effect.............................................61 5.05. Financial Statements; No Material Adverse Effect; No Internal Control Event..................................61 5.06. Litigation.................................................62 5.07. No Default.................................................62 5.08. Ownership of Property; Liens...............................62 5.09. Environmental Compliance...................................62 5.10. Insurance..................................................62 5.11. Taxes......................................................62 5.12. ERISA Compliance...........................................63 5.13. Subsidiaries; Equity Interests.............................63 5.14. Margin Regulations; Investment Company Act; Public Utility Holding Company Act.........................63 5.15. Disclosure.................................................64 5.16. Compliance with Laws.......................................64 5.17. Taxpayer Identification Number.............................64 5.18. Intellectual Property; Licenses, Etc.......................64 5.19. Perfection of Security Interest............................65 5.20. Properties.................................................65 5.21. Solvency...................................................65 5.22. Bank Accounts..............................................65 5.23. Obligations as Senior Debt.................................65 5.24. Use of Proceeds............................................65 ii TABLE OF CONTENTS ----------------- (continued) Page ---- ARTICLE VI. AFFIRMATIVE COVENANTS..................................66 6.01. Financial Statements.......................................66 6.02. Certificates; Other Information............................67 6.03. Notices....................................................68 6.04. Payment of Obligations.....................................69 6.05. Preservation of Existence, Etc.............................69 6.06. Maintenance of Properties..................................69 6.07. Maintenance of Insurance...................................70 6.08. Compliance with Laws, Organizational Documents and Contractual Obligations................................70 6.09. Books and Records..........................................70 6.10. Inspection Rights..........................................70 6.11. Use of Proceeds............................................70 6.12. Additional Guarantors and Pledgors.........................70 6.13. Mortgages..................................................71 6.14. Post-Closing Deliveries....................................71 ARTICLE VII. NEGATIVE COVENANTS.....................................72 7.01. Liens......................................................72 7.02. Investments................................................73 7.03. Indebtedness...............................................73 7.04. Fundamental Changes........................................75 7.05. Dispositions...............................................75 7.06. Restricted Payments........................................76 7.07. Change in Nature of Business...............................77 7.08. Transactions with Affiliates...............................77 7.09. Burdensome Agreements......................................77 7.10. Use of Proceeds............................................77 7.11. Financial Covenants........................................77 7.12. Modifications of Certain Documents; Designation of Senior Debt.............................................78 7.13. Sale-Leaseback Transactions................................78 iii TABLE OF CONTENTS ----------------- (continued) Page ---- ARTICLE VIII. EVENTS OF DEFAULT AND REMEDIES.........................78 8.01. Events of Default..........................................78 8.02. Remedies Upon Event of Default.............................80 8.03. Application of Funds.......................................81 ARTICLE IX. ADMINISTRATIVE AGENT...................................82 9.01. Appointment and Authority..................................82 9.02. Rights as a Lender.........................................82 9.03. Exculpatory Provisions.....................................82 9.04. Reliance by Administrative Agent...........................83 9.05. Delegation of Duties.......................................83 9.06. Resignation of Administrative Agent........................84 9.07. Non-Reliance on Administrative Agent and Other Lenders.....85 9.08. No Other Duties, Etc.......................................85 9.09. Administrative Agent May File Proofs of Claim..............85 9.10. Collateral and Guaranty Matters............................86 9.11. Intercreditor Agreement....................................86 ARTICLE X. MISCELLANEOUS..........................................86 10.01. Amendments, Etc............................................86 10.02. Notices; Effectiveness; Electronic Communication...........88 10.03. No Waiver; Cumulative Remedies.............................89 10.04. Expenses; Indemnity; Damage Waiver.........................90 10.05. Payments Set Aside.........................................92 10.06. Successors and Assigns.....................................92 10.07. Treatment of Certain Information; Confidentiality..........97 10.08. Right of Setoff............................................97 10.09. Interest Rate Limitation...................................98 10.10. Counterparts; Integration; Effectiveness...................98 10.11. Survival of Representations and Warranties.................98 10.12. Severability...............................................99 10.13. Replacement of Lenders.....................................99 iv TABLE OF CONTENTS ----------------- (continued) Page ---- 10.14. Governing Law; Jurisdiction; Etc..........................100 10.15. Waiver of Jury Trial......................................100 10.16. No Advisory or Fiduciary Responsibility...................101 10.17. USA PATRIOT Act Notice....................................102 10.18. Time of the Essence.......................................102 v SCHEDULES 2.01 Commitments and Applicable Percentages 5.05 Material Indebtedness and Other Liabilities at January 1, 2006 5.06 Litigation 5.09 Environmental Matters 5.13 Subsidiaries; Other Equity Investments 5.18 Intellectual Property Matters 5.20 Fee and Leasehold Real Property Assets 5.22 Bank Accounts 6.13 Material Leasehold Real Estate Assets 7.01 Existing Liens 7.03 Existing Indebtedness 7.05 Permitted Exclusive Licenses of IP Rights 7.09 Burdensome Agreements 10.02 Administrative Agent's Office; Certain Addresses for Notices 10.06 Processing and Recordation Fees EXHIBITS Form of A Committed Loan Notice B Swing Line Loan Notice C Note D Compliance Certificate E Assignment and Assumption F Guaranty G Opinion Matters THIRD AMENDED AND RESTATED CREDIT AGREEMENT This THIRD AMENDED AND RESTATED CREDIT AGREEMENT ("AGREEMENT") is dated as of March 16, 2006, among COLUMBUS MCKINNON CORPORATION, a New York corporation (the "BORROWER"), each lender from time to time party hereto (collectively, the "LENDERS" and individually, a "LENDER"), and BANK OF AMERICA, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer. WHEREAS, the Borrower has previously entered into that certain Credit Agreement dated as of March 31, 1998 (as amended, the "ORIGINAL CREDIT AGREEMENT"), among the Borrower, the lenders named therein, and Fleet National Bank, as Agent; WHEREAS, the Borrower, Larco Industrial Services Ltd, a business corporation organized under the laws of the Province of Ontario, Columbus McKinnon Limited, a business corporation organized under the laws of Canada, the Guarantors named therein, the lenders from time to time party thereto, Fleet Capital Corporation, as Administrative Agent, Fleet National Bank, as L/C Issuer and Fleet Securities, Inc., as Arranger have previously entered into that certain Amended and Restated Credit and Security Agreement, dated as of November 21, 2002 (as amended, by the First Amendment, dated as of June 5, 2003 and the Second Amendment, dated as of July 21, 2003, the "FIRST AMENDED AND RESTATED CREDIT AGREEMENT"), which First Amended and Restated Credit Agreement amended and restated the Original Credit Agreement and, together with the Loan Documents (as defined therein) evidenced the rights, obligations, liens, security interests, and collateral security assigned pursuant to the Assignment (as defined below); WHEREAS, pursuant to a certain Assignment and Acceptance, dated November 21, 2002 (the "ASSIGNMENT"), among the Borrower, the lenders party to the Original Credit Agreement, the Administrative Agent and the Lenders party to the First Amended and Restated Credit Agreement, (i) the lenders under the Original Credit Agreement assigned to the Lenders under the First Amended and Restated Credit Agreement the outstanding loans and other obligations under the Original Credit Agreement and (ii) the Agent under the Original Credit Agreement assigned to the Administrative Agent under the First Amended and Restated Credit Agreement all of its liens, security interests, and collateral security under the Original Credit Agreement; WHEREAS, the Borrower, Larco Industrial Services Ltd, a business corporation organized under the laws of the Province of Ontario, Columbus McKinnon Limited, a business corporation organized under the laws of Canada, the Guarantors named therein, the lenders from time to time party thereto, Fleet Capital Corporation, as Administrative Agent, Fleet National Bank, as L/C Issuer and Fleet Securities, Inc., as Arranger have previously entered into that certain Second Amended and Restated Credit and Security Agreement, dated as of November 21, 2002 and amended and restated as of January 2, 2004, (as amended by that certain First Amendment to the Second Amended and Restated Credit Agreement, dated as of April 29, 2005, and by that certain Second Amendment to the Second Amended and Restated Credit Agreement, dated as of August 5, 2005, and by that certain Third Amendment to the Second Amended and Restated Credit S-1 Agreement, dated as of August 22, 2005, and by that certain Fourth Amendment to Second Amended and Restated Credit Agreement, dated as of October 17, 2005, the "SECOND AMENDED AND RESTATED CREDIT AGREEMENT"), which Second Amended and Restated Credit Agreement amended and restated the First Amended and Restated Credit Agreement and, together with the Loan Documents (as defined therein) evidenced the rights, obligations, liens, security interests, and collateral security assigned pursuant to the Assignment; WHEREAS, pursuant to a certain Assignment and Assumption Agreement, dated the Closing Date (as defined below), among the Borrower, the lenders party to the Second Amended and Restated Credit Agreement, the Administrative Agent and Bank of America, N.A., as Lender, the lenders under the Second Amended and Restated Credit Agreement assigned to the Administrative Agent, the outstanding loans and other obligations under the Second Amended and Restated Credit Agreement and, as further described in SECTION 2.01(B) of this Agreement, the Administrative Agent shall make a subsequent assignment of the Commitments hereunder to the Lenders party hereto in the amounts set forth on SCHEDULE 2.01 to this Agreement; and WHEREAS, it is the intention and desire of the parties that the loans and other obligations under the Second Amended and Restated Credit Agreement be amended and restated as set forth herein such that the obligations of the Credit Parties (as defined therein) and the rights, liens, security interests, and collateral security of the Administrative Agent and the Lenders thereunder shall hereafter be evidenced by this Agreement, the Assignment and the other Loan Documents referred to herein. NOW, THEREFORE, the parties agree that, effective as of the Closing Date (as defined below), the Second Amended and Restated Credit Agreement shall be amended and restated as set forth herein. In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows: ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS 1.01. DEFINED TERMS. As used in this Agreement, the following terms shall have the meanings set forth below: "ADDITIONAL SUBORDINATED INDEBTEDNESS" means Indebtedness subordinated to the Obligations on terms and conditions satisfactory to the Administrative Agent in an aggregate amount not in excess of $75,000,000 during the term of this Agreement permitted to be incurred pursuant to SECTION 7.03 and used by a Loan Party within 90 days after the incurrence of such Indebtedness or such longer period as may be agreed, in writing, by the Administrative Agent to (a) repurchase and/or refinance the Senior Notes or (b) purchase assets or equity interests so long as such acquisitions are permitted pursuant to SECTION 7.02. "ADMINISTRATIVE AGENT" means Bank of America in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent. S-2 "ADMINISTRATIVE AGENT'S OFFICE" means the Administrative Agent's address and, as appropriate, account as set forth on SCHEDULE 10.02, or such other address or account as the Administrative Agent may from time to time notify to the Borrower and the Lenders. "ADMINISTRATIVE QUESTIONNAIRE" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "AFFILIATE" means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "AGGREGATE COMMITMENTS" means the Commitments of all the Lenders. "AGREEMENT" means this Credit Agreement. "APPLICABLE PERCENTAGE" means with respect to any Lender at any time, the percentage (carried out to the ninth decimal place) of the Aggregate Commitments represented by such Lender's Commitment at such time. If the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to SECTION 8.02 or if the Aggregate Commitments have expired, then the Applicable Percentage of each Lender shall be determined based on the Applicable Percentage of such Lender most recently in effect, giving effect to any subsequent assignments. The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on SCHEDULE 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable. "APPLICABLE RATE" means, from time to time, the following percentages per annum, based upon the Senior Leverage Ratio as set forth in the most recent Compliance Certificate received by the Administrative Agent pursuant to SECTION 6.02(A): - ------- ---------------------------- ---------- ---------- ---------- --------- LEVEL SENIOR LEVERAGE RATIO COMMITMENT EURODOLLAR LETTER OF BASE RATE FEE RATE + CREDIT FEE + - ------- ---------------------------- ---------- ---------- ---------- --------- I Greater than or equal to 0.250% 1.750% 1.750% 0.750% 2.50x - ------- ---------------------------- ---------- ---------- ---------- --------- II Less than 2.50x but 0.200% 1.500% 1.500% 0.500% greater than or equal to 2.00x - ------- ---------------------------- ---------- ---------- ---------- --------- III Less than 2.00x but 0.175% 1.250% 1.250% 0.250% greater than or equal to 1.50x - ------- ---------------------------- ---------- ---------- ---------- --------- IV Less than 1.50x but 0.150% 1.000% 1.000% 0% greater than or equal to 1.00x - ------- ---------------------------- ---------- ---------- ---------- --------- V Less than 1.00x 0.125% 0.875% 0.875% 0% - ------- ---------------------------- ---------- ---------- ---------- --------- S-3 Any increase or decrease in the Applicable Rate resulting from a change in the Senior Leverage Ratio shall become effective as of the first Business Day immediately following the date a Compliance Certificate is delivered pursuant to SECTION 6.02(A); provided, however, that if a Compliance Certificate is not delivered when due in accordance with such Section, then Pricing Level I shall apply as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered. The Applicable Rate in effect from the Closing Date through March 31, 2006 shall be determined based upon Pricing Level IV. "APPROVED RESTRUCTURING CHARGES" means cash or non-cash restructuring charges incurred by the Borrower and/or its Subsidiaries in an aggregate amount not to exceed $3,750,000 during the term of this Agreement; PROVIDED however, amounts in excess of $2,000,000 in restructuring charges for any one facility, plant or other Property shall not constitute Approved Restructuring Charges unless approved, in writing, by the Administrative Agent. "ARRANGER" means Banc of America Securities LLC, in its capacity as sole lead arranger and sole book manager. "ASSIGNEE GROUP" means two or more Eligible Assignees that are Affiliates of one another. "ASSIGNMENTS OF MORTGAGE" means the several Assignments of Mortgage, made in favor the Administrative Agent, with respect to certain of the real property assets of the Loan Parties. "ASSIGNMENT AND ASSUMPTION" means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by SECTION 10.06(B), and accepted by the Administrative Agent, in substantially the form of EXHIBIT E or any other form approved by the Administrative Agent. "ATTRIBUTABLE INDEBTEDNESS" means, on any date, (a) in respect of any capital lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease payments under the relevant lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were accounted for as a capital lease. "AUDITED FINANCIAL STATEMENTS" means the audited consolidated balance sheet of the Borrower and its Subsidiaries for the fiscal year ended March 31, 2005, and the related consolidated statements of income or operations, shareholders' equity and cash flows for such fiscal year of the Borrower and its Subsidiaries, including the notes thereto. S-4 "AUDUBON EUROPE" means Audubon Europe S.A.R.L., a private limited liability company ("societe a responsabilite limitee") incorporated and existing under the laws of Luxembourg, with its registered office at L-2146 Luxembourg, 74 rue de Merl, registered with the Luxembourg Register of commerce and companies under number B 88,221, whose corporate capital is fixed at EUR 4,268,000.00. "AVAILABILITY PERIOD" means the period from and including the Closing Date to the earliest of (a) the Maturity Date, (b) the date of termination of the Aggregate Commitments pursuant to SECTION 2.06, and (c) the date of termination of the commitment of each Lender to make Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to SECTION 8.02. "BANK OF AMERICA" means Bank of America, N.A. and its successors. "BASE RATE" means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its "prime rate." The "prime rate" is a rate set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change. "BASE RATE COMMITTED LOAN" means a Committed Loan that is a Base Rate Loan. "BASE RATE LOAN" means a Loan that bears interest based on the Base Rate. "BORROWER" has the meaning specified in the introductory paragraph hereto. "BORROWER MATERIALS" has the meaning specified in SECTION 6.02. "BORROWER SECURITY AGREEMENT" means that certain Security Agreement, dated as of the date hereof, from the Borrower to the Administrative Agent, for the benefit of the Lenders. "BORROWING" means a Committed Borrowing or a Swing Line Borrowing, as the context may require. "BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent's Office is located and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market. "CALCULATION DATE" has the meaning specified in SECTION 2.07(C)(II). "CAPITAL LEASE OBLIGATIONS" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement S-5 conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "CASH COLLATERALIZE" has the meaning specified in SECTION 2.03(G). "CASUALTY EVENT" means, with respect to any property of any Person, any loss of or damage to, or any condemnation or other taking of, such property for which such Person or any of its Subsidiaries receives insurance proceeds, or proceeds of a condemnation award or other compensation. "CHANGE IN LAW" means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority. "CHANGE OF CONTROL" means an event or series of events by which: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have "beneficial ownership" of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an "OPTION RIGHT")), directly or indirectly, of 25% or more of the equity securities of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right); (b) during any period of 24 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Borrower cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors); S-6 (c) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Borrower, or control over the equity securities of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully-diluted basis (and taking into account all such securities that such Person or group has the right to acquire pursuant to any option right) representing 25% or more of the combined voting power of such securities; (d) the Borrower shall cease to have beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of 100% of the aggregate voting power of the Capital Stock of each other Loan Party, free and clear of all Liens (other than any Liens granted hereunder and Permitted Liens); or (e) a "Change of Control" shall occur under the Senior Subordinated Note Indenture or the Senior Note Indenture. "CLOSING DATE" means the first date all the conditions precedent in SECTION 4.01 are satisfied or waived in accordance with SECTION 10.01. "CODE" means the Internal Revenue Code of 1986. "COLLATERAL" means all of the property, rights and interests of the Loan Parties and their Subsidiaries that are or are intended to be subject to the Liens created by the Security Documents. "COMMITMENT" means, as to each Lender, its obligation to (a) make Committed Loans to the Borrower pursuant to SECTION 2.01, (b) purchase participations in L/C Obligations, and (c) purchase participations in Swing Line Loans, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender's name on SCHEDULE 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement. "COMMITTED BORROWING" means a borrowing consisting of simultaneous Committed Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Lenders pursuant to SECTION 2.01. "COMMITTED LOAN" has the meaning specified in SECTION 2.01. "COMMITTED LOAN NOTICE" means a notice of (a) a Committed Borrowing, (b) a conversion of Committed Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Loans, pursuant to SECTION 2.02(A), which, if in writing, shall be substantially in the form of EXHIBIT A. "COMPLIANCE CERTIFICATE" means a certificate substantially in the form of EXHIBIT D. S-7 "CONSOLIDATED EBITDA" means, for any period and without duplication, (a) the net income of the Borrower and its Subsidiaries (determined on a consolidated basis in accordance with GAAP) for such period, PLUS (b) to the extent deducted in calculating net income (i) income taxes expensed during such period, (ii) Interest Expense during such period, (iii) depreciation, amortization and other Non-Cash Charges accrued for such period, (iv) Approved Restructuring Charges incurred during such period, (v) the amount of any premium paid on the repurchase of the Senior Subordinated Notes, (vi) the amount of any premium paid on the repurchase of the Senior Notes and (vii) non-cash losses from any Casualty Event, Disposition or discontinued operation during such period MINUS (c) to the extent such items were added in calculating net income (i) extraordinary gains during such period, (ii) gains from any Casualty Event, Disposition, or discontinued operation during such period, (iii) interest and other income (excluding interest and other income related to CM Insurance Company, Inc.) during such period, (iv) Federal, state, local and foreign income tax credits of the Borrower and its Subsidiaries for such period and (v) all non-cash items increasing Consolidated Net Income for such period. "CONSOLIDATED NET INCOME" means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, the net income of the Borrower and its Subsidiaries. "CONTRACTUAL OBLIGATION" means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "CONTROLLING" and "CONTROLLED" have meanings correlative thereto. "COPYRIGHT MORTGAGE" means any grant of security interest in copyrights, made by any Loan Party in favor of the Administrative Agent, or any of its predecessors, including, without limitation that certain Memorandum of Grant of Security Interest in Copyrights, dated as of November 21, 2002, between Yale Industrial Products, Inc. and Fleet Capital Corporation (n/k/a Bank of America, N.A.) as agent, as amended, restated, replaced or assigned from time to time, including as amended by that certain First Amendment to Memorandum of Grant of Security Interest in Copyrights, dated as of the Closing Date. "CREDIT EXTENSION" means each of the following: (a) a Borrowing and (b) an L/C Credit Extension. "DEBTOR RELIEF LAWS" means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally. "DEFAULT" means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default. S-8 "DEFAULT RATE" means (a) when used with respect to Obligations other than Letter of Credit Fees, an interest rate equal to (i) the Base Rate PLUS (ii) the Applicable Rate, if any, applicable to Base Rate Loans PLUS (iii) 2% per annum; PROVIDED, HOWEVER, that with respect to a Eurodollar Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan plus 2% per annum, and (b) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Rate PLUS 2% per annum. "DEFAULTING LENDER" means any Lender that (a) has failed to fund any portion of the Committed Loans, participations in L/C Obligations or participations in Swing Line Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder unless such failure has been cured, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute or unless such failure has been cured, or (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding. "DISPOSITION" or "DISPOSE" means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith. "DOLLAR" and "$" mean lawful money of the United States. "DOLLAR EQUIVALENT" means, on any particular date, with respect to any amount denominated in Dollars, such amount of Dollars, and with respect to any amount denominated in a currency other than Dollars, the amount (as conclusively ascertained by the Administrative Agent absent manifest error) of Dollars which could be purchased by the Administrative Agent with such amount or currency (in accordance with its normal banking practices) in the applicable foreign currency deposit markets with such amount of such currency at the spot rate of exchange prevailing at or about 11:00 a.m. (Boston time) on such date. "DOMESTIC SUBSIDIARY" means any Subsidiary that is organized under the laws of any political subdivision of the United States. "ELIGIBLE ASSIGNEE" means any Person that meets the requirements to be an assignee under SECTION 10.06(B)(III), (V) and (VI) (subject to such consents, if any, as may be required under SECTION 10.06(B)(III)). "ENVIRONMENTAL INDEMNITY AGREEMENT" means that certain Environmental Indemnity Agreement, dated as of the date hereof, among the Borrower, Yale Industrial Products, Inc., Crane Equipment & Service, Inc. and the Administrative Agent. "ENVIRONMENTAL LAWS" means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to S-9 hazardous substances or wastes, air emissions and discharges to waste or public systems. "ENVIRONMENTAL LIABILITY" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "EQUITY INTERESTS" means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination. "ERISA" means the Employee Retirement Income Security Act of 1974. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). "ERISA EVENT" means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate. "EURODOLLAR RATE" means, for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum equal to the British Bankers Association LIBOR Rate ("BBA LIBOR"), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London S-10 time, two Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period. If such rate is not available at such time for any reason, then the "Eurodollar Rate" for such Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by Bank of America and with a term equivalent to such Interest Period would be offered by Bank of America's London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period. "EURODOLLAR RATE LOAN" means a Committed Loan that bears interest at a rate based on the Eurodollar Rate. "EVENT OF DEFAULT" has the meaning specified in SECTION 8.01. "EXCLUDED TAXES" means, with respect to the Administrative Agent, any Lender, the L/C Issuer or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under SECTION 10.13), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such Foreign Lender's failure or inability (other than as a result of a Change in Law) to comply with SECTION 3.01(E), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to SECTION 3.01(A). "EXISTING CREDIT AGREEMENT" has the meaning assigned to such term in the Recitals. "EXISTING LETTERS OF CREDIT" means any Letter of Credit issued by the Administrative Agent under the Second Amended and Restated Credit Agreement. "EXTRAORDINARY RECEIPTS" means any cash received by the Borrower or any of its Subsidiaries not in the ordinary course of business (and not consisting of proceeds described in SECTIONS 2.06 (B), (D) or (E) hereof), including, without limitation, (a) pension plan reversions, (b) proceeds of insurance, (c) judgments, proceeds of settlements or other consideration of any kind in connection with any cause of action, (d) condemnation awards (and payments in lieu thereof), and (e) indemnity payments; provided that, notwithstanding the foregoing, (i) amounts received with respect to any claim made by the Borrower for over-billing against Blue Cross and Blue Shield and (ii) amounts received by any Loan Party from the proceeds of that certain escrow account established by Spreckles Industries, Inc. (with such account currently being held by Yale S-11 Industrial Products, Inc.) to cover worker's compensation claims made against Spreckles Industries, Inc., shall not constitute Extraordinary Receipts. "FEDERAL FUNDS RATE" means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; PROVIDED that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined by the Administrative Agent. "FEE LETTER" means the letter agreement, dated February 15, 2006, among the Borrower, the Administrative Agent and the Arranger. "FIRST AMENDED AND RESTATED CREDIT AGREEMENT" has the meaning assigned to such term in the Recitals. "FIXED CHARGE COVERAGE RATIO" means, for any Reference Period, the ratio of (a) (i) Consolidated EBITDA for such Reference Period MINUS (ii) the aggregate amount of all Capital Expenditures during such Reference Period MINUS (iii) the aggregate amount paid, or required to be paid (without duplication), in cash (but in no event less than zero in the aggregate) in respect of the current portion of all income taxes for such Reference Period to (b) the sum for the Borrower and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of (i) the aggregate amount of Interest Expense for such Reference Period, MINUS, to the extent included in Interest Expense, the amortization during such Reference Period of financing costs incurred in connection with Indebtedness, PLUS (ii) the aggregate amount of regularly scheduled payments of principal in respect of Indebtedness for borrowed money (including the principal component of any payments in respect of Capital Lease Obligations) paid or required to be paid during such Reference Period PLUS (iii) all Restricted Payments made under SECTION 7.06(F) during such period. "FOREIGN LC EXPOSURE" means, at any time, the sum of the Dollar Equivalent amounts of (a) 100% of the aggregate undrawn amount of all outstanding Letters of Credit issued in an Optional Currency at such time, PLUS (b) the aggregate amount of all Letters of Credit issued in an Optional Currency that have not yet been reimbursed by or on behalf of any Loan Party at such time. "FOREIGN LENDER" means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "FOREIGN SUBSIDIARY" means any Subsidiary of the Borrower organized under the laws of any jurisdiction other than the United States of America or any State thereof. S-12 "FRB" means the Board of Governors of the Federal Reserve System of the United States. "FUND" means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business. "GAAP" means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied. "GOVERNMENTAL AUTHORITY" means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank). "GRANTING LENDER" has the meaning specified in SECTION 10.06(H). "GUARANTEE" means, as to any Person, any (a) obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term "Guarantee" as a verb has a corresponding meaning. S-13 "GUARANTORS" means, collectively, each Subsidiary of the Borrower listed as "Guarantor" on the signature pages hereto and each other Person which becomes a Guarantor hereunder after the Closing Date by complying with the requirements of SECTION 6.12. "GUARANTOR SECURITY AGREEMENTS" means, collectively (a) each Security Agreement, dated as of the date hereof, from a Guarantor to the Administrative Agent, for the benefit of the Lenders and (b) each additional security agreement executed by a Guarantor pursuant to SECTION 6.12. "GUARANTY" means the Guaranty made by the Guarantors in favor of the Administrative Agent and the Lenders, substantially in the form of EXHIBIT F. "HAZARDOUS MATERIALS" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "INDEBTEDNESS" means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP: (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments; (b) all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers' acceptances, bank guaranties, surety bonds and similar instruments; (c) net obligations of such Person under any Swap Contract; (d) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and, in each case, not past due for more than 90 days after the date on which such trade account payable was created); (e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; (f) capital leases and Synthetic Lease Obligations; (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference PLUS accrued and S-14 unpaid dividends; and (h) all Guarantees of such Person in respect of any of the foregoing. For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date. The amount of any capital lease or Synthetic Lease Obligation as of any date shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date. "INDEMNIFIED TAXES" means Taxes other than Excluded Taxes. "INDEMNITEES" has the meaning specified in SECTION 10.04(B). "INFORMATION" has the meaning specified in SECTION 10.07. "INTELLECTUAL PROPERTY SECURITY AGREEMENTS" means each Trademark Agreement, Patent Agreement or Copyright Mortgage. "INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated as of July 22, 2003, among the Borrower, the Administrative Agent and the Senior Note Indenture Trustee. "INTEREST EXPENSE" means, for any period, the sum, without duplication, for the Borrower and its Subsidiaries (determined on a consolidated basis in accordance with GAAP), of the following: (a) all interest in respect of Indebtedness accrued or paid during such period (whether or not actually paid during such period), PLUS (b) the net amounts payable (or MINUS the net amounts receivable) in respect of Swap Contracts accrued during such period (whether or not actually paid or received during such period) excluding reimbursement of legal fees and other similar transaction costs and excluding payments required by reason of the early termination of Hedging Agreements in effect on the Closing Date, PLUS (c) all fees, including letter of credit fees and expenses, (but excluding reimbursement of legal fees), PLUS (d) the amortization of financing costs incurred in connection with Indebtedness "INTEREST PAYMENT DATE" means, (a) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; PROVIDED, HOWEVER, that if any Interest Period for a Eurodollar Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan (including a Swing Line Loan), the 15th day of each January, April, July and October and the Maturity Date. "INTEREST PERIOD" means, as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Borrower in its Committed Loan Notice; PROVIDED that: (i) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless S-15 such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and no Interest Period shall extend beyond the Maturity Date. "INTERNAL CONTROL EVENT" means a material weakness in, or fraud that involves management or other employees who have a significant role in, the Borrower's internal controls over financial reporting, in each case as described in the Securities Laws. "INVESTMENT" means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of capital stock or other securities of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person and any arrangement pursuant to which the investor Guarantees Indebtedness of such other Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment. "IP RIGHTS" has the meaning specified in SECTION 5.18. "IRS" means the United States Internal Revenue Service. "ISP" means, with respect to any Letter of Credit, the "International Standby Practices 1998" published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance). "ISSUER DOCUMENTS" means with respect to any Letter of Credit, the Letter of Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and the Borrower (or any Subsidiary) or in favor the L/C Issuer and relating to such Letter of Credit. "LAWS" means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law. S-16 "L/C ADVANCE" means, with respect to each Lender, such Lender's funding of its participation in any L/C Borrowing in accordance with its Applicable Percentage. "L/C BORROWING" means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Committed Borrowing. "L/C CREDIT EXTENSION" means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof. "L/C ISSUER" means Bank of America in its capacity as issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder. "L/C OBLIGATIONS" means, as at any date of determination, the aggregate Dollar Equivalent amount available to be drawn under all outstanding Letters of Credit PLUS the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with SECTION 1.06. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be "outstanding" in the amount so remaining available to be drawn. "LENDER" has the meaning specified in the introductory paragraph hereto and, as the context requires, includes the Swing Line Lender. "LENDING OFFICE" means, as to any Lender, the office or offices of such Lender described as such in such Lender's Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent. "LETTER OF CREDIT" means any letter of credit or banker's acceptance issued hereunder and any Existing Letter of Credit. "LETTER OF CREDIT APPLICATION" means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer. "LETTER OF CREDIT EXPIRATION DATE" means the day that is five days prior to the Maturity Date then in effect (or, if such day is not a Business Day, the next preceding Business Day). "LETTER OF CREDIT FEE" has the meaning specified in SECTION 2.03(I). "LETTER OF CREDIT SUBLIMIT" means an amount equal to $20,000,000, up to $10,000,000 of which may be denominated in an Optional Currency pursuant to SECTION 2.03(A)(I). The Letter of Credit Sublimit is part of, and not in addition to, the Aggregate Commitments. "LIEN" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of S-17 a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing). "LOAN" means an extension of credit by a Lender to the Borrower under ARTICLE II in the form of a Committed Loan or a Swing Line Loan. "LOAN DOCUMENTS" means this Agreement, each Note, each Issuer Document, the Fee Letter, and each of the Security Documents. "LOAN PARTIES" means, collectively, the Borrower and each Guarantor. "MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, assets, liabilities (actual or contingent), condition (financial or otherwise) or prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole; (b) a material impairment of the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect, enforceability or rights and remedies of the Administrative Agent or the Lenders against any Loan Party under any Loan Document to which it is a party. "MATERIAL RENTAL OBLIGATION" means the obligation of the Loan Parties to pay rent under any one or more operating leases with respect to any real or personal property that is material to the business of the Loan Parties and as to which the aggregate amount of all rents payable during any fiscal year exceeds $500,000. "MATURITY DATE" means February 22, 2010; PROVIDED THAT if, on or prior to February 22, 2010, (i) the maturity date of the Senior Notes or any Additional Subordinated Indebtedness is modified to be no earlier than September 22, 2011 or (ii) a reserve consisting of cash and unused borrowing availability under this Agreement is established and maintained at all times in an amount sufficient, as defined by the Administrative Agent in its sole discretion, to refinance the Senior Notes upon their maturity or the Senior Notes are paid in full with the proceeds of Additional Subordinated Indebtedness or otherwise, "Maturity Date" shall mean February 22, 2011; PROVIDED, FURTHER, that, in each case, if such date is not a Business Day, the Maturity Date shall be the next preceding Business Day. "MORTGAGES" means, collectively, the several security instruments (whether designated as a deed of trust or a mortgage, leasehold mortgage, assignment of leases and rents or by any similar title) executed and delivered by any Loan Party to the Administrative Agent, in such form as may be approved by the Agent in its sole and reasonable discretion, in each case with such changes thereto as may be recommended by the Administrative Agent's local counsel based on local laws or customary local practices, with respect to the real property owned or leased by a Loan Party, in each case as such security instrument or amendment may be amended, supplemented or otherwise modified from time to time, including, without limitation, any mortgages granted to the Administrative Agent after the Closing Date pursuant to SECTION 6.12. S-18 "MULTIEMPLOYER PLAN" means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions. "NET CASH PROCEEDS" means: (a) with respect to the sale of any asset by any Loan Party, the excess, if any, of (i) the sum of cash and cash equivalents received in connection with such sale (including any cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) over (ii) the sum of (A) the principal amount of any Indebtedness that is secured by such asset, so long as the lien securing such Indebtedness is permitted pursuant to SECTION 7.01, and that is required to be repaid in connection with the sale thereof (other than Indebtedness under the Loan Documents), (B) the out-of-pocket expenses incurred by such Loan Party in connection with such sale and (C) income taxes reasonably estimated to be actually payable within two years of the date of the relevant asset sale as a result of any gain recognized in connection therewith; and (b) with respect to the sale of any capital stock or other equity interest or the incurrence of any Indebtedness by any Loan Party, the excess of (i) the sum of the cash and cash equivalents received in connection with such sale or incurrence over (ii) the underwriting discounts and commissions, and other out-of-pocket expenses, incurred by such Loan Party in connection with such sale or incurrence. "NON-CASH CHARGES" means, with respect to any calculation of net income for any period, all non-cash extraordinary losses and charges deducted in such calculation (as determined in accordance with GAAP (excluding inventory and account receiveable write-downs and charge-offs), including, without limitation, non-cash recognition of unrealized declines in the market value of marketable securities recorded in accordance with FASB Statement No. 115, non-cash asset impairment charges recorded in accordance with FASB Statement No. 142 and FASB Statement No. 144, and non-cash restructuring charges. "NOTE" means a promissory note made by the Borrower in favor of a Lender evidencing Loans made by such Lender, substantially in the form of EXHIBIT C. "OBLIGATIONS" means (i) all indebtedness, obligations and liabilities of the Borrower and its Subsidiaries to any of the Lenders, the Administrative Agent, the L/C Issuer and cash management service providers, individually or collectively, existing on the Closing Date or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Agreement or any of the other Loan Documents or in respect of any of the Loans, the Notes, the Letters of Credit or other instruments at any time evidencing any thereof, including, without limitation, the aggregate outstanding principal balance of and all interest on the Loans made by the Lenders to the Borrower (including any interest accruing after the commencement of any proceeding by or against the Borrower under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, and any other interest that would have accrued but for the commencement of S-19 such proceeding, whether or not any such interest is allowed as a claim enforceable against the Borrower in any such proceeding), and all reimbursement obligations in respect of Letters of Credit, (ii) all LC Disbursements, (iii) all fees, costs, charges, expenses and other obligations from time to time owing to the Lenders, the L/C Issuer, the Administrative Agent, cash management service providers or any of their Affiliates by the Loan Parties or any of their Subsidiaries hereunder or under any other Loan Document, and (iv) all overdraft obligations, fees, costs, charges, expenses and other obligations from time to time owing to the Lenders, the L/C Issuer, the Administrative Agent, cash management service providers or any of their Affiliates by the Loan Parties or any of their Subsidiaries in respect of any Swap Contract, cash management agreement (including ACH transactions), operating or deposit account, or other banking product from time to time made available to the Loan Parties or any of their Subsidiaries by the Administrative Agent, the L/C Issuer, cash management service providers, any Lender or any of their Affiliates. "OPTIONAL CURRENCY" means any of the following currencies: Mexican peso, Canadian dollars, Danish crowns, or the "Euro", Japanese yen, United Kingdom pounds sterling or Chinese yuan. "ORGANIZATION DOCUMENTS" means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity. "ORIGINAL CREDIT AGREEMENT" has the meaning assigned to such term in the Recitals. "OTHER TAXES" means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document. "OUTSTANDING AMOUNT" means (i) with respect to Committed Loans and Swing Line Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Committed Loans and Swing Line Loans, as the case may be, occurring on such date; and (ii) with respect to any L/C Obligations on any date, the Dollar Equivalent amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements by the Borrower of Unreimbursed Amounts. "PARTICIPANT" has the meaning specified in SECTION 10.06(D). S-20 "PATENT AGREEMENT" means any grant of security interest in patents, made by any Loan Party in favor of the Administrative Agent, or any of its predecessors, including, without limitation that certain Patent Collateral Assignment and Security Agreement, dated as of November 21, 2002, by and among the Borrower, Yale Industrial Products, Inc. and Fleet Capital Corporation (n/k/a Bank of America, N.A.) as agent, as amended, restated, replaced or assigned from time to time, including as amended by that certain First Amendment to Patent Collateral Assignment and Security Agreement, dated as of the Closing Date. "PBGC" means the Pension Benefit Guaranty Corporation. "PCAOB" means the Public Company Accounting Oversight Board. "PENSION PLAN" means any "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the Borrower or any ERISA Affiliate or to which the Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years. "PERSON" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "PLAN" means any "employee benefit plan" (as such term is defined in Section 3(3) of ERISA) established by the Borrower or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate. "PLATFORM" has the meaning specified in SECTION 6.02. "PLEDGE AGREEMENT" means any pledge agreement, between a Loan Party and the Administrative Agent, pursuant to which any Loan Party pledges any stock, other equity interests or intercompany notes held by it, including, without limitation that certain Pledge Agreement, dated as of November 21, 2002, by and among the Borrower, Audubon West, Inc., Crane Equipment & Service, Inc. and Fleet Capital Corporation (n/k/a Bank of America, N.A.) as agent, as amended, restated, replaced or assigned from time to time, including, as amended by that certain First Amendment to Pledge Agreement, dated as of the Closing Date. "REFERENCE PERIOD" means, as of any date of determination, the period of four (4) consecutive fiscal quarters of the Borrower and its Subsidiaries ending on such date, or if such date is not a fiscal quarter end date, the period of four (4) consecutive fiscal quarters most recently ended (in each case treated as a single accounting period). "REGISTER" has the meaning specified in SECTION 10.06(C). "REGISTERED PUBLIC ACCOUNTING FIRM" has the meaning specified in the Securities Laws and shall be independent of the Borrower as prescribed by the Securities Laws. S-21 "RELATED PARTIES" means, with respect to any Person, such Person's Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person's Affiliates. "RELATED REAL ESTATE DOCUMENTS" - with respect to any real estate subject to a Mortgage, the following, in form and substance reasonably satisfactory to Administrative Agent and received by Administrative Agent for review at least 15 days prior to the effective date of the Mortgage (or such shorter length of time acceptable to Administrative Agent in its reasonable discretion): (a) a mortgagee title policy (or binder therefor) covering Administrative Agent's interest under the Mortgage, in a form and amount and by an insurer reasonably acceptable to Administrative Agent, which must be fully paid on such effective date; (b) such assignments of leases, rents, estoppel letters, attornment agreements, consents, waivers and releases as Administrative Agent may require with respect to other Persons having an interest in the real estate; (c) a current, as-built survey of the real estate, containing a metes-and-bounds property description and flood plain certification, and certified by a licensed surveyor reasonably acceptable to Administrative Agent; (d) flood insurance in an amount, with endorsements and by an insurer reasonably acceptable to Administrative Agent, if the real estate is within a flood plain; (e) a current appraisal of the real estate, prepared by an appraiser reasonably acceptable to Administrative Agent, and in form and substance satisfactory to Required Lenders; (f) a Phase I (and to the extent appropriate, Phase II) environmental assessment report, prepared by an environmental consulting firm reasonably satisfactory to Administrative Agent, and accompanied by such reports, certificates, studies or data as Administrative Agent may reasonably require, which shall all be in form and substance reasonably satisfactory to Administrative Agent; and (g) an environmental indemnity agreement and such other documents, instruments or agreements as Administrative Agent may reasonably require with respect to any environmental risks regarding the real estate. "REPORTABLE EVENT" means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived. "REQUEST FOR CREDIT EXTENSION" means (a) with respect to a Borrowing, conversion or continuation of Committed Loans, a Committed Loan Notice, (b) with respect to an L/C Credit Extension, a Letter of Credit Application, and (c) with respect to a Swing Line Loan, a Swing Line Loan Notice. "REQUIRED LENDERS" means, as of any date of determination, Lenders having more than 50% of the Aggregate Commitments or, if the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to SECTION 8.02, Lenders holding in the aggregate more than 50% of the Total Outstandings (with the aggregate amount of each Lender's risk participation and funded participation in L/C Obligations and Swing Line Loans being deemed "held" by such Lender for purposes of this definition); PROVIDED that the Commitment of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders. "RESET DATE" has the meaning specified in SECTION 2.07(C)(II). S-22 "RESPONSIBLE OFFICER" means the chief executive officer, president, chief financial officer, treasurer, secretary, assistant treasurer or controller of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party. "RESTRICTED PAYMENT" means (i) any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other Equity Interest of the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on account of any return of capital to the Borrower's stockholders, partners or members (or the equivalent Person thereof), (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of, or other equity interest in, any Loan Party or any of its Subsidiaries now or hereafter outstanding, (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of, or other equity interest in, any Loan Party or any of its Subsidiaries, (iv) any payment or prepayment of principal of, premium, if any, or interest on, or redemption purchase, retirement, defeasance (including economic or legal defeasance), sinking fund or similar payment with respect to the Senior Subordinated Notes, Senior Notes, Additional Subordinated Indebtedness and/or any intercompany Indebtedness owing by the Borrower or any Guarantor, and (v) any payment made to any Affiliates of any Loan Party or any of its Subsidiaries in respect of management, consulting or other similar services provided to any Loan Party or any of its Subsidiaries. "SARBANES-OXLEY" means the Sarbanes-Oxley Act of 2002. "SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions. "SECOND AMENDED AND RESTATED CREDIT AGREEMENT" has the meaning assigned to such term in the Recitals. "SECURITIES LAWS" means the Securities Act of 1933, the Securities Exchange Act of 1934, Sarbanes-Oxley and the applicable accounting and auditing principles, rules, standards and practices promulgated, approved or incorporated by the SEC or the PCAOB. "SECURITY DOCUMENTS" means collectively, the Mortgages, the Guaranty, the Pledge Agreements, the Borrower Security Agreement, the Guarantor Security Agreements, the Environmental Indemnity Agreement, the Intellectual Property Security Agreements, any assignments of intercompany Indebtedness and all other security agreements, UCC financing statements, and any other instruments or documents required by the Administrative Agent to be executed or delivered hereunder to secure the Obligations. S-23 "SENIOR LEVERAGE RATIO" means, as of any date of determination, the ratio of (a) Senior Net Funded Indebtedness of the Borrower and its Subsidiaries outstanding on such date TO (b) Consolidated EBITDA for Reference Period ended on such date. "SENIOR NET FUNDED INDEBTEDNESS" means, at any time of determination, the sum of Total Funded Indebtedness (which shall include the L/C Obligations) MINUS the principal amount of the Senior Subordinated Notes or Additional Subordinated Indebtedness outstanding at such time. "SENIOR NOTE DOCUMENTS" means the Senior Notes, the Senior Note Indenture and all other documents, instruments and agreements executed and delivered with respect to the Senior Notes or Senior Note Indenture, in each case, as the same shall be further amended, supplemented or otherwise modified and in effect from time to time." "SENIOR NOTE INDENTURE" means the Indenture dated as of July 22, 2003, between the Borrower and the Senior Note Indenture Trustee, as in effect as of the date hereof and as thereafter amended from time to time in accordance with the provisions hereof. "SENIOR NOTE INDENTURE TRUSTEE" means U.S. Bank Trust National Association, or any successor thereto as trustee under the Senior Note Indenture. "SENIOR NOTES" means the Borrower's 10% senior secured notes, due 2010, issued pursuant to the Senior Note Indenture, as such notes may be modified, supplement or amended from time to time in accordance with the provisions hereof. "SENIOR SUBORDINATED NOTE DOCUMENTS" means the Senior Subordinated Note Indenture, the Senior Subordinated Notes and all other documents, instruments and agreements executed and delivered in connection with the Senior Subordinated Notes, in each case, as the same shall, subject to the terms and conditions of this Agreement, be amended, supplemented or otherwise modified and in effect from time to time. "SENIOR SUBORDINATED NOTE INDENTURE" means the Columbus McKinnon Corporation 8 ?% Senior Subordinated Notes Due 2013 Indenture, dated as of September 2, 2005, between the Borrower, as issuer, and U.S. Bank, as trustee, as the same shall, subject to the terms and conditions of this Agreement, be further amended, supplemented or otherwise modified and in effect from time to time. "SENIOR SUBORDINATED NOTES" means the Borrower's 8 ?