-----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, Mm1z789pxmE269BR09yp7DwhR0dqH2OvxbgwCjKwj39+ZI70sgTfKsdCIV43gGds rFF99tF4qyxV543ypI8mGw== 0000950131-99-001979.txt : 19990402 0000950131-99-001979.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950131-99-001979 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUSSMANN INTERNATIONAL INC CENTRAL INDEX KEY: 0001046128 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 431791715 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13407 FILM NUMBER: 99581965 BUSINESS ADDRESS: STREET 1: 12999 ST CHARLES ROCK RD CITY: BRIDGETON STATE: MO ZIP: 63044-2483 BUSINESS PHONE: 3142912000 MAIL ADDRESS: STREET 1: 12999 ST CHARLES ROCK ROAD CITY: BRIDGETON STATE: M0 ZIP: 63044-2483 10-K 1 HUSSMAN CORPORATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 For the fiscal year ended December 31, 1998 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 01-13407 Hussmann International, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 43-1791715 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 12999 St. Charles Rock Road, Bridgeton, Missouri 63044-2483 (Address of Principal Executive (Zip Code) Offices) Registrant's telephone number, including area code (314) 291-2000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered ------------------- ----------------------------------------- Common Stock, par value $.001 New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the 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. [_] As of February 28, 1999 the aggregate market value of the Registrant's voting and non-voting common equity held by non-affiliates was $781.3 million (based on closing sale price of $15.38 as reported for the New York Stock Exchange-Composite Transactions). The number of shares of the Registrant's Common Stock, $.001 par value per share, outstanding as of February 28, 1999 was 50.8 million. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of Hussmann International, Inc.'s Annual Report to Shareholders for the year ended December 31, 1998 (Part I, Part II, and Part IV of Form 10-K). 2. Portions of Hussmann International, Inc.'s Notice of 1999 Annual Meeting of the Stockholders and Proxy Statement (Part III of Form 10-K). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- PART I 1. Business...................................................... 1 2. Properties.................................................... 8 3. Legal Proceedings............................................. 8 4. Submission of Matters to a Vote of Security Holders........... 8 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................................... 10 6. Selected Financial Data....................................... 10 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 10 7A. Quantitative and Qualitative Disclosures about Market Risk.... 10 8. Financial Statements and Supplementary Data................... 11 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................................... 11 PART III 10. Directors and Executive Officers of the Registrant............ 11 11. Executive Compensation........................................ 11 12. Security Ownership of Certain Beneficial Owners and Management.................................................... 11 13. Certain Relationships and Related Transactions................ 12 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................................... 12 Signatures.................................................... 13
PART I Item 1. Business Background Hussmann International, Inc. ("Hussmann" or the "Company") was incorporated under the laws of the State of Delaware on August 29, 1997. At the time of its incorporation, the Company was a wholly owned subsidiary of Whitman Corporation, a Delaware Corporation ("Whitman"). On January 30, 1998, (the "Distribution Date") Whitman distributed (the "Distribution") all the issued and outstanding shares of common stock, par value $.001 per share, of the Company ("Hussmann Common Stock") to the shareholders of record of Whitman's common stock as of January 16, 1998. The Distribution was made pursuant to the terms of a Distribution and Indemnity Agreement (the "Distribution Agreement") dated as of December 31, 1997 by and among Whitman, the Company and Hussmann Corporation, a Missouri corporation ("Hussmann Corporation") and wholly-owned subsidiary of the Company. Pursuant to the Distribution Agreement and prior to the Distribution Date, the Company and Whitman executed a series of steps in order to separate from Whitman any assets related to the business of Hussmann. Such steps involved, among other things, the transfer to Hussmann from Whitman of Hussmann Corporation and all of the businesses managed by Hussmann Corporation including its foreign operations, which were previously held by a Netherlands company owned by Whitman. As a result of the Distribution, Hussmann including its wholly and majority-owned subsidiaries is now an independent public company. Hussmann Corporation is the successor to the business started by Harry L. Hussmann in 1906 which sold butchers supplies. Hussmann Corporation introduced the first meat display case in 1917 and the first frozen food case for Clarence Birdseye in 1933. Since 1933, Hussmann Corporation has grown to be the market leader in the manufacture and sale of refrigerated display merchandisers and refrigeration systems in the U.S., Canada, the U.K., Mexico, Asia-Pacific, New Zealand and Australia. Hussmann Corporation was incorporated in Missouri in 1929. Hussmann's principal executive offices are located at 12999 St. Charles Rock Road, Bridgeton, Missouri 63044 and its telephone number is (314) 291- 2000. Overview Hussmann manufactures, sells, installs and services merchandising and refrigeration systems for the world's commercial food industry. Products include refrigerated and non-refrigerated display merchandisers, refrigeration systems and controls, beverage coolers, air handlers, evaporative condensers, heat exchange coils and walk-in storage coolers and freezers. Hussmann utilizes advanced technology to create energy efficient products designed to provide low life-cycle cost. Hussmann's wide product line features high quality products intended to meet the needs of a broad range of customers. Hussmann operates in three geographical segments: U.S. and Canada, Europe (U.K.), and Other International which includes Mexico, Latin America and Asia- Pacific. Hussmann's 1998 sales of $1.2 billion, included $901.7 million from the U.S. and Canada, $144.8 million from the U.K. and $174.7 million from Other International operations. For further information related to Hussmann's geographical segments see Note 19 of the notes to consolidated financial statements included as part of Hussmann's 1998 Annual Report to Shareholders for the year ended December 31, 1998 (the "Annual Report") incorporated herein by reference. Market Overview In the U.S. and Canada, Hussmann sells its products primarily to supermarkets and convenience stores, including both national chains and local retailers. Since 1995, supermarkets and convenience stores have accelerated their expansion by remodeling their facilities and modernizing their equipment. Changes have also resulted from growth in the number of dual wage-earner families who demand more convenience in food 1 preparation. Supermarkets and convenience stores have also begun to focus on higher margin products such as prepared foods which require more refrigerated or heated display merchandising space. In addition to the expansion by supermarkets and convenience stores, with the popularity of the home meal replacement trend, the food service market is now one of the fastest growing parts of the commercial food industry in the U.S. This growth is attributable to the same factors driving supermarkets and convenience stores to sell more prepared foods. Another growing market within the commercial food industry is commercial/industrial refrigeration, including processing, produce ripening and cold storage warehousing facilities. The international market represents a significant long-term growth opportunity as countries develop their infrastructure, as well as their food distribution and preservation needs. Many countries are also experiencing economic growth, creating demand for more technologically advanced products. Retailers in Mexico and Latin America are expanding and remodeling their stores as a result of competition from U.S. and European chains entering these markets. Strategy Hussmann's business strategy is to maintain and improve its position as a leader in the mature markets in which it competes while expanding its presence in the food service market and evolving international markets. Sales Growth. In the U.S. and Canada, Hussmann seeks to increase its sales to those customers which it has historically served in the commercial food industry while also increasing sales to higher growth areas of the food service market. Hussmann plans to achieve these goals by (i) continuing to develop proprietary products such as the Impact line and the Protocol refrigeration system (described below) in order to differentiate Hussmann from its competitors, (ii) expanding into the food service market by leveraging its existing technological and manufacturing expertise, and (iii) pursuing strategic acquisitions to broaden its service and distribution network and manufacturing capabilities. International Expansion. Hussmann seeks to participate in the growth of developing regions throughout the world by further strengthening its manufacturing and distribution presence in these regions. In order to more effectively serve these regions and follow the globalization of its customer base, Hussmann is investing in manufacturing facilities that have the technology to produce specific products tailored to local customer demand. Hussmann expects to increase its global competitiveness by locating manufacturing facilities in various regions throughout the world. Approximately, 26% and 22% of Hussmann's 1998 and 1997 sales and revenues, respectively, were derived from its operations located outside of the U.S. To further the Company's strategy for international expansion, in March 1999, Hussmann completed its acquisition of Koxka CE. S.A., ("Koxka"), the leading commercial refrigeration company in Spain and Portugal. Koxka manufactures a complete line of commercial and industrial refrigeration products, including standard and custom merchandising display cases for supermarkets, beverage coolers, ice cream merchandisers and an array of other self-contained food merchandisers. In 1998, Koxka had consolidated sales of approximately $135 million. On August 31, 1998, Hussmann announced that it had acquired a 65% interest in McAlpine Investments, Ltd. ("MIL"). MIL consists of two separate operating companies engaged in the sale, installation, manufacture and service of commercial refrigeration products for the retail food industries in New Zealand, Australia and various island nations throughout the South Pacific. MIL had combined sales and revenues in 1997 of approximately $64.0 million. For further information regarding the Company's recent acquisitions see Note 4 of the notes to consolidated financial statements included in Hussmann's 1998 Annual Report, incorporated herein by reference. Increased Capacity. The commercial food industry in the U.S. has experienced significant growth since the beginning of 1995. As a result, Hussmann's plants operated at full capacity during the third and fourth 2 quarters of 1995, 1996, 1997 and 1998. In order to capitalize on the industry's growth while providing timely delivery to existing customers, Hussmann is in the process of expanding its production capacity of refrigerated display cases at its Bridgeton, Missouri, plant by 20%. The Company also consolidated the production of refrigeration systems from five plants to two, which are located near Atlanta, Georgia and in Chino, California. For further information regarding capacity expansion see "Management's Discussion and Analysis of Financial Condition and Results of Operations: Liquidity, Financial Condition and Capital Resources." included in the Company's 1998 Annual Report, incorporated herein by reference. Cost Reduction. Hussmann has implemented aggressive cost and expense containment programs, including rationalizing similar manufacturing operations, instituting centralized purchasing of frequently used components, consolidating engineering efforts and striving to keep selling, general and administrative and fixed costs constant through the year 2000. Products Hussmann products include refrigerated and non-refrigerated display merchandisers, refrigeration systems and controls, beverage coolers, air handlers, evaporative condensers, heat exchange coils and walk-in storage coolers and freezers. Hussmann's wide product line features high quality products intended to meet the needs of a broad range of customers. All of Hussmann's products are certified to relevant national or international industry standards, as appropriate, by independent laboratories. Merchandisers. Refrigerated display merchandisers preserve perishable food products while allowing attractive display and accessibility to the consumer. Display merchandisers are used to display refrigerated and frozen products in supermarkets, convenience stores, food service outlets and delicatessens. These merchandisers are either self-contained or linked to a remote refrigeration system through a system of pipes. Hussmann's display merchandisers can be customized to display a variety of items. Hussmann's current standard product line of merchandisers, the Impact line, was introduced in 1995. Hussmann has positioned Impact as a global merchandising platform. Before the introduction of the Impact line, Hussmann's operating units offered region-specific merchandising product lines. Hussmann's operations in the U.S., Latin America, the U.K. and China have completed the transition to the Impact line. Hussmann does not anticipate significant changes to Koxka's product line due to Koxka's unique European product design and existing customer base. The Impact platform was designed with new technological features, manufacturing efficiencies, and global markets in mind. Impact products utilize many common parts and each merchandiser is designed to be dismantled and shipped in pieces so as to more economically and efficiently address export shipment costs as well as remote case assembly opportunities. The Impact line of merchandisers also includes cases that are not product specific, enabling stores to display fresh meat, bulk produce, and other products in the same merchandiser by changing display accessories. Impact merchandisers offer lower energy, maintenance and refrigeration costs, while featuring advanced styling and merchandising capabilities. Hussmann is also a leader in providing customized refrigerated display merchandisers and accessories which complement its standard lines. The demand for these merchandisers has increased with the growth of specialty sections in supermarkets that require attractive, custom designed merchandisers that highlight displayed products. These higher margin, specialized merchandisers represent an expanding market where Hussmann can capitalize on its leadership position and extensive branch network for selling, installing and servicing products. Hussmann merchandisers can be refrigerated, non-refrigerated, heated and color coordinated to store specifications. Hussmann's Chino, California, and Brantford, Ontario, plants are the largest custom merchandiser manufacturers in North America. Refrigeration Systems. Hussmann is a technological leader in centralized refrigeration systems. These systems, which include multi-compressors, automatic flow control systems and electronic controls, are generally located in a store's back room, away from the display and merchandising areas. They are built to customer specifications and vary by number of compressors, refrigerant type and need for satellite units. 3 In 1993 Hussmann introduced the Protocol refrigeration system. The Protocol system utilizes compact, multiple scroll compressor refrigeration units enclosed in attractive housings. Unlike back room systems, individual Protocol units are located either in or, more often, very near the sales areas, close to the refrigerated display cases. Protocol units use minimal floor space and eliminate the need for back room refrigeration and the related construction costs. Protocol is a chlorofluorocarbon (CFC) and hydrochlorofluorocarbon (HCFC) free system, which uses up to 50% less refrigerant, and reduces the amount of piping and brazed joints, which lessens the likelihood of refrigerant leaks. Other Products. Hussmann manufactures numerous other products for use in the commercial food industry. These products include a line of coolers for the beverage industry sold primarily in Mexico and Latin America. In addition, Hussmann manufactures air handlers, evaporative condensers and heat exchange coils for the commercial/industrial refrigeration market. Hussmann also manufactures and installs walk-in storage coolers and freezers used for bulk storage and storage for non-display items. These are typically found in the back rooms of supermarkets and convenience stores and other commercial sites, such as hotel and cafeteria kitchens, and are used to store items that require refrigeration prior to sales area display. Hussmann's other products also include self-contained refrigeration equipment utilized in convenience stores. Product Development and Proprietary Information Hussmann strives to be the technology leader in food merchandising equipment and commercial refrigeration. Hussmann believes technological development is an important factor in its ability to maintain its market leadership position. Hussmann's research and product development strategy is to centralize the development of new products for global application. Two global design centers have responsibility for creating new products with a focus on global design for specific technologies and product lines. The goal of the design centers is to achieve more commonality of components and modularity in Hussmann's product lines. The centers share technologies and product designs. The Impact merchandiser platform reflects Hussmann's global design approach. The corporate design center, located in Bridgeton, is responsible for technology development and new supermarket display cases platforms as well as global manufacturing support. The Mexico City design center is responsible for entry level products such as beverage coolers and spot merchandisers. In addition to the global design centers, Hussmann conducts refrigeration systems development primarily at its Bridgeton and Atlanta facilities, and custom merchandiser development is performed at its Chino, California facility. The corporate design center, which Hussmann believes to be unique in the industry, includes nine ambient-controlled display case test rooms, four ambient-controlled psychrometric test rooms, one ambient-controlled test chamber, all with dedicated computer based data acquisition systems, a "mini- factory" model shop, materials testing lab, reverberate sound test room, transit and vibration test area, rain test chamber and solid modeling design workstations. The corporate design center allows Hussmann to work closely with chemical companies and compressor, valve and controls manufacturers to create new generations of cases and systems. Hussmann's research and development efforts are staffed by approximately 130 engineers, designers, laboratory technicians and model makers, including approximately 55 at the corporate design center. Hussmann has spent approximately $6.4 million, $5.6 million and $6.0 million on research and development, during the years ended 1998, 1997 and 1996, respectively. Research and development expenditures in future years are expected to approximate $6.0 million a year. Hussmann holds patents registered in the U.S. and foreign countries for various products. Hussmann believes that, although its patents relating to the Impact platform and Protocol refrigeration systems are important in maintaining its competitive and marketing advantage, no individual patent is material to its financial condition or results of operations. Hussmann also holds various trademarks, trade names and 4 copyrights, none of which, other than the Hussmann name, is considered by Hussmann to be material to its financial condition or results of operations. Manufacturing Operations Hussmann has 10 manufacturing plants in the U.S. and Canada, each of which is devoted to the manufacture of certain lines of Hussmann products. Hussmann believes efficiency and quality are increased by concentrating the manufacture of its different product lines at separate plants. See "Properties" appearing elsewhere in this Form 10-K. In Mexico, Hussmann has manufacturing plants in Mexico City and Monterrey primarily serving the supermarket and beverage industries. In January, 1997, Hussmann expanded its operations in South America with the acquisition of a 70% interest in Hussmann Fast Frio do Brasil, Ltda. ("Fast Frio"), a Brazilian supermarket equipment manufacturer. In November 1997, Hussmann also acquired 100% of Industrias Gilvert in Mexico City, a manufacturer of commercial and industrial refrigeration products. Hussmann reconfigured its manufacturing plant in Milton Keynes, England, which makes refrigerated display merchandisers and closed its manufacturing plant in Glasgow, Scotland during 1998. Hussmann sells the products manufactured at the Milton Keynes plant primarily in the U.K. Hussmann has a 55% interest in Luoyang Hussmann Refrigeration Co. Ltd. ("Luoyang Refrigeration"), a leading producer of refrigeration systems and display merchandisers in China. Hussmann opened a new factory in Luoyang in 1996, and began to produce Hussmann-designed products, including the Impact line of merchandisers. As previously stated, Hussmann acquired a 65% interest in MIL with operations in New Zealand and Australia. MIL has three manufacturing locations throughout the Asia-Pacific region producing refrigeration systems, custom display merchandisers and cool room panels. In addition, Koxka, Hussmann's most recent acquisition and the leading commercial and industrial refrigeration manufacturer in Spain and Portugal, has 5 manufacturing locations producing standard and custom merchandising display cases, beverage coolers, ice cream merchandisers, and other self-contained food merchandisers. Most of Hussmann's component purchases are for standard, readily available materials such as carbon steel, compressors and electrical components. Such components are available from multiple suppliers, and Hussmann has not experienced any significant shortages. Hussmann generally does not enter into long-term supply contracts. Hussmann also purchases custom components produced to its specifications. Although an interruption in the supply of a custom component may cause a short-term disruption to operations, Hussmann has alternative supply plans to mitigate any long-term effects. Hussmann believes it enjoys good relationships with its suppliers of both standard and custom components. Sales and Marketing In the U.S., Canada, Mexico and the U.K., Hussmann sells, installs and services products primarily through its network of approximately 39 branch facilities. In addition to these company-operated facilities, Hussmann works with approximately 13 independent distributors in the U.S. and Canada. It has also entered into a joint venture with Global TH, a Hungarian manufacturer, for the marketing of Hussmann products in Hungary. Through this network and the Hussmann Total Service Program ("TSP"), Hussmann seeks to promote strong customer loyalty and strengthen its reputation for quality and reliability. The Hussmann TSP encompasses Hussmann's ability to provide store design, engineer a broad range of standard and customized equipment, and provide installation and service capabilities to its customers. Hussmann has also entered into agreements throughout the U.S. with manufacturers' representatives specializing in the food service market. Hussmann believes these relationships will enable it to more effectively increase its sales in this growing market. 5 In Latin America, Hussmann sells through a network of approximately 20 independent distributors in those countries where it has no direct investment. Hussmann has distribution agreements in Argentina, Colombia, El Salvador, Venezuela, Ecuador, Guatemala, Honduras, Costa Rica and Puerto Rico. Hussmann has its own distribution network in Chile, Brazil and Peru. In Southeast Asia, Hussmann has a 50% owned joint venture with a distributor in Singapore that sells, services and installs Hussmann products throughout the Southern Pacific Rim. Hussmann also has agreements with distributors in Korea, Taiwan, Thailand, French Polynesia and Guam. Hussmann's pricing is usually on a competitive bid basis. Hussmann submits individual store bids, multi-store package bids and annual contract bids. There is standard pricing for some items such as service parts and also for wholesale sales. Competition In general, the markets in which Hussmann participates are highly competitive with competition primarily based on features, quality, technology, energy conservation and price. Hussmann believes it is competitive on these bases. Hussmann's competitors vary according to product and geographic area and include companies that manufacture a variety of products for the commercial food industry and those that specialize in a particular product. Hussmann faces competition from a limited number of large competitors in the supermarket and convenience store markets in the U.S. and Canada. These competitors include Kysor-Warren (Scotsman Industries, Inc.), Tyler Refrigeration Corporation (United Technologies Corporation) and Hill Phoenix, Inc. (Dover Corporation) in supermarkets and Universal Nolin/Kelvinator (Electrolux AB), Master-Bilt Products, and Federal (Standex International Corporation) in convenience stores. Competition in the U.S. and Canada in refrigeration systems, walk-in storage coolers and freezers, specialty cases and other Hussmann products is more fragmented, with Hussmann facing competition from a number of regional manufacturers. In Mexico, Latin America and Europe, Hussmann faces competition from large European manufacturers, such as Costan and Bonnet (EL. FI Elettrofinanziara S.P.A.), Linde and Electrolux AB, as well as smaller local manufacturers. In Asia-Pacific, Hussmann is in competition with local manufacturers, large European manufacturers and Japanese manufacturers, such as Sanyo, Hitachi and Nakano. Customers No single customer accounted for more than 10% of Hussmann's sales during any of the last three fiscal years. Hussmann's largest customers are supermarkets in the U.S. and include 19 of the top 20 chains. The U.S. customer base is composed of approximately 11,000 independent and 19,000 chain-owned supermarkets, plus over 96,000 other grocery stores. In recent years, approximately 4,000 stores purchased refrigeration equipment annually for either new store openings or remodelings. Historically, Hussmann's supermarket business has been divided approximately equally between new store activity and the remodeling of existing stores. Backlog and Seasonality The dollar amount of firm backlog at December 31, 1998, was $201.5 million, compared with $176.6 million at December 31, 1997. Substantially all such backlog was shipped by March 1, 1999. Hussmann experiences the greatest demand for its products in the third and fourth quarters of the year, with greater than 56% of annual sales and revenues occurring during that period in 1998 and 1997. This demand results from customers' seasonal construction cycles and desire to complete stores prior to the year-end holiday season. On average, during the five-year period ending 1998, 67% of operating income was generated in the third and fourth quarters. 6 Regulatory Compliance Hussmann is subject to numerous federal, state and local laws and regulations designed to protect the environment. In addition to environmental laws, Hussmann is subject to the Federal Occupational Safety and Health Act and other laws regulating safety and health. Hussmann maintains a program to facilitate compliance with these laws, the capital costs of which are not material to its financial condition or results of operations. Hussmann is contractually obligated through 2004 to indemnify the current owners of a previously sold operation for the costs to perform certain remedial and monitoring activities. These activities are identified and outlined in a Consent Order signed by Hussmann and the Missouri Department of Natural Resources. Hussmann believes it has set aside sufficient reserves to meet these obligations. Hussmann has been named as a potentially responsible party under superfund legislation at three sites. One site is a community landfill and the other two sites are treatment, storage and disposal facilities used by Hussmann to handle industrial waste. Hussmann is not currently utilizing any of these sites and believes any liability it may ultimately incur at such sites would not have a material adverse effect on its financial condition or results of operations. Employees At December 31, 1998, Hussmann had approximately 9,100 employees, including approximately 5,000 covered by collective bargaining agreements. Labor contracts with respect to approximately 800, 1,800 and 2,000 employees expire in 1999, 2000 and 2001, respectively. Hussmann considers its relationships with employees to be generally satisfactory. 7 Item 2. Properties The following table sets forth certain information with respect to Hussmann's world headquarters and manufacturing facilities, all of which are owned by Hussmann except as noted below.