% senior subordinated notes due 2013, issued pursuant to the Senior Subordinated Note Indenture, as the same shall, subject to the terms and conditions of this Agreement, be amended, supplemented or otherwise modified and in effect from time to time. "SIGNIFICANT SUBSIDIARY" means any Subsidiary of the Borrower which accounts for more than fifteen percent of one or more of: (a) the book value of the consolidated assets of the Borrower and its Subsidiaries; or S-24 (b) the consolidated revenues of the Borrower and its Subsidiaries, all as shown in the financial statements most recently delivered under SECTION 6.01(A) or (B). "SIGNIFICANT DOMESTIC SUBSIDIARY" means any Domestic Subsidiary that is a Significant Subsidiary. "SOLVENT" means, with respect to any Person on a particular date, that, at fair valuations, (a) the sum of such Person's assets is greater than (x) all of such Person's consolidated liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) and (y) the amount required to pay such liabilities as they become absolute, matured or otherwise become due in the normal course of business, (b) such Person has the ability to pay its debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) as they become absolute, matured or otherwise become due in the normal course of business and (c) such Person does not have an unreasonably small amount of capital with which to conduct its business. "SPC" has the meaning specified in SECTION 10.06(H). "SUBSIDIARY" of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a "Subsidiary" or to "Subsidiaries" shall refer to a Subsidiary or Subsidiaries of the Borrower. "SWAP CONTRACT" means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a "MASTER AGREEMENT"), including any such obligations or liabilities under any Master Agreement. "SWAP TERMINATION VALUE" means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) S-25 determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender). "SWING LINE" means the revolving credit sub-facility made available by the Swing Line Lender pursuant to SECTION 2.04. "SWING LINE BORROWING" means a borrowing of a Swing Line Loan pursuant to SECTION 2.04. "SWING LINE LENDER" means Bank of America in its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder. "SWING LINE LOAN" has the meaning specified in SECTION 2.04(A). "SWING LINE LOAN NOTICE" means a notice of a Swing Line Borrowing pursuant to SECTION 2.04(B), which, if in writing, shall be substantially in the form of EXHIBIT B. "SWING LINE SUBLIMIT" means an amount equal to the lesser of (a) $7,500,000 and (b) the Aggregate Commitments. The Swing Line Sublimit is part of, and not in addition to, the Aggregate Commitments. "SYNTHETIC LEASE OBLIGATION" means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment). "TAXES" means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto. "THRESHOLD AMOUNT" means $2,000,000. "TOTAL FUNDED INDEBTEDNESS" means, with respect to the Borrower and its Subsidiaries, the sum, without duplication, of (a) the aggregate amount of Indebtedness of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP, relating to (i) the borrowing of money or the obtaining of credit, including the issuance of notes or bonds, (ii) the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business), (iii) in respect of any Synthetic Lease Obligations or any Capital Lease Obligations, and (iv) the maximum drawing amount of all letters of credit outstanding, plus (b) Indebtedness of the type referred to in clause (a) of another Person guaranteed by the Borrower or any of its Subsidiaries. S-26 "TOTAL OUTSTANDINGS" means the aggregate Outstanding Amount of all Loans and all L/C Obligations. "TRADEMARK AGREEMENT" means any grant of security interest in trademarks, made by any Loan Party in favor of the Administrative Agent, or any of its predecessors, including, without limitation that certain Trademark Collateral Security and Pledge Agreement, dated as of November 21, 2002, by and among the Borrower, Yale Industrial Products, Inc. and Fleet Capital Corporation (n/k/a Bank of America, N.A.) as agent, as amended, restated, replaced or assigned from time to time, including as amended by that certain First Amendment to Trademark Collateral Security and Pledge Agreement, dated as of the Closing Date. "TYPE" means, with respect to a Committed Loan, its character as a Base Rate Loan or a Eurodollar Rate Loan. "UNFUNDED PENSION LIABILITY" means the excess of a Pension Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year. "UNITED STATES" and "U.S." mean the United States of America. "UNREIMBURSED AMOUNT" has the meaning specified in SECTION 2.03(C)(I). 1.02. OTHER INTERPRETIVE PROVISIONS. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document: (a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "INCLUDE," "includes" and "INCLUDING" shall be deemed to be followed by the phrase "without limitation." The word "WILL" shall be construed to have the same meaning and effect as the word "SHALL." Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person's successors and assigns, (iii) the words "HEREIN," "HEREOF" and "HEREUNDER," and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words "ASSET" and "PROPERTY" shall be construed to have the same meaning and effect and to refer to any and all S-27 tangible and intangible assets and properties, including cash, securities, accounts and contract rights. (b) In the computation of periods of time from a specified date to a later specified date, the word "FROM" means "FROM AND INCLUDING;" the words "TO" and "UNTIL" each mean "TO BUT EXCLUDING;" and the word "THROUGH" means "TO AND INCLUDING." (c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document. 1.03. ACCOUNTING TERMS. (a) GENERALLY. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, EXCEPT as otherwise specifically prescribed herein. (b) CHANGES IN GAAP. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); PROVIDED THAT, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. 1.04. ROUNDING. Any financial ratios required to be maintained by the Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number). 1.05. TIMES OF DAY. Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable). 1.06. LETTER OF CREDIT AMOUNTS. Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount of such Letter of Credit in effect at such time; provided, however, that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time. S-28 ARTICLE II. THE COMMITMENTS AND CREDIT EXTENSIONS 2.01. COMMITTED LOANS. (a) Subject to the terms and conditions set forth herein, each Lender severally agrees to make loans (each such loan, a "COMMITTED LOAN") to the Borrower from time to time, on any Business Day during the Availability Period, in an aggregate amount not to exceed at any time outstanding the amount of such Lender's Commitment; PROVIDED, HOWEVER, that after giving effect to any Committed Borrowing, (i) the Total Outstandings shall not exceed the Aggregate Commitments, and (ii) the aggregate Outstanding Amount of the Committed Loans of any Lender, PLUS such Lender's Applicable Percentage of the Outstanding Amount of all L/C Obligations, PLUS such Lender's Applicable Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender's Commitment. Within the limits of each Lender's Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow under this SECTION 2.01, prepay under SECTION 2.05, and reborrow under this SECTION 2.01. Committed Loans may be Base Rate Loans or Eurodollar Rate Loans, as further provided herein. (b) As of the Closing Date, there are $0 of Loans outstanding and Letters of Credit with a face amount of $7,497,893.63 outstanding under the Second Amended and Restated Credit Agreement. Pursuant to a separate Assignment and Assumption Agreement, dated as of the Closing Date, the lenders under the Second Amended and Restated Credit Agreement have assigned such Loans to Bank of America, N.A., effective as of the Closing Date. Effective as of the Closing Date, (i) such Loans under the Second Amended and Restated Credit Agreement shall be amended and restated as Loans hereunder and (ii) Bank of America, N.A. hereby assigns a portion of the Commitment to the Lenders hereunder such that, after giving effect to such assignment, the Commitments of the Lenders shall be as set forth on SCHEDULE 2.01. The terms and provisions of Annex 1 of Exhibit E (Assignment and Assumption) are hereby incorporated herein by reference such that the foregoing assignment shall be subject to the terms and conditions of such Annex 1 of Exhibit E (Assignment and Assumption). 2.02. BORROWINGS, CONVERSIONS AND CONTINUATIONS OF COMMITTED LOANS. (a) Each Committed Borrowing, each conversion of Committed Loans from one Type to the other, and each continuation of Eurodollar Rate Loans shall be made upon the Borrower's irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 11:00 a.m. (i) three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurodollar Rate Loans or of any conversion of Eurodollar Rate Loans to Base Rate Committed Loans, and (ii) on the requested date of any Borrowing of Base Rate Committed Loans. Each telephonic notice by the Borrower pursuant to this SECTION 2.02(A) must be confirmed promptly by delivery to the Administrative Agent of a written Committed Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower. Each Borrowing of, conversion to or continuation of Eurodollar Rate Loans shall be in a principal amount of $2,000,000 or a whole multiple of $500,000 in excess thereof. Except as provided in SECTIONS 2.03(C) and 2.04(C), each Borrowing of or conversion to Base Rate Committed Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. Each Committed Loan Notice (whether telephonic or written) shall S-29 specify (i) whether the Borrower is requesting a Committed Borrowing, a conversion of Committed Loans from one Type to the other, or a continuation of Eurodollar Rate Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Committed Loans to be borrowed, converted or continued, (iv) the Type of Committed Loans to be borrowed or to which existing Committed Loans are to be converted, and (v) if applicable, the duration of the Interest Period with respect thereto. If the Borrower fails to specify a Type of Committed Loan in a Committed Loan Notice or if the Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Committed Loans shall be made as, or converted to, Base Rate Loans. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Loans. If the Borrower requests a Borrowing of, conversion to, or continuation of Eurodollar Rate Loans in any such Committed Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month. (b) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Applicable Percentage of the applicable Committed Loans, and if no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in the preceding subsection. In the case of a Committed Borrowing, each Lender shall make the amount of its Committed Loan available to the Administrative Agent in immediately available funds at the Administrative Agent's Office not later than 1:00 p.m. on the Business Day specified in the applicable Committed Loan Notice. Upon satisfaction of the applicable conditions set forth in SECTION 4.02 (and, if such Borrowing is the initial Credit Extension, SECTION 4.01), the Administrative Agent shall make all funds so received available to the Borrower in like funds as received by the Administrative Agent either by (i) crediting the account of the Borrower on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower; PROVIDED, HOWEVER, that if, on the date the Committed Loan Notice with respect to such Borrowing is given by the Borrower, there are L/C Borrowings outstanding, then the proceeds of such Borrowing, FIRST, shall be applied to the payment in full of any such L/C Borrowings, and SECOND, shall be made available to the Borrower as provided above. (c) Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Loan. During the existence of a Default, no Loans may be requested as, converted to or continued as Eurodollar Rate Loans without the consent of the Required Lenders. (d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Loans upon determination of such interest rate. At any time prior to the date on which the Commitments have been terminated, the Administrative Agent shall notify the Borrower and the Lenders of any change in Bank of America's prime rate used in determining the Base Rate promptly following the public announcement of such change. S-30 (e) After giving effect to all Committed Borrowings, all conversions of Committed Loans from one Type to the other, and all continuations of Committed Loans as the same Type, there shall not be more than ten Interest Periods in effect with respect to Committed Loans. 2.03. LETTERS OF CREDIT. (a) THE LETTER OF CREDIT COMMITMENT. (i) Subject to the terms and conditions set forth herein, (A) the L/C Issuer agrees, in reliance upon the agreements of the Lenders set forth in this SECTION 2.03, (1) from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue Letters of Credit for the account of the Borrower or its Subsidiaries, and to amend or extend Letters of Credit previously issued by it, in accordance with subsection (b) below, and (2) to honor drawings under the Letters of Credit; and (B) the Lenders severally agree to participate in Letters of Credit issued for the account of the Borrower or its Subsidiaries and any drawings thereunder; PROVIDED that after giving effect to any L/C Credit Extension with respect to any Letter of Credit, (x) the Total Outstandings shall not exceed the Aggregate Commitments, (y) the aggregate Outstanding Amount of the Committed Loans of any Lender, PLUS such Lender's Applicable Percentage of the Outstanding Amount of all L/C Obligations, PLUS such Lender's Applicable Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender's Commitment, and (z) the Outstanding Amount of the L/C Obligations shall not exceed the Letter of Credit Sublimit. Subject to the other terms and conditions set forth herein, the Borrower may request the issuance of such Letters of Credit in an Optional Currency; PROVIDED, however, that, in addition to the other conditions to the issuance of Letters of Credit set forth in this SECTION 2.03(A)(I), after giving effect to such request, the Dollar Equivalent of the Foreign LC Exposure shall not exceed $10,000,000 at any one time. Such Letters of Credit issued in an Optional Currency hereunder shall constitute utilization of the Aggregate Commitments in the amount of the Dollar Equivalent of such Letter of Credit. Each request by the Borrower for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by the Borrower that the L/C Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrower's ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed. All Existing Letters of Credit shall be deemed to have been issued pursuant hereto, and from and after the Closing Date shall be subject to and governed by the terms of and conditions hereof. (ii) The L/C Issuer shall not issue any Letter of Credit, if: (A) subject to SECTION 2.03(B)(III), the expiry date of such requested Letter of Credit would occur more than twelve months after the date of issuance or last extension, unless the Required Lenders have approved such expiry date; or S-31 (B) the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless all the Lenders have approved such expiry date. (iii) The L/C Issuer shall not be under any obligation to issue any Letter of Credit if: (A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the L/C Issuer from issuing such Letter of Credit, or any Law applicable to the L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or request that the L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the L/C Issuer in good faith deems material to it; (B) the issuance of such Letter of Credit would violate one or more policies of the L/C Issuer applicable to letters of credit generally; (C) such Letter of Credit is to be denominated in a currency other than Dollars or an Optional Currency; (D) such Letter of Credit contains any provisions for automatic reinstatement of the stated amount after any drawing thereunder; or (E) a default of any Lender's obligations to fund under SECTION 2.03(C) exists or any Lender is at such time a Defaulting Lender hereunder, unless the L/C Issuer has entered into satisfactory arrangements with the Borrower or such Lender to eliminate the L/C Issuer's risk with respect to such Lender. (iv) The L/C Issuer shall not amend any Letter of Credit if the L/C Issuer would not be permitted at such time to issue such Letter of Credit in its amended form under the terms hereof. (v) The L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) the L/C Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit. (vi) The L/C Issuer shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and the L/C Issuer shall have all of the benefits and immunities (A) provided to the Administrative Agent in ARTICLE IX with respect to any acts taken or omissions suffered by the L/C Issuer in connection with Letters of S-32 Credit issued by it or proposed to be issued by it and Issuer Documents pertaining to such Letters of Credit as fully as if the term "Administrative Agent" as used in ARTICLE IX included the L/C Issuer with respect to such acts or omissions, and (B) as additionally provided herein with respect to the L/C Issuer. (b) Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension Letters of Credit. (i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower delivered to the L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Borrower. Such Letter of Credit Application must be received by the L/C Issuer and the Administrative Agent not later than 11:00 a.m. at least two Business Days (or such later date and time as the Administrative Agent and the L/C Issuer may agree in a particular instance in their sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; and (G) such other matters as the L/C Issuer may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer (A) the Letter of Credit to be amended; (B) the proposed date of amendment thereof (which shall be a Business Day); (C) the nature of the proposed amendment; and (D) such other matters as the L/C Issuer may require. Additionally, the Borrower shall furnish to the L/C Issuer and the Administrative Agent such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as the L/C Issuer or the Administrative Agent may require. (ii) Promptly after receipt of any Letter of Credit Application, the L/C Issuer will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the Borrower and, if not, the L/C Issuer will provide the Administrative Agent with a copy thereof. Unless the L/C Issuer has received written notice from any Lender, the Administrative Agent or any Loan Party, at least one Business Day prior to the requested date of issuance or amendment of the applicable Letter of Credit, that one or more applicable conditions contained in ARTICLE IV shall not then be satisfied, then, subject to the terms and conditions hereof, the L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the Borrower (or the applicable Subsidiary) or enter into the applicable amendment, as the case may be, in each case in accordance with the L/C Issuer's usual and customary business practices. Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the L/C S-33 Issuer a risk participation in such Letter of Credit in an amount equal to the product of such Lender's Applicable Percentage TIMES the amount of such Letter of Credit. (iii) If the Borrower so requests in any applicable Letter of Credit Application, the L/C Issuer may, in its sole and absolute discretion, agree to issue a Letter of Credit that has automatic extension provisions (each, an "AUTO-EXTENSION LETTER OF CREDIT"); PROVIDED that any such Auto-Extension Letter of Credit must permit the L/C Issuer to prevent any such extension at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving 30-days' prior notice to the beneficiary thereof (the "NON-EXTENSION NOTICE DATE"). Unless otherwise directed by the L/C Issuer, the Borrower shall not be required to make a specific request to the L/C Issuer for any such extension. Once an Auto-Extension Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the L/C Issuer to permit the extension of such Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; PROVIDED, HOWEVER, that the L/C Issuer shall not permit any such extension if (A) the L/C Issuer has determined that it would not be permitted, or would have no obligation, at such time to issue such Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of clause (ii) or (iii) of SECTION 2.03(A) or otherwise), or (B) it has received notice (which may be by telephone or in writing) on or before the day that is five Business Days before the Non-Extension Notice Date (1) from the Administrative Agent that the Required Lenders have elected not to permit such extension or (2) from the Administrative Agent, any Lender or the Borrower that one or more of the applicable conditions specified in SECTION 4.02 is not then satisfied, and in each such case directing the L/C Issuer not to permit such extension. (iv) Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the L/C Issuer will also deliver to the Borrower and the Administrative Agent a true and complete copy of such Letter of Credit or amendment. (c) DRAWINGS AND REIMBURSEMENTS; FUNDING OF PARTICIPATIONS. (i) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the L/C Issuer shall notify the Borrower and the Administrative Agent thereof. Not later than 11:00 a.m. on the date of any payment by the L/C Issuer under a Letter of Credit (each such date, an "HONOR DATE"), the Borrower shall reimburse the L/C Issuer through the Administrative Agent in Dollars in an amount equal to the Dollar Equivalent amount of such drawing. If the Borrower fails to so reimburse the L/C Issuer by such time, the Administrative Agent shall promptly notify each Lender of the Honor Date, the Dollar Equivalent amount of the unreimbursed drawing (the "UNREIMBURSED AMOUNT"), and the amount of such Lender's Applicable Percentage thereof. In such event, the Borrower shall be deemed to have requested a Committed Borrowing of Base Rate Loans to be disbursed on the Honor Date in an amount equal to the Unreimbursed Amount, without regard to the minimum and multiples specified in SECTION 2.02 for the principal amount of Base Rate Loans, but subject to the amount S-34 of the unutilized portion of the Aggregate Commitments and the conditions set forth in SECTION 4.02 (other than the delivery of a Committed Loan Notice). Any notice given by the L/C Issuer or the Administrative Agent pursuant to this SECTION 2.03(c)(i) may be given by telephone if immediately confirmed in writing; PROVIDED that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. (ii) Each Lender shall upon any notice pursuant to SECTION 2.03(C)(I) make funds available to the Administrative Agent for the account of the L/C Issuer at the Administrative Agent's Office in an amount equal to its Applicable Percentage of the Unreimbursed Amount not later than 1:00 p.m. on the Business Day specified in such notice by the Administrative Agent, whereupon, subject to the provisions of SECTION 2.03(C)(III), each Lender that so makes funds available shall be deemed to have made a Base Rate Committed Loan to the Borrower in such amount. The Administrative Agent shall remit the funds so received to the L/C Issuer. (iii) With respect to any Unreimbursed Amount that is not fully refinanced by a Committed Borrowing of Base Rate Loans because the conditions set forth in SECTION 4.02 cannot be satisfied or for any other reason, the Borrower shall be deemed to have incurred from the L/C Issuer an L/C Borrowing in the amount of the Unreimbursed Amount that is not so refinanced, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate. In such event, each Lender's payment to the Administrative Agent for the account of the L/C Issuer pursuant to SECTION 2.03(C)(II) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this SECTION 2.03. (iv) Until each Lender funds its Committed Loan or L/C Advance pursuant to this SECTION 2.03(C) to reimburse the L/C Issuer for any amount drawn under any Letter of Credit, interest in respect of such Lender's Applicable Percentage of such amount shall be solely for the account of the L/C Issuer. (v) Each Lender's obligation to make Committed Loans or L/C Advances to reimburse the L/C Issuer for amounts drawn under Letters of Credit, as contemplated by this SECTION 2.03(C), shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the L/C Issuer, the Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; PROVIDED, HOWEVER, that each Lender's obligation to make Committed Loans pursuant to this SECTION 2.03(C) is subject to the conditions set forth in SECTION 4.02 (other than delivery by the Borrower of a Committed Loan Notice). No such making of an L/C Advance shall relieve or otherwise impair the obligation of the Borrower to reimburse the L/C Issuer for the amount of any payment made by the L/C Issuer under any Letter of Credit, together with interest as provided herein. S-35 (vi) If any Lender fails to make available to the Administrative Agent for the account of the L/C Issuer any amount required to be paid by such Lender pursuant to the foregoing provisions of this SECTION 2.03(C) by the time specified in SECTION 2.03(C)(II), the L/C Issuer shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the L/C Issuer at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by the L/C Issuer in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the L/C Issuer in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lender's Committed Loan included in the relevant Committed Borrowing or L/C Advance in respect of the relevant L/C Borrowing, as the case may be. A certificate of the L/C Issuer submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (vi) shall be conclusive absent manifest error. (d) REPAYMENT OF PARTICIPATIONS. (i) At any time after the L/C Issuer has made a payment under any Letter of Credit and has received from any Lender such Lender's L/C Advance in respect of such payment in accordance with SECTION 2.03(C), if the Administrative Agent receives for the account of the L/C Issuer any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the Borrower or otherwise, including proceeds of Cash Collateral applied thereto by the Administrative Agent), the Administrative Agent will distribute to such Lender its Applicable Percentage thereof in the same funds as those received by the Administrative Agent. (ii) If any payment received by the Administrative Agent for the account of the L/C Issuer pursuant to SECTION 2.03(C)(I) is required to be returned under any of the circumstances described in SECTION 10.05 (including pursuant to any settlement entered into by the L/C Issuer in its discretion), each Lender shall pay to the Administrative Agent for the account of the L/C Issuer its Applicable Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement. (e) OBLIGATIONS ABSOLUTE. The obligation of the Borrower to reimburse the L/C Issuer for each drawing under each Letter of Credit and to repay each L/C Borrowing shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following: (i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other Loan Document; (ii) the existence of any claim, counterclaim, setoff, defense or other right that the Borrower or any Subsidiary may have at any time against any beneficiary or any transferee of such Letter of Credit (or any S-36 Person for whom any such beneficiary or any such transferee may be acting), the L/C Issuer or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction; (iii) any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit; (iv) any payment by the L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit so long as the L/C Issuer has not acted with gross negligence or willful misconduct; or any payment made by the L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law; or (v) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or any Subsidiary. The Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Borrower's instructions or other irregularity, the Borrower will promptly notify the L/C Issuer. The Borrower shall be conclusively deemed to have waived any such claim against the L/C Issuer and its correspondents unless such notice is given as aforesaid. (f) ROLE OF L/C ISSUER. Each Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, the L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable to any Lender for (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Lenders, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Issuer Document. The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; PROVIDED, HOWEVER, that this assumption is not intended to, and shall not, preclude the Borrower's pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable or responsible for any of the matters described in clauses (i) through S-37 (v) of SECTION 2.03(E); PROVIDED, HOWEVER, that anything in such clauses to the contrary notwithstanding, the Borrower may have a claim against the L/C Issuer, and the L/C Issuer may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrower which the Borrower proves were caused by the L/C Issuer's willful misconduct or gross negligence or the L/C Issuer's willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, the L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and, in the absence of the L/C Issuer's gross negligence or willful misconduct, the L/C Issuer shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. (g) CASH COLLATERAL. Upon the request of the Administrative Agent, (i) if the L/C Issuer has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C Borrowing, or (ii) if, as of the Letter of Credit Expiration Date, any L/C Obligation for any reason remains outstanding, the Borrower shall, in each case, immediately Cash Collateralize the then Outstanding Amount of all L/C Obligations. SECTIONS 2.05 and 8.02(C) set forth certain additional requirements to deliver Cash Collateral hereunder. For purposes of this SECTION 2.03, SECTION 2.05 and SECTION 8.02(C), "CASH COLLATERALIZE" means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Administrative Agent and the L/C Issuer (which documents are hereby consented to by the Lenders). Derivatives of such term have corresponding meanings. The Borrower hereby grants to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash Collateral shall be maintained in blocked, non-interest bearing deposit accounts at Bank of America. (h) APPLICABILITY OF ISP AND UCP. Unless otherwise expressly agreed by the L/C Issuer and the Borrower when a Letter of Credit is issued (including any such agreement applicable to an Existing Letter of Credit), (i) the rules of the ISP shall apply to each standby Letter of Credit, and (ii) the rules of the Uniform Customs and Practice for Documentary Credits, as most recently published by the International Chamber of Commerce at the time of issuance shall apply to each commercial Letter of Credit. (i) LETTER OF CREDIT FEES. The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Percentage a Letter of Credit fee (the "LETTER OF CREDIT FEE") for each Letter of Credit equal to the Applicable Rate TIMES the daily amount available to be drawn under such Letter of Credit. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with SECTION 1.06. Letter of Credit Fees shall be (i) due and payable in Dollars on the fifth Business Day of each of March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit S-38 Expiration Date and thereafter on demand and (ii) computed on a quarterly basis in arrears. If there is any change in the Applicable Rate during any quarter, the daily amount available to be drawn under each Letter of Credit shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect. Notwithstanding anything to the contrary contained herein, upon the request of the Required Lenders, while any Event of Default exists, all Letter of Credit Fees shall accrue at the Default Rate. (j) FRONTING FEE AND DOCUMENTARY AND PROCESSING CHARGES PAYABLE TO L/C ISSUER. The Borrower shall pay directly to the L/C Issuer for its own account a fronting fee with respect to each Letter of Credit, at the rate per annum specified in the Fee Letter, computed on the daily amount available to be drawn under such Letter of Credit on a quarterly basis in arrears. Such fronting fee shall be due and payable on the tenth Business Day after the end of each March, June, September and December in respect of the most recently-ended quarterly period (or portion thereof, in the case of the first payment), commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with SECTION 1.06. In addition, the Borrower shall pay directly to the L/C Issuer for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the L/C Issuer relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable. (k) CONFLICT WITH ISSUER DOCUMENTS. In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control. (l) LETTERS OF CREDIT ISSUED FOR SUBSIDIARIES. Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Subsidiary, the Borrower shall be obligated to reimburse the L/C Issuer hereunder for any and all drawings under such Letter of Credit. The Borrower hereby acknowledges that the issuance of Letters of Credit for the account of Subsidiaries inures to the benefit of the Borrower, and that the Borrower's business derives substantial benefits from the businesses of such Subsidiaries. 2.04. SWING LINE LOANS. (a) THE SWING LINE. Subject to the terms and conditions set forth herein, the Swing Line Lender agrees, in reliance upon the agreements of the other Lenders set forth in this SECTION 2.04, to make loans (each such loan, a "SWING LINE LOAN") to the Borrower from time to time on any Business Day during the Availability Period in an aggregate amount not to exceed at any time outstanding the amount of the Swing Line Sublimit, notwithstanding the fact that such Swing Line Loans, when aggregated with the Applicable Percentage of the Outstanding Amount of Committed Loans and L/C Obligations of the Lender acting as Swing Line Lender, may exceed the amount of such Lender's Commitment; PROVIDED, HOWEVER, that after giving effect to any Swing Line Loan, (i) the Total Outstandings shall not exceed the Aggregate Commitments, and (ii) the aggregate Outstanding Amount of the Committed Loans of any Lender, PLUS such Lender's Applicable Percentage of the Outstanding Amount of all L/C Obligations, PLUS such Lender's S-39 Applicable Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender's Commitment, and PROVIDED, FURTHER, that the Borrower shall not use the proceeds of any Swing Line Loan to refinance any outstanding Swing Line Loan. Within the foregoing limits, and subject to the other terms and conditions hereof, the Borrower may borrow under this SECTION 2.04, prepay under SECTION 2.05, and reborrow under this SECTION 2.04. Each Swing Line Loan shall be a Base Rate Loan. Immediately upon the making of a Swing Line Loan, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Swing Line Lender a risk participation in such Swing Line Loan in an amount equal to the product of such Lender's Applicable Percentage TIMES the amount of such Swing Line Loan. (b) BORROWING PROCEDURES. Each Swing Line Borrowing shall be made upon the Borrower's irrevocable notice to the Swing Line Lender and, provided that the Swing Line Lender is not the same entity as the Administrative Agent, the Administrative Agent, which may be given by telephone. Each such notice must be received by the Swing Line Lender and the Administrative Agent not later than 1:00 p.m. on the requested borrowing date, and shall specify (i) the amount to be borrowed, which shall be a minimum of $100,000, and (ii) the requested borrowing date, which shall be a Business Day. Each such telephonic notice must be confirmed promptly by delivery to the Swing Line Lender and the Administrative Agent of a written Swing Line Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower. Promptly after receipt by the Swing Line Lender of any telephonic Swing Line Loan Notice, the Swing Line Lender will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has also received such Swing Line Loan Notice and, if not, the Swing Line Lender will notify the Administrative Agent (by telephone or in writing) of the contents thereof. Unless the Swing Line Lender has received notice (by telephone or in writing) from the Administrative Agent (including at the request of any Lender) prior to 2:00 p.m. on the date of the proposed Swing Line Borrowing (A) directing the Swing Line Lender not to make such Swing Line Loan as a result of the limitations set forth in the proviso to the first sentence of SECTION 2.04(A), or (B) that one or more of the applicable conditions specified in ARTICLE IV is not then satisfied, then, subject to the terms and conditions hereof, the Swing Line Lender will, not later than 3:00 p.m. on the borrowing date specified in such Swing Line Loan Notice, make the amount of its Swing Line Loan available to the Borrower at its office by crediting the account of the Borrower on the books of the Swing Line Lender in immediately available funds. (c) REFINANCING OF SWING LINE LOANS. (i) The Swing Line Lender at any time in its sole and absolute discretion may request, on behalf of the Borrower (which hereby irrevocably authorizes the Swing Line Lender to so request on its behalf), that each Lender make a Base Rate Committed Loan in an amount equal to such Lender's Applicable Percentage of the amount of Swing Line Loans then outstanding. Such request shall be made in writing (which written request shall be deemed to be a Committed Loan Notice for purposes hereof) and in accordance with the requirements of SECTION 2.02, without regard to the minimum and multiples specified therein for the principal amount of Base Rate Loans, but subject to the unutilized portion of the Aggregate Commitments and the conditions set forth in SECTION 4.02. The Swing Line Lender shall furnish the Borrower with a copy of the applicable Committed Loan Notice promptly S-40 after delivering such notice to the Administrative Agent. Each Lender shall make an amount equal to its Applicable Percentage of the amount specified in such Committed Loan Notice available to the Administrative Agent in immediately available funds for the account of the Swing Line Lender at the Administrative Agent's Office not later than 1:00 p.m. on the day specified in such Committed Loan Notice, whereupon, subject to SECTION 2.04(C)(II), each Lender that so makes funds available shall be deemed to have made a Base Rate Committed Loan to the Borrower in such amount. The Administrative Agent shall remit the funds so received to the Swing Line Lender. (ii) If for any reason any Swing Line Loan cannot be refinanced by such a Committed Borrowing in accordance with SECTION 2.04(C)(I), the request for Base Rate Committed Loans submitted by the Swing Line Lender as set forth herein shall be deemed to be a request by the Swing Line Lender that each of the Lenders fund its risk participation in the relevant Swing Line Loan and each Lender's payment to the Administrative Agent for the account of the Swing Line Lender pursuant to SECTION 2.04(C)(I) shall be deemed payment in respect of such participation. (iii) If any Lender fails to make available to the Administrative Agent for the account of the Swing Line Lender any amount required to be paid by such Lender pursuant to the foregoing provisions of this SECTION 2.04(C) by the time specified in SECTION 2.04(C)(I), the Swing Line Lender shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the Swing Line Lender at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by the Swing Line Lender in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Swing Line Lender in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lender's Committed Loan included in the relevant Committed Borrowing or funded participation in the relevant Swing Line Loan, as the case may be. A certificate of the Swing Line Lender submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (iii) shall be conclusive absent manifest error. (iv) Each Lender's obligation to make Committed Loans or to purchase and fund risk participations in Swing Line Loans pursuant to this SECTION 2.04(C) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, the Borrower or any other Person for any reason whatsoever, (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; PROVIDED, HOWEVER, that each Lender's obligation to make Committed Loans pursuant to this SECTION 2.04(C) is subject to the conditions set forth in SECTION 4.02. No such funding of risk participations shall relieve or otherwise impair the obligation of the Borrower to repay Swing Line Loans, together with interest as provided herein. S-41 (d) REPAYMENT OF PARTICIPATIONS. (i) At any time after any Lender has purchased and funded a risk participation in a Swing Line Loan, if the Swing Line Lender receives any payment on account of such Swing Line Loan, the Swing Line Lender will distribute to such Lender its Applicable Percentage thereof in the same funds as those received by the Swing Line Lender. (ii) If any payment received by the Swing Line Lender in respect of principal or interest on any Swing Line Loan is required to be returned by the Swing Line Lender under any of the circumstances described in SECTION 10.05 (including pursuant to any settlement entered into by the Swing Line Lender in its discretion), each Lender shall pay to the Swing Line Lender its Applicable Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned, at a rate per annum equal to the Federal Funds Rate. The Administrative Agent will make such demand upon the request of the Swing Line Lender. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement. (e) INTEREST FOR ACCOUNT OF SWING LINE LENDER. The Swing Line Lender shall be responsible for invoicing the Borrower for interest on the Swing Line Loans. Until each Lender funds its Base Rate Committed Loan or risk participation pursuant to this SECTION 2.04 to refinance such Lender's Applicable Percentage of any Swing Line Loan, interest in respect of such Applicable Percentage shall be solely for the account of the Swing Line Lender. (f) PAYMENTS DIRECTLY TO SWING LINE LENDER. The Borrower shall make all payments of principal and interest in respect of the Swing Line Loans directly to the Swing Line Lender. 2.05. PREPAYMENTS. (a) The Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Committed Loans in whole or in part without premium or penalty; PROVIDED that (i) such notice must be received by the Administrative Agent not later than 11:00 a.m. (A) three Business Days prior to any date of prepayment of Eurodollar Rate Loans and (B) on the date of prepayment of Base Rate Committed Loans; (ii) any prepayment of Eurodollar Rate Loans shall be in a principal amount of $2,000,000 or a whole multiple of $500,000 in excess thereof; and (iii) any prepayment of Base Rate Committed Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the Type(s) of Committed Loans to be prepaid and, if Eurodollar Rate Loans are to be prepaid, the Interest Period(s) of such Loans. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender's Applicable Percentage of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of a Eurodollar Rate Loan shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to SECTION 3.05. Each such S-42 prepayment shall be applied to the Committed Loans of the Lenders in accordance with their respective Applicable Percentages. (b) The Borrower may, upon notice to the Swing Line Lender (with a copy to the Administrative Agent), at any time or from time to time, voluntarily prepay Swing Line Loans in whole or in part without premium or penalty; PROVIDED that (i) such notice must be received by the Swing Line Lender and the Administrative Agent not later than 1:00 p.m. on the date of the prepayment, and (ii) any such prepayment shall be in a minimum principal amount of $100,000. Each such notice shall specify the date and amount of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. (c) If for any reason the Total Outstandings at any time exceed the Aggregate Commitments then in effect, the Borrower shall promptly prepay Loans and/or Cash Collateralize the L/C Obligations in an aggregate amount equal to such excess; PROVIDED, HOWEVER, that the Borrower shall not be required to Cash Collateralize the L/C Obligations pursuant to this SECTION 2.05(C) unless after the prepayment in full of the Loans the Total Outstandings exceed the Aggregate Commitments then in effect. 2.06. TERMINATION OR REDUCTION OF COMMITMENTS. (a) The Borrower may, upon notice to the Administrative Agent, terminate the Aggregate Commitments, or from time to time permanently reduce the Aggregate Commitments; provided that (i) any such notice shall be received by the Administrative Agent not later than 11:00 a.m. five Business Days prior to the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of $5,000,000 or any whole multiple of $1,000,000 in excess thereof, (iii) the Borrower shall not terminate or reduce the Aggregate Commitments if, after giving effect thereto and to any concurrent prepayments hereunder, the Total Outstandings would exceed the Aggregate Commitments, and (iv) if, after giving effect to any reduction of the Aggregate Commitments, the Letter of Credit Sublimit or the Swing Line Sublimit exceeds the amount of the Aggregate Commitments, such Sublimit shall be automatically reduced by the amount of such excess. The Administrative Agent will promptly notify the Lenders of any such notice of termination or reduction of the Aggregate Commitments. Any reduction of the Aggregate Commitments shall be applied to the Commitment of each Lender according to its Applicable Percentage. All fees accrued until the effective date of any termination of the Aggregate Commitments shall be paid on the effective date of such termination. (b) DISPOSITIONS. If the Borrower or any Subsidiary makes any Disposition other than Dispositions permitted by SECTION 7.05 the Loan shall be repaid and the Aggregate Commitments reduced in the amount of the Net Cash Proceeds (determined as of the date of such Disposition, whether or not such Net Cash Proceeds are then received by the Borrower or such Subsidiary) from such Disposition. Nothing in this SECTION 2.06(B) shall permit any Disposition that is not permitted by SECTION 7.05. (c) EXTRAORDINARY RECEIPTS. Upon the receipt by any Loan Party or any of its Subsidiaries of any Extraordinary Receipts, the Loans shall be repaid and Aggregate Commitments shall be reduced by an amount equal to 100% of such Extraordinary Receipts, net of any actual expenses incurred in collecting such Extraordinary Receipts; PROVIDED, that in the case of insurance proceeds S-43 received in connection with a Casualty Event with respect to Property having an aggregate market value less than $1,500,000 (or such larger amount approved, in writing, by the Administrative Agent), so long as, at the time of receipt and use of such insurance proceeds, no Event of Default shall have occurred and be continuing, the Loan Parties shall be entitled to use such insurance proceeds (in an amount not in excess of $1,500,000 (or such larger amount approved, in writing, by the Administrative Agent)) to repair or replace the Property affected by such Casualty Event, PROVIDED, further, that (A) until so used, such insurance proceeds shall be, if so directed by the Administrative Agent, deposited into a cash collateral account (and when so deposited such insurance proceeds shall constitute Collateral for the Obligations then outstanding) or applied to repay the Loans, (B) such insurance proceeds may be used solely to repair or replace the Property that was the subject of such Casualty Event with other Property of the same type unless otherwise agreed, in writing, by the Administrative Agent, (C) such insurance proceeds must be used and such Property must be repaired or replaced within 180 days after the date of receipt thereof unless otherwise agreed, in writing, by the Administrative Agent, and (D) upon the occurrence and during the continuance of an Event of Default or after such 180 day period or any extension thereof approved, in writing, by the Administrative Agent shall have expired, such insurance proceeds, if not so used, shall be applied to the prepayment of Loans and cover for L/C Obligations as provided in this subsection 2.06(c). (d) ADDITIONAL INDEBTEDNESS. If the Borrower or any Subsidiary incurs Indebtedness, other than Additional Subordinated Indebtedness and Indebtedness permitted to be incurred pursuant to SECTION 7.03 (other than SECTION 7.03(K)), the Loans shall be repaid and the Aggregate Commitments shall be permanently reduced by the amount of the Net Cash Proceeds from the incurrence of such Indebtedness. Nothing in this SECTION 2.06(D) shall permit the incurrence of any Indebtedness that is not permitted by SECTION 7.03. (e) ISSUANCE OF ADDITIONAL EQUITY INTERESTS. Upon the issuance by the Borrower or any Subsidiary of any additional Equity Interests, if the Senior Leverage Ratio as of the fiscal quarter most recently then ended, calculated on a pro forma basis after giving effect to such equity issuance is greater than or equal to 4.0 to 1, the Loans shall be repaid and the Aggregate Commitments shall be reduced by an amount equal to 50% of the Net Cash Proceeds from such issuance. 2.07. REPAYMENT OF LOANS. (a) The Borrower shall repay to the Lenders on the Maturity Date the aggregate principal amount of Committed Loans outstanding on such date. (b) The Borrower shall repay each Swing Line Loan on the earlier to occur of (i) the date ten Business Days after such Loan is made and (ii) the Maturity Date. (c) CURRENCY MATTERS. (i) Dollars are the currency of account and payment for each and every sum at any time due from the Loan Parties hereunder. No payment to the Administrative Agent, any Lender or the L/C Issuer (whether under any judgment or court order or otherwise) shall discharge the obligation or S-44 liability in respect of which it was made unless and until the Administrative Agent or such Lender shall have received payment in full of the Dollar Equivalent of the amount of such obligation or liability, and to the extent that the amount of any such payment shall, on actual conversion into Dollars, fall short of such obligation or liability actual or contingent expressed in Dollars, the Borrower shall indemnify and hold harmless the Administrative Agent, the L/C Issuer or such Lender, as the case may be, with respect to the amount of the shortfall. (ii) Not later than 1:00 p.m. on the last Business Day of each calendar month (the "CALCULATION DATE") or such other date as the Administrative Agent may from time to time specify, the Administrative Agent shall determine the Dollar Equivalent of the L/C Obligations as of such date. The Dollar Equivalent so determined shall become effective on the first Business Day immediately following such determination (a "RESET DATE") and shall remain effective until the next succeeding Reset Date. (iii) If, on any Reset Date, the Dollar Equivalent of the aggregate outstanding amount of all Loans and the L/C Obligations exceeds the Aggregate Commitments, then the Borrower shall repay or prepay the Loans in accordance with this Agreement in an aggregate principal amount such that, after giving effect thereto, the aggregate outstanding amount (expressed in Dollars) of all Loans PLUS the L/C Obligations no longer exceeds the Aggregate Commitments. (iv) If on any Reset Date, the Dollar Equivalent of the Foreign LC Exposure exceeds $10,000,000, then the Borrower shall immediately upon demand provide cash collateral to the Administrative Agent in the amount of such excess. 2.08. INTEREST. (a) Subject to the provisions of subsection (b) below, (i) each Eurodollar Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurodollar Rate for such Interest Period PLUS the Applicable Rate; (ii) each Base Rate Committed Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate PLUS the Applicable Rate; and (iii) each Swing Line Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate PLUS the Applicable Rate. (b) (i) If any amount of principal of any Loan is not paid when due, whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. (ii) If any amount (other than principal of any Loan) payable by the Borrower under any Loan Document is not paid when due, whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. S-45 (iii) Upon the request of the Required Lenders, while any Event of Default exists, the Borrower shall pay interest on the principal amount of all outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. (iv) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand. (c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law. 2.09. FEES. In addition to certain fees described in subsections (i) and (j) of SECTION 2.03: (a) COMMITMENT FEE. The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Percentage, a commitment fee equal to the Applicable Rate TIMES the actual daily amount by which the Aggregate Commitments exceed the sum of (i) the Outstanding Amount of Committed Loans (other than Swing Line Loans) and (ii) the Outstanding Amount of L/C Obligations. The commitment fee shall accrue at all times during the Availability Period, including at any time during which one or more of the conditions in ARTICLE IV is not met, and shall be due and payable quarterly in arrears on the 15th day of each January, April, July and October, or if the 15th day of such month is not a Business Day, on the next Business Day thereafter, commencing with the first such date to occur after the Closing Date, and on the last day of the Availability Period. The commitment fee shall be calculated quarterly in arrears, and if there is any change in the Applicable Rate during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect. (b) OTHER FEES. (i) The Borrower shall pay to the Arranger and the Administrative Agent for their own respective accounts fees in the amounts and at the times specified in the Fee Letter. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever. (ii) The Borrower shall pay to the Lenders such fees as shall have been separately agreed upon in writing in the amounts and at the times so specified. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever. 2.10. COMPUTATION OF INTEREST AND FEES. All computations of interest for Base Rate Loans when the Base Rate is determined by Bank of America's "prime rate" shall 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 fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the S-46 day on which the Loan or such portion is paid, PROVIDED that any Loan that is repaid on the same day on which it is made shall, subject to SECTION 2.12(A), bear interest for one day. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error. 2.11. EVIDENCE OF DEBT. (a) The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence such Lender's Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto. (b) In addition to the accounts and records referred to in subsection (a), each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit and Swing Line Loans. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. 2.12. PAYMENTS GENERALLY; ADMINISTRATIVE AGENT'S CLAWBACK. (a) GENERAL. All payments to be made by the Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent's Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Applicable Percentage (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender's Lending Office. All payments received by the Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be. S-47 (b) (i) FUNDING BY LENDERS; PRESUMPTION BY ADMINISTRATIVE AGENT. Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Committed Borrowing of Eurodollar Rate Loans (or, in the case of any Committed Borrowing of Base Rate Loans, prior to 12:00 noon on the date of such Committed Borrowing) that such Lender will not make available to the Administrative Agent such Lender's share of such Committed Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with SECTION 2.02 (or, in the case of a Committed Borrowing of Base Rate Loans, that such Lender has made such share available in accordance with and at the time required by SECTION 2.02) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Committed Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrower, the interest rate applicable to Base Rate Loans. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the applicable Committed Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender's Committed Loan included in such Committed Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent. (ii) PAYMENTS BY BORROWER; PRESUMPTIONS BY ADMINISTRATIVE AGENT. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the L/C Issuer hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the L/C Issuer, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the L/C Issuer, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or the L/C Issuer, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error. S-48 (c) FAILURE TO SATISFY CONDITIONS PRECEDENT. If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this ARTICLE II, and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the applicable Credit Extension set forth in ARTICLE IV are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest. (d) OBLIGATIONS OF LENDERS SEVERAL. The obligations of the Lenders hereunder to make Committed Loans, to fund participations in Letters of Credit and Swing Line Loans and to make payments pursuant to SECTION 10.04(C) are several and not joint. The failure of any Lender to make any Committed Loan, to fund any such participation or to make any payment under SECTION 10.04(C) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Committed Loan, to purchase its participation or to make its payment under SECTION 10.04(C). (e) FUNDING SOURCE. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner. 2.13. SHARING OF PAYMENTS BY LENDERS. If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of the Committed Loans made by it, or the participations in L/C Obligations or in Swing Line Loans held by it resulting in such Lender's receiving payment of a proportion of the aggregate amount of such Committed Loans or participations and accrued interest thereon greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Committed Loans and subparticipations in L/C Obligations and Swing Line Loans of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Committed Loans and other amounts owing them, provided that: (i) if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and (ii) the provisions of this Section shall not be construed to apply to (x) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Committed Loans or subparticipations in L/C Obligations or Swing Line Loans to any assignee or participant, other than to the Borrower or any Subsidiary thereof (as to which the provisions of this Section shall apply). S-49 Each Loan Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Loan Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Loan Party in the amount of such participation. 2.14. INCREASE IN COMMITMENTS. (a) REQUEST FOR INCREASE. Provided there exists no Default, upon notice to the Administrative Agent (which shall promptly notify the Lenders), the Borrower may on a one-time basis, request an increase in the Aggregate Commitments by an amount not exceeding (a) in the event that the Senior Notes have been repaid in full or will be repaid in full contemporaneously with such increase, $50,000,000 or (b) in the event that any Senior Notes remain outstanding, $25,000,000; PROVIDED that any such request for an increase shall be in a minimum amount of $5,000,000. At the time of sending such notice, the Borrower (in consultation with the Administrative Agent) shall specify the time period within which each Lender is requested to respond (which shall in no event be less than ten Business Days from the date of delivery of such notice to the Lenders). (b) LENDER ELECTIONS TO INCREASE. Each Lender shall notify the Administrative Agent within such time period whether or not it agrees to increase its Commitment and, if so, whether by an amount equal to, greater than, or less than its Applicable Percentage of such requested increase. Any Lender not responding within such time period shall be deemed to have declined to increase its Commitment. (c) NOTIFICATION BY ADMINISTRATIVE AGENT; ADDITIONAL LENDERS. The Administrative Agent shall notify the Borrower and each Lender of the Lenders' responses to each request made hereunder. To achieve the full amount of a requested increase and subject to the approval of the Administrative Agent, the L/C Issuer and the Swing Line Lender (which approvals shall not be unreasonably withheld), the Borrower may also invite additional Eligible Assignees to become Lenders pursuant to a joinder agreement in form and substance satisfactory to the Administrative Agent and its counsel; PROVIDED THAT the opportunity to increase its Commitment is first offered to each existing Lender in accordance with this SECTION 2.14. (d) EFFECTIVE DATE AND ALLOCATIONS. If the Aggregate Commitments are increased in accordance with this Section, the Administrative Agent and the Borrower shall determine the effective date (the "INCREASE EFFECTIVE DATE") and the final allocation of such increase. The Administrative Agent shall promptly notify the Borrower and the Lenders of the final allocation of such increase and the Increase Effective Date. (e) CONDITIONS TO EFFECTIVENESS OF INCREASE. As a condition precedent to such increase, the Borrower shall deliver to the Administrative Agent a certificate of each Loan Party dated as of the Increase Effective Date (in sufficient copies for each Lender) signed by a Responsible Officer of such Loan Party (i) certifying and attaching the resolutions adopted by such Loan Party approving or consenting to such increase, (ii) in the case of the Borrower, certifying that, before and after giving effect to such increase, (A) the representations and warranties contained in ARTICLE V and the other Loan Documents are true and correct on and as of the Increase Effective Date, except S-50 to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and except that for purposes of this SECTION 2.14, the representations and warranties contained in subsections (a) and (b) of SECTION 5.05 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of SECTION 6.01, and (B) no Default exists and (iii) in the case of a request for an increase of the Aggregate Commitments in an amount greater than $25,000,000, evidence of repayment in full of the Senior Notes in form and substance satisfactory to the Administrative Agent. The Borrower shall prepay any Committed Loans outstanding on the Increase Effective Date (and pay any additional amounts required pursuant to SECTION 3.05) to the extent necessary to keep the outstanding Committed Loans ratable with any revised Applicable Percentages arising from any nonratable increase in the Commitments under this Section. (f) CONFLICTING PROVISIONS. This Section shall supersede any provisions in SECTION 2.13 or 10.01 to the contrary. 2.15. COLLATERAL SECURITY. The Obligations shall be secured by a perfected first priority security interest (subject only to Liens permitted by SECTION 7.01 entitled to priority under applicable law) in (i) all of the assets of the Loan Parties, whether now owned or hereafter acquired, including, without limitation all real, leasehold and personal property of each Loan Party, (ii) all Equity Interests of all first-tier Subsidiaries of the Borrower and each Guarantor; PROVIDED that, with respect to Foreign Subsidiaries, such equity pledge shall be limited to 65% of the capital stock of such Foreign Subsidiary to the extent the pledge of any greater percentage would result in material adverse tax consequences to any Loan Party, (iii) all present and future intercompany debt of the Borrower and each Guarantor and (iv) all proceeds and products of the property and assets described in (i), (ii) and (iii) above. ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY 3.01. TAXES. (a) PAYMENTS FREE OF TAXES. Any and all payments by or on account of any obligation of the Borrower hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes, PROVIDED that if the Borrower shall be required by applicable law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, Lender or L/C Issuer, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) PAYMENT OF OTHER TAXES BY THE BORROWER. Without limiting the provisions of subsection (a) above, the Borrower shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. S-51 (c) INDEMNIFICATION BY THE BORROWER. The Borrower shall indemnify the Administrative Agent, each Lender and the L/C Issuer, within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent, such Lender or the L/C Issuer, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or the L/C Issuer (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender or the L/C Issuer, shall be conclusive absent manifest error. (d) EVIDENCE OF PAYMENTS. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) STATUS OF LENDERS. Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Without limiting the generality of the foregoing, in the event that the Borrower is resident for tax purposes in the United States, any Foreign Lender shall deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrower or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable: (i) duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States is a party, (ii) duly completed copies of Internal Revenue Service Form W-8ECI, (iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a "bank" within the meaning of section 881(c)(3)(A) of the Code, (B) a "10 percent S-52 shareholder" of the Borrower within the meaning of section 881(c)(3)(B) of the Code, or (C) a "controlled foreign corporation" described in section 881(c)(3)(C) of the Code and (y) duly completed copies of Internal Revenue Service Form W-8BEN, or (iv) any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower to determine the withholding or deduction required to be made. (f) TREATMENT OF CERTAIN REFUNDS. If the Administrative Agent, any Lender or the L/C Issuer determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section, it shall pay to the Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent, such Lender or the L/C Issuer, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), PROVIDED that the Borrower, upon the request of the Administrative Agent, such Lender or the L/C Issuer, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent, such Lender or the L/C Issuer in the event the Administrative Agent, such Lender or the L/C Issuer is required to repay such refund to such Governmental Authority. This subsection shall not be construed to require the Administrative Agent, any Lender or the L/C Issuer to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrower or any other Person. 3.02. ILLEGALITY. If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Eurodollar Rate Loans, or to determine or charge interest rates based upon the Eurodollar Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Committed Loans to Eurodollar Rate Loans shall be suspended until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Rate Loans of such Lender to Base Rate Loans, either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Rate Loans. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted. S-53 3.03. INABILITY TO DETERMINE RATES. If the Required Lenders determine that for any reason in connection with any request for a Eurodollar Rate Loan or a conversion to or continuation thereof that (a) Dollar deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount and Interest Period of such Eurodollar Rate Loan, (b) adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan , or (c) the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans or, failing that, will be deemed to have converted such request into a request for a Committed Borrowing of Base Rate Loans in the amount specified therein. 3.04. INCREASED COSTs; RESERVES ON EURODOLLAR RATE LOANS. (a) INCREASED COSTS GENERALLY. If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement contemplated by SECTION 3.04(E)) or the L/C Issuer; (ii) subject any Lender or the L/C Issuer to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any participation in a Letter of Credit or any Eurodollar Rate Loan made by it, or change the basis of taxation of payments to such Lender or the L/C Issuer in respect thereof (except for Indemnified Taxes or Other Taxes covered by SECTION 3.01 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender or the L/C Issuer); or (iii) impose on any Lender or the L/C Issuer or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Rate Loans made by such Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Rate Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or the L/C Issuer of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or the L/C Issuer hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or the L/C Issuer, the Borrower will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer, as the case may be, for such additional costs incurred or reduction suffered. S-54 (b) CAPITAL REQUIREMENTS. If any Lender or the L/C Issuer determines that any Change in Law affecting such Lender or the L/C Issuer or any Lending Office of such Lender or such Lender's or the L/C Issuer's holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's or the L/C Issuer's capital or on the capital of such Lender's or the L/C Issuer's holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the L/C Issuer, to a level below that which such Lender or the L/C Issuer or such Lender's or the L/C Issuer's holding company could have achieved but for such Change in Law (taking into consideration such Lender's or the L/C Issuer's policies and the policies of such Lender's or the L/C Issuer's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer or such Lender's or the L/C Issuer's holding company for any such reduction suffered. (c) CERTIFICATES FOR REIMBURSEMENT. A certificate of a Lender or the L/C Issuer setting forth the amount or amounts necessary to compensate such Lender or the L/C Issuer or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender or the L/C Issuer, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof. (d) DELAY IN REQUESTS. Failure or delay on the part of any Lender or the L/C Issuer to demand compensation pursuant to the foregoing provisions of this Section shall not constitute a waiver of such Lender's or the L/C Issuer's right to demand such compensation, PROVIDED that the Borrower shall not be required to compensate a Lender or the L/C Issuer pursuant to the foregoing provisions of this Section for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender or the L/C Issuer, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's or the L/C Issuer's intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof). (e) RESERVES ON EURODOLLAR RATE LOANS. The Borrower shall pay to each Lender, as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as "Eurocurrency liabilities"), additional interest on the unpaid principal amount of each Eurodollar Rate Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such Loan, PROVIDED the Borrower shall have received at least 10 days' prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice 10 days prior to the relevant Interest Payment Date, such additional interest shall be due and payable 10 days from receipt of such notice. S-55 3.05. COMPENSATION FOR LOSSES. Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of: (a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); (b) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower; or (c) any assignment of a Eurodollar Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to SECTION 10.13; including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing. For purposes of calculating amounts payable by the Borrower to the Lenders under this SECTION 3.05, each Lender shall be deemed to have funded each Eurodollar Rate Loan made by it at the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan was in fact so funded. 3.06. MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS. (a) DESIGNATION OF A DIFFERENT LENDING OFFICE. If any Lender requests compensation under SECTION 3.04, or the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to SECTION 3.01, or if any Lender gives a notice pursuant to SECTION 3.02, then such Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to SECTION 3.01 or 3.04, as the case may be, in the future, or eliminate the need for the notice pursuant to SECTION 3.02, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) REPLACEMENT OF LENDERS. If any Lender requests compensation under SECTION 3.04, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to SECTION 3.01, the Borrower may replace such Lender in accordance with SECTION 10.13. S-56 3.07. SURVIVAL. All of the Borrower's obligations under this ARTICLE III shall survive termination of the Aggregate Commitments and repayment of all other Obligations hereunder. ARTICLE IV. CONDITIONS PRECEDENT TO CREDIT EXTENSIONS 4.01. CONDITIONS OF INITIAL CREDIT EXTENSION. The obligation of the L/C Issuer and each Lender to make its initial Credit Extension hereunder is subject to satisfaction of the following conditions precedent: (a) The Administrative Agent's receipt of the following, each of which shall be originals or telecopies (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to the Administrative Agent and each of the Lenders: (i) executed counterparts of this Agreement, the Borrower Security Agreement, the Guarantor Security Agreements and the Guaranty, sufficient in number for distribution to the Administrative Agent, each Lender and the Borrower; (ii) a Note executed by the Borrower in favor of each Lender requesting a Note; (iii) Intentionally Omitted; (iv) confirmation of each Security Document (other than the Guaranty, Borrower Security Agreement and Guarantor Security Agreements) in form and substance satisfactory to the Administrative Agent; (v) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as the Administrative Agent may require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party; (vi) such documents and certifications as the Administrative Agent may reasonably require to evidence that each Loan Party is duly organized or formed, and that each Loan Party is validly existing, in good standing and qualified to engage in business in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; (vii) a favorable opinion of Phillips Lytle LLP, counsel to the Loan Parties, addressed to the Administrative Agent and each Lender, as to the matters set forth in EXHIBIT G and such other matters concerning the Loan Parties and the Loan Documents as the Administrative Agent may reasonably request; S-57 (viii) a favorable opinion of the Law Office of Brune Lawyers, Oklahoma local counsel to Crane Equipment & Service, Inc., addressed to the Administrative Agent and each Lender; (ix) Intentionally Omitted; (x) a certificate of a Responsible Officer of each Loan Party either (A) attaching copies of all consents, licenses and approvals required in connection with the execution, delivery and performance by such Loan Party and the validity against such Loan Party of the Loan Documents to which it is a party, and such consents, licenses and approvals shall be in full force and effect, or (B) stating that no such consents, licenses or approvals are so required; (xi) a certificate signed by a Responsible Officer of the Borrower certifying (A) that the conditions specified in SECTIONS 4.02(A) and (B) have been satisfied, (B) that there has been no event or circumstance since March 31, 2005 that has had or could be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect, (C) that there shall not have been a material adverse change to the facts and information regarding the Loan Parties provided to the Administrative Agent and the Lenders by the Borrowers on or prior to March 31, 2005 and (D) an officer's certificate in form and substance satisfactory to the Administrative Agent certifying as to the absence of any action, suit, investigation or proceeding pending or, to the knowledge of any Loan Party, threatened in any court or before any arbitrator or governmental authority that could reasonably be expected to have a Material Adverse Effect; (xii) a duly completed Compliance Certificate as of the last day of the fiscal quarter of the Borrower ended on January 1, 2006, signed by a Responsible Officer of the Borrower; (xiii) evidence that all insurance required to be maintained pursuant to the Loan Documents has been obtained and is in effect; (xiv) Administrative Agent shall be satisfied that the Security Documents shall be effective to create in favor of the Administrative Agent a legal, valid and enforceable first (except for Liens permitted pursuant to SECTION 7.01 and entitled to priority under applicable law) security interest in and Lien upon the Collateral, along with, in form and substance satisfactory to the Lenders, evidence that all filings, recordings, deliveries of instruments and other actions necessary or desirable in the opinion of the Administrative Agent to protect and preserve such security interests shall have been duly effected; (xv) a completed and fully executed perfection certificate (or a bringdown of the perfection certificate provided with respect to the First Amended and Restated Credit Agreement) with respect to each Loan Party and the results of UCC searches (and the equivalent thereof in all applicable foreign jurisdictions) and other evidence satisfactory to the Administrative Agent that there are no Liens upon the Collateral, other than Liens permitted pursuant to SECTION 7.01 and otherwise in form and substance satisfactory to the Lenders; S-58 (xvi) completed environmental questionnaires and such other environmental reports, audits, certifications and information as the Administrative Agent may reasonably require, in each case in form and substance satisfactory to the Administrative Agent; (xvii) the Administrative Agent and the Lenders shall have completed a confirmatory legal and business due diligence investigation, the results of which shall be satisfactory to the Administrative Agent and the Lenders; (xviii) the Administrative Agent shall have received the fully-executed Assignment and Assumption Agreement contemplated by SECTION 2.01(B); (xix) assignments to the Administrative Agent for the benefit of the Lenders, of all notes and instruments evidencing intercompany Indebtedness among the Borrower and its Subsidiaries; (xx) such other assurances, certificates, documents, consents or opinions as the Administrative Agent, the L/C Issuer, the Swing Line Lender or the Required Lenders reasonably may require. (b) Any fees required to be paid on or before the Closing Date shall have been paid. (c) Unless waived by the Administrative Agent, the Borrower shall have paid all fees, charges and disbursements of counsel to the Administrative Agent (directly to such counsel if requested by the Administrative Agent) to the extent invoiced prior to or on the Closing Date, plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrower and the Administrative Agent). (d) The Closing Date shall have occurred on or before March 31, 2006. Without limiting the generality of the provisions of SECTION 9.04, for purposes of determining compliance with the conditions specified in this SECTION 4.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto. 4.02. CONDITIONS TO ALL CREDIT EXTENSIONS. The obligation of each Lender to honor any Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Committed Loans to the other Type, or a continuation of Eurodollar Rate Loans) is subject to the following conditions precedent: (a) The representations and warranties of the Borrower and each other Loan Party contained in ARTICLE V or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct on and as of the date of such Credit S-59 Extension, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date, and except that for purposes of this SECTION 4.02, the representations and warranties contained in subsections (a) and (b) of SECTION 5.05 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of SECTION 6.01. (b) No Default or Event of Default shall exist, or would result from such proposed Credit Extension or from the application of the proceeds thereof. (c) The Administrative Agent and, if applicable, the L/C Issuer or the Swing Line Lender shall have received a Request for Credit Extension in accordance with the requirements hereof. Each Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Committed Loans to the other Type or a continuation of Eurodollar Rate Loans) submitted by the Borrower shall be deemed to be a representation and warranty that the conditions specified in SECTIONS 4.02(A) or (B) have been satisfied on and as of the date of the applicable Credit Extension. ARTICLE V. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Administrative Agent and the Lenders that: 5.01. EXISTENCE, QUALIFICATION AND POWER. Each Loan Party and each Subsidiary thereof (a) is duly organized or formed, validly existing and, as applicable, in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents to which it is a party, and (c) is duly qualified and is licensed and, as applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (b)(i) or (c), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect. 5.02. AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by each Loan Party of each Loan Document to which such Person is party, have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Person's Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law. 5.03. GOVERNMENTAL AUTHORIZATION; OTHER CONSENTS. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any S-60 Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document. 5.04. BINDING EFFECT. This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by each Loan Party that is party thereto. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of such Loan Party, enforceable against each Loan Party that is party thereto in accordance with its terms. 5.05. FINANCIAL STATEMENTS; NO MATERIAL ADVERSE EFFECT; NO INTERNAL CONTROL EVENT. (a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Borrower and its Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness. (b) The unaudited consolidated and consolidating balance sheets of the Borrower and its Subsidiaries dated January 1, 2006, and the related consolidated and consolidating statements of income or operations, shareholders' equity and cash flows for the fiscal quarter ended on that date (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to normal year-end audit adjustments. SCHEDULE 5.05 sets forth all material indebtedness and other liabilities, direct or contingent, of the Borrower and its consolidated Subsidiaries as of the date of such financial statements, including liabilities for taxes, material commitments and Indebtedness. (c) Since the date of the Audited Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect. (d) To the best knowledge of the Borrower, no Internal Control Event exists or has occurred since the date of the Audited Financial Statements that has resulted in or could reasonably be expected to result in a misstatement in any material respect, in any financial information delivered or to be delivered to the Administrative Agent or the Lenders, of (i) covenant compliance calculations provided hereunder or (ii) the assets, liabilities, financial condition or results of operations of the Borrower and its Subsidiaries on a consolidated basis. (e) The consolidated and consolidating forecasted balance sheet and statements of income and cash flows of the Borrower and its Subsidiaries delivered pursuant to SECTION 6.01(C) were prepared in good faith on the basis S-61 of the assumptions stated therein, which assumptions were fair in light of the conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Borrower's best estimate of its future financial condition and performance. 5.06. LITIGATION. There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of the Borrower after due and diligent investigation, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, by or against the Borrower or any of its Subsidiaries or against any of their properties or revenues that (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby, or (b) except as specifically disclosed in SCHEDULE 5.06, either individually or in the aggregate, if determined adversely, could reasonably be expected to have a Material Adverse Effect, and there has been no adverse change in the status, or financial effect on any Loan Party or any Subsidiary thereof, of the matters described on SCHEDULE 5.06. 5.07. NO DEFAULT. Neither any Loan Party nor any Subsidiary thereof is in default under or with respect to any Contractual Obligation that could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document. 5.08. OWNERSHIP OF PROPERTY; LIENS. Each of the Borrower and each Subsidiary has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The property of the Borrower and its Subsidiaries is subject to no Liens, other than Liens permitted by SECTION 7.01. 5.09. ENVIRONMENTAL COMPLIANCE. The Borrower and its Subsidiaries conduct in the ordinary course of business a review of the effect of existing Environmental Laws and claims alleging potential liability or responsibility for violation of any Environmental Law on their respective businesses, operations and properties, and as a result thereof the Borrower has reasonably concluded that, except as specifically disclosed in SCHEDULE 5.09, such Environmental Laws and claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.10. INSURANCE. The properties of the Borrower and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Borrower, in such amounts (after giving effect to any insurance coverage from CM Insurance Company, Inc. compatible with the following standards) with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Borrower or the applicable Subsidiary operates. 5.11. TAXES. The Borrower and its Subsidiaries have filed all Federal, state and other material tax returns and reports required to be filed, and have paid all Federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good S-62 faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Borrower or any Subsidiary that would, if made, have a Material Adverse Effect. Neither any Loan Party nor any Subsidiary thereof is party to any tax sharing agreement. 5.12. ERISA COMPLIANCE. (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or state Laws. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the best knowledge of the Borrower, nothing has occurred which would prevent, or cause the loss of, such qualification. The Borrower and each ERISA Affiliate have made all required contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (b) There are no pending or, to the best knowledge of the Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect. (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 5.13. SUBSIDIARIES; EQUITY INTERESTS. The Borrower has no Subsidiaries other than those specifically disclosed in Part (a) of SCHEDULE 5.13, and all of the outstanding Equity Interests in such Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by a Loan Party in the amounts specified on Part (a) of SCHEDULE 5.13 free and clear of all Liens. The Borrower has no equity investments in any other corporation or entity other than those specifically disclosed in Part(b) of SCHEDULE 5.13. All of the outstanding Equity Interests in the Borrower have been validly issued and are fully paid and nonassessable. 5.14. MARGIN REGULATIONS; INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT. (a) The Borrower is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying margin S-63 stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock. (b) None of the Borrower, any Person Controlling the Borrower, or any Subsidiary (i) is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, or (ii) is or is required to be registered as an "investment company" under the Investment Company Act of 1940. 5.15. DISCLOSURE. The Borrower has disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. No report, financial statement, certificate or other information furnished (whether in writing or orally) by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case, as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. 5.16. COMPLIANCE WITH LAWS. Each Loan Party and each Subsidiary thereof is in compliance in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 5.17. TAXPAYER IDENTIFICATION NUMBER. The Borrower's true and correct U.S. taxpayer identification number is set forth on SCHEDULE 10.02. 5.18. INTELLECTUAL PROPERTY; LICENSES, ETC. The Borrower and its Subsidiaries own, or possess the right to use, all of the trademarks, service marks, trade names, copyrights, patents, patent rights, franchises, licenses and other intellectual property rights (collectively, "IP RIGHTS") that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person. To the best knowledge of the Borrower, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Borrower or any Subsidiary infringes upon any rights held by any other Person. Set forth on SCHEDULE 5.18 hereto is a complete list of all patents, trademarks and copyrights of the Borrower and its Subsidiaries. No claim or litigation regarding any of the foregoing is pending or, to the best knowledge of the Borrower, threatened, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. S-64 5.19. PERFECTION OF SECURITY INTEREST. All filings, assignments, pledges and deposits of documents or instruments have been made and all other actions have been taken that are necessary or advisable, under applicable law, to establish and perfect the Administrative Agent's first priority security interest in the Collateral. The Collateral and the Administrative Agent's rights with respect to the Collateral are not subject to any setoff, claims, withholdings or other defenses. The Borrower and each Guarantor is the owner of the Collateral free from any Lien, except for Liens permitted pursuant to SECTION 7.01. 5.20. PROPERTIES. (a) Each of the Borrower and its Subsidiaries has good and marketable title to, or valid, subsisting and enforceable leasehold interests in, all of its Properties material to its business. All machinery and equipment of each of the Borrower and its Subsidiaries is in good operating condition and repair, and all necessary replacements of and repairs thereto have be made so as to preserve and maintain the value and operating efficiency of such machinery and equipment. (b) As of the Closing Date, SCHEDULE 5.20 annexed hereto contains a true, accurate and complete list of all fee and leasehold real property assets of the Borrower and its Subsidiaries. 5.21. SOLVENCY. Upon and immediately after consummation of the transactions contemplated hereby, each of the Loan Parties is Solvent. 5.22. BANK ACCOUNTS. SCHEDULE 5.22 lists all banks and other financial institutions at which the Borrower and each of its Domestic Subsidiaries maintains deposits and/or other accounts as of the Closing Date, and such Schedule correctly identifies the name and address of each depository, the name in which the account is held, a description of the purpose of the account, and the complete account number. 5.23. OBLIGATIONS AS SENIOR DEBT. The Obligations constitute Senior Indebtedness (as defined in the Senior Note Indenture) and Designated Senior Indebtedness (as defined in the Senior Subordinated Note Indenture). As such, all of the Obligations (and the Administrative Agent and Lenders) are entitled to the benefits of each of the subordination and other provisions contained in the (A) Senior Note Indenture which are available in respect of Senior Indebtedness (and to the holders thereof), (b) the Intercreditor Agreement, and (c) the Senior Subordinated Note Indenture which are available in respect of Designated Senior Indebtedness (and to the holders thereof), and each of such subordination and other provisions is in full force and effect and enforceable in accordance with its terms. 5.24. USE OF PROCEEDS. The Borrower and its Subsidiaries will use the proceeds of the Loans for the purposes specified in SECTION 6.11 and not for any other purpose. S-65 ARTICLE VI. AFFIRMATIVE COVENANTS So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, the Borrower shall, and shall (except in the case of the covenants set forth in SECTIONS 6.01, 6.02, and 6.03) cause each Subsidiary to: 6.01. FINANCIAL STATEMENTS. Deliver to the Administrative Agent and each Lender, in form and detail satisfactory to the Administrative Agent and the Required Lenders: (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Borrower and its Subsidiaries, a consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year, and the related consolidated and consolidating statements of income or operations, shareholders' equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, such consolidated statements to be audited and accompanied by (i) a report and opinion of a Registered Public Accounting Firm of nationally recognized standing reasonably acceptable to the Required Lenders, which report and opinion shall be prepared in accordance with generally accepted auditing standards and applicable Securities Laws and shall not be subject to any "going concern" or like qualification or exception or any qualification or exception as to the scope of such audit or with respect to the absence of any material misstatement and (ii) an opinion of such Registered Public Accounting Firm independently assessing the Borrower's internal controls over financial reporting in accordance with Item 308 of SEC Regulation S-K, PCAOB Auditing Standard No. 2, and Section 404 of Sarbanes-Oxley expressing a conclusion that contains no statement that there is a material weakness in such internal controls, except for such material weaknesses as to which the Administrative Agent does not object, and such consolidating statements to be certified by the chief executive officer, chief financial officer, treasurer or controller of the Borrower to the effect that such statements are fairly stated in all material respects when considered in relation to the consolidated financial statements of the Borrower and its Subsidiaries; (b) as soon as available, but in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower and its Subsidiaries, a consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal quarter, and the related consolidated and consolidating statements of income or operations, shareholders' equity and cash flows for such fiscal quarter and for the portion of the Borrower's fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail and certified by the chief executive officer, chief financial officer, treasurer or controller of the Borrower as fairly presenting the financial condition, results of operations, shareholders' equity and cash flows of the Borrower and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes; and (c) as soon as available, but in any event no later than 30 days after the start of each fiscal year of the Borrower, budgets prepared by management of the S-66 Borrower, in form satisfactory to the Administrative Agent, of consolidated and consolidating balance sheets and statements of income or operations and cash flows of the Borrower and its Subsidiaries on a quarterly basis for such fiscal year. As to any information contained in materials furnished pursuant to SECTION 6.02(C), the Borrower shall not be separately required to furnish such information under clause (a) or (b) above, but the foregoing shall not be in derogation of the obligation of the Borrower to furnish the information and materials described in clauses (a) and (b) above at the times specified therein. 6.02. CERTIFICATES; OTHER INFORMATION. Deliver to the Administrative Agent and each Lender, in form and detail satisfactory to the Administrative Agent and the Required Lenders: (a) concurrently with the delivery of the financial statements referred to in SECTIONS 6.01(A) AND (B) commencing with the delivery of the financial statements for the fiscal quarter year ended March 31, 2006, a duly completed Compliance Certificate signed by the chief executive officer, chief financial officer, treasurer or controller of the Borrower; (b) promptly after any request by the Administrative Agent or any Lender, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of the Borrower by independent accountants in connection with the accounts or books of the Borrower or any Subsidiary, or any audit of any of them; (c) promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of the Borrower, and copies of all annual, regular, periodic and special reports and registration statements which the Borrower may file or be required to file with the SEC under Section 13 or 15(d) of the Securities Exchange Act of 1934, and not otherwise required to be delivered to the Administrative Agent pursuant hereto; (d) promptly after the furnishing thereof, copies of any statement or report furnished to any holder of debt securities of any Loan Party or any Subsidiary thereof pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lenders pursuant to SECTION 6.01 or any other clause of this SECTION 6.02; (e) promptly, and in any event within five Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of each notice or other correspondence received from the SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation or possible investigation or other inquiry by such agency regarding financial or other operational results of any Loan Party or any Subsidiary thereof; and (f) promptly, such additional information regarding the business, financial or corporate affairs of the Borrower or any Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may from time to time reasonably request. S-67 Documents required to be delivered pursuant to SECTION 6.01(A) or (B) or SECTION 6.02(C) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower's website on the Internet at the website address listed on SCHEDULE 10.02; or (ii) on which such documents are posted on the Borrower's behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); PROVIDED that: (i) the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (ii) the Borrower shall notify the Administrative Agent and each Lender (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (I.E., soft copies) of such documents. Except for Compliance Certificates required by SECTION 6.02(A), the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents. The Borrower hereby acknowledges that (a) the Administrative Agent and/or the Arranger will make available to the Lenders and the L/C Issuer materials and/or information provided by or on behalf of the Borrower hereunder (collectively, "BORROWER Materials") by posting the Borrower Materials on IntraLinks or another similar electronic system (the "PLATFORM") and (b) certain of the Lenders may be "public-side" Lenders (I.E., Lenders that do not wish to receive material non-public information with respect to the Borrower or its securities) (each, a "PUBLIC LENDER"). The Borrower hereby agrees that (w) all Borrower Materials that are to be made available to Public Lenders shall be clearly and conspicuously marked "PUBLIC" which, at a minimum, shall mean that the word "PUBLIC" shall appear prominently on the first page thereof; (x) by marking Borrower Materials "PUBLIC," the Borrower shall be deemed to have authorized the Administrative Agent, the Arranger, the L/C Issuer and the Lenders to treat such Borrower Materials as not containing any material non-public information with respect to the Borrower or its securities for purposes of United States Federal and state securities laws (PROVIDED, HOWEVER, that to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 10.07); (y) all Borrower Materials marked "PUBLIC" are permitted to be made available through a portion of the Platform designated "Public Investor;" and (z) the Administrative Agent and the Arranger shall be entitled to treat any Borrower Materials that are not marked "PUBLIC" as being suitable only for posting on a portion of the Platform not designated "Public Investor." 6.03. NOTICES. Promptly notify the Administrative Agent and each Lender of: (a) the occurrence of any Default; (b) any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any S-68 default under, a Contractual Obligation of the Borrower or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Borrower or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Borrower or any Subsidiary, including pursuant to any applicable Environmental Laws; (c) the occurrence of any ERISA Event; (d) any material change in accounting policies or financial reporting practices by the Borrower or any Subsidiary; and (e) the determination by the Registered Public Accounting Firm providing the opinion required under SECTION 6.01(A)(II) (in connection with its preparation of such opinion) or the Borrower's determination at any time of the occurrence or existence of any Internal Control Event. Each notice pursuant to this SECTION 6.03 shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the Borrower has taken and proposes to take with respect thereto. Each notice pursuant to SECTION 6.03(A) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached. 6.04. PAYMENT OF OBLIGATIONS. Pay and discharge as the same shall become due and payable, all its obligations and liabilities, including (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Borrower or such Subsidiary; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property; and (c) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness. 6.05. PRESERVATION OF EXISTENCE, ETC. (a) Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization except in a transaction permitted by SECTION 7.04 or 7.05; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect. 6.06. MAINTENANCE OF PROPERTIES. (a) Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted; (b) make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) use the standard of care typical in the industry in the operation and maintenance of its facilities. S-69 6.07. MAINTENANCE OF INSURANCE. Maintain with financially sound and reputable insurance companies not Affiliates of the Borrower, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts(after giving effect to any insurance coverage from CM Insurance Company, Inc. compatible with the following standards) as are customarily carried under similar circumstances by such other Persons and providing for not less than 30 days' prior notice to the Administrative Agent of termination, lapse or cancellation of such insurance. 6.08. COMPLIANCE WITH LAWS, ORGANIZATIONAL DOCUMENTS AND CONTRACTUAL OBLIGATIONS. Comply in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect. Comply with all Organization Documents and, except where the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect, all material Contractual Obligations. 6.09. BOOKS AND RECORDS. (a) Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Borrower or such Subsidiary, as the case may be; and (b) maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over the Borrower or such Subsidiary, as the case may be. 6.10. INSPECTION RIGHTS. Permit representatives and independent contractors of the Administrative Agent and each Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, all at the expense of the Borrower and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrower; PROVIDED, HOWEVER, that when an Event of Default exists the Administrative Agent or any Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the expense of the Borrower at any time during normal business hours and without advance notice. 6.11. USE OF PROCEEDS. Use the proceeds of the Credit Extensions for (a) general corporate purposes, including working capital, capital expenditures and other lawful corporate purposes, (b) to refinance Indebtedness existing as of the Closing Date, (c) to finance acquisitions permitted pursuant to Section 7.02 and (d) to repurchase the Senior Notes, Senior Subordinated Notes, Additional Subordinated Indebtedness and other Indebtedness for borrowed money, so long as such Indebtedness and such repurchases are otherwise permitted under this Agreement, and not for any other purpose or in contravention of any Law or of any Loan Document. 6.12. ADDITIONAL GUARANTORS AND PLEDGORS. Notify the Administrative Agent at the time that any Person becomes a Subsidiary and promptly thereafter (and in S-70 any event within 30 days), (a) unless such Person is not a Significant Subsidiary of any Loan Party or, if such Subsidiary is a Foreign Subsidiary, executing a Guaranty would result in a materially adverse tax consequence to the Loan Parties or such Subsidiary, cause such Person to become a Guarantor by executing and delivering to the Administrative Agent a counterpart of the Guaranty or such other document as the Administrative Agent shall deem appropriate for such purpose, (b) if such Subsidiary is a Significant Domestic Subsidiary or a first-tier Foreign Subsidiary, the parent entity of such Person shall pledge the equity of such Subsidiary as security for the Obligations; PROVIDED THAT, with respect to Foreign Subsidiaries, such equity pledge shall be limited to 65% of the capital stock of such Foreign Subsidiary to the extent the pledge of any greater percentage would result in material adverse tax consequences to any Loan Party, (c) deliver to the Administrative Agent documents of the types referred to in clauses (v) and (vi) of SECTION 4.01(A) and favorable opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to in clauses (a) and (b)), all in form, content and scope reasonably satisfactory to the Administrative Agent. 6.13. MORTGAGES. The Obligations shall be secured by Mortgages upon (i) all fee real estate assets of the Loan Parties located in the United States, other than the real estate located at 1113 South Greenwood Avenue, Chattanooga, Tennessee and the property located at Allin Street, Chattanooga, Tennessee, and (ii) material leasehold real estate assets of the Loan Parties described on SCHEDULE 6.13. If any Loan Party acquires any fee or leasehold real estate interest after the Closing Date, it shall promptly notify the Administrative Agent thereof and shall, if such real estate interest is deemed by the Administrative Agent to be material, execute, deliver and record a Mortgage sufficient to create a first priority Lien in favor of Administrative Agent on such real estate, and shall deliver all Related Real Estate Documents in connection therewith that may be required by the Administrative Agent in its reasonable discretion. 6.14. POST-CLOSING DELIVERIES. On or before April 16, 2006, or such later date as may be agreed, in writing, by the Administrative Agent, deliver to the Administrative Agent: (a) confirmations assignments or amendments, as the case may be, executed by the Borrower and/or the Guarantors, as applicable, and filed in the appropriate foreign jurisdictions, each in form and substance satisfactory to the Administrative Agent and its counsel, of the share pledges by the Borrower or the relevant Guarantor of the equity interests of such entity in each of (a) Audubon Europe, (b) Yale Industrial Products GmbH, (c) Larco Industrial Services, Inc., (d) Societe D'Exploitation Des Raccords Gautier, (e) Univeyor A/S and (f) Columbus McKinnon Ltd.; (b) amendments to each of the Mortgages, in form and substance suitable for filing within applicable real estate records and otherwise in form and substance satisfactory to the Administrative Agent and a bringdown to the Closing Date of the title insurance policy covering each Mortgage for which a title insurance policy is in place prior to the Closing Date, in form and substance satisfactory to the Administrative Agent; and (c) a favorable opinion of Linklaters Loesch, Luxembourg local counsel to Audubon Europe regarding each of the Loan Documents to which Audubon Europe is a party. S-71 ARTICLE VII. NEGATIVE COVENANTS So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, the Borrower shall not, nor shall it permit any Subsidiary to, directly or indirectly: 7.01. LIENS. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than the following: (a) Liens pursuant to any Loan Document; (b) Liens existing on the date hereof and listed on SCHEDULE 7.01 and any renewals or extensions thereof, PROVIDED that (i) the property covered thereby is not changed, (ii) the amount secured or benefited thereby is not increased except as contemplated by SECTION 7.03(B), (iii) the direct or any contingent obligor with respect thereto is not changed, and (iv) any renewal or extension of the obligations secured or benefited thereby is permitted by SECTION 7.03(B); (c) Liens for taxes not yet due or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP; (d) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person; (e) pledges or deposits in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation, other than any Lien imposed by ERISA; (f) deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (g) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person; (h) Liens securing judgments for the payment of money not constituting an Event of Default under SECTION 8.01(H); (i) Liens securing Indebtedness permitted under SECTION 7.03(E); PROVIDED that (i) such Liens do not at any time encumber any property other than the S-72 property financed by such Indebtedness and (ii) the Indebtedness secured thereby does not exceed the cost or fair market value, whichever is lower, of the property being acquired on the date of acquisition; and (j) second priority Liens on the Collateral in favor of the Senior Note Indenture Trustee under any of the Senior Note Documents which are subject to the Intercreditor Agreement and junior in priority to the Liens in favor of the Administrative Agent under the Loan Documents. 7.02. INVESTMENTS. Make any Investments, except: (a) Investments held by the Borrower or such Subsidiary in the form of cash equivalents or short-term marketable debt securities; (b) Investments of the Borrower and/or its Subsidiaries in any of the Borrower's Subsidiaries which are not Domestic Subsidiaries; PROVIDED that the aggregate amount of such Investments made after the Closing Date does not exceed $10,000,000; (c) advances to officers, directors and employees of the Borrower and Subsidiaries in an aggregate amount not to exceed $500,000 at any time outstanding, for travel, entertainment, relocation and analogous ordinary business purposes; (d) Investments of the Borrower in any Guarantor and Investments of any Subsidiary in the Borrower or in another Guarantor; (e) Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss; (f) Guarantees permitted by SECTION 7.03; (g) Investments held in the investment portfolio of CM Insurance Company, Inc. of the type and in amounts in the ordinary course of business of CM Insurance Company, Inc. and consistent with past practices; and (h) other Investments not exceeding $25,000,000 in the aggregate during the term of this Agreement. 7.03. INDEBTEDNESS. Create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness under the Loan Documents; (b) Indebtedness outstanding on the date hereof and listed on SCHEDULE 7.03 and any refinancings, refundings, renewals or extensions thereof; PROVIDED that (i) the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder and (ii) the terms relating to S-73 principal amount, amortization, maturity, collateral (if any) and subordination (if any), and other material terms taken as a whole, of any such refinancing, refunding, renewing or extending Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Loan Parties or the Lenders than the terms of any agreement or instrument governing the Indebtedness being refinanced, refunded, renewed or extended and the interest rate applicable to any such refinancing, refunding, renewing or extending Indebtedness does not exceed the then applicable market interest rate; (c) Guarantees of the Borrower or any Guarantor in respect of Indebtedness otherwise permitted hereunder of the Borrower or any other Guarantor; (d) obligations (contingent or otherwise) of the Borrower or any Subsidiary existing or arising under any Swap Contract, provided that (i) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments, investments, assets, or property held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person, and not for purposes of speculation or taking a "market view;" and (ii) such Swap Contract does not contain any provision exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party; (e) Indebtedness of the Borrower in respect of capital leases, Synthetic Lease Obligations and purchase money obligations for fixed or capital assets within the limitations set forth in SECTION 7.01(I); PROVIDED, HOWEVER, that the aggregate amount of all such Indebtedness at any one time outstanding shall not exceed $6,000,000; (f) Additional Subordinated Indebtedness; (g) intercompany loans among the Borrower and the Loan Parties which are Guarantors; provided, that (i) the Investment corresponding to such Indebtedness is permitted pursuant to SECTION 7.02 hereof, (ii) such intercompany loan is evidenced by a promissory note, (iii) such promissory note is pledged to the Administrative Agent as security, and (iv) there are no restrictions whatsoever on the ability of the applicable Loan Party to repay such loan; (h) Indebtedness of any Foreign Subsidiary of the Borrower in an aggregate amount for all such Indebtedness not to exceed the local currency equivalent (as determined by the Administrative Agent form time to time by reference to the Exchange Rate) of $30,000,000 in the aggregate at any one time outstanding; PROVIDED THAT (i) the proceeds of such Indebtedness are used for working capital needs, capital expenditures and the acquisition of assets or equity interests permitted pursuant to SECTION 7.02, (ii) such Indebtedness is incurred solely by such Foreign Subsidiary, (iii) such Indebtedness is either unsecured or, if such Foreign Subsidiary is not a Guarantor is secured only by the assets of such Foreign Subsidiary and (iv) except as permitted under SECTION 7.02(B) or SECTION 7.02(H), no guaranty or other credit support of any kind is provided by any Person (including, without limitation, any Loan Party) of or for such Indebtedness or any holder thereof; and provided, further, that the Borrower shall notify the Administrative Agent in writing in advance prior to permitting such Foreign Subsidiary to incur any Indebtedness under this SECTION 7.03(H); S-74 (i) Indebtedness of the Borrower in an aggregate principal amount not to exceed $70,256,000, evidenced by or incurred under the Senior Note Documents; (j) Indebtedness of the Borrower in an aggregate principal amount not to exceed $136,000,000, evidenced by or incurred under the Senior Subordinated Note Documents; and (k) other unsecured Indebtedness in a principal amount outstanding at any one time not exceeding $10,000,000. 