Approximate Primary Products Location Square Footage Manufactured -------- -------------- ---------------- Bridgeton, Missouri....... 110,000 World headquarters, corporate offices and research and development Bridgeton, Missouri....... 1,700,000 Refrigerated display merchandisers Montgomery, Alabama(1).... 100,000 Walk-in storage coolers and freezers Chino, California(1)...... 475,000 Custom display merchandisers and refrigeration systems Aurora, Colorado(1)....... 80,000 Bakery merchandisers and floral displays Suwanee, Georgia(1)....... 375,000 Refrigeration systems and electrical distribution centers Addison, Illinois......... 208,000 Evaporators, condensers and coils Gloversville, New York.... 150,000 Self-contained refrigerated display merchandisers Seattle, Washington(1).... 95,000 Walk-in storage coolers and freezers Brantford, Ontario........ 385,000 Custom display merchandisers St. Hubert, Quebec........ 180,000 Evaporators, condensers, air handlers and coils Milton Keynes, England.... 80,000 Refrigeration display merchandisers Glasgow, Scotland(1)...... 20,000 Refrigeration systems Mexico City, Mexico(1).... 100,000 Evaporators, condensers and coils Mexico City, Mexico....... 280,000 Beverage coolers and refrigerated display merchandisers Monterrey, Mexico......... 235,000 Beverage coolers, refrigerated display merchandisers and walk-in storage coolers and freezers Londrina, Brazil(2)....... 244,000 Refrigerated display merchandisers, shelving, check-out stands, refrigeration systems and beverage coolers Luoyang, China(2)......... 450,000 Refrigerated display merchandisers and refrigeration systems Auckland, New Zealand(2).. 70,000 Refrigeration systems and assembly of refrigerated display merchandisers Tauranga, New Zealand(1).. 40,000 Custom display merchandisers Sydney, Australia(1)...... 20,000 Refrigeration systems and cool room panels Pamplona, Spain........... 310,000 Remote refrigerated display merchandisers and cool room panels Madrid, Spain............. 110,000 Ice cream conservators and beverage coolers Madrid, Spain............. 55,000 Self-contained refrigerated and freezer display merchandisers Huesca, Spain............. 30,000 Personalized refrigerated and freezer merchandisers Peralta, Spain............ 100,000 Heat exchange coils, evaporators and condensers
- -------- (1) Leased. (2) Owned with a joint venture partner. Item 3. Legal Proceedings Hussmann has contingent liabilities arising from various pending claims and litigation on a number of matters. It is impossible to estimate with any certainty the ultimate liability that may result from these matters. Nevertheless, in the opinion of Hussmann counsel, the final outcome of these matters will not materially affect the consolidated financial condition or results of operations of Hussmann. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the quarter ended December 31, 1998. 8 Executive Officers of the Registrant The names, ages and experience of the executive officers of the Company as of March 1999, are set forth below: J. Larry Vowell (58) President and Chief Executive Officer, Director since January 29, 1998 Mr. Vowell has spent his entire professional career with Hussmann. After holding a variety of management positions, Mr. Vowell became President and Chief Operating Officer-Hussmann U.S.A. in 1990 and President and Chief Executive Officer later that year. John S. Gleason (57) Executive Vice President-North American Operations Mr. Gleason joined Hussmann in 1988 as President-International Group. He served as Executive Vice President-Sales and Marketing for North America from 1991 to 1995. Michael D. Newman (42) Senior Vice President-Chief Financial Officer Mr. Newman joined Hussmann in 1996. Prior to that, he spent seventeen years with General Electric Company in various financial positions, most recently as Manager, America's Finance. John Schlee (56) Senior Vice President-Europe and Middle East Mr. Schlee joined Hussmann in 1988 as Group Vice President- Manufacturing. He became Senior Vice President-Manufacturing in 1989, was Senior Vice President-International from 1995 to 1996 and was Senior Vice President-Global Development from 1996 to November 1997. Lawrence R. Rauzon (49) Vice President-Asia-Pacific Mr. Rauzon served as Vice President-Western United States from 1989-1994 when he was appointed Vice President and Region Manager, Western United States. He was appointed to his present position in 1996. He has been with Hussmann since 1978. Mark C. Schaefer (41) Vice President-Mexico and Latin America Mr. Schaefer joined Hussmann in 1981. He became President-Hussmann Mexico in 1992, and was appointed to his present position in 1995. Dennis G. Gipson (45) Vice President-Global Development Mr. Gipson joined Hussmann in 1972. From 1989 to 1991 he was Vice President Sales-North Central Zone. He served as Vice President for Product Development and Research from 1992 to 1996 and as Vice President-Refrigeration, North America from 1996 to November 1997. Burton Halpern (57) Vice President, General Counsel and Secretary Mr. Halpern has served in various legal capacities with Hussmann since 1970. He became General Counsel in 1985. Joseph R. Pinkston III (44) Vice President-Human Resources Mr. Pinkston joined Hussmann in 1995. From 1992-1995 he served as Group Director of Human Resources for the Bowman Distribution Division of the Barnes Group. Prior to that, he served in various human resource positions with units of Allied Signal. 9 Thomas G. Korte (35) Vice President-Corporate Controller Mr. Korte joined Hussmann on March 23, 1998. From 1986 until joining Hussmann he was employed by KPMG LLP with his last position being Senior Manager. There are no family relationships among any of the executive officers. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Hussmann Common Stock is listed on the New York Stock Exchange ("NYSE") under the symbol "HSM". As of March 5, 1999, there were 14,485 holders of record of Hussmann Common Stock. "When issued" trading of Hussmann Common Stock commenced on the NYSE on January 20, 1998. Prior to that date, Hussmann Common Stock was not listed or quoted on any securities exchange or quotation system. The table below sets forth the reported high and low sales prices as reported for NYSE Composite Transactions for Hussmann Common Stock and the dividends declared during the quarter for each quarterly period ending after January 20, 1998.
Dividends Quarter Ended High Low Declared ------------- ------ ------ --------- March 31, 1998.................................... $18.75 $13.63 $0.02 June 30, 1998..................................... 19.50 17.00 0.02 September 30, 1998................................ 18.94 12.63 0.02 December 31, 1998................................. 19.38 12.00 0.02
Item 6. Selected Financial Data The information required by this item is set forth under "Five Year Summary of Selected Financial Data" which appears in Hussmann's 1998 Annual Report incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by this item is set forth in Hussmann's 1998 Annual Report, which is incorporated herein by reference. In addition, the information contained in the "Safe Harbor Statement" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" is incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Foreign Currency Risk Hussmann's most significant non-U.S. operations are located in Canada, Mexico and the U.K., with smaller operations located in, among other countries, New Zealand, Australia, Brazil, Chile, China and Singapore. Because Hussmann's non-U.S. entities conduct the majority of their business in their respective local currencies, Hussmann is subject to foreign currency risks when translating its non-U.S. entity financial statements into U.S. dollars for financial reporting purposes. However,the Company is not significantly exposed to foreign currency transactions. Hussmann did not use foreign currency risk management instruments to manage its exposure to changes in currency exchange rates in 1998. However, as the significance of Hussmann's foreign operations grows, Management will continue to monitor whether it would be appropriate to use foreign currency risk management instruments to mitigate its larger exposures. 10 In January 1999, the Company announced that it had entered into a definitive agreement to purchase Koxka. The purchase price established in the definitive agreement, (approximately $145 million) was denominated in Spanish Pesetas. Hussmann hedged the Peseta exposure to lock in to a U.S. Dollar purchase price of $145 million using forward currency exchange contracts.Any realized gains or losses from settling the forward contracts must be reflected in the income statement of the corresponding period. As such, Hussmann will record a one-time charge of approximately $10 million (pre-tax) in the first quarter of 1999. Interest Rate Risk As of December 31, 1998, Hussmann had $204.8 in long-term debt outstanding, $125 million of which represented senior note obligations with a fixed rate of 6 3/4%. The majority of the remaining balance represents amounts outstanding on the Company's unsecured revolving credit facility, with interest based on LIBOR (London Interbank Offer Rate). Given the current mix of the Company's outstanding indebtedness, the Company does not believe its exposure to short- term interest rate changes would be material. Commodity Risk Hussmann's products use copper wiring and tubing. As a result, Hussmann's results are subject to fluctuations in the price of copper. Hussmann uses hedging instruments to mitigate a portion of these risks. Overall, this hedging activity is not considered to be material to Hussmann's consolidated results of operations or financial position. Item 8. Financial Statements and Supplementary Data The consolidated and combined financial statements and supplemental data required by this item are incorporated herein by reference to Hussmann's 1998 Annual Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant The information required for Executive Officers is reported in Part I of this report. Other information required by this item is incorporated herein by reference to the information contained under "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in Hussmann's proxy statement dated April 2, 1999, filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Proxy Statement"). Item 11. Executive Compensation The information required by this item is incorporated herein by reference to the information contained under "Compensation of Directors" and "Executive Compensation and Other Information" in Hussmann's Proxy Statement (other than "Report of Management Resources and Compensation Committee" and "Performance Graph"). Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item is incorporated herein by reference to the information contained under "Beneficial Ownership of Common Stock" in Hussmann's Proxy Statement. 11 Item 13. Certain Relationships and Related Transactions The information required by this item is incorporated herein by reference to the information contained under "Certain Transactions" in Hussmann's Proxy Statement. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (A) 1. Financial Statements The consolidated and combined financial statements of Hussmann and its subsidiaries and the independent auditors' report thereon are incorporated herein by reference to Hussmann's 1998 Annual Report. 2. Financial Statement Schedules All schedules are omitted because they are not required, not applicable or the information is given in the consolidated financial statements or notes thereto contained in Hussmann's 1998 Annual Report. 3. Exhibits See the accompanying Exhibit Index for a list of Exhibits which are filed as a part of this Form 10-K. (B) Reports on Form 8-K Hussmann filed a Current Report on Form 8-K and a Current Report on Form 8- K/A, each dated August 17, 1998, and filed on August 31 and October 30, 1998, respectively, to report the following: Item 2 (Acquisition or Disposition of Assets) to report the acquisition of a 65% interest in McAlpine Refrigeration, Ltd. and Triangle Refrigeration (Australia) Pty. Limited as of August 17, 1998. The Form 8-K/A was filed to include audited financial statements and unaudited pro forma financial information as follows: Item 7 (Financial Statements and Exhibits) Financial Statements filed with the report were: a) Financial statements of business acquired. The audited consolidated statements of financial position of McAlpine Refrigeration, Ltd. at June 30, 1998 and 1997 and the related consolidated statements of financial performance, movements in equity and cash flows for the years then ended. The audited consolidated balance sheet of Triangle Refrigeration (Australia) Pty. Limited at June 30, 1998 and 1997 and the consolidated profit and loss statements and the consolidated statements of cash flows for the years then ended. b) Pro forma financial information. Introduction to Unaudited Pro Forma Combined Condensed Financial Statements. Unaudited Pro Forma Combined Condensed Statement of Operations for the year ended December 31, 1997. Unaudited Pro Forma Combined Condensed Statement of Operations for the six month period ended June 30, 1998. Unaudited Pro Forma Combined Condensed Balance Sheet at June 30, 1998. Hussmann also filed a Current Report on Form 8-K dated January 6, 1999 and filed on January 8, 1999 to report that Hussmann had signed a definitive agreement to acquire Koxka CE, S.A. ("Koxka"), a Spanish company listed on the Madrid Stock Exchange, by means of a public tender offer. (C) Exhibits See Item 14(A)(3) above. 12 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, this 22nd day of March, 1999. HUSSMANN INTERNATIONAL, INC. /s/ Michael D. Newman By: ___________________________________ Michael D. Newman Senior Vice President-Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities indicated on behalf of the registrant, this 22nd day of March, 1999.
Signature Title --------- ----- /s/ J. Larry Vowell President and Chief ____________________________________ Executive Officer and J. Larry Vowell Director (principal executive officer) /s/ Michael D. Newman Senior Vice President-Chief ____________________________________ Financial Officer (principal Michael D. Newman financial officer) /s/ Richard G. Cline Chairman of the Board and ____________________________________ Director Richard G. Cline /s/ J. Joe Adorjan Director ____________________________________ J. Joe Adorjan /s/ Lawrence A. Del Santo Director ____________________________________ Lawrence A. Del Santo /s/ R. Randolph Devening Director ____________________________________ R. Randolph Devening /s/ Archie R. Dykes Director ____________________________________ Archie R. Dykes /s/ Victoria B. Jackson Director ____________________________________ Victoria B. Jackson /s/ Thomas G. Korte Vice President-Corporate ____________________________________ Controller (principal Thomas G. Korte accounting officer)
13 Exhibit Index
Exhibit No. Description ----------- ----------- 2.1 Agreement Relating to Hussmann McAlpine Limited dated August 17, 1998 between Hussmann Netherlands B.V. and Barry Edward Brill and Allan Francis Cotter, Phillip Joseph Miller, Howard James Small, and Robert Charles Todd and Kevin Stainer (incorporated by reference to Exhibit 2 to Hussmann International, Inc.'s Form 8-K filed with the Securities and Exchange Commission ("SEC") on August 31, 1998). 2.2* Share Purchase Agreement dated January 6, 1999 between Hussmann International, Inc. and Vicente Guibert Azcue, Ramon Guibert Encio, Inigo Guibert Encio, Jose Iriondo Murua, Juan Felix Iriondo Altuna, Maria Elena Iriondo Altuna, Maria Teresa Iriondo Altuna, and Florita Iriondo Altuna (the definitive agreement to acquire Koxka). 3(i) Certificate of Incorporation (incorporated by reference to Exhibit 3(i).1 to Hussmann International, Inc.'s Registration Statement on Form 10/A No. 3 (Post-Effective Amendment No. 1) (Commission File No. 1-13407) (the "Form 10")). 3(ii) By-Laws (incorporated by reference to Exhibit 4.3 to Hussmann International, Inc.'s Registration Statement on Form S-8 relating to its Retirement Savings Plans (Registration No. 333-44623) (the "RSP Form S-8")). 4.1 Credit Agreement dated as of January 23, 1998 among Hussmann International, Inc., various financial institutions and Bank of America National Trust and Savings Association, as administrative agent (the "Credit Agreement") (incorporated by reference to Exhibit 4 to Hussmann International, Inc.'s Form 8-K filed with the SEC on May 27, 1998). 4.2 First Amendment dated as of May 29, 1998 to the Credit Agreement (incorporated by reference to Exhibit 4 to Hussmann International, Inc.'s Form 8-K filed with the SEC on May 27, 1998). 4.3* Second Amendment dated as of January 15, 1999 to the Credit Agreement. 4.4 Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 4.2 to the RSP Form S-8). 4.5 Rights Agreement, dated as of December 31, 1997, between Hussmann International, Inc. and First Chicago Trust Company of New York (incorporated by reference to Exhibit 4.4 to the RSP Form S-8). 4.6* Indenture dated as of May 22, 1998 by and between Hussmann International, Inc. and The Bank of New York. 10.1 Distribution and Indemnity Agreement dated as of December 31, 1997 among Hussmann International, Inc., Hussmann Corporation and Whitman Corporation (incorporated by reference to Exhibit 2.1 to Hussmann International, Inc.'s Form 8-K filed with the SEC on February 17, 1998). 10.2 Tax Sharing Agreement dated as of December 31, 1997 among Hussmann International, Inc., Hussmann Corporation and Whitman Corporation (incorporated by reference to Exhibit 2.2 to Hussmann International, Inc.'s Form 8-K filed with the SEC on February 17, 1998). 10.2 Amended and Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to Hussmann International, Inc.'s Form 10-Q filed with the SEC on May 14, 1998). 10.3 Form of Option Agreement (incorporated by reference to Exhibit 10.4 to Hussmann International, Inc.'s Form 10-K filed with the SEC on March 31, 1998).** 10.4 Form of Restricted Stock Award (incorporated by reference to Exhibit 10.4 to Hussmann International, Inc.'s Form 10-K filed with the SEC on March 31, 1998).** 10.5 Change in Control Agreement (incorporated by reference to Exhibit 10.5 to Hussmann International, Inc.'s Registration Statement on Form 10/A No. 1 (Commission File No. 1-13407)).**
1 Exhibit Index
Exhibit No. Description ----------- ----------- 10.6 Agreement between the Registrant and Richard G. Cline (incorporated by reference to Exhibit 10.5 to the Form 10).** 10.7 Stock Option Agreement dated as of January 30, 1998 between Hussmann International, Inc. and Richard G. Cline (incorporated by reference to Exhibit 10.8 to Hussmann International, Inc.'s Form 10-Q filed with the SEC on May 14, 1998).** 10.8 Employment Agreement dated as of April 9, 1998 between Hussmann International, Inc. and J. Larry Vowell (incorporated by reference to Exhibit 10.9 to Hussmann International, Inc.'s Form 10-Q filed with the SEC on May 14, 1998).** 10.9* Deferred Compensation Plan for Directors.** 10.10* Form of Deferred Compensation and Payment Agreement for Directors.** 13* Annual Report to Shareholders. 21* Subsidiaries of Hussmann International, Inc. 23* Consent of KPMG LLP. 27* Financial Data Schedules. 99* Press release dated March 30, 1999.
- -------- *Filed herewith. **Management compensation plan or agreement. 2 EX-2.2 2 SHARE PURCHASE AGREEMENT DATED JANUARY 6, 1999 Exhibit 2.2 SHARE PURCHASE AGREEMENT In Madrid, Spain, on January 6, 1999 GATHERED ON THE ONE PART, Hussmann International Inc., a company duly incorporated and existing under the laws of the State of Delaware, United States of America, with domicile at 12999 St. Charles Rock Road, Bridgeton, Missouri 63044 USA, duly represented by Mr. John Schlee, a U.S. citizen, with U.S. Passport number 025317818, in his capacity as Senior Vice President, Europe, Africa and Middle East, by virtue of a Power of Attorney issued in his favor on December 30, 1998. AND ON THE OTHER PART, Mr. Vicente Guibert Azcue, of legal age, married, of Spanish nationality, with domicile at c/ Hernani, number 2, 20004, San Sebastian, Guipuzcoa and Tax Identification Number (NIF) 1.959.426-X, duly represented by Mr. Ramon Guibert Encio by virtue of power of attorney granted in his favor on November 24, 1998. Mr. Ramon Guibert Encio, of legal age, single, of Spanish nationality, with domicile at c/ Hernani, number 2, 20004, San Sebastian, Guipuzcoa, Spain and Tax Identification Number (NIF) 15.991.239-Y, acting on his own name and behalf. Mr. Inigo Guibert Encio, of legal age, married, of Spanish nationality, with domicile at c/ Garibay, number 1, 4, San Sebastian and Tax Identification Number (NIF) 15.924.213-W, duly represented by Mr. Ramon Guibert Encio by virtue of power of attorney granted in his favor on November 24, 1998. Mr. Jose Iriondo Murua, of legal age, married, of Spanish nationality, with domicile at c/ Media Luna, number 5, Pamplona and Tax Identification Number (NIF) 15.303.864, duly represented by Mr. Juan Feliz Iriondo Altuna by virtue of power of attorney issued in his favor on December 23, 1997. Mr. Juan Felix Iriondo Altuna, of legal age, single, of Spanish nationality, with domicile at c/ Media Luna, number 5, Pamplona, Spain and Tax Identification Number (NIF) 16.235.108-Y, acting on his own name and behalf. Ms. Maria Elena Iriondo Altuna, of legal age, single, of Spanish nationality, with domicile at c/ Media Luna, number 5, Pamplona, Spain and Tax Identification Number (NIF) 16.231.354-16.231.354-Y, duly represented by Mr. Juan Felix Iriondo Altuna by virtue of power of attorney issued in her favor on September 24, 1987. Ms. Maria Teresa Iriondo Altuna, of legal age, married, of Spanish nationality, with domicile at c/ Media Luna, number 5, Pamplona, Spain and Tax Identification Number (NIF) 15.360.132, duly represented by Mr. Juan Felix Iriondo Altuna by virtue of power of attorney issued in her favor on September 24, 1987. Ms. Florita Iriondo Altuna, of legal age, single, of Spanish nationality, with domicile at c/ Media Luna, number 5, Pamplona, Spain and Tax Identification Number (NIF) 15.366.887, duly represented by Mr. Juan Felix Iriondo Altuna by virtue of power of attorney issued in her favor on September 24, 1987. Messrs. Vicente Guibert Azcue, Ramon Guibert Encio, Inigo Guibert Encio, Jose Iriondo Murua, Juan Felix Iriondo Altuna, Maria Elena Iriondo Altuna, Maria Teresa Iriondo Altuna, Florita Iriondo Altuna shall hereinafter be referred to as the "Sellers". WHEREAS I. Hussmann International Inc. is a company dedicated to the manufacturing and commercialization of commercial refrigerator display and storage cases, refrigeration equipment and refrigeration systems. II. The Sellers are owners of 950,145 shares representing 77.25% of the issued and outstanding shares of the Spanish company KOXKA CE, S.A. (the "Company"), with domicile at Poligono de Landaben, calle A, s/n, Pamplona, Spain and NIF number A-31-016363, a public company listed on the Madrid Stock Exchange. The shares owned by each Seller are listed in Exhibit II hereto. Anagre, S.A. is the owner of 37,062 shares representing 3.01% of the share capital of the Company. III. Hussmann International Inc. is interested in purchasing a number of the issued and outstanding shares of the Company which represents at least 80.26% of the Company's share capital, by means of a public tender offer, in accordance with applicable Spanish securities market regulations. IV. The Sellers are interested in selling their shares of the Company to Hussmann International Inc. or to the subsidiary or affiliate company of Hussmann International Inc. which launches the public tender offer (the entity launching the public tender offer shall hereinafter be referred to as the "Purchaser"), provided that a minimum purchase price is offered. In accordance with the above considerations, the parties have agreed to enter into this Share Purchase Agreement, subject to the following : CLAUSES 1. PURCHASE OF SHARES ------------------ 1.1 Each of the Sellers irrevocably undertakes to sell to the Purchaser all the shares he owns in the capital of the Company if the Purchaser launches a public tender offer for 100% of the issued and outstanding shares of the Company at a purchase price of 16,195 pesetas/share, net of clearing, settlement and other stock exchange expenses. 1.2 Mr. Juan Felix Iriondo Altuna irrevocably promises that, in the event the Purchaser launches the Public Tender Offer described in Clause 1.1 above, Anagre, S.A. shall sell to the Purchaser all the shares that Anagre, S.A. holds of the Company. Consequently, and for the purposes of this Agreement, Anagre, S.A. shall be considered as an additional Seller, and Juan Felix Iriondo Altuna shall assume personally in his own name all the rights, obligations and liabilities that would correspond to Anagre, S.A. if Anagre, S.A. had signed this Agreement. 1.3 Completion of the public tender offer will be conditional upon the Purchaser acquiring at least 80% of the issued and outstanding shares of the Company, less the shares owned by any Seller who may die or be affected by incapacity or third party attachment on his assets (but in any case, upon acquiring at least 51%). This condition will be expressly reflected in the prospectus and all other documents pertaining to the public tender offer. Should the Spanish Comision Nacional del Mercado de Valores not accept that the threshold for completion of the public tender offer be conditional upon the aforementioned events, the public tender offer will be formally conditional upon the Purchaser acquiring at least 62% of the issued and outstanding shares of the Company, even though the Purchaser undertakes to complete the public tender offer even if the 62% threshold is not reached due to death, incapacity or third party attachment affecting any of the Sellers, provided always that at least 51% of the shares of the Company are acquired by the Purchaser. The public tender offer shall provide that the acceptance period will expire on the earliest possible day of March of 1999. 1.4 The Purchaser undertakes to purchase all, but not part of, the shares of the Company owned by the Sellers pursuant to the conditions described in the preceding paragraph and the remaining Clauses of this Agreement. 1.5 The Sellers' obligations under this Agreement shall be several ("mancomunadas"), that is, each Seller shall be responsible only for his/her own obligations hereunder except for the liability of the breaching Sellers pursuant to Clause 5 hereof, which will be joint and several among those breaching Sellers only. 3 1.6 In the event the Purchaser is an entity different than Hussmann International, Inc., Hussmann International, Inc. and the Purchaser shall be jointly and severally liable for the responsibilities of the Purchaser hereunder. 1.7 Within a term of 30 days of signature of this Agreement, the Purchaser shall file an Application to the Spanish Stock Exchange Commission (Comision Nacional del Mercado de Valores) for authorisation to launch the above described Public Tender Offer. 2. CONSIDERATION ------------- 2.1 The price per share to be paid by the Purchaser to each of the Sellers in consideration for the sale of their shares of the Company shall be the same price that is offered to all the remaining shareholders of the Company. The Sellers shall receive no further consideration other than the purchase price per share paid to all the shareholders who accept the public tender offer. 2.2 The purchase price shall be paid in cash by the Purchaser to each of the Sellers at the time of settlement of the purchase price upon closure of the public tender offer, through the stock broker ("agente de pagos") appointed by the Purchaser to settle and liquidate the public tender offer. 3. ADDITIONAL COMMITMENTS OF THE SELLERS ------------------------------------- 3.1 Each of the Sellers irrevocably undertakes not to sell, charge, encumber of in any way dispose of any of the shares of the Company which he may own now or in the future in favor of any party other than the Purchaser (including any other Seller), whether in the process of a public tender offer launched by any third party prior to, simultaneously or after the public tender offer launched by the Purchaser, or through any other valid means of acquisition, except for the case that any Seller decide the transfer of the shares owned by such Seller to an individual (which must be another Seller) or a Company directly or indirectly owned by the relevant or another Seller, as long as the acquirer of such shares subrogates in all obligations of the transferring Seller to the Purchaser and/or Hussmann International Inc. with respect to the transaction contemplated herein. 3.2 Each of the Sellers irrevocably undertakes, as soon as the public tender offer is authorized by the Spanish Comision Nacional del Mercado de Valores, to inform the Comision Nacional del Mercado de Valores of his commitment to accept the offer. 3.3 Each of the Sellers irrevocably undertakes to formally accept the public tender offer launched by the Purchaser within the first three business days of the acceptance period. 3.4 Each of the Sellers irrevocably undertakes to refrain from any action which may prejudice the success of the public tender offer. 3.5 The Sellers acknowledge that the minimum price referred to in Clause 1.1 above is a fair and reasonable consideration for the sale of the shares of the Company. The Sellers 4 undertake to use their best efforts to cause the Board of Directors of the Company to produce a report recommending the sale of the shares of the Company to the Purchaser, at a price at least equal to that referred to in Clause 1.1 above, in the course of the public tender offer. 4. OBLIGATIONS OF THE PURCHASER / CONDITIONS ----------------------------------------- 4.1 The parties expressly agree that the Purchaser shall have no obligation to launch a public tender offer or otherwise acquire any shares of the Company if the authorization for the public tender offer by the Spanish Comision Nacional del Mercado de Valores is duly and timely filed for but is not issued or if the foreign investment verification is duly and timely applied for but is not granted. The Purchaser shall file and process the relevant Applications in good faith, shall post a bank guarantee for the full amount of the public tender offer and comply with all relevant Spanish regulatory requirements to the best of its ability. 4.2 If the Purchaser launches a public tender offer for the shares of the Company, the Purchaser shall be entitled to withdraw from such public tender offer without acquiring any shares of the Company if: (a) The shares tendered for sale to the Purchaser by the shareholders of the Company who accept the offer do not reach the threshold established for completing the public tender offer pursuant to Clause 1.3 above; or (b) The Spanish government issues a resolution before the end of the acceptance period which prohibits the transaction. 4.3 In the cases described in Clauses 4.1 and 4.2 above, the Purchaser shall not be obliged to indemnify the Sellers nor to reimburse the Sellers for any damages or expenses incurred in connection with this Agreement, nor to pay the penalties established in Clause 5 below. 5. INDEMNITY --------- If any of the Sellers fails to comply with any of their obligations or commitments hereunder, the Purchaser may decide either to enforce the breaching Sellers' obligations or to be released from any and all of its obligations hereunder vis-a-vis such breaching Seller(s) (Mr. Juan Felix Iriondo Altuna shall be considered as a breaching Seller if Anagre, S.A. fails to sell all of its shares in the Company as promised by Mr. Iriondo Altuna in Clause 1.2 above) and the breaching Seller(s) shall be jointly and severally liable to: (a) reimburse the Purchaser for all expenses incurred in the preparation and/or launching of the public tender offer, including attorneys', auditors' and advisors' fees; and (b) pay to the Purchaser a penalty in the amount of 705,000,000 pesetas, which damages shall be the exclusive damages available to the Purchaser. 5 In a similar fashion, if the Purchaser fails to comply with any of its obligations or commitments hereunder, the Sellers may decide either to enforce Purchaser's obligations or to be released from any and all of their obligations hereunder and the Purchaser shall be liable to: (a) reimburse the Sellers for all expenses incurred in the preparation of this Agreement including attorneys', auditors' and advisors' fees, and (b) pay to the Sellers a penalty in the total amount of 705,000,000 pesetas which damages shall be the exclusive damages available to the Sellers. 6. GOVERNING LAW / ARBITRATION --------------------------- 6.1 This Agreement shall be governed by and interpreted in accordance with the laws of the Kingdom of Spain. 6.2 The Parties shall try to resolve any dispute, conflict, controversy or difference which might arise between them under this Agreement by way of good faith negotiations. In the event the Parties are unable to achieve a satisfactory resolution of such dispute, conflict, controversy or difference within a period of 30 days, the parties, expressly waiving any other forum which may correspond to them, irrevocably submit to the jurisdiction of the Courts of the city of Madrid, Spain. 7. LANGUAGE -------- English and Spanish versions of this Agreement are being executed by the parties and both versions shall constitute valid and binding documents. In the event any difference(s) should be discovered between the English and Spanish versions of this Agreement, then the Spanish version will prevail with respect to such difference(s). AND IN WITNESS WHEREOF, the parties execute this share purchase agreement, in five original counterparts, in the place and on the date first above written. /s/ John Schlee /s/ Ramon Guibert Encio - -------------------------- ---------------------------------------- Hussmann International Inc. Mr. Ramon Guibert Encio representing Mr. Vicente Guibert Azcue /s/ Ramon Guibert Encio ---------------------------------------- Mr. Ramon Guibert Encio 6 /s/ Ramon Guibert Encio ---------------------------------------- Mr. Ramon Guibert Encio, representing Mr. Inigo Guibert Encio /s/ Juan Felix Iriondo Altuna ---------------------------------------- Mr. Juan Felix Iriondo Altuna, representing Mr. Jose Iriondo Murua /s/ Juan Felix Iriondo Altuna ---------------------------------------- Mr. Juan Felix Iriondo Altuna /s/ Juan Felix Iriondo Altuna ---------------------------------------- Mr. Juan Felix Iriondo Altuna, representing Ms. Maria Elena Iriondo Altuna /s/ Juan Felix Iriondo Altuna ---------------------------------------- Mr. Juan Felix Iriondo Altuna, representing Ms. Maria Teresa Iriondo Altuna /s/ Juan Felix Iriondo Altuna ---------------------------------------- Mr. Juan Felix Iriondo Altuna, representing Ms. Florita Iriondo Altuna 7 EXHIBIT II SELLING SHAREHOLDERS
NUMBER OF PERCENTAGE OF KOXKA'S SHAREHOLDER SHARES HELD SHARE CAPITAL - -------------------------------------------------------------------------------------------------- Ramon Guibert Encio 162,562 13.22% Inigo Guibert Encio/(a)/ 162,562 13.22% Vicente Guibert Azcue/(a)/ 167,485 13.62% Juan Felix Iriondo Altuna 68,213 5.55% Maria Elena Iriondo Altuna/(b)/ 54,643 4.44% Maria Teresa Iriondo Altuna/(b)/ 54,640 4.44% Florita Iriondo Altuna/(b)/ 54,640 4.44% Jose Iriondo Murua/(b)/ 225,400 18.33% TOTAL 950,145 77.25% - --------------------------------------------------------------------------------------------------