7.04. FUNDAMENTAL CHANGES. Merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except that, so long as no Default exists or would result therefrom: (a) any Subsidiary may merge with (i) the Borrower, PROVIDED that the Borrower shall be the continuing or surviving Person, or (ii) any one or more other Subsidiaries, PROVIDED that when any Guarantor is merging with another Subsidiary, the Guarantor shall be the continuing or surviving Person or the surviving Person shall become a Guarantor; and (b) any Subsidiary may Dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Borrower or to another Subsidiary; PROVIDED that if the transferor in such a transaction is a Guarantor, then the transferee must either be the Borrower or a Guarantor or become a Guarantor. 7.05. DISPOSITIONS. Make any Disposition or enter into any agreement to make any Disposition, except: (a) Dispositions of obsolete or worn out property, whether now owned or hereafter acquired, in the ordinary course of business; (b) Dispositions of inventory in the ordinary course of business; (c) Dispositions of equipment or real property to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property or (ii) the proceeds of such Disposition are reasonably promptly applied to the purchase price of such replacement property; (d) Dispositions of property by any Subsidiary to the Borrower or to a wholly-owned Subsidiary; PROVIDED that if the transferor of such property is a Guarantor, the transferee thereof must either be the Borrower or a Guarantor or become a Guarantor; (e) Dispositions permitted by SECTION 7.04; (f) other than as set forth on SCHEDULE 7.05, non-exclusive licenses of IP Rights in the ordinary course of business and substantially consistent with past practice for terms not exceeding five years; S-75 (g) Dispositions by the Borrower and its Subsidiaries not otherwise permitted under this SECTION 7.05; PROVIDED that (i) at the time of such Disposition, no Default shall exist or would result from such Disposition and (ii) the aggregate book value of all property Disposed of in reliance on this clause (g) in any fiscal year shall not exceed $2,000,000; and (h) Dispositions of the real property owned by the Loan Parties on the Closing Date and located in (i) Forrest City, Arkansas and (ii) Charlotte, North Carolina. PROVIDED, HOWEVER, that any Disposition pursuant to clauses (a) through (h) shall be for fair market value. 7.06. RESTRICTED PAYMENTS. Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except that, so long as no Default shall have occurred and be continuing at the time of any action described below or would result therefrom: (a) each Subsidiary may make Restricted Payments to the Borrower, the Guarantors and any other Person that owns an Equity Interest in such Subsidiary, ratably according to their respective holdings of the type of Equity Interest in respect of which such Restricted Payment is being made; (b) the Borrower and each Subsidiary may declare and make dividend payments or other distributions payable solely in the common stock or other common Equity Interests of such Person; (c) the Borrower and each Subsidiary may purchase, redeem or otherwise acquire Equity Interests issued by it with the proceeds received from the substantially concurrent issue of new shares of its common stock or other common Equity Interests; (d) payments with respect to any intercompany loan permitted under SECTION 7.03(G); (e) the Borrower may (i) declare or pay cash dividends to its stockholders and (ii) purchase, redeem or otherwise acquire for cash Equity Interests issued by it so long as, in each case, after giving effect thereto (A) no Default or Event of Default has occurred and is continuing or would result therefrom and (B) the aggregate amount of such dividends, purchases, redemptions, retirements and acquisitions paid or made during any calendar year would not exceed 25% of Consolidated Net Income for such year; (f) the Borrower may make (i) so long as no Default or Event of Default has occurred and is continuing or would result therefrom, regularly scheduled payments of interest (but not principal or premium) in respect of the Senior Subordinated Notes and Additional Subordinated Indebtedness on the dates and in the amounts set forth in the applicable Subordinated Note Documents or in the documents evidencing the Additional Subordinated Indebtedness, as the case may be, and (ii) prepayments or purchases of principal in respect of the Senior Subordinated Notes or Additional Subordinated Indebtedness, so long as (A) no Default or Event of Default has occurred and is continuing or would result therefrom, (B) the Fixed Charge Coverage Ratio as of the fiscal quarter of the S-76 Borrower most recently then ended (calculated on a pro forma basis after giving effect to the making of such prepayment or purchase) will not be less than 1.25:1, (C) the Borrower has provided the Administrative Agent with a certificate no later than the date of such payment evidencing compliance with the requirements set forth in the foregoing clauses (A) and (B) and (D) the amount of such prepayments in respect of the Senior Subordinated Notes and Additional Subordinated Indebtedness shall not exceed $50,000,000 in the aggregate from and after the Closing Date; and (g) the Borrower may make (i) regularly scheduled payments of interest (but not principal or premium) in respect of the Senior Notes on the dates and in the amounts set forth in the applicable Senior Note Documents, as the case may be and (ii) prepayments or purchases of principal in respect of the Senior Notes, so long as no Default or Event of Default has occurred and is continuing or would result therefrom, which such prepayments may be made, but are not required to be made, with the proceeds of Additional Subordinated Indebtedness. 7.07. CHANGE IN NATURE OF BUSINESS. Engage in any material line of business substantially different from those lines of business conducted by the Borrower and its Subsidiaries on the date hereof or any business substantially related or incidental thereto. 7.08. TRANSACTIONS WITH AFFILIATES. Enter into any transaction of any kind with any Affiliate of the Borrower, whether or not in the ordinary course of business, other than on fair and reasonable terms substantially as favorable to the Borrower or such Subsidiary as would be obtainable by the Borrower or such Subsidiary at the time in a comparable arm's length transaction with a Person other than an Affiliate. 7.09. BURDENSOME AGREEMENTS. Except as set forth on SCHEDULE 7.09, enter into any Contractual Obligation (other than this Agreement or any other Loan Document) that (a) limits the ability (i) of any Subsidiary to make Restricted Payments to the Borrower or any Guarantor or to otherwise transfer property to the Borrower or any Guarantor, (ii) of any Subsidiary to Guarantee the Indebtedness of the Borrower or (iii) of the Borrower or any Subsidiary to create, incur, assume or suffer to exist Liens on property of such Person; PROVIDED, HOWEVER, that this clause (iii) shall not prohibit any negative pledge incurred or provided in favor of any holder of Indebtedness permitted under SECTION 7.03(E) solely to the extent any such negative pledge relates to the property financed by or the subject of such Indebtedness; or (b) requires the grant of a Lien to secure an obligation of such Person if a Lien is granted to secure another obligation of such Person. 7.10. USE OF PROCEEDS. Use the proceeds of any Credit Extension, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose. 7.11. FINANCIAL COVENANTS. (a) MINIMUM FIXED CHARGE COVERAGE RATIO. Permit the Fixed Charge Coverage Ratio at any time during any period of four consecutive fiscal quarters of the Borrower to be less than 1.25:1. S-77 (b) MAXIMUM SENIOR LEVERAGE RATIO. Permit the Senior Leverage Ratio at any time during any period of four consecutive fiscal quarters of the Borrower to be greater than 3.00:1. 7.12. MODIFICATIONS OF CERTAIN DOCUMENTS; DESIGNATION OF SENIOR DEBT. Consent to any amendment or modification of or supplement to any of the provisions of any documents or agreements evidencing or governing the Senior Subordinated Notes, any other existing Indebtedness set forth on SCHEDULE 7.03, or the Senior Notes. The Loan Parties will designate the Credit Agreement and the Obligations hereunder as "Designated Senior Indebtedness" under the Senior Subordinated Note Indenture, and will not designate any other Indebtedness other than the Senior Notes as "Designated Senior Debt" under the Senior Subordinated Note Indenture. The Loan Parties will designate the Credit Agreement and the Obligations hereunder as "Senior Indebtedness" under the Senior Note Indenture, and will not designate any other Indebtedness as "Senior Indebtedness" under the Senior Note Indenture. 7.13. SALE-LEASEBACK TRANSACTIONS. Directly or indirectly, enter into any arrangements with any Person whereby such Person shall sell or transfer (or request another Person to purchase) any property, real, personal or mixed, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property from any Person. ARTICLE VIII. EVENTS OF DEFAULT AND REMEDIES 8.01. EVENTS OF DEFAULT. Any of the following shall constitute an Event of Default: (a) NON-PAYMENT. The Borrower or any other Loan Party fails to pay (i) when and as required to be paid herein, any amount of principal of any Loan or any L/C Obligation, or (ii) within three days after the same becomes due, any interest on any Loan or on any L/C Obligation, or any fee due hereunder or (iii) within five days after the same becomes due, any other amount payable hereunder or under any other Loan Document; or (b) SPECIFIC COVENANTS. The Borrower fails to perform or observe any term, covenant or agreement contained in any of SECTION 6.01, 6.02, 6.03, 6.05, 6.06, 6.07, 6.10, 6.11, 6.12 or 6.13 or ARTICLE VII; or (c) OTHER DEFAULTS. Any Loan Party fails to perform or observe any other covenant or agreement (not specified in subsection (a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for 30 days; or (d) REPRESENTATIONS AND WARRANTIES. Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of the Borrower or any other Loan Party herein, in any other Loan Document, or in any document delivered in connection herewith or therewith shall be incorrect or misleading when made or deemed made; or (e) CROSS-DEFAULT. (i) The Borrower or any Subsidiary (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any (x) Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness under Swap S-78 Contracts) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than the Threshold Amount, or (y) Material Rental Obligation, (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness, Material Rental Obligation or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to (x) cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of such Material Rental Obligation or Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) (y) cause, with the giving of notice if required, such Indebtedness or Material Rental Obligation to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded or (z) cause or permit the lease with respect to any Material Rental Obligation of the Borrower or any of its Subsidiaries to be terminated prior to its scheduled expiration date; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to which the Borrower or any Subsidiary is the Defaulting Party (as defined in such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to which the Borrower or any Subsidiary is an Affected Party (as so defined) and, in either event, the Swap Termination Value owed by the Borrower or such Subsidiary as a result thereof is greater than the Threshold Amount; or (f) INSOLVENCY PROCEEDINGS, ETC. Any Loan Party or any of its Subsidiaries institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for 60 calendar days, or an order for relief is entered in any such proceeding; or (g) INABILITY TO PAY DEBTS; ATTACHMENT. (i) The Borrower or any Subsidiary becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within 30 days after its issue or levy; or (h) JUDGMENTS. There is entered against the Borrower or any Subsidiary (i) one or more final judgments or orders for the payment of money in an aggregate amount (as to all such judgments or orders) exceeding the Threshold Amount (to the extent not covered by CM Insurance Company, Inc. or independent third-party insurance as to which CM Insurance Company, Inc. or such third-party insurer, as the case may be, does not dispute coverage), or (ii) any one or more non-monetary final judgments that have, or could reasonably be expected to have, S-79 individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of 30 consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or (i) ERISA. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of the Threshold Amount, or (ii) the Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of the Threshold Amount; (j) INVALIDITY OF LOAN DOCUMENTS. Any provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party or any other Person contests in any manner the validity or enforceability of any provision of any Loan Document; or any Loan Party denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any provision of any Loan Document; or (k) CHANGE OF CONTROL. There occurs any Change of Control; or (l) INVALIDITY OF LIENS. Any of the following shall occur: (i) the Liens created hereunder or under the other Loan Documents shall at any time (other than by reason of the Administrative Agent relinquishing such Lien) cease to constitute valid and perfected Liens on any Collateral with an aggregate fair market value in excess of $500,000 which is intended to be covered thereby other than with the consent, in writing, of the Administrative Agent; (ii) except for expiration in accordance with its respective terms, any Loan Document shall for whatever reason be terminated, or shall cease to be in full force and effect other than with the consent, in writing, of the Administrative Agent; or (iii) the enforceability of any Loan Document shall be contested by the Borrower or any of its Subsidiaries. 8.02. REMEDIES UPON EVENT OF DEFAULT. If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, take any or all of the following actions: (a) declare the commitment of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions to be terminated, whereupon such commitments and obligation shall be terminated; (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; S-80 (c) require that the Borrower Cash Collateralize the L/C Obligations (in an amount equal to the then Outstanding Amount thereof); and (d) exercise on behalf of itself, the Lenders and the L/C Issuer all rights and remedies available to it, the Lenders and the L/C Issuer under the Loan Documents; PROVIDED, HOWEVER, that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, the obligation of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Borrower to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of the Administrative Agent or any Lender. 8.03. APPLICATION OF FUNDS. After the exercise of remedies provided for in SECTION 8.02 (or after the Loans have automatically become immediately due and payable and the L/C Obligations have automatically been required to be Cash Collateralized as set forth in the proviso to SECTION 8.02), any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order: FIRST, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under ARTICLE III) payable to the Administrative Agent in its capacity as such; SECOND, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal, interest and Letter of Credit Fees) payable to the Lenders and the L/C Issuer (including fees, charges and disbursements of counsel to the respective Lenders and the L/C Issuer and amounts payable under ARTICLE III), ratably among them in proportion to the respective amounts described in this clause SECOND payable to them; THIRD, to payment of that portion of the Obligations constituting accrued and unpaid Letter of Credit Fees and interest on the Loans, L/C Borrowings and other Obligations, ratably among the Lenders and the L/C Issuer in proportion to the respective amounts described in this clause THIRD payable to them; FOURTH, to payment of that portion of the Obligations constituting (i) overdraft obligations, fees, costs, charges, expenses and other obligations in respect of any Swap Contract, cash management agreement (including ACH transactions), operating or deposit account, or other banking product from time to time made available to the Loan Parties or any of their Subsidiaries by the Administrative Agent, the L/C Issuer, cash management service providers, any Lender or any of their Affiliates and (ii) unpaid principal of the Loans and L/C Borrowings, ratably among the Lenders and the L/C Issuer in proportion to the respective amounts described in this clause FOURTH held by them; S-81 FIFTH, to the Administrative Agent for the account of the L/C Issuer, to Cash Collateralize that portion of L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit; and LAST, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Law. Subject to SECTION 2.03(C), amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause FIFTH above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above. ARTICLE IX. ADMINISTRATIVE AGENT 9.01. APPOINTMENT AND AUTHORITY. Each of the Lenders and the L/C Issuer hereby irrevocably appoints Bank of America to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders and the L/C Issuer, and neither the Borrower nor any other Loan Party shall have rights as a third party beneficiary of any of such provisions. 9.02. RIGHTS AS A LENDER. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders. 9.03. EXCULPATORY PROVISIONS. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent: (a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing; (b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), PROVIDED that the Administrative Agent S-82 shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law; and (c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in SECTIONS 10.01 and 8.02) or (ii) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent by the Borrower, a Lender or the L/C Issuer. The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in ARTICLE IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. 9.04. RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the L/C Issuer, the Administrative Agent may presume that such condition is satisfactory to such Lender or the L/C Issuer unless the Administrative Agent shall have received notice to the contrary from such Lender or the L/C Issuer prior to the making of such Loan or the issuance of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. 9.05. DELEGATION OF DUTIES. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any S-83 other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. 9.06. RESIGNATION OF ADMINISTRATIVE AGENT. The Administrative Agent may at any time give notice of its resignation to the Lenders, the L/C Issuer and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders and the L/C Issuer, appoint a successor Administrative Agent meeting the qualifications set forth above; PROVIDED that if the Administrative Agent shall notify the Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (1) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders or the L/C Issuer under any of the Loan Documents, the retiring Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (2) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and the L/C Issuer directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section. Upon the acceptance of a successor's appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section). The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring Administrative Agent's resignation hereunder and under the other Loan Documents, the provisions of this Article and SECTION 10.04 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent. Any resignation by Bank of America as Administrative Agent pursuant to this Section shall also constitute its resignation as L/C Issuer and Swing Line Lender. Upon the acceptance of a successor's appointment as Administrative Agent hereunder, (a) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer and Swing Line Lender, (b) the retiring L/C Issuer and Swing Line Lender shall be discharged from all of their respective duties and obligations hereunder or under the other Loan Documents, and (c) the successor L/C Issuer shall issue letters of credit S-84 in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to the retiring L/C Issuer to effectively assume the obligations of the retiring L/C Issuer with respect to such Letters of Credit. 9.07. NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS. Each Lender and the L/C Issuer acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender and the L/C Issuer also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder. 9.08. NO OTHER DUTIES, ETC. Anything herein to the contrary notwithstanding, none of the Bookrunners or Arrangers listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent, a Lender or the L/C Issuer hereunder. 9.09. ADMINISTRATIVE AGENT MAY FILE PROOFS OF CLAIM. In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan or L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise (a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, L/C Obligations and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the L/C Issuer and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the L/C Issuer and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders, the L/C Issuer and the Administrative Agent under SECTIONS 2.03(I) and (J), 2.09 and 10.04) allowed in such judicial proceeding; and (b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and the L/C Issuer to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders and the L/C Issuer, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under SECTIONS 2.09 and 10.04. S-85 Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or the L/C Issuer any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or the L/C Issuer to authorize the Administrative Agent to vote in respect of the claim of any Lender or the L/C Issuer in any such proceeding. 9.10. COLLATERAL AND GUARANTY MATTERS. The Lenders and the L/C Issuer irrevocably authorize the Administrative Agent, at its option and in its discretion, (a) to release any Lien on any property granted to or held by the Administrative Agent under any Loan Document (i) upon termination of the Aggregate Commitments and payment in full of all Obligations (other than contingent indemnification obligations) and the expiration or termination of all Letters of Credit, (ii) that is sold or to be sold as part of or in connection with any sale permitted hereunder or under any other Loan Document, or (iii) subject to SECTION 10.01, if approved, authorized or ratified in writing by the Required Lenders or otherwise permitted under this Agreement; (b) to subordinate any Lien on any property granted to or held by the Administrative Agent under any Loan Document to the holder of any Lien on such property that is permitted by SECTION 7.01(I); and (c) to release any Guarantor from its obligations under the Guaranty if such Person ceases to be a Subsidiary as a result of a transaction permitted hereunder. Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent's authority to release or subordinate its interest in particular types or items of property, or to release any Guarantor from its obligations under the Guaranty pursuant to this SECTION 9.10. 9.11. INTERCREDITOR AGREEMENT. The Lenders hereby agree to be bound by the terms of the Intercreditor Agreement. ARTICLE X. MISCELLANEOUS 10.01. AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrower or the applicable Loan Party, as the case may be, and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, HOWEVER, that no such amendment, waiver or consent shall: (a) waive any condition set forth in SECTION 4.01(A) without the written consent of each Lender; S-86 (b) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to SECTION 8.02) without the written consent of such Lender; (c) postpone any date fixed by this Agreement or any other Loan Document for any payment (excluding mandatory prepayments) of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby; (d) reduce the principal of, or the rate of interest specified herein on, any Loan or L/C Borrowing, or (subject to clause (v) of the second proviso to this SECTION 10.01) any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby; PROVIDED, HOWEVER, that only the consent of the Required Lenders shall be necessary (i) to amend the definition of "Default Rate" or to waive any obligation of the Borrower to pay interest or Letter of Credit Fees at the Default Rate or (ii) to amend any financial covenant hereunder (or any defined term used therein) even if the effect of such amendment would be to reduce the rate of interest on any Loan or L/C Borrowing or to reduce any fee payable hereunder; (e) change SECTION 2.13 or SECTION 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender; (f) change any provision of this Section or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder without the written consent of each Lender; (g) release all or substantially all of the value of the Guaranty without the written consent of each Lender; or (h) release all or substantially all of the Collateral in any transaction or series of related transactions; and, PROVIDED FURTHER, that (i) no amendment, waiver or consent shall, unless in writing and signed by the L/C Issuer in addition to the Lenders required above, affect the rights or duties of the L/C Issuer under this Agreement or any Issuer Document relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Lender in addition to the Lenders required above, affect the rights or duties of the Swing Line Lender under this Agreement; (iii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; (iv) SECTION 10.06(H) may not be amended, waived or otherwise modified without the consent of each Granting Lender all or any part of whose Loans are being funded by an SPC at the time of such amendment, waiver or other modification; and (v) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, S-87 except that the Commitment of such Lender may not be increased or extended without the consent of such Lender. 10.02. NOTICES; EFFECTIVENESS; ELECTRONIC COMMUNICATION. (a) NOTICES GENERALLY. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows: (i) if to the Borrower, the Administrative Agent, the L/C Issuer or the Swing Line Lender, to the address, telecopier number, electronic mail address or telephone number specified for such Person on SCHEDULE 10.02; and (ii) if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire. Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b). (b) ELECTRONIC COMMUNICATIONS. Notices and other communications to the Lenders and the L/C Issuer hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, PROVIDED that the foregoing shall not apply to notices to any Lender or the L/C Issuer pursuant to ARTICLE II if such Lender or the L/C Issuer, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, PROVIDED that approval of such procedures may be limited to particular notices or communications. Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender's receipt of an acknowledgement from the intended recipient (such as by the "return receipt requested" function, as available, return e-mail or other written acknowledgement), PROVIDED that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor. S-88 (c) THE PLATFORM. THE PLATFORM IS PROVIDED "AS IS" AND "AS AVAILABLE." THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Related Parties (collectively, the "AGENT PARTIES") have any liability to the Borrower, any Lender, the L/C Issuer or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of the Borrower's or the Administrative Agent's transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party; PROVIDED, HOWEVER, that in no event shall any Agent Party have any liability to the Borrower, any Lender, the L/C Issuer or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages). (d) CHANGE OF ADDRESS, ETC. Each of the Borrower, the Administrative Agent, the L/C Issuer and the Swing Line Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Borrower, the Administrative Agent, the L/C Issuer and the Swing Line Lender. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender. (e) RELIANCE BY ADMINISTRATIVE AGENT, L/C ISSUER AND LENDERS. The Administrative Agent, the L/C Issuer and the Lenders shall be entitled to rely and act upon any notices (including telephonic Committed Loan Notices and Swing Line Loan Notices) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify the Administrative Agent, the L/C Issuer, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording. 10.03. NO WAIVER; CUMULATIVE REMEDIES. No failure by any Lender, the L/C Issuer or the Administrative Agent to exercise, and no delay by any such Person S-89 in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 10.04. EXPENSES; INDEMNITY; DAMAGE WAIVER. (a) COSTS AND EXPENSES. The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent), in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the L/C Issuer in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all out-of-pocket expenses incurred by the Administrative Agent, any Lender or the L/C Issuer, and shall pay all fees and time charges for attorneys who may be employees of the Administrative Agent, any Lender or the L/C Issuer, in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. (b) INDEMNIFICATION BY THE BORROWER. The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender and the L/C Issuer, and each Related Party of any of the foregoing Persons (each such Person being called an "INDEMNITEE") against, and hold each Indemnitee harmless from, any and all losses, costs (including settlement costs), claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel (including allocated costs of internal counsel) for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrower or any other Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder, the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the L/C Issuer to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective S-90 claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto; PROVIDED that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by the Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee's obligations hereunder or under any other Loan Document, if the Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction. (c) REIMBURSEMENT BY LENDERS. To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof), the L/C Issuer or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the L/C Issuer or such Related Party, as the case may be, such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, PROVIDED that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) or the L/C Issuer in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) or L/C Issuer in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of SECTION 2.12(D). (d) WAIVER OF CONSEQUENTIAL DAMAGES, ETC. To the fullest extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby other than for direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a final and nonappealable judgment of a court of competent jurisdiction. (e) PAYMENTS. All amounts due under this Section shall be payable not later than ten Business Days after demand therefor. (f) SURVIVAL. The agreements in this Section shall survive the resignation of the Administrative Agent, the L/C Issuer and the Swing Line Lender, the S-91 replacement of any Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations. 10.05. PAYMENTS SET ASIDE. To the extent that any payment by or on behalf of the Borrower is made to the Administrative Agent, the L/C Issuer or any Lender, or the Administrative Agent, the L/C Issuer or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent, the L/C Issuer or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender and the L/C Issuer severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders and the L/C Issuer under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement. 10.06. SUCCESSORS AND ASSIGNS. (a) SUCCESSORS AND ASSIGNS GENERALLY. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that neither the Borrower nor any other Loan Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section, (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section, or (iv) to an SPC in accordance with the provisions of subsection (h) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the L/C Issuer and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) ASSIGNMENTS BY LENDERS. Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans (including for purposes of this subsection (b), participations in L/C Obligations and in Swing Line Loans) at the time owing to it); PROVIDED that any such assignment shall be subject to the following conditions: (i) MINIMUM AMOUNTS. S-92 (A) in the case of an assignment of the entire remaining amount of the assigning Lender's Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate of a Lender, no minimum amount need be assigned; and (B) in any case not described in subsection (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if "Trade Date" is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000 unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed); PROVIDED, HOWEVER, that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single assignee (or to an assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met. (ii) PROPORTIONATE AMOUNTS. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement with respect to the Loans or the Commitment assigned, except that this clause (ii) shall not apply to the Swing Line Lender's rights and obligations in respect of Swing Line Loans; (iii) REQUIRED CONSENTS. No consent shall be required for any assignment except to the extent required by subsection (b)(i)(B) of this Section and, in addition: (A) the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (1) an Event of Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender or an Affiliate of a Lender; (B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required if such assignment is to a Person that is not a Lender; (C) the consent of the L/C Issuer (such consent not to be unreasonably withheld or delayed) shall be required if (i) such assignment is to a Person that is not a Lender and (ii) the Aggregate Commitments have not been terminated; and (D) the consent of the Swing Line Lender (such consent not to be unreasonably withheld or delayed) shall be required if (i) such assignment is to a Person that is not a Lender and (ii) either the Aggregate Commitments have not been terminated or there are any LC Obligations outstanding. S-93 (iv) ASSIGNMENT AND ASSUMPTION. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount, if any, required as set forth in SCHEDULE 10.06; PROVIDED, HOWEVER, that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. (v) NO ASSIGNMENT TO BORROWER. No such assignment shall be made to the Borrower or any of the Borrower's Affiliates or Subsidiaries. (vi) NO ASSIGNMENT TO NATURAL PERSONS. No such assignment shall be made to a natural person. Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of SECTIONS 3.01, 3.04, 3.05, and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment. Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section. (c) REGISTER. The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agent's Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans and L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the "REGISTER"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) PARTICIPATIONS. Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person or the Borrower or any of the Borrower's Affiliates or Subsidiaries) (each, a "PARTICIPANT") in all or a portion of such Lender's rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans (including such Lender's participations in L/C Obligations and/or Swing Line Loans) owing to it); S-94 PROVIDED that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Lenders and the L/C Issuer shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; PROVIDED that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to SECTION 10.01 that affects such Participant. Subject to subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of SECTIONS 3.01, 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of SECTION 10.08 as though it were a Lender, PROVIDED such Participant agrees to be subject to SECTION 2.13 as though it were a Lender. (e) LIMITATIONS UPON PARTICIPANT RIGHTS. A Participant shall not be entitled to receive any greater payment under SECTION 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of SECTION 3.01 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with SECTION 3.01(E) as though it were a Lender. (f) CERTAIN PLEDGES. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; PROVIDED that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. (g) ELECTRONIC EXECUTION OF ASSIGNMENTS. The words "execution," "signed," "signature," and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act. (h) SPECIAL PURPOSE FUNDING VEHICLES. Notwithstanding anything to the contrary contained herein, any Lender (a "GRANTING Lender") may grant to a special purpose funding vehicle identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower (an "SPC") S-95 the option to provide all or any part of any Committed Loan that such Granting Lender would otherwise be obligated to make pursuant to this Agreement; PROVIDED that (i) nothing herein shall constitute a commitment by any SPC to fund any Committed Loan, and (ii) if an SPC elects not to exercise such option or otherwise fails to make all or any part of such Committed Loan, the Granting Lender shall be obligated to make such Committed Loan pursuant to the terms hereof or, if it fails to do so, to make such payment to the Administrative Agent as is required under SECTION 2.12(B)(II). Each party hereto hereby agrees that (i) neither the grant to any SPC nor the exercise by any SPC of such option shall increase the costs or expenses or otherwise increase or change the obligations of the Borrower under this Agreement (including its obligations under SECTION 3.04), (ii) no SPC shall be liable for any indemnity or similar payment obligation under this Agreement for which a Lender would be liable, and (iii) the Granting Lender shall for all purposes, including the approval of any amendment, waiver or other modification of any provision of any Loan Document, remain the lender of record hereunder. The making of a Committed Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Committed Loan were made by such Granting Lender. In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior debt of any SPC, it will not institute against, or join any other Person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency, or liquidation proceeding under the laws of the United States or any State thereof. Notwithstanding anything to the contrary contained herein, any SPC may (i) with notice to, but without prior consent of the Borrower and the Administrative Agent and with the payment of a processing fee in the amount of $2,500, assign all or any portion of its right to receive payment with respect to any Committed Loan to the Granting Lender and (ii) disclose on a confidential basis any non-public information relating to its funding of Committed Loans to any rating agency, commercial paper dealer or provider of any surety or Guarantee or credit or liquidity enhancement to such SPC. (i) RESIGNATION AS L/C ISSUER OR SWING LINE LENDER AFTER ASSIGNMENT. Notwithstanding anything to the contrary contained herein, if at any time Bank of America assigns all of its Commitment and Loans pursuant to subsection (b) above, Bank of America may, (i) upon 30 days' notice to the Borrower and the Lenders, resign as L/C Issuer and/or (ii) upon 30 days' notice to the Borrower, resign as Swing Line Lender. In the event of any such resignation as L/C Issuer or Swing Line Lender, the Borrower shall be entitled to appoint from among the Lenders a successor L/C Issuer or Swing Line Lender hereunder; PROVIDED, HOWEVER, that no failure by the Borrower to appoint any such successor shall affect the resignation of Bank of America as L/C Issuer or Swing Line Lender, as the case may be. If Bank of America resigns as L/C Issuer, it shall retain all the rights, powers, privileges and duties of the L/C Issuer hereunder with respect to all Letters of Credit outstanding as of the effective date of its resignation as L/C Issuer and all L/C Obligations with respect thereto (including the right to require the Lenders to make Base Rate Committed Loans or fund risk participations in Unreimbursed Amounts pursuant to SECTION 2.03(C)). If Bank of America resigns as Swing Line Lender, it shall retain all the rights of the Swing Line Lender provided for hereunder with respect to Swing Line Loans made by it and outstanding as of the effective date of such resignation, including the right to require the Lenders to make Base Rate Committed Loans or fund risk participations in outstanding Swing Line Loans pursuant to SECTION 2.04(C). Upon the appointment of a successor L/C Issuer and/or Swing Line S-96 Lender, (a) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer or Swing Line Lender, as the case may be, and (b) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to Bank of America to effectively assume the obligations of Bank of America with respect to such Letters of Credit. 10.07. TREATMENT OF CERTAIN INFORMATION; CONFIDENTIALITY. Each of the Administrative Agent, the Lenders and the L/C Issuer agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates' respective partners, directors, officers, employees, agents, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent, any Lender, the L/C Issuer or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower. For purposes of this Section, "INFORMATION" means all information received from the Borrower or any Subsidiary relating to the Borrower or any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or the L/C Issuer on a nonconfidential basis prior to disclosure by the Borrower or any Subsidiary, PROVIDED that, in the case of information received from the Borrower or any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. Each of the Administrative Agent, the Lenders and the L/C Issuer acknowledges that (a) the Information may include material non-public information concerning the Borrower or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Law, including Federal and state securities Laws. 10.08. RIGHT OF SETOFF. If an Event of Default shall have occurred and be continuing, each Lender, the L/C Issuer and each of their respective Affiliates S-97 is hereby authorized at any time and from time to time, after obtaining the prior written consent of the Administrative Agent, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender, the L/C Issuer or any such Affiliate to or for the credit or the account of the Borrower or any other Loan Party against any and all of the obligations of the Borrower or such Loan Party now or hereafter existing under this Agreement or any other Loan Document to such Lender or the L/C Issuer, irrespective of whether or not such Lender or the L/C Issuer shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower or such Loan Party may be contingent or unmatured or are owed to a branch or office of such Lender or the L/C Issuer different from the branch or office holding such deposit or obligated on such indebtedness. The rights of each Lender, the L/C Issuer and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, the L/C Issuer or their respective Affiliates may have. Each Lender and the L/C Issuer agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application, PROVIDED that the failure to give such notice shall not affect the validity of such setoff and application. 10.09. INTEREST RATE LIMITATION. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the "MAXIMUM RATE"). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder. 10.10. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in SECTION 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. 10.11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith S-98 shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding. 10.12. SEVERABILITY. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10.13. REPLACEMENT OF LENDERS. If any Lender (i) requests compensation under SECTION 3.04 or (ii) fails to agree to any amendment or waiver or give its consent to any matter which has been approved by the Required Lenders, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to SECTION 3.01, if any Lender is a Defaulting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, SECTION 10.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that: (a) the Borrower shall have paid to the Administrative Agent the assignment fee specified in SECTION 10.06(B); (b) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and L/C Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under SECTION 3.05) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts); (c) in the case of any such assignment resulting from a claim for compensation under SECTION 3.04 or payments required to be made pursuant to SECTION 3.01, such assignment will result in a reduction in such compensation or payments thereafter; and (d) such assignment does not conflict with applicable Laws. A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. S-99 10.14. GOVERNING LAW; JURISDICTION; ETC. (a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. (b) SUBMISSION TO JURISDICTION. THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR THE L/C ISSUER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST THE BORROWER OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION. (c) WAIVER OF VENUE. THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT. (d) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW. 10.15. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR S-100 RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. 10.16. NO ADVISORY OR FIDUCIARY RESPONSIBILITY. In connection with all aspects of each transaction contemplated hereby, the Borrower and each other Loan Party acknowledges and agrees, and acknowledges its Affiliates' understanding, that: (i) the credit facility provided for hereunder and any related arranging or other services in connection therewith (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document) are an arm's-length commercial transaction between the Borrower, each other Loan Party and their respective Affiliates, on the one hand, and the Administrative Agent and the Arranger, , on the other hand, and the Borrower and each other Loan Party is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents (including any amendment, waiver or other modification hereof or thereof); (ii) in connection with the process leading to such transaction, the Administrative Agent and the Arranger each is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for the Borrower, any other Loan Party or any of their respective Affiliates, stockholders, creditors or employees or any other Person; (iii) neither the Administrative Agent nor the Arranger has assumed or will assume an advisory, agency or fiduciary responsibility in favor of the Borrower or any other Loan Party with respect to any of the transactions contemplated hereby or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Loan Document (irrespective of whether the Administrative Agent or the Arranger has advised or is currently advising the Borrower, any other Loan Party or any of their respective Affiliates on other matters) and neither the Administrative Agent nor the Arranger has any obligation to the Borrower, any other Loan Party or any of their respective Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; (iv) the Administrative Agent and the Arranger and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower, the other Loan Parties and their respective Affiliates, and neither the Administrative Agent nor the Arranger has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (v) the Administrative Agent and the Arranger have not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any amendment, waiver or other modification hereof or of any other Loan Document) and each of the Borrower and the other Loan Parties has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate. Each of the Borrower and the other Loan Parties hereby waives and releases, to the fullest extent permitted by law, any claims S-101 that it may have against the Administrative Agent and the Arranger with respect to any breach or alleged breach of agency or fiduciary duty. 10.17. USA PATRIOT ACT NOTICE. Each Lender that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "ACT"), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Act. 10.18. TIME OF THE ESSENCE. Time is of the essence of the Loan Documents; provided that this SECTION 10.18 shall not be construed to limit or deprive the Loan Parties of any grace periods set forth in any Loan Document. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.] S-102 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. BORROWER: --------- COLUMBUS MCKINNON CORPORATION By: /S/ Karen L. Howard ----------------------------------------- Name: Karen L. Howard Title: Vice President - Finance and Treasurer and Chief Financial Officer Signature Page to Credit Agreement ACKNOWLEDGED AND AGREED BY THE GUARANTORS: ------------------------------------------ YALE INDUSTRIAL PRODUCTS, INC. By: /S/ Karen L. Howard ----------------------------------------- Name: Karen L. Howard Title: Vice President CRANE EQUIPMENT & SERVICE, INC. By: /S/ Karen L. Howard ----------------------------------------- Name: Karen L. Howard Title: Vice President AUDUBON EUROPE S.A.R.L. By: /S/ Karen L. Howard ----------------------------------------- Name: Karen L. Howard Title: Manager By: /S/ Romain Thillens ----------------------------------------- Name: Romain Thillens Title: Manager Signature Page to Credit Agreement LENDERS: -------- BANK OF AMERICA, N.A., as Administrative Agent By: /S/ Tamisha U. Eason ----------------------------------------- Name: Tamisha Eason Title: Vice President Signature Page to Credit Agreement BANK OF AMERICA, N.A., AS A LENDER, L/C ISSUER AND SWING LINE LENDER By: /S/ Colleen M. O'Brien ----------------------------------------- Name: Colleen O'Brien Title: Vice President Signature Page to Credit Agreement CITIZENS BANK, N.A. By: /S/ Thomas L. Giles ----------------------------------------- Name: Thomas L. Giles Title: Vice President Signature Page to Credit Agreement MANUFACTURERS AND TRADERS TRUST COMPANY By: /S/ Andrew M. Constantino ----------------------------------------- Name: Andrew M. Constantino Title: Vice President Signature Page to Credit Agreement JPMORGAN CHASE BANK, N.A. By: /S/ Cary J. Haller ----------------------------------------- Name: Cary J. Haller Title: Vice President Signature Page to Credit Agreement NATIONAL CITY BANK OF PA By: /S/ Susan J. Dimmick ----------------------------------------- Name: Susan J. Dimmick Title: Vice President Signature Page to Credit Agreement GREATER BUFFALO SAVINGS BANK By: /S/ Ted Oexle ----------------------------------------- Name: Ted Oexle Title: Vice President Signature Page to Credit Agreement EX-21.1 5 subaff.txt LIST OF SUBSIDIARIES EXHIBIT 21.1 COLUMBUS MCKINNON CORPORATION SUBSIDIARIES (AS OF MARCH 31, 2006) CM Insurance Company, Inc. (US-NY) Columbus McKinnon de Mexico, S.A. de C.V. (Mexico) Columbus McKinnon de Uruguay, S.A. (Uruguay) Columbus McKinnon do Brazil Ltda. (Brazil) Crane Equipment & Service, Inc. (US-OK) Larco Industrial Services, Ltd. (Canada) Societe d'Exploitation des Raccords Gautier (France) Univeyor A/S (Denmark) Ejendomsselskabet Lupinvej 11 (Denmark) Univeyor AB (Sweden) Univeyor Conveying Systems Ltd. (England) Yale Industrial Products, Inc. (US-DE) Egyptian-American Crane Co. (40% Joint Venture) (Egypt) Spreckels Water Company, Inc. (US-DE) Spreckels Consolidated Industries, Inc. (US-CA) Audubon Europe S.a.r.l. (Luxembourg) Columbus McKinnon Limited (Canada) Yale Industrial Products Ltd. (England) Yale Industrial Products GmbH (Germany) Asia Hoist Co., Ltd. (Hong Kong) Camlok Lifting Clamps Ltd. (England) Hangzhou LILA Lifting and Lashing Co. Ltd. (China) Yale Levage (France) Yale Elevacion Iberica S.L. (Spain) Yale Hangzhou Industrial Products Ltd. (China) Yale Industrial Products Asia (Thailand) Co. Ltd. Yale Industrial Products B.V. (The Netherlands) Yale Industrial Products GmbH (Austria) Yale Industrial Products Pty. Ltd. (South Africa) Yale Lifting & Mining Products (Pty.) Ltd. (25% Financial Interest) (South Africa) Yale Industrial Products Kft. (Hungary) 40 EX-23.1 6 eycons.txt CONSENT OF INDEPENDENT ACCOUNTING FIRM EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the following Registration Statements: (1) Registration Statement (Form S-8 No. 333-3212) pertaining to the Columbus McKinnon Corporation 1995 Incentive Stock Option Plan, the Columbus McKinnon Corporation Non-Qualified Stock Option Plan, the Columbus McKinnon Corporation Restricted Stock Plan and the Columbus McKinnon Corporation Employee Stock Ownership Plan Restatement Effective April 1, 1989 of Columbus McKinnon Corporation, (2) Registration Statement (Form S-8 No. 333-81719) pertaining to the Options assumed by Columbus McKinnon Corporation originally granted under the GL International, Inc. 1997 Stock Option Plan and the Larco Industrial Services Ltd. 1997 Stock Option Plan, of our reports dated June 1, 2006, with respect to the consolidated financial statements and schedule of Columbus McKinnon Corporation, Columbus McKinnon Corporation management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Columbus McKinnon Corporation, included in the Annual Report (Form 10-K) for the year ended March 31, 2006. /s/ Ernst & Young LLP June 7, 2006 Buffalo, New York 41 EX-31.1 7 ceo302cert.txt SECTION 302 CERTIFICATION OF CEO EXHIBIT 31.2 CERTIFICATION I, Timothy T. Tevens, Chief Executive Officer, certify that: 1. I have reviewed this annual report on Form 10-K of Columbus McKinnon Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report. 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchanged Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and c. disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): d. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and e. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 7, 2006 /S/ TIMOTHY T. TEVENS - ------------------------ Timothy T. Tevens Chief Executive Officer 42 EX-31.2 8 cfo302cert.txt SECTION 302 CERTIFICATION OF CFO EXHIBIT 31.2 CERTIFICATION I, Karen L. Howard, Chief Financial Officer, certify that: 1. I have reviewed this annual report on Form 10-K of Columbus McKinnon Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report. 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchanged Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and c. disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): d. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and e. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 7, 2006 /S/ KAREN L. HOWARD - --------------------- Karen L. Howard Chief Financial Officer 43 EX-32.1 9 sec906cert.txt SECTION 906 CERTIFICATION OF CEO AND CFO EXHIBIT 32.1 CERTIFICATION Each of the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Columbus McKinnon Corporation (the "Company") on Form 10-K for the year ended March 31, 2005, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and result of operations of the Company. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. Dated: June 7, 2006 /S/ TIMOTHY T. TEVENS --------------------- Timothy T. Tevens Chief Executive Officer /S/ KAREN L. HOWARD ------------------- Karen L. Howard Chief Financial Officer 44 -----END PRIVACY-ENHANCED MESSAGE-----