For the purposes of Clauses 1.2 and 5, Anagre, S.A., which currently holds 37,062 shares of Koxka, C.E. S.A. representing 3.91% of the share capital, shall be considered as an additional Seller. TOTAL INCLUDING SHARES OWNED BY ANAGRE 987,207 80.26% (a) Represented by Ramon Guibert Encio. (b) Represented by Juan Felix Iriondo Altuna. EX-4.3 3 SECOND AMENDMENT TO THE CREDIT AGREEMENT Exhibit 4.3 SECOND AMENDMENT ---------------- THIS SECOND AMENDMENT (this "Second Amendment") dated as of January 15, ---------------- 1999 is to the Credit Agreement (as previously amended, the "Credit Agreement") ---------------- dated as of January 23, 1998 among HUSSMANN INTERNATIONAL, INC. (the "Company"), ------- various financial institutions (the "Lenders") and Bank of America National ------- Trust and Savings Association, as administrative agent (in such capacity, the "Administrative Agent"). Unless otherwise defined herein, terms defined in the - --------------------- Credit Agreement are used herein as defined therein. WHEREAS, the Company, the Lenders and the Administrative Agent have entered into the Credit Agreement; and WHEREAS, the parties hereto desire to amend the Credit Agreement as more fully set forth herein; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1 Amendment. Effective on (and subject to the occurrence of) the --------- Amendment Effective Date (as defined below), the first parenthetical in Section 8.5 of the Credit Agreement is amended in its entirety to read "(excluding Indebtedness of any Subsidiary to the Parent or any other Subsidiary)". SECTION 2 Representations and Warranties. The Company represents and ------------------------------ warrants to the Bank that, after giving effect hereto, (a) the representations and warranties set forth in Section 6 of the Credit Agreement are true and correct as of the date of the execution and delivery of this Second Amendment by the Company with the same effect as if made on such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct as of such earlier date), and (b) no Event of Default or Unmatured Event of Default exists. SECTION 3 Effectiveness. The amendment set forth in Section 1 above shall ------------- --------- become effective on the date (the "Amendment Effective Date") when the ------------------------ Administrative Agent shall have received counterparts of this Second Amendment executed by the Company and the Required Lenders. SECTION 4 Miscellaneous. ------------- 4.1 Continuing Effectiveness, etc. As herein amended, the Credit ------------------------------ Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. After the Amendment Effective Date, all references in the Credit Agreement and the other Loan Documents to "Credit Agreement" or similar terms shall refer to the Credit Agreement as amended hereby. 4.2 Counterparts. This Second Amendment may be executed in any number of ------------ counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Second Amendment. 4.3 Governing Law. This Second Amendment shall be a contract made under ------------- and governed by the laws of the State of Illinois applicable to contracts made and to be performed entirely within such state. 4.4 Successors and Assigns. This Second Amendment shall be binding upon ---------------------- the parties hereto and their respective successors and assigns, and shall inure to the benefit of the parties hereto and the successors and assigns of the Administrative Agent and the Lenders. Delivered at Chicago, Illinois, as of the day and year first above written. HUSSMANN INTERNATIONAL, INC. CREDIT SUISSE FIRST BOSTON, as a Co-Agent and as a Lender By: /s/ Charles R. Snavely ----------------------------- Charles R. Snavely By: /s/ Bill O'Daly Vice President and Treasurer ---------------------- Bill O'Daly Vice President BANK OF AMERICA NATIONAL By: /s/ Robert Hetu TRUST AND SAVINGS ASSOCIATION, ---------------------- as Administrative Agent, as Swing Line Robert Hetu Lender, as an Issuing Lender and as a Lender Vice President By:/s/ William F. Sweeney THE FIRST NATIONAL BANK OF --------------------------- CHICAGO, as a Co-Agent and as a William F. Sweeney Lender Vice President By: /s/ Deborah E. Stevens BANQUE NATIONALE DE PARIS, as a ----------------------- Lender Deborah E. Stevens Authorized Agent By: /s/ Arnaud Collin du Bocage ---------------------------- MARINE MIDLAND BANK, as a Arnaud Collin du Bocage Lender Executive Vice President and General Manager By: /s/ Christopher M. Samms ------------------------- Christopher M. Samms. #9426 THE BANK OF NEW YORK, as a Lender Vice President By: /s/ David Shedd ------------------------------ David Shedd MELLON BANK, N.A., as a Lender Vice President By: /s/ Martin J. Randal ------------------------ Martin J. Randal Assistant Vice President 2 THE BANK OF TOKYO-MITSUBISHI, WESTDEUTSCHE LANDESBANK LTD., CHICAGO BRANCH, as a Lender GIROZENTRALE, NEW YORK BRANCH, as a Lender By:/s/ Hajime Watanabe ----------------------- By: /s/ Lisa Walker Hajime Watanabe -------------------------- Deputy General Manager Lisa Walker Vice President MERCANTILE BANK NATIONAL By: /s/ Elisabeth R. Wilds ASSOCIATION, as a Lender -------------------------- Elisabeth R. Wilds By: /s/ Timothy W. Hasser Associate ------------------------ Timothy W. Hassler Vice President WACHOVIA BANK, N.A., as a Lender CREDIT AGRICOLE INDOSUEZ, as By:/s/ Walter S. Gilliken a Lender -------------------------- Walter S. Gilliken By: /s/ David Bouhl Senior Vice President ----------------------- David Bouhl First Vice President Head of Corporate Banking Chicago By: /s/ Katherine L. Abbott ----------------------- Katherine L. Abbott First Vice President NATIONSBANK, N.A., as a Co- Agent and as a Lender By: /s/ William F. Sweeney ------------------------ William F. Sweeney Vice President THE NORTHERN TRUST COMPANY, as a Lender By: /s/ Lisa M. Taylor ------------------------ Lisa M. Taylor Second Vice President 3 EX-4.6 4 INDENTURE DATED MAY 22, 1998 Exhibit 4.6 ================================================================================ HUSSMANN INTERNATIONAL, INC. AND THE BANK OF NEW YORK, AS TRUSTEE ______________________ INDENTURE DATED AS OF MAY 22, 1998 ______________________ ================================================================================ TABLE OF CONTENTS ARTICLE ONE Definitions Section 1.01. Certain Terms Defined................................................................. 1 Section 1.02. Other Definitions..................................................................... 7 Section 1.03. Incorporation by Reference of Trust Indenture Act..................................... 7 ARTICLE TWO Issue, Description, Execution, Registration, Registration of Transfer and Exchange of Securities Section 2.01. Amount Unlimited; Establishment of Series............................................. 8 Section 2.02. Form of Securities and Trustee's Certificate of Authentication........................ 11 Section 2.03. Global Securities..................................................................... 12 Section 2.04. Denomination, Authentication and Dating of Securities................................. 14 Section 2.05. Execution of Securities............................................................... 16 Section 2.06. Registration of Transfer and Exchange................................................. 17 Section 2.07. Temporary Securities.................................................................. 18 Section 2.08. Mutilated, Destroyed, Lost or Stolen Securities....................................... 18 Section 2.09. Cancellation of Surrendered Securities................................................ 19 Section 2.10. Provisions of Indenture and Securities for the Sole Benefit of the Parties and the Holders.......................................................................... 20 Section 2.11. Computation of Interest............................................................... 20 Section 2.12. Authenticating Agents................................................................. 20 Section 2.13. Compliance with Certain Laws and Regulations.......................................... 21 Section 2.14. Medium-Term Securities................................................................ 22 Section 2.15. CUSIP Numbers......................................................................... 22 ARTICLE THREE Redemption of Securities - Sinking Fund Section 3.01. Applicability of Article.............................................................. 23 Section 3.02. Notice of Redemption; Selection of Securities......................................... 23 Section 3.03. When Securities Called for Redemption Become Due and Payable.......................... 24 Section 3.04. Sinking Fund.......................................................................... 25 Section 3.05. Use of Acquired Securities to Satisfy Sinking Fund Obligation......................... 26
Section 3.06. Effect of Failure to Deliver Officers' Certificate or Securities.................................. 26 Section 3.07. Manner of Redeeming Securities.................................................................... 27 Section 3.08. Sinking Fund Moneys to Be Held as Security During Continuance of Event of Default; Exceptions..... 27 ARTICLE FOUR Particular Covenants of the Company Section 4.01. Existence......................................................................................... 28 Section 4.02. Payments of Principal of (and Premium, if any) and Interest, if any, on Securities................ 28 Section 4.03. Maintenance of Offices or Agencies for Registration of Transfer, Exchange and Payment of Securities................................................................................... 29 Section 4.04. Appointment to Fill a Vacancy in the Office of Trustee............................................ 29 Section 4.05. Duties and Rights of Paying Agents; Company as Paying Agent....................................... 29 Section 4.06. Limitation on Liens............................................................................... 30 Section 4.07. Limitation on Sale and Lease-Back................................................................. 33 Section 4.08. Exempted Indebtedness............................................................................. 33 Section 4.09. Annual Certificate of Compliance.................................................................. 34 Section 4.10. Further Instruments and Acts...................................................................... 34 Section 4.11. Calculation of Original Issue Discount............................................................ 34 ARTICLE FIVE Holders' Lists and Reports by the Company and the Trustee Section 5.01. Company to Furnish Trustee Information as to Names and Addresses of Holders....................... 34 Section 5.02. Preservation of Information; Communications to Holders............................................ 35 Section 5.03. Reports by Company................................................................................ 36 Section 5.04. Reports by Trustee................................................................................ 37 ARTICLE SIX Remedies Section 6.01. Events of Default................................................................................. 38
Section 6.02. Acceleration of Maturity; Rescission and Annulment................................................ 40 Section 6.03. Collection of Indebtedness and Suits for Enforcement by Trustee................................... 41 Section 6.04. Trustee May File Proofs of Claim.................................................................. 42 Section 6.05. Trustee May Enforce Claims Without Possession of Securities....................................... 43 Section 6.06. Application of Moneys Collected................................................................... 43 Section 6.07. Limitation on Suits............................................................................... 44 Section 6.08. Unconditional Right of Holders to Receive Principal, Premium and Interest......................... 45 Section 6.09. Restoration of Rights and Remedies................................................................ 46 Section 6.10. Rights and Remedies Cumulative.................................................................... 46 Section 6.11. Delay or Omission Not Waiver...................................................................... 46 Section 6.12. Control by Holders................................................................................ 46 Section 6.13. Waiver of Past Defaults........................................................................... 47 Section 6.14. Undertaking for Costs............................................................................. 47 Section 6.15. Waiver of Stay or Extension Laws.................................................................. 47 ARTICLE SEVEN The Trustee Section 7.01. Certain Duties and Responsibilities............................................................... 48 Section 7.02. Notice of Defaults................................................................................ 49 Section 7.03. Certain Rights of Trustee......................................................................... 50 Section 7.04. Trustee Not Liable for Recitals in Indenture or in Securities..................................... 52 Section 7.05. Trustee, Paying Agent or Security Registrar May Own Securities.................................... 52 Section 7.06. Moneys Received by Trustee to Be Held in Trust.................................................... 52 Section 7.07. Compensation and Reimbursement.................................................................... 52 Section 7.08. Right of Trustee to Rely on an Officers' Certificate Where No Other Evidence Specifically Prescribed................................................................................... 53 Section 7.09. Disqualification; Conflicting Interests........................................................... 53 Section 7.10. Corporate Trustee Required; Requirements for Eligibility.......................................... 54 Section 7.11. Resignation and Removal of Trustee; Appointment of Successor...................................... 54 Section 7.12. Acceptance by Successor to Trustee................................................................ 56 Section 7.13. Successor to Trustee by Merger, Consolidation or Succession to Business........................... 58 Section 7.14. Preferential Collection of Claims Against Company................................................. 59 Section 7.15. Appointment of Additional and Separate Trustees................................................... 59
ARTICLE EIGHT Concerning the Holders Section 8.01. Evidence of Action by Holders...................................................................... 62 Section 8.02. Proof of Execution of Instruments and of Holding of Securities..................................... 62 Section 8.03. Who May Be Deemed Owner of Securities............................................................. 63 Section 8.04. Securities Owned by Company or Controlled or Controlling Companies Disregarded for Certain Purposes..................................................................................... 63 Section 8.05. Instruments Executed by Holders Bind Future Holders............................................... 64 ARTICLE NINE Holders' Meetings and Consents Section 9.01. Purposes for Which Meeting May Be Called.......................................................... 64 Section 9.02. Call of Meeting by Trustee........................................................................ 65 Section 9.03. Call of Meetings by Company or Holders............................................................ 65 Section 9.04. Who May Attend and Vote at Meetings............................................................... 66 Section 9.05. Regulations May Be Made by Trustee................................................................ 66 Section 9.06. Manner of Voting at Meetings and Record to Be Kept................................................ 67 Section 9.07. Written Consent in Lieu of Meetings............................................................... 67 Section 9.08. No Delay of Rights by Meeting..................................................................... 67 ARTICLE TEN Supplemental Indentures Section 10.01. Purposes for Which Supplemental Indentures May Be Entered into Without Consent of Holders......... 68 Section 10.02. Modification of Indenture with Consent of Holders of a Majority in Principal Amount of Securities................................................................................ 70 Section 10.03. Effect of Supplemental Indentures................................................................. 71 Section 10.04. Securities May Bear Notation of Changes by Supplemental Indentures................................ 72 ARTICLE ELEVEN Consolidation, Merger, Sale, Conveyance or Lease Section 11.01. Company May Consolidate, etc., on Certain Terms................................................... 72
Section 11.02. Successor Corporation to Be Substituted........................................................... 73 Section 11.03. Opinion of Counsel to Be Given Trustee............................................................ 73 ARTICLE TWELVE Satisfaction and Discharge of Indenture; Unclaimed Moneys Section 12.01. Satisfaction and Discharge of Indenture........................................................... 74 Section 12.02. Defeasance and Discharge of Securities or Certain Obligations..................................... 74 Section 12.03. Application by Trustee of Funds Deposited for Payment of Securities............................... 78 Section 12.04. Repayment of Moneys Held by Paying Agent.......................................................... 79 Section 12.05. Repayment of Moneys Held by Trustee............................................................... 79 ARTICLE THIRTEEN Immunity of Incorporators, Stockholders, Officers, Directors and Employees Section 13.01. Incorporators, Stockholders, Officers, Directors and Employees of Company Exempt from Individual Liability......................................................................... 79 ARTICLE FOURTEEN Miscellaneous Provisions Section 14.01. Successors and Assigns of Company Bound by Indenture.............................................. 80 Section 14.02. Acts of Board, Committee or Officer of Successor Corporation Valid................................ 80 Section 14.03. Required Notices or Demands....................................................................... 80 Section 14.04. Indenture and Securities to Be Construed in Accordance with the Laws of the State of New York..... 81 Section 14.05. Officers' Certificate and Opinion of Counsel to Be Furnished upon Application or Request by the Company...................................................................................... 81 Section 14.06. Payments Due on Non-Business Days................................................................. 82 Section 14.07. Moneys of Different Currencies to Be Segregated................................................... 82 Section 14.08. Payment to Be in Proper Currency.................................................................. 82 Section 14.09. Provisions Required by Trust Indenture Act to Control............................................. 83 Section 14.10. Indenture May Be Executed in Counterparts......................................................... 83 Section 14.11. Separability Clause............................................................................... 83
INDENTURE, dated as of the 22nd day of May, 1998 between Hussmann International, Inc., a corporation incorporated under the laws of Delaware (the "Company"), and The Bank of New York, a New York banking corporation (the "Trustee"). WHEREAS, the Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured debentures, notes and other evidences of indebtedness (hereinafter referred to as the "Securities"), to be issued in one or more series in an unlimited amount as provided in this Indenture; and WHEREAS, all acts and things necessary to make this Indenture a valid agreement in accordance with its terms have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, the Company and the Trustee mutually covenant and agree, for the equal and proportionate benefit of the respective Holders from time to time of the Securities, and of the Coupons, if any, appertaining thereto, as follows: ARTICLE ONE DEFINITIONS SECTION 1.01. CERTAIN TERMS DEFINED. The terms defined in this --------------------- Section 1.01 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.01: "Authorized Newspaper" shall mean a newspaper printed in the English -------------------- language or official language of the country of publication and customarily published at least once a day on each business day in each calendar week and of general circulation in the place or places of publication, whether or not such newspaper is published on Saturdays, Sundays and legal holidays. Whenever, under the provisions of this Indenture, two or more publications of a notice or other communication are required or permitted, such publications may be in the same or different Authorized Newspapers. If, because of temporary or permanent suspension of publication or general circulation of any newspaper or for any other reason, it is impossible or impracticable to publish any notices required by this Indenture in the manner herein provided, then such publication in lieu thereof or such other notice as shall be made with the approval of the Trustee shall constitute a sufficient publication of such notice. "Bankruptcy Law" shall mean Title 11 of the United States Code or any -------------- similar federal or state law for the relief of debtors. "Board of Directors" when used with reference to the Company, shall ------------------ mean the Board of Directors of the Company or any committee of such Board of Directors authorized to act on its behalf with respect to any particular matter. "Business Day" shall mean any day other than a Saturday or Sunday and ------------ other than a day on which banking institutions in New York, New York or any other jurisdiction in which the Paying Agent is being utilized, are authorized or obligated by law or executive order to close or, with reference to any Securities of any series, as set forth in the instrument establishing the series and in the Securities of such series. "Certified Board Resolution" shall mean one or more resolutions -------------------------- certified by the Secretary or any Assistant Secretary of the Company to have been duly adopted or consented to by the Board of Directors and to be in full force and effect on the date of such certification. "Company" shall mean Hussmann International, Inc. and, subject to the ------- provisions of Article Eleven, shall mean its successors and assigns from time to time hereafter. "Company Direction" or a "Company Request" shall mean a written ----------------- --------------- direction or request of the Company, signed by its Chairman, President, Chief Executive Officer, any Executive Vice President, Senior Vice President or Vice President and by its Secretary, any Assistant Secretary, its Treasurer, or any Assistant Treasurer. "Consolidated Net Tangible Assets" shall mean the excess of tangible -------------------------------- assets over total liabilities of the Company and its consolidated Subsidiaries, as determined from time to time in accordance with generally accepted accounting principles consistently applied. "Consolidated Net Worth" shall mean the excess of assets over total ---------------------- liabilities of the Company and its consolidated Subsidiaries plus Minority Interests, as determined from time to time in accordance with generally accepted accounting principles consistently applied. "Corporate Trust Office" or other similar term, shall mean the ---------------------- principal corporate trust office of the Trustee, at which at any particular time its corporate trust business shall be administered, or, if no such office is maintained, such other office of the Trustee as shall be designated. The Corporate Trust Office on the date hereof is located at 101 Barclay Street, Floor 21 West, New York, New York 10286. "Coupon" shall mean any interest coupon appertaining to a Security. ------ "Depositary" shall mean, with respect to the Securities of any series ---------- issuable or issued in whole or in part in the form of one or more Global Securities, the person designated as Depositary by the Company pursuant to Section 2.01 until a successor Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Depositary" shall mean or include each person who is then a Depositary hereunder, and if at any time there is more than one such person, "Depositary" as used with respect to the Securities of any such series shall mean the Depositary with respect to the Securities of that series. "Dollars and $" shall mean lawful money of the United States of ------------- America. "Event of Default" shall mean any event specified in Section 6.01, ---------------- continued for the period of time, if any, and after the giving of the notice, if any, therein designated. "Global Security" shall mean a Security evidencing all or part of a --------------- series of Securities issued to, and registered in the name of, the Depositary for such series (or its nominee) in accordance with Section 2.03. "Government Obligations" with respect to any series of Securities ---------------------- shall mean (i) direct noncallable obligations of the government which issued the currency in which the Securities of that series are denominated or (ii) noncallable obligations the payment of the principal of and interest on which is fully guaranteed by such government and which, in either case, are full faith and credit obligations of such government. "Holder", with respect to a registered Security, shall mean any person ------ in whose name such Security shall be registered on the Security Register, and, with respect to an unregistered Security, shall mean the bearer thereof or any Coupon appertaining thereto. "Indenture" shall mean this instrument as originally executed or, if --------- amended or supplemented as herein provided, as so amended or supplemented, and shall include the terms and forms of particular series of Securities established as contemplated hereunder. "Interest Payment Date" shall mean the date on which an installment of --------------------- interest on any series of Securities shall become due and payable, as therein or herein provided. "Maturity" when used with respect to any Security shall mean the date -------- on which the principal of such Security becomes due and payable as therein or herein provided, whether at Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Minority Interest" shall mean any shares of stock of any class of a ----------------- Subsidiary (other than directors' qualifying shares) that are not owned by the Company or any Subsidiary. "Officers' Certificate" shall mean a certificate of the Company, --------------------- signed by its Chairman, President, Chief Executive Officer, any Executive Vice President, Senior Vice President or Vice President and by its Secretary, any Assistant Secretary, its Treasurer or any Assistant Treasurer, delivered to the Trustee. Each such certificate shall include (except as otherwise provided in this Indenture) the statements provided for in Section 14.05. "Opinion of Counsel" shall mean an opinion in writing signed by legal ------------------ counsel, who may be an employee of, or counsel to, the Company. Each such opinion shall include (except as otherwise provided in this Indenture) the statements provided for in Section 14.05. "Original Issue Discount Security" shall mean any Security which -------------------------------- provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Stated Maturity thereof pursuant to Section 6.02. "Outstanding" when used with reference to Securities of any series, ----------- subject to the provisions of Section 8.04, shall mean, as of any particular time, all Securities of such series authenticated by the Trustee and delivered under this Indenture, except: (a) Securities of such series theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (b) Securities of such series paid pursuant to Section 2.09 or Securities of such series or portions thereof for the payment or redemption of which moneys in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall act as its own paying agent); provided that, if such Securities or portions thereof are to be redeemed, notice of such redemption shall have been given as provided in Article Three or provision satisfactory to the Trustee shall have been made for giving such notice; (c) Securities of such series in lieu of or in substitution for which other Securities shall have been authenticated and delivered pursuant to this Indenture, other than Securities as to which the Trustee receives proof satisfactory to it that such Security is held by a bona fide purchaser in whose hands such Security is a legal, valid and binding obligation of the Company; and (d) Securities which have been defaced pursuant to Section 12.02; provided, however, that in determining whether the Holders of the requisite - -------- ------- principal amount of the Securities of any or all series then Outstanding have given any request, demand, authorization, direction, notice, consent or waiver hereunder, the principal amount of an Original Issue Discount Security which shall be deemed to be Outstanding for such purposes shall be the portion of the principal amount thereof that could be declared to be due and payable upon the occurrence of an Event of Default and the continuation thereof pursuant to the terms of such Original Issue Discount Security as of such time. "Person" means any individual, corporation, partnership, joint ------ venture, association, joint-stock company, trust, unincorporated organization or government, or any agency or political subdivision thereof. "Principal Property" shall mean any manufacturing plant or warehouse ------------------ owned or leased by the Company or any Subsidiary and located within the United States of America, whether owned or leased on the date hereof or hereafter, the gross book value of which exceeds 2% of Consolidated Net Worth, other than manufacturing plants and warehouses which the Board of Directors by resolution declares are not of material importance to the total business conducted by the Company and its Restricted Subsidiaries as an entirety and which, when taken together with all other plants and warehouses as to which such a declaration has been so made, is so declared by the Board of Directors to be not of material importance to the total business conducted by the Company and its Restricted Subsidiaries as an entirety. "Record Date" as used with respect to any Interest Payment Date shall ----------- mean the close of business on the 15th day of the month preceding the month in which an Interest Payment Date occurs, if such Interest Payment Date is the first day of such month, or the first day of the month in which an Interest Payment Date occurs, if such Interest Payment Date is the 15th day of such month, in each case whether or not a Business Day, or such other dates with respect to a particular series of Securities as may be specified in the instrument establishing such series. "Responsible Officer" when used with respect to the Trustee shall mean ------------------- any vice president, any assistant vice president, any assistant secretary, any assistant treasurer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "Restricted Subsidiary" shall mean any Subsidiary which owns or leases --------------------- a Principal Property. "Security or Securities" shall have the meaning stated in the recital ---------------------- of this Indenture and shall more particularly mean any Security or such Securities, as the case may be, authenticated and delivered pursuant to this Indenture. "Securities Act" shall mean the Securities Act of 1933, as amended. -------------- "SEC" shall mean the United States Securities and Exchange Commission. --- "Sinking Fund" shall mean any fund established by the Company for ------------ redemption of the Securities of any series prior to Stated Maturity. "Stated Maturity", when used with respect to any Security, shall mean --------------- the date on which the last payment of principal of such Security is due and payable in accordance with the terms thereof. "Subsidiary" shall mean any corporation, association or other business ---------- entity of which at least a majority of the outstanding securities or equity interests having ordinary voting power to elect a majority of the board of directors of such corporation or Persons performing similar functions (whether or not any other class of securities or equity interests has or might have voting power by reason of the happening occurrence a contingency) is at the time owned or controlled, directly or indirectly, by the Company, or by one or more Subsidiaries, or by the Company and one or more Subsidiaries. "Trustee" shall mean the Trustee named in the first paragraph of this ------- Indenture until a successor Trustee shall have become such pursuant to the applicable provisions hereof, and thereafter "Trustee" shall mean or include all Trustees hereunder, and, subject to the provisions of Article Seven, shall also include its successors and assigns, and, unless the context otherwise requires, shall also include any co-trustee or co-trustees or separate trustee or trustees appointed pursuant to Section 7.15. "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as ------------------- amended, as in force on the date of this Indenture; provided, however, that in the event that such Act is amended after such date, "Trust Indenture Act" shall mean, to the extent required by such amendment or the context of this Indenture, the Trust Indenture Act of 1939 as so amended. SECTION 1.02. OTHER DEFINITIONS. The terms listed below in this ----------------- Section 1.02 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and any indenture supplemental hereto shall have the respective meanings specified in the sections of this Indenture set opposite the particular term: Defined in Terms Section ----- -------- Debt...................................... 4.06 Defaulted Interest........................ 2.03 Funded Debt............................... 4.07 Liens..................................... 4.06 Mandatory Sinking Fund payment............ 3.04 Market Exchange Rate...................... 14.08 Optional Sinking Fund payment............. 3.04 Sale and Lease-Back Transaction........... 4.07 Security Register and Security Registrar.. 2.06 Sinking Fund payment date................. 3.04 Specified Currency........................ 14.08 Value..................................... 4.07 SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. ------------------------------------------------- Whenever this Indenture refers to a provision of the Trust Indenture Act, the provision is incorporated by reference in and made a part of this Indenture. All terms not defined in this Article One which are defined in the Trust Indenture Act, or which are by reference therein defined in the Securities Act (except as herein otherwise expressly provided and unless the context otherwise requires), shall have the meanings assigned to such terms in the Trust Indenture Act and in the Securities Act as in force as of the date of this Indenture. The following Trust Indenture Act terms used in the provisions of the Trust Indenture Act incorporated by reference in this Indenture shall have the following meanings: "Commission" shall mean the SEC. ---------- "Indenture Securities" shall mean the Securities. -------------------- "Indenture to Be Qualified" shall mean this Indenture. ------------------------- "Indenture Trustee or Institutional Trustee" shall mean the Trustee. ------------------------------------------ "Obligor" with reference to Indenture Securities shall mean the ------- Company. ARTICLE TWO ISSUE, DESCRIPTION, EXECUTION, REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE OF SECURITIES SECTION 2.01. AMOUNT UNLIMITED; ESTABLISHMENT OF SERIES. The ----------------------------------------- aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series; and each such series shall rank pari passu with all other unsecured and unsubordinated ---- ----- indebtedness of the Company. All Securities of any one series shall be substantially identical except as to denomination and except as the Company in an Officers' Certificate delivered pursuant to this Section 2.01 or in any supplemental indenture may otherwise provide. The Securities may bear interest at such lawful rate or rates, from such date or dates, shall mature at such time or times, may be redeemable at such price or prices and upon such terms, including, without limitation, out of proceeds from the sale of other Securities, or other indebtedness of the Company, and may contain and/or be subject to such other terms and provisions as shall be determined by the Company prior to the issuance of such Securities in accordance with the authority granted in one or more resolutions of the Board of Directors and set forth in an Officers' Certificate or a supplemental indenture, which instrument shall establish with respect to each series of Securities: (1) the designation of the Securities of such series, which shall distinguish the Securities of one series from all other Securities; (2) the limit upon the aggregate principal amount at Stated Maturity of the Securities of such series which may be authenticated and delivered under this Indenture (not including Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of such series pursuant to Section 2.06, 2.07, 2.08, 3.02 or 10.04); (3) the rate or rates at which the Securities of such series shall bear interest, if any, or the formula or method by which interest shall accrue, the dates from which interest shall accrue, the Interest Payment Dates on which such interest shall be payable, and, in the case of registered Securities, the Record Date for the interest payable on any Interest Payment Date; (4) the Stated Maturity of the Securities of such series; (5) the period or periods within which, the price or prices at which, and the terms and conditions upon which, the Securities of such series may be redeemed, in whole or in part, at the option of the Company; (6) the obligation, if any, of the Company to redeem or purchase Securities of such series pursuant to a sinking, purchase or analogous fund or at the option of the holder thereof and the period or periods within which, the price or prices at which, and the terms and conditions upon which, the Securities of such series shall be redeemed, or purchased, in whole or in part, pursuant to such obligation; (7) if other than the principal amount at Stated Maturity, the portion of the principal amount at Stated Maturity of the Securities of such series which shall be payable upon declaration of acceleration of the maturity thereof pursuant to Section 6.02; (8) if other than denominations of $1,000, if registered, and $5,000, if unregistered, and any integral multiple of such denominations for Securities denominated in Dollars, the denominations in which the Securities of such series shall be issuable; (9) the form of Security to be used to evidence ownership of Securities of such series; (10) any terms with respect to conversion of the Securities of such series, warrants attached thereto or terms pursuant to which warrants may exist; (11) the place or places where the principal of (and premium, if any) and interest, if any, on the Securities of such series shall be payable; (12) any additional offices or agencies maintained pursuant to Section 4.03; (13) whether the Securities of such series shall be issued as registered Securities or as unregistered Securities, with or without Coupons; whether unregistered Securities may be exchanged for registered Securities of such series and whether registered Securities may be exchanged for unregistered Securities of such series (if permitted by applicable laws and regulations) and the circumstances under which and the place or places where any such exchanges, if permitted, may be made; and whether the Securities of such series shall be issued in whole or in part in the form of one or more Global Securities and, in such case, the Depositary for such Global Security or Securities and whether any Global Securities of such series shall be issuable initially in temporary form, and whether any Global Securities of such series shall be issuable in definitive form, with or without Coupons, and, if so, whether beneficial owners of interests in any such definitive Global Security may exchange such interests for Securities of such series and the circumstances under which and the place or places where any such exchange may occur; (14) if other than Dollars, the currency or currencies, or currency unit or units in which the Securities of such Series shall be denominated and in which payment of the principal of (and premium, if any) and interest, if any, on any of such Securities shall be payable; (15) if the principal of (and premium, if any) and interest, if any, on any of the Securities of such series are to be payable at the election of the Company or a Holder thereof or under some or all other circumstances, in a currency or currencies, or currency unit or units other than that in which the Securities are denominated, the period or periods within which, and the terms and conditions upon which, such election may be made, or the other circumstances under which any of the Securities are to be so payable, and any provision requiring the Holder to bear currency exchange costs by deduction from such payments; (16) if the amount of payments of principal (and premium, if any) and interest, if any, on any of the Securities of such series may be determined with reference to a currency, currency unit, commodity or financial or non- financial index or indices, then the manner in which such amounts shall be determined; (17) whether and under what circumstances and with what procedures and documentation the Company will pay additional amounts on any of the Securities and Coupons, if any, of such series to any holder who is not a U.S. Person (including a definition of such term), in respect of any tax, assessment or governmental charge withheld or deducted and, if so, whether the Company will have the option to redeem such Securities rather than pay additional amounts (and the terms of any such option); (18) the Person to whom any interest on any registered Security of such series shall be payable, if other than the Person in whose name that Security is registered at the close of business on the Record Date for such interest, the manner in which, or the Person to whom, any interest on any unregistered Security of such series shall be payable, if otherwise than upon presentation and surrender of the Coupons appertaining thereto as they severally mature, and the extent to which, or the manner in which, any interest payable on a temporary Global Security on an Interest Payment Date will be paid if other than in the manner provided in Section 4.02; (19) whether Section 12.02 shall not apply to the Securities of such series; and (20) any other terms of the Securities of such series (which terms shall not be inconsistent with the provisions of this Indenture). All Securities of any one series need not be issued at the same time, and unless otherwise provided, a series may be reopened for issuance of additional Securities of such series. SECTION 2.02. FORM OF SECURITIES AND TRUSTEE'S CERTIFICATE OF ----------------------------------------------- AUTHENTICATION. The Securities of each series shall be substantially in the - -------------- form established by or pursuant to one or more resolutions of the Board of Directors, with such specific terms, additions or omissions as may be determined pursuant to an Officers' Certificate or a supplemental indenture as contemplated in Section 2.01 hereof, in each case with such letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of the Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Securities may be listed, or to conform to usage. The Trustee's certificate of authentication to be borne by such Securities shall be in the form set forth below: (Form of Trustee's Certificate of Authentication) This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee By______________________ Authorized Signatory SECTION 2.03. GLOBAL SECURITIES. If Securities of a series are ----------------- issuable in whole or in part as Global Securities pursuant to Section 2.01, then, notwithstanding clause (8) of Section 2.01 and the provisions of Section 2.04, such Global Securities shall represent such of the Outstanding Securities of such series as shall be specified therein and may provide that they shall represent the aggregate amount of Outstanding Securities from time to time endorsed thereon and that the aggregate amount of Outstanding Securities represented thereby may from time to time be reduced to reflect exchanges or redemptions. Any endorsement of a Global Security to reflect the amount, or any increase or decrease in the amount, of Outstanding Securities represented thereby shall be made by the Trustee in such manner and upon instructions given by such Person or Persons as shall be specified therein or in the Company Direction to be delivered to the Trustee pursuant to Section 2.04 or Section 2.07. Subject to the provisions of Section 2.04 and, if applicable, Section 2.07, the Trustee shall deliver and redeliver any Global Security in the manner and upon written instructions given by the Person or Persons specified therein or in the applicable Company Direction. If a Company Direction pursuant to Section 2.04 or 2.07 has been, or simultaneously is, delivered, any instructions by the Company with respect to endorsement or delivery or redelivery of a Global Security shall be in writing but need not comply with Section 14.05 and need not be accompanied by an Opinion of Counsel. Notwithstanding the provisions of Sections 2.02 and 4.02, unless otherwise specified pursuant to Section 2.01, payment of principal of (and premium, if any) and interest, if any, on any Global Security shall be made to the Person or Persons specified therein. If at any time the Depositary for the Global Securities of a series notifies the Company that it is unwilling or unable to continue as Depositary for the Global Securities of such series or if at any time the Depositary for the Global Securities of such series shall no longer be eligible to serve as Depositary, the Company shall appoint a successor Depositary with respect to the Global Securities of such series. If a successor Depositary for the Global Securities of such series is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Company's election pursuant to Section 2.01 that such Securities be represented by one or more Global Securities shall no longer be effective with respect to the Global Securities of such series and the Company shall execute, and the Trustee, upon receipt of a Company Direction for the authentication and delivery of definitive Securities of such series, shall authenticate and make available for delivery Securities of such series in definitive form in an aggregate principal amount equal to the principal amount of the Global Security or Securities representing such series in exchange for such Global Security or Securities. The Company may at any time and in its sole discretion determine that the Securities of any series or portion thereof issued in the form of one or more Global Securities shall no longer be represented by such Global Security or Securities. In such event the Company will execute, and the Trustee, upon receipt of a Company Direction for the authentication and delivery of definitive Securities of such series in exchange for such Global Security or Securities, will authenticate and make available for delivery Securities of such series in definitive form and in an aggregate principal amount equal to the principal amount of such Global Security or Securities being exchanged. Upon the exchange of a Global Security for Securities in definitive form, such Global Security shall be canceled by the Trustee. Registered Securities issued in exchange for a Global Security pursuant to this Section shall be registered in such names and in such authorized denominations as the Depositary for such Global Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such registered Securities to, or upon the order of, the Persons in whose names such Securities are so registered. Unless otherwise specified by the Company pursuant to Section 2.01, a Global Security representing all or a portion of the Securities of a series may not be transferred except as a whole by the Depositary for such series to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by such Depositary or any such nominee to a successor Depositary for such series or a nominee of such successor Depositary. None of the Company, the Trustee or any agent of the Company or the Trustee shall have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. SECTION 2.04. DENOMINATION, AUTHENTICATION AND DATING OF SECURITIES. ----------------------------------------------------- The Securities of each series may be issued as registered Securities or, if provided by the terms of the instrument establishing such series of Securities, as unregistered Securities, with or without Coupons. The Securities of each series, if registered, shall be issuable in denominations of $ 1,000 and any integral multiple of $ 1,000, unless otherwise provided by the terms of the instrument establishing such series of Securities. Each Security shall be dated as of the date of its authentication. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a Company Direction for authentication and delivery of such Securities, and the Trustee shall thereupon authenticate and make available for delivery such Securities in accordance with such Company Direction. Prior to the issuance of Securities of any series, the Trustee shall be entitled to receive, and subject to Section 7.01, shall be fully protected in relying upon: (1) a Certified Board Resolution pursuant to which the issuance of the Securities of such series is authorized; (2) an executed supplemental indenture, if any; (3) an Officers' Certificate, if any, delivered in accordance with Section 2.01 and an Officers' Certificate as to the absence of any Event of Default or any event which with notice or lapse of time or both could become an Event of Default; and (4) at the option of the Company, one of the following: an Opinion of Counsel or a letter addressed to the Trustee permitting the Trustee to conclusively rely on an Opinion of Counsel, substantially to the effect that: (i) the form and the terms of the Securities of such series have been established in conformity with the provisions of this Indenture; (ii) the Securities of such series have been duly authorized, and, when the Securities of such series and the Coupons, if any, appertaining thereto shall have been executed by the Company and authenticated by the Trustee in accordance with the provisions of this Indenture and delivered to and duly paid for by the purchasers thereof, such Securities will have been duly issued under this Indenture and will be valid and legally binding obligations of the Company enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting the enforcement of creditors' rights and to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law), and will be entitled to the benefits of this Indenture; (iii) no consent, approval, authorization, order, registration or qualification of or with any governmental agency or body having jurisdiction over the Company is required for the execution and delivery of the Securities of such series by the Company, except such as have been obtained, but no opinion need be expressed as to provincial or state securities or Blue Sky laws; and (iv) the registration statement, if any, relating to the Securities of such series and any amendments thereto has become effective under the Securities Act, and to the best knowledge of such counsel, no stop order suspending the effectiveness of such registration statement, as amended, has been issued and no proceeding for that purpose have been instituted or threatened; In addition, such Opinion of Counsel shall address such other matters as the Trustee may reasonably request. The Trustee shall have the right to decline to authenticate and deliver any Securities of such series (A) if a Responsible Officer of the Trustee, being advised by counsel, determines that such action may not lawfully be taken; or (B) if the Trustee in good faith shall determine that such action would expose the Trustee to personal liability to Holders of Outstanding Securities of any series. So long as there is no existing default in the payment of interest on registered Securities of any series, all such Securities authenticated by the Trustee after the close of business on the Record Date for the payment of interest on any Interest Payment Date relating to such Record Date and prior to such Interest Payment Date shall bear interest from such Interest Payment Date; provided, however, that if and to the extent that the Company shall default in the interest due on such Interest Payment Date, then any such Securities shall bear interest from the next preceding Interest Payment Date relating to such Security with respect to which interest has been paid or duly provided for on such Securities, or if no interest has been paid or duly provided for on such Securities, from the date from which interest shall accrue as such date is set forth in the instrument establishing the terms of such Securities. The Person in whose name any Security is registered at the close of business on any Record Date with respect to any Interest Payment Date shall be entitled to receive the interest payable on such Interest Payment Date notwithstanding the cancellation of such Security upon any registration and transfer or exchange thereof subsequent to such Record Date and prior to such Interest Payment Date, except if and to the extent the Company shall default in the payment of the interest due on such Interest Payment Date, in which case such defaulted interest (herein called "Defaulted Interest") shall be paid to the Persons in whose names outstanding Securities of such series are registered at the close of business on a subsequent record date, which shall not be less than five Business Days preceding the date of payment of such Defaulted Interest established for such purpose by notice given by mail by or on behalf of the Company to Holders of such Securities not less than 15 days preceding such subsequent record date. Such notice shall be given to the Persons in whose names such Outstanding Securities of such series are registered at the close of business on the third business day preceding the date of the mailing of such notice. SECTION 2.05. EXECUTION OF SECURITIES. The Securities and Coupons ----------------------- appertaining thereto, if any, shall be signed on behalf of the Company by its Chairman, President, Chief Executive Officer, any Executive Vice President, Senior Vice President or Vice President and by its Secretary or any Assistant Secretary under its corporate seal. Such signatures may be the manual or facsimile signatures of the present or any future such authorized officers and may be imprinted or otherwise reproduced on the Securities and such Coupons. The seal of the Company may be in the form of a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the Securities and such Coupons. Only such Securities as shall bear thereon a Trustee's certificate of authentication substantially in the form provided in Section 2.04 (or Section 2.12, if applicable), signed manually by the Trustee, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. The Trustee's certificate of authentication on any Security executed by the Company shall be conclusive evidence that the Security so authenticated has been duly authenticated and delivered hereunder. In case any officer of the Company who shall have signed any of the Securities or such Coupons shall cease to be such officer before the Securities or such Coupons so signed shall have been authenticated by the Trustee and delivered or disposed of by the Company, such Securities and such Coupons nevertheless may be authenticated and delivered or disposed of as though the officer who signed such Securities and such Coupons had not ceased to be such officer of the Company; and any Security or such Coupons may be signed on behalf of the Company by such Persons as, at the actual date of the execution of such Security or such Coupons, shall be the proper officers of the Company, although at the date of such Security or such Coupons or of the execution of this Indenture any such Person was not such officer. SECTION 2.06. REGISTRATION OF TRANSFER AND EXCHANGE. The Company ------------------------------------- shall keep, at an office or agency maintained by the Company in accordance with the provisions of Section 4.03, a register for each series of registered Securities (such register being herein referred to as the "Security Register"), in which, subject to such reasonable regulations as it may prescribe, the Company shall register Securities of such series and shall register the transfer of such Securities as in this Article Two provided. At all reasonable times the Security Register shall be open for inspection by the Trustee. Subject to Sections 2.01 and 2.03, upon due presentment for registration of transfer of any such Security at such office or agency, or such other offices or agencies as the Company may designate, the Company shall execute and the Trustee shall authenticate and make available for delivery in the name of the transferee or transferees a new Security or Securities of authorized denominations, of the same series and of like aggregate principal amount at Stated Maturity. Unless and until otherwise determined by or pursuant to one or more resolutions of the Board of Directors, the Security Register for the purpose of registration, exchange or registration of transfer of registered Securities shall be kept at the Corporate Trust Office and, for this purpose, the Trustee shall be designated the "Security Registrar". Subject to Sections 2.01 and 2.03, at the option of the Holder, Securities of any series may be exchanged for Securities of the same series of like aggregate principal amount at Stated Maturity and of other authorized denominations. Securities to be so exchanged shall be surrendered at the offices or agencies to be maintained by the Company as provided in Section 4.03, and the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor the Security or Securities which the Holder making the exchange shall be entitled to receive. All Securities presented or surrendered for registration of transfer, exchange, redemption or payment shall (if so required by the Company or the Security Registrar) be duly endorsed or be accompanied by a written instrument or instruments of transfer, in form satisfactory to the Company and the Security Registrar, duly executed by the Holder or his attorney duly authorized in writing. No service charge shall be made for any exchange or registration of transfer of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. The Company shall not be required (a) to issue, register the transfer of or exchange any Securities of any series for a period of 15 days next preceding the mailing of a notice of redemption of Securities of such series to be redeemed, or (b) to register the transfer of or exchange any Securities of such series selected, called or being called for redemption in whole or in part except, in the case of any Security to be redeemed in part, the portion thereof not so to be redeemed. SECTION 2.07. TEMPORARY SECURITIES. Pending the preparation of -------------------- definitive Securities, the Company may execute and make available for delivery and the Trustee, upon Company Direction, shall authenticate and make available for delivery temporary Securities (printed, lithographed, or typewritten), of any authorized denomination, and substantially in the form of the definitive Securities, but with such omissions, insertions and variations as may be appropriate for temporary Securities, all as may be determined by the Company. Temporary Securities may be issued without a recital of the specific redemption prices, if any, applicable to such Securities, and may contain such reference to any provisions of this Indenture as may be appropriate. Every temporary Security shall be executed by the Company and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Securities. The Company shall execute and furnish definitive Securities as soon as practicable and thereupon any or all temporary Securities may be surrendered in exchange therefor at the Corporate Trust Office, and the Trustee shall authenticate and make available for delivery in exchange for such temporary Securities a like aggregate principal amount at Stated Maturity of definitive Securities of the same series. Until so exchanged, the temporary Securities shall be entitled to the same benefits under this Indenture as definitive Securities authenticated and delivered hereunder. SECTION 2.08. MUTILATED, DESTROYED, LOST OR STOLEN SECURITIES. In ----------------------------------------------- case any temporary or definitive Security and, in the case of a definitive Security, Coupons appertaining thereto, if any, shall become mutilated or be destroyed, lost or stolen, the Company in its discretion may execute, and upon a Company Direction the Trustee shall authenticate and make available for delivery, a new Security or such Coupons of the same series bearing a number not contemporaneously Outstanding, in exchange and substitution for the mutilated Security or such Coupons, or in lieu of and in substitution for the Security or such Coupons so destroyed, lost or stolen. In every case, the applicant for a substituted Security or such Coupons shall furnish to the Company and to the Security Registrar and any paying agent, such security or indemnity as may be required by them to save each of them harmless from all risk, however remote, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and to the Security Registrar and any paying agent, evidence to their satisfaction of the destruction, loss or theft of such Security or such Coupons and of the ownership thereof. The Trustee may authenticate any such substituted Security and deliver the same upon Company Direction. Upon the issuance of any substituted Security or such Coupons, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. In case any Security which has matured or is about to mature or which has been called for redemption shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substituted Security, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated Security) if the applicant for such payment shall furnish the Company and any paying agent with such security or indemnity as either may require to save it harmless from all risk, however remote, and, in case of destruction, loss or theft, evidence to the satisfaction of the Company of the destruction, loss or theft of such Security and of the ownership thereof. Every substituted Security of any series or Coupon issued pursuant to the provisions of this Section 2.08 by virtue of the fact that any Security or Coupon is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security or Coupon shall be found at any time, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of such series or Coupons duly issued and delivered hereunder. All Securities and Coupons shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities and Coupons, and shall preclude (to the extent lawful) any and all other rights or remedies, notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. SECTION 2.09. CANCELLATION OF SURRENDERED SECURITIES. All Securities -------------------------------------- surrendered for payment, redemption, registration of transfer or exchange, and all Coupons surrendered for payment, shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee for cancellation by it, or, if surrendered to the Trustee, shall be canceled by it, and all Securities delivered to the Trustee in discharge or satisfaction in whole or in part of any Sinking Fund payment (referred to in Section 3.04) shall be canceled by the Trustee and no Securities shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. By a Company Request the Trustee shall deliver to the Company canceled Securities and Coupons held by the Trustee. If the Company shall acquire any of the Securities or Coupons, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness or rights represented by such Securities or Coupons unless and until the same are delivered or surrendered to the Trustee for cancellation. SECTION 2.10. PROVISIONS OF INDENTURE AND SECURITIES FOR THE SOLE --------------------------------------------------- BENEFIT OF THE PARTIES AND THE HOLDERS. Nothing in this Indenture or in the - -------------------------------------- Securities, expressed or implied, shall give or be construed to give to any Person, other than the parties hereto and the Holders, any legal or equitable right, remedy or claim under or in respect of this Indenture, or under any covenant, condition or provision herein contained, all its covenants, conditions and provisions being for the sole benefit of the parties hereto and the Holders. SECTION 2.11. COMPUTATION OF INTEREST. Except as otherwise specified ----------------------- as contemplated by Section 2.01 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 2.12. AUTHENTICATING AGENTS. The Trustee shall, if requested --------------------- pursuant to a Company Request, promptly appoint an agent or agents of the Trustee who shall have authority to authenticate Securities of any series in the name and on behalf of the Trustee. Such appointment by the Trustee shall be evidenced by a certificate executed by a Responsible Officer of the Trustee delivered to the Company prior to the effectiveness of such appointment designating such agent or agents and stating that all appropriate corporate action has been taken by the Trustee in connection with such appointment. Wherever reference is made in this Indenture to the authentication of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication on behalf of the Trustee by an authenticating agent and a certificate of authentication executed on behalf of the Trustee by an authenticating agent. Any such authenticating agent shall be an agent acceptable to the Company and shall at all times be a corporation which is organized and doing business under the laws of the United States of America or of any State, authorized under such laws to act as authenticating agent, having a combined capital and surplus of at least $1,000,000, and subject to supervision or examination by federal or state authority. An authenticating agent may at any time resign with respect to one or more series of Securities by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of an authenticating agent with respect to one or more series of Securities by giving written notice of termination to such authenticating agent and to the Company. Upon receiving such notice of resignation or upon such termination, or in case at any time an authenticating agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee promptly may appoint a successor authenticating agent. Any successor authenticating agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an authenticating agent herein. No successor authenticating agent shall be appointed unless eligible under the provisions of this Section. The Company agrees to pay to each authenticating agent from time to time reasonable compensation for its services under this Section. The provisions of Sections 7.03, 7.04 and 7.05 shall be applicable to any authenticating agent. Pursuant to each appointment of an authenticating agent made under this Section, the Securities of each series covered by such appointment may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in substantially the following form: (ALTERNATE FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION) This is one of the Securities of the series designated herein referred to in the Indenture. THE BANK OF NEW YORK, as Trustee By_________________________________ Authenticating Agent By_________________________________ Authorized Signatory SECTION 2.13. COMPLIANCE WITH CERTAIN LAWS AND REGULATIONS. If any -------------------------------------------- unregistered Securities are to be issued in any series of Securities, the Company shall use reasonable efforts to provide for arrangements and procedures designed pursuant to then applicable laws and regulations, if any, to ensure that such unregistered Securities are sold or resold, exchanged, transferred and paid only in compliance with such laws and regulations and without adverse consequences to the Company, the Holders and the Trustee. SECTION 2.14. MEDIUM-TERM SECURITIES. Notwithstanding any contrary ---------------------- provision herein, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Company Direction, Officers' Certificate, supplemental indenture or Opinion of Counsel otherwise required pursuant to Sections 2.01, 2.03, 2.04, 2.07 and Section 14.05 at or prior to the time of authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued; provided that any subsequent direction by the Company to the Trustee to authenticate Securities of such series upon original issuance shall constitute a representation and warranty by the Company that as of the date of such direction, the statements made in the Officers' Certificate or supplemental indenture delivered pursuant to Section 2.01 shall be true and correct as if made on such date. An Officers' Certificate or supplemental indenture, delivered pursuant to this Section 2.14 in the circumstances set forth in the preceding paragraph, may provide that Securities which are the subject thereof will be authenticated and delivered by the Trustee on original issue from time to time upon the telephonic or written order of Persons designated in such Officers' Certificate or supplemental indenture (telephonic instructions to be promptly confirmed in writing by such Person) and that such Persons are authorized to determine, consistent with such Officers' Certificate or any applicable supplemental indenture, such terms and conditions of the Securities as are specified in such Officers' Certificate or supplemental indenture. SECTION 2.15. CUSIP NUMBERS. The Company in issuing the Securities ------------- of any series may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is -------- made as to the correctness of such numbers either as printed on such Securities or as contained in any notice of a redemption and that reliance may be placed only on the other indemnification numbers printed on such Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers. ARTICLE THREE REDEMPTION OF SECURITIES - SINKING FUND SECTION 3.01. APPLICABILITY OF ARTICLE. The Company may become ------------------------ obligated, or reserve the right, to redeem and pay, prior to Stated Maturity, all or any part of the Securities of any series, either by optional redemption, Sinking Fund or otherwise, by provision therefor in the instrument establishing such series of Securities pursuant to Section 2.01 or in the Securities of such series. Redemption of any series shall be made in accordance with the terms of such Securities and to the extent that this Article does not conflict with such terms, in accordance with this Article. SECTION 3.02. NOTICE OF REDEMPTION; SELECTION OF SECURITIES. In ---------------------------------------------- case the Company shall be obligated, or shall exercise the right, to redeem Securities as provided for in the first sentence of Section 3.01, it shall fix a date for redemption (unless, by the terms of the instrument establishing such series of Securities or the terms of such Securities, such date is fixed) and the Company, or, upon a Company Request the Trustee, in the name of and at the expense of the Company, shall give notice of such redemption to the Holders of the Securities to be redeemed as a whole or in part, with respect to registered Securities, by mailing a notice of such redemption not less than 30 nor more than 60 days prior to the date fixed for redemption to their last addresses as they shall appear upon the Security Register and, with respect to unregistered Securities, by publishing in an Authorized Newspaper notice of such redemption on two separate days, each of which is not less than 30 nor more than the 60 days prior to the date fixed for redemption. Any notice which is mailed or published, as the case may be, in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder actually receives such notice. In any case, failure duly to give notice by mail, or any defect in the notice, to the Holder of any registered Security of any series designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security of such series. In case, by reason of the suspension of or irregularities in regular mail service, it shall be impractical to mail notice of any event to Holders of registered Securities when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice. Each such notice of redemption shall specify the designation of the series of the Securities to be redeemed (including CUSIP numbers), the date fixed for redemption and the redemption price at which Securities are to be redeemed, and shall state that payment of the redemption price of the Securities or portions thereof to be redeemed will be made at the offices or agencies to be maintained by the Company in accordance with the provisions of Section 4.03 upon presentation and surrender of such Securities, that interest accrued to the date fixed for redemption will be paid as specified in such notice, and that, on and after such date, interest thereon or on the portions thereof to be redeemed will cease to accrue. If less than all the Securities of any series are to be redeemed, the notice to the Holders of Securities to be redeemed shall specify the Securities to be redeemed. In case any Security is to be redeemed in part only, such notice shall state the portion of the principal amount thereof to be redeemed, and shall state that on and after the redemption date, upon surrender of such Security, a new Security or Securities of the same series in authorized denominations and in a principal amount at Stated Maturity equal to the unredeemed portion thereof will be issued. If less than all the Securities of like tenor and terms of any series are to be redeemed, the Company shall give the Trustee written notice, at least 60 days (or such shorter period acceptable to the Trustee) in advance of the date fixed for redemption, as to the aggregate principal amount at Stated Maturity of Securities of such series to be redeemed, which shall be an integral multiple of the minimum authorized denomination of such series, and thereupon the Trustee shall select, in such manner as it shall deem appropriate and fair, the Securities of such series to be redeemed in whole or in part and shall thereafter promptly notify the Company in writing of the numbers of the Securities so to be redeemed and, in the case of Securities to be redeemed in part only, the principal amount at Stated Maturity so to be redeemed. If less than all the Securities of unlike tenor and terms of a series are to be redeemed, the particular Securities to be redeemed shall be selected by the Company, and the Company shall notify the Trustee in writing thereof at least 45 days before the relevant redemption date. SECTION 3.03. WHEN SECURITIES CALLED FOR REDEMPTION BECOME DUE AND ---------------------------------------------------- PAYABLE. If the giving of notice of redemption shall have been completed as - -------- provided in Section 3.02, the Securities or portions of Securities specified in such notice shall become due and payable on the date and at the place stated in such notice at the applicable redemption price, together with interest accrued to the date fixed for redemption, and on and after such date fixed for redemption (unless the Company shall default in the payment of such Securities at the redemption price, together with interest accrued to the date fixed for redemption) interest on the Securities or portions of Securities so called for redemption shall cease to accrue. On presentation and surrender of such Securities on or after the date fixed for redemption at the place of payment specified in such notice, such Securities shall be paid and redeemed by the Company at the applicable redemption price, together with interest accrued to the date fixed for redemption; provided, however, that installments of interest becoming due on the date fixed for redemption on Securities which are in registered form shall be payable to the Holders of such Securities or of one or more previous such Securities evidencing all or a portion of the same debt as that evidenced by such particular Securities, registered as such on the relevant Record Dates according to their terms and the provisions of Section 2.04. Upon presentation of any Security which is redeemed in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to the Holder of such Security, at the expense of the Company, a new Security or Securities of the same series in authorized denominations and in a principal amount at Stated Maturity equal to the unredeemed portion of the Security so presented. SECTION 3.04. SINKING FUND . In the event that the instrument ------------ establishing the terms of a particular series shall provide for a Sinking Fund, the Company covenants that as and for a Sinking Fund for the redemption of Securities of such series, so long as any of the Securities of such series are Outstanding: (a) It will pay to the Trustee or to a paying agent (or, if the Company is acting as its own paying agent, segregate and hold in trust as provided in Section 4.05) on or before each date set forth as a Sinking Fund payment date in the instrument establishing such series, a sum in cash sufficient to retire on each such date, at the Sinking Fund redemption price provided for in such instrument and upon the conditions, if any, applicable thereto as specified in such instrument, the principal amount of such Securities as specified in such instrument. Each such date is herein called a "Sinking Fund payment date", and each sum payable as provided in this paragraph (a) is herein called a "mandatory Sinking Fund payment". (b) If the instrument establishing any series of Securities so provides, the Company may elect to pay to the Trustee or to a paying agent (or, if the Company is acting as its own paying agent, segregate and hold in trust as provided in Section 4.05) on or before any Sinking Fund payment date with respect to a particular series of Securities, an additional sum in cash sufficient to retire on such Sinking Fund payment date, at the Sinking Fund redemption price, up to any additional principal amount of Securities set forth in such instrument. Any sum payable as provided in this paragraph (b) is herein called an "optional Sinking Fund payment". Any such election by the Company shall be evidenced by an Officers' Certificate (which shall conform to Section 14.05), delivered to the Trustee not later than 60 days (or such shorter period acceptable to the Trustee) preceding such Sinking Fund payment date, which Officers' Certificate shall set forth the amount of the optional Sinking Fund payment which the Company then elects to pay. The Company's election, so evidenced, shall be irrevocable and the Company shall, upon delivery of such Officers' Certificate to the Trustee, become bound to pay or segregate and hold in trust as aforesaid on or before such Sinking Fund payment date the amount specified in such Officers' Certificate. Unless otherwise provided in the instrument establishing such series, any such right to make an optional Sinking Fund payment shall be noncumulative and shall in no event relieve the Company of its obligation set forth in paragraph (a) of this Section 3.04. All moneys paid or segregated and held in trust pursuant to this Section 3.04 shall be applied on the Sinking Fund payment date in respect of which such payment or segregation was made, to the redemption of Securities as provided in this Article Three. SECTION 3.05. USE OF ACQUIRED SECURITIES TO SATISFY SINKING FUND -------------------------------------------------- OBLIGATION. In lieu of making all or any Sinking Fund payment in cash as may - ---------- be required by Section 3.04(a), the Company may, not later than 60 days (or such shorter period acceptable to the Trustee) preceding any applicable Sinking Fund payment date relating to a particular series of Securities, deliver to the Trustee for cancellation Securities of such series theretofore acquired by the Company (otherwise than through the use of Sinking Fund moneys pursuant to Section 3.07) and not theretofore made the basis for the reduction of any Sinking Fund payment with respect to such series, accompanied by an Officers' Certificate (which shall conform to Section 14.05) stating the Company's election to use such Securities to reduce the amount of such Sinking Fund payment with respect to such series (specifying the amount of the reduction of each such payment) and certifying that such Securities have not theretofore been made the basis for a reduction of any Sinking Fund payment with respect to such series. Securities so delivered shall be credited against the Sinking Fund payment due on such Sinking Fund payment date at the Sinking Fund redemption price thereof. SECTION 3.06. EFFECT OF FAILURE TO DELIVER OFFICERS' CERTIFICATE OR ----------------------------------------------------- SECURITIES. In case of a failure of the Company, at or before the time - ---------- provided in Section 3.05, to deliver an Officers' Certificate, together with any Securities of the particular series required by Section 3.05, the Company shall not be permitted to make any such reduction of the amount of the Sinking Fund payment with respect to such series payable on such Sinking Fund payment date. SECTION 3.07. MANNER OF REDEEMING SECURITIES. The Securities of any ------------------------------ series to be redeemed from time to time through the operation of any Sinking Fund relating to such series, as in Section 3.04 provided, shall be selected by the Trustee for redemption in the manner provided in Section 3.02 and notice thereof shall be given by the Trustee to the Company, and the Company hereby irrevocably authorizes the Trustee, in the name of and at the expense of the Company, to give notice on behalf of the Company of the redemption of such Securities, all in the manner and with the effect in this Article Three specified, except that, in addition to the matters required to be included in such notice by Section 3.02, such notice shall also state that the Securities therein designated for redemption are to be redeemed through operation of such Sinking Fund. Such Securities shall be so redeemed and paid in accordance with such notice in the manner and with the effect provided in Sections 3.02 and 3.03. Notwithstanding the foregoing, if at any time the amount of cash to be paid into any Sinking Fund with respect to a particular series of Securities on any next succeeding Sinking Fund payment date for such series, together with any unused balance of any preceding Sinking Fund payment or payments with respect to such series which shall not, in any case, include funds held by the Trustee for Securities of such series which previously have been called for redemption, shall not exceed in the aggregate $100,000, the Trustee, unless requested by the Company, shall not select Securities for or give notice of the redemption of Securities through the operation of the Sinking Fund with respect to such series on the next succeeding Sinking Fund payment date. Such unused balance of moneys deposited in the Sinking Fund with respect to a particular series of Securities shall be added to the next Sinking Fund payment for such series to be made in cash or, at the request of the Company, shall be applied at any time or from time to time to the purchase of Securities of such series, by public or private purchase, in the open market or otherwise. SECTION 3.08. SINKING FUND MONEYS TO BE HELD AS SECURITY DURING ------------------------------------------------- CONTINUANCE OF EVENT OF DEFAULT; EXCEPTIONS. Unless all Securities of any - -------------------------------------------- series then Outstanding are to be redeemed, neither the Trustee nor any paying agent shall redeem any Securities of such series with Sinking Fund moneys if a Responsible Officer of the Trustee or such paying agent at the time shall have actual knowledge of the continuance of any Event of Default with respect to such series, except that where the mailing or publication of notice of redemption of any such Securities shall theretofore have been made, the Trustee or any paying agent, if sufficient funds shall have been deposited with it for such purpose, shall redeem such Securities. However, the Company itself shall not redeem any such Securities with Sinking Fund moneys during the continuance of any Event of Default with respect to such series. The Trustee shall not mail or publish any notice of redemption if a Responsible Officer of the Trustee at the time shall have actual knowledge of the continuance of any Event of Default with respect to such series. Except as aforesaid, any moneys in the Sinking Fund with respect to such series at such time and any moneys thereafter paid into the Sinking Fund shall during such continuance be held as security for the payment of all Securities of that series; provided, however, that in case such Event of Default with respect to such series shall have been waived as permitted by this Indenture or otherwise cured, such moneys shall thereafter be held and applied in accordance with the provisions of this Article Three. ARTICLE FOUR PARTICULAR COVENANTS OF THE COMPANY SECTION 4.01. EXISTENCE. Subject to Article XI, the Company will do --------- or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 4.02. PAYMENTS OF PRINCIPAL OF (AND PREMIUM, IF ANY) AND -------------------------------------------------- INTEREST, IF ANY, ON SECURITIES. The Company will duly and punctually pay or - ------------------------------- cause to be paid the principal of (and premium, if any) and interest, if any, on Securities of each series at the place, at the time or times and in the manner provided in the instrument establishing such series and in the Securities of such series. The interest on the Securities, if any, shall be payable (subject to the provisions of Section 2.04) only to or upon the written order of the Holders thereof or, in the case of unregistered Securities with Coupons, the Holders of Coupons relating thereto. Any installment of interest on registered Securities of any series may at the Company's option be paid by mailing checks for such interest payable to or upon the written order of the Person entitled thereto pursuant to Section 2.04 to the address of such Person as it appears on the Security Register or by wire transfer to an account designated in writing by such Person at least 15 days prior to the relevant payment date. SECTION 4.03. MAINTENANCE OF OFFICES OR AGENCIES FOR REGISTRATION OF ------------------------------------------------------ TRANSFER, EXCHANGE AND PAYMENT OF SECURITIES. As long as any of the Securities - --------------------------------------------- of any series remain Outstanding, the Company will maintain one or more offices or agencies in St. Louis, Missouri or New York, New York, or at such other locations as the Company may from time to time designate for any series of Securities, where such Securities may be presented for registration of transfer and exchange as in this Indenture provided, where such Securities may be presented for payment and where notices and demands to or upon the Company in respect of such Securities or of this Indenture may be served. The Trustee shall be the agent of the Company in the city in which the Corporate Trust Office is located for all of the foregoing purposes unless the Company shall designate and maintain some other office and agency for such purposes and give the Trustee written notice of the location thereof. The Company will give to the Trustee notice of the location of each such office or agency and of any change of location thereof. SECTION 4.04. APPOINTMENT TO FILL A VACANCY IN THE OFFICE OF ---------------------------------------------- TRUSTEE. The Company, whenever necessary to avoid or fill a vacancy in the - ------- office of Trustee for any one or more series of Securities, will appoint, in the manner provided in Section 7.11, a Trustee, so that there shall at all times be a Trustee with respect to each series of Securities hereunder. SECTION 4.05. DUTIES AND RIGHTS OF PAYING AGENTS; COMPANY AS PAYING ----------------------------------------------------- AGENT. (a) The Company shall cause each paying agent, if any, other than the - ------ Trustee, for any series of Securities, to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 4.05, that such agent will: (1) hold all sums held by it as such agent for the payment of the principal of (and premium, if any) or interest on the Securities of such series (whether such sums have been paid to it by the Company or by any other obligor on the Securities of such series) in trust for the benefit of the Holders of the Securities of such series; (2) give the Trustee notice of any default by the Company (or by any other obligor on the Securities of such series) in making any payment of the principal of (or premium, if any) or interest on the Securities of such series when the same shall be due and payable; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held by it as such agent. Whenever the Company shall have one or more paying agents for any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on Securities of such series, deposit with such paying agent or agents a sum sufficient to pay such principal (and premium, if any) or interest on such Securities so becoming due. (b) If the Company shall act as its own paying agent for any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on the Securities of such series, set aside, segregate and hold in trust for the benefit of the Holders of the Securities of such series a sum sufficient to pay such principal (and premium, if any) or interest on such Securities so becoming due. The Company will promptly notify the Trustee of any failure by the Company to take such action or the failure by any other obligor on the Securities of such series to make any payment of the principal of (or premium, if any) or interest on the Securities of such series when the same shall be due and payable. (c) Anything in this Section 4.05 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge of this Indenture, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust by the Company or any paying agent hereunder, as required by this Section 4.05, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such paying agent. (d) Anything in this Section 4.05 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 4.05 is subject to the provisions of Sections 12.04 and 12.05. SECTION 4.06. LIMITATION ON LIENS. Subject to the provisions of ------------------- Article Twelve (to the extent they are applicable to the Securities of any series), the Company will not, nor will the Company permit any Restricted Subsidiary to, issue, assume or guarantee any notes, bonds, debentures or other similar evidences of indebtedness for money borrowed (hereinafter, "Debt") secured by a mortgage, security interest, lien, pledge or other encumbrance (hereinafter, "liens") upon any Principal Property or upon any shares of stock or indebtedness of any Restricted Subsidiary (whether such Principal Property, shares of stock or indebtedness are now owned or hereafter acquired) without in any such case effectively providing concurrently with such issuance, assumption, or guarantee that the Securities (together with, if the Company so determines, any other indebtedness or obligation then existing and any other indebtedness or obligation, thereafter created, ranking equally with the Securities) shall be secured equally and ratably with (or prior to) such Debt so long as such Debt shall be so secured, except that the foregoing provisions shall not apply to: (a) Liens affecting property of a corporation, association or other business entity existing at the time it becomes a Subsidiary or at the time it is merged into or consolidated with or purchased by the Company or a Subsidiary; (b) Liens existing at the time of acquisition of the property affected thereby or incurred to secure payment of all or part of the purchase price of such property or to secure Debt incurred prior to, at the time of or within 180 days after the acquisition of such property for the purpose of financing all or part of the purchase price thereof (provided such liens are limited to such property and improvements thereon); (c) Liens placed within 180 days of completion of construction of property, plants or facilities to secure all or part of the cost of construction of such property, plants or facilities, or to secure Debt incurred to provide funds for any such purpose; (d) Liens which secure indebtedness owing by a Restricted Subsidiary to the Company or to another Restricted Subsidiary; (e) Liens existing on the date of this Indenture; (f) Liens arising by reason of mortgages on property owned or leased by the Company or a Restricted Subsidiary in favor of the United States of America or any State thereof, or any department, agency or instrumentality or political subdivision of the United States of America or any State thereof, or in favor of any other country or any political subdivision thereof, or in favor of holders of securities issued by any such entity, pursuant to any contract or statute (including, without limitation, mortgages or liens to secure pollution control or industrial revenue bonds or similar financings) or to secure any indebtedness incurred or guaranteed for the purpose of financing all or any part of the purchase price or the cost of construction of the property subject to such mortgages; (g) Mechanics', materialmen's, carriers', workmen's, vendors' or other like liens, arising in the ordinary course of business in respect of obligations which are not past due or which are being contested in good faith; (h) Liens arising by reason of any deposit with, or the giving of any form of security to (i) any surety company or clerk of any court, or in escrow, as collateral in connection with, or in lieu of, any bond or appeal from any judgment or decree against the Company or a Restricted Subsidiary, or in connection with other proceedings or actions at law or in equity by or against the Company or a Restricted Subsidiary, or (ii) any government or governmental department, agency or instrumentality, which deposit or security is required or permitted to qualify the Company or a Restricted Subsidiary to conduct business (or perform any contract with such entities), to maintain self-insurance, or to obtain the benefit of, or comply with, any law pertaining to workers' compensation, unemployment insurance, old age pensions, social security, or similar matters; (i) Liens existing on property acquired by the Company or a Restricted Subsidiary through the exercise of rights arising out of defaults on receivables acquired in the ordinary course of business; (j) Liens for judgments or awards, so long as the finality of any such judgment or award is being contested in good faith and execution thereon is stayed; (k) Liens for taxes or assessments or governmental charges or levies not yet past due or delinquent or which can thereafter be paid without penalty, or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been established, if appropriate; and any other liens of a nature substantially similar to those described in this clause (k) which do not materially impair the use of such property in the operation of the business of the Company and its Restricted Subsidiaries taken as a whole or the value of such property for the purposes of such business; (l) Liens on receivables and general intangibles securing capitalized lease obligations incurred by the Company or any Restricted Subsidiary; or (m) any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any lien referred to in the foregoing clauses (a) to (l) inclusive or of any Debt secured thereby, provided that the principal amount of Debt secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or replacement, and that such extended, renewed or replacement lien shall be limited to all or part of the same property which secured the lien extended, renewed or replaced (plus improvements on such property). The covenant contained in this Section will be subject to the provision for exempted indebtedness in Section 4.08. SECTION 4.07. LIMITATION ON SALE AND LEASE-BACK. Subject to the ---------------------------------- provisions of Article Twelve (to the extent they are applicable to the Securities of any series), the Company will not, nor will it permit any Restricted Subsidiary to, enter into any arrangement with any Person providing for the leasing by the Company or any Restricted Subsidiary of any Principal Property, which Principal Property has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person (whether such Principal Property is now owned or hereafter acquired), except for (i) temporary leases for a term, including any renewal, of not more than three years, (ii) leases between the Company and a Restricted Subsidiary or between Restricted Subsidiaries and (iii) leases entered into within 180 days after the completion of construction and commencement of full operation of a Principal Property (hereinafter, a "Sale and Lease Back Transaction"), unless either (a) the Company or such Restricted Subsidiary would be entitled, in accordance with the provisions of Section 4.06 (other than provisions with respect to exempted indebtedness), to incur Debt secured by a lien on such property without equally and ratably securing the Securities, or (b) the Company within 180 days after the effective date of the Sale and Lease-Back Transaction applies an amount equal to the Value of such transaction to the voluntary retirement of its Funded Debt. For the purposes of this Article, "Value" shall mean an amount equal to the greater of the net proceeds of the sale or transfer of the property leased pursuant to such Sale and Lease-Back Transaction, or the fair value in the opinion of the Board of Directors of the leased property at the time of entering into such Sale and Lease-Back Transaction. For the purposes of this Article, "Funded Debt" shall mean indebtedness (including Securities) maturing by the terms thereof more than one year after the original creation thereof. The covenant contained in this Section will be subject to the provision for exempted indebtedness in Section 4.08. SECTION 4.08. EXEMPTED INDEBTEDNESS. Notwithstanding the provisions --------------------- contained in Sections 4.06 and 4.07, the Company and its Restricted Subsidiaries may issue, assume, suffer to exist or guarantee Debt which would otherwise be subject to the limitation of Section 4.06, without securing the Securities, or may enter into Sale and Lease-Back Transactions which would otherwise be subject to the limitation of Section 4.07, without retiring Funded Debt, or enter into a combination of such transactions, if the sum of (i) the principal amount of all such Debt incurred after the date hereof, and which would otherwise be or have been prohibited by the limitations of Section 4.06 or 4.07 and (ii) the aggregate Value of all such Sale and Lease-Back Transactions after the date hereof does not at any such time exceed 15% of the Consolidated Net Tangible Assets. SECTION 4.09. ANNUAL CERTIFICATE OF COMPLIANCE. On or before April --------------------------------- 30 in each year (commencing April 30, 1999), the Company will furnish the Trustee with an officers' certificate (executed by the principal executive officer, the principal financial officer or the principal accounting officer of the Company and by the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company), covering the period during the preceding year that any Securities were Outstanding, certifying that after reasonable investigation and inquiry the Company has complied with all conditions and covenants contained in this Indenture or, if such is not the case, setting forth with reasonable particularity the circumstances of any failure so to comply and the steps taken or proposed to be taken to eliminate such failure. Such determination shall be made without regard to periods of grace or notice requirements. SECTION 4.10. FURTHER INSTRUMENTS AND ACTS. The Company will, upon ---------------------------- request of the Trustee, execute and deliver such further instruments and do such further acts as may reasonably be necessary or proper to carry out more effectually the purposes of this Indenture, including Sections 4.06 and 4.07. SECTION 4.11. CALCULATION OF ORIGINAL ISSUE DISCOUNT. The Company -------------------------------------- shall file with the Trustee promptly at the end of each calendar year (i) a written notice specifying the amount of original issue discount (including daily rates and accrual periods) accrued on Outstanding Securities as of the end of such year and (ii) such other specific information relating to such original issue discount as may then be relevant under the Internal Revenue Code of 1986, as amended from time to time. ARTICLE FIVE HOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE SECTION 5.01. COMPANY TO FURNISH TRUSTEE INFORMATION AS TO NAMES AND ------------------------------------------------------ ADDRESSES OF HOLDERS. The Company will furnish or cause to be furnished to the - -------------------- Trustee: (1) semi-annually, not later than January 1 and July 1 in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of registered Securities of each series as of the preceding December 15 or June 15, as the case may be; and (2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list in similar form and content as of a date not more than 15 days prior to the date such list is furnished; provided, however, that so long as the Trustee shall be the Security Registrar - -------- ------- for any series and all of the Securities of such series are registered Securities, no such list shall be required to be furnished with respect to such series. SECTION 5.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS. ------------------------------------------------------ (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the Holders of registered Securities of each series (i) contained in the most recent list furnished to it as provided in Section 5.01, (ii) received by it in the capacity of Security Registrar for such series, if so acting, and (iii) filed with it within the two preceding years pursuant to Section 5.04 (c)(ii). The Trustee may destroy any list furnished to it with respect to Securities of any Series as provided in Section 5.01 upon receipt of a new list with respect to such series so furnished. (b) If three or more Holders (in this Section referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Security for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with the other Holders of the Securities of a particular series (in which case the applicants must all hold Securities of such series) or with the Holders of the Securities of all series with respect to their rights under this Indenture or under such Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, at its election, either (i) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 5.02(a), or (ii) inform such applicants as to the approximate number of Holders of registered Securities of such series or of all registered Securities, as the case may be, whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 5.02(a), and as to the approximate cost of mailing to such Holders the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford to such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Holder of registered Securities of such series or to each Holder of registered Securities of all series, as the case may be, whose name and address shall appear in the information preserved at the time by the Trustee in accordance with Section 5.02(a), a copy of the form of proxy or other communication which is specified in such request with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material proposed to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the Holders of registered Securities of such series or of all series, as the case may be, or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Holders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. (c) Every Holder of the Securities and the Coupons, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of the Company or the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with Section 5.02(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 5.02(b). SECTION 5.03. REPORTS BY COMPANY. The Company shall: ------------------ (a) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended; or if the Company is not required to file information, documents or reports pursuant to either of such sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, in respect of a debt security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (b) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (c) transmit by mail to all Holders, within 30 days after the filing thereof with the Trustee, in the manner and to the extent provided in Section 5.04, such summaries of any information, documents and reports required to be filed by the Company pursuant to clauses (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 5.04. REPORTS BY TRUSTEE. (a) The Trustee shall transmit to ------------------ Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within sixty days after each April 15 following the date of this Indenture deliver to Holders a brief report, dated as of such April 15, which complies with the provisions of such Section 313(a). (b) The Trustee shall comply with Sections 313(b) and 313(c) of the Trust Indenture Act. (c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange, if any, upon which the Securities are listed, with the Commission and with the Company. The Company will promptly notify the Trustee when the Securities are listed on any stock exchange and of any delisting thereof. ARTICLE SIX REMEDIES SECTION 6.01. EVENTS OF DEFAULT. "Event of Default," wherever used ----------------- herein with respect to the Securities of any series, means any one of the following events which shall have occurred and be continuing (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon any of the Securities of such series when and as the same shall become due and payable, and continuance of such default for a period of 30 days; (2) default in the payment of all or any part of the principal of (or premium, if any, on) any of the Securities of such series at its Maturity; (3) default in the deposit of any sinking fund or analogous payment for the benefit of the Securities of such series when and as the same shall become due and payable; (4) default in the performance, or breach, of any covenant or warranty of the Company in the Securities of such series or in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically provided for or which has expressly been included in this Indenture solely for the benefit of the Securities of other series), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of not less than 25% in aggregate principal amount of the Securities of all series then Outstanding affected thereby a written notice specifying such default or breach, requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; (5) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Bankruptcy Law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of all or substantially all of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstated and in effect for a period of 90 consecutive days; (6) the commencement by the Company of a voluntary case or proceeding under any applicable Bankruptcy Law or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Bankruptcy Law, or the consent by it to the appointment of or the taking of possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of all or substantially all of its property, or the making by the Company of a general assignment for the benefit of creditors; (7) default under any indenture or instrument that evidences or under which the Company or any Restricted Subsidiary has at the date of this Indenture or shall hereafter have outstanding any indebtedness for money borrowed having unpaid principal at the time of such default in excess of the greater of $15,000,000 or 5% of the Consolidated Net Worth of the Company, shall occur and be continuing and such indebtedness shall have been accelerated, by action of the holder or holders thereof or any Person duly acting on their behalf, so that the same shall be or become due and payable prior to the date on which the same would otherwise have become due and payable; provided, however, that such acceleration shall not have been rescinded or annulled; and provided, further, that if such default under such indenture or instrument shall be remedied or cured by the Company or waived by the holders of such indebtedness, then the Event of Default hereunder by reason thereof shall be deemed likewise to have been thereupon remedied, cured or waived without further action upon the part of either the Trustee or any of the Holders; or (8) any other Event of Default provided in or pursuant to the supplemental indenture or Officers' Certificate establishing the terms of such series of Securities as provided in Section 2.01 or in the form or forms of Security for such series. SECTION 6.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If -------------------------------------------------- an Event of Default described in Section 6.01 shall have occurred and be continuing with respect to the Securities of any series, then, and in each and every such case, unless the principal of all of the Securities of such series shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Securities of such series then Outstanding, by notice in writing to the Company (and to the Trustee if given by such Holders), may declare the entire principal of (and premium, if any, on) all the Securities of such series then Outstanding and the interest accrued thereon to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable. The preceding paragraph is subject, however, to the condition that if, at any time after the principal of the Securities of one or more series shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Securities of such series and the principal of (and premium, if any, on) all the Securities of such series which shall have become due otherwise than by acceleration (with interest upon such principal and premium and, to the extent that payment of such interest shall be enforceable under applicable law, on overdue installments of interest at the same rate as the rate of interest (or at the yield to Stated Maturity, in the case of Original Issue Discount Securities) specified in the Securities of such series, to the date of such payment or deposit) and such additional amount as shall be sufficient to cover the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, except as a result of negligence or bad faith, and if any and all Events of Default under this Indenture with respect to such series, other than the nonpayment of the principal of (and premium, if any, on) the Securities of such series which shall have become due by acceleration, shall have been cured, waived or otherwise remedied as provided herein -- then, and in each and every such case, the Holders of a majority in aggregate principal amount of all the Securities of such affected series then Outstanding, by written notice to the Company and to the Trustee, may waive all defaults or breaches with respect to such series and rescind and annul such declaration and its consequences, but no such waiver, rescission and annulment shall extend to or shall affect any subsequent default or breach or shall impair any right consequent thereon. For all purposes under this Indenture, if a portion of the principal of any Original Issue Discount Securities shall have been accelerated and declared due and payable pursuant to the provisions hereof, then, from and after such declaration, unless such declaration shall have been rescinded and annulled, the principal amount of such Original Issue Discount Securities shall be deemed, for all purposes hereunder, to be such portion of the principal thereof as shall be due and payable as a result of such declaration; and payment of the portion of the principal thereof as shall have become due and payable as a result of such declaration, together with interest, if any, thereon and all other amounts owing thereunder, shall constitute payment in full of such Original Issue Discount Securities. SECTION 6.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY ------------------------------------------------------- TRUSTEE. The Company covenants that if: - ------- (1) default shall be made in the payment of any interest on any of the Securities of any series when and as such interest shall become due and payable, and such default shall have continued for a period of 30 days, or (2) default shall be made in the payment of the principal of (or premium, if any, on) any of the Securities of any series when the same shall have become due and payable, whether at the Stated Maturity thereof or otherwise, the Company shall, upon demand of the Trustee, pay to or deposit with the Trustee, for the benefit of the Holders of the Securities of such series, the whole amount then due and payable on such Securities, including all Coupons appertaining thereto, for principal (and premium, if any) and interest (with interest to the date of such payment upon overdue principal and premium and, to the extent that payment of such interest shall be enforceable under applicable law, on overdue installments of interest at the same rate as the rate of interest (or at the yield to Stated Maturity, in the case of Original Issue Discount Securities) specified in the Securities of such series to the date of such payment or deposit); and, in addition thereto, such additional amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, except those incurred as a result of any such person's negligence or bad faith. Until such demand shall be made by the Trustee, the Company may pay the principal of (and premium, if any) and interest on the Securities of such series to the Holders of such Series. If the Company shall fail to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute judicial proceedings for the collection of the amounts so due and unpaid, may prosecute such proceedings to judgment or final decree and may enforce the same against the Company or any other obligor upon the Securities of such series and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated. If an Event of Default with respect to the Securities of any series shall occur and be continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of the Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 6.04. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of the -------------------------------- pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities of any series or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities of any series shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal, premium or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise: (i) to file and prove a claim for the whole amount of the principal (and premium, if any) and interest (or if the Securities of any series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such series) owing and unpaid in respect of the Securities of each series, and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, except as a result of negligence or bad faith) and of the Holders allowed in such judicial proceeding, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, except as a result of negligence or bad faith, and any other amounts due the Trustee under Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee, except in accordance with action taken under Article Nine, to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities of any series or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF ------------------------------------------------ SECURITIES. All rights of action and claims under this Indenture, or under the - ---------- Securities of any series or any Coupons appertaining thereto, may be prosecuted and enforced by the Trustee without the possession of any of the Securities of such series or such Coupons or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities and Coupons in respect of which such judgment has been recovered. In any proceedings brought by the Trustee (and also in any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party), the Trustee shall be held to represent all the Holders of the Securities and Coupons appertaining thereto in respect to which action was taken, and it shall not be necessary to make any Holders of such Securities or Coupons parties to any such proceedings. SECTION 6.06. APPLICATION OF MONEYS COLLECTED. Any moneys collected ------------------------------- by the Trustee pursuant to this Article in respect of the Securities of any series shall be applied in the following order, at the date or dates fixed by the Trustee and, in the case of any distribution of such moneys on account of the principal of (or premium, if any) or interest on the Securities of such series, upon presentation of the several Securities and Coupons appertaining thereto in respect of which moneys have been collected and the notation thereon of such distribution if such principal, premium and interest be only partially paid or upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 7.07; SECOND: In case the principal of the Securities of such series shall not then be due and payable, to the payment of interest on the Securities of such series in the order of the maturity of the installments of such interest, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest at the same rate as the rate of interest (or yield to Stated Maturity, in the case of Original Issue Discount Securities) specified in such Securities, such payments to be made ratably to the Persons entitled thereto, without preference or priority; THIRD: In case the principal of the Securities of such series shall then be due and payable, to the payment of the whole amount then owing and unpaid upon all the Securities of such series for principal (and premium, if any) and interest, with interest upon overdue principal and premium, and, to the extent that such interest has been collected by the Trustee, upon overdue installments of interest at the same rate as the rate of interest (or yield to Stated Maturity, in the case of Original Issue Discount Securities) specified in the Securities of such series; and in case such moneys shall be insufficient to pay in full the whole amount so due and unpaid upon the Securities of such series, then to the payment of such principal, premium and interest, without preference or priority of principal or premium over interest, or of interest over principal or premium, or of any installment of interest over any other installment of interest, or of any Security of such series, ratably to the aggregate of such principal, premium and interest; and FOURTH: To the Company or any other Person lawfully entitled thereto. SECTION 6.07. LIMITATION ON SUITS. Subject to Section 6.08, no ------------------- Holder of any Security of any series or of any Coupon shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official, or for any other remedy hereunder, unless: (1) such Holder shall have previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of such series; (2) the Holders of not less than 25% in aggregate principal amount of the Securities of such series then Outstanding shall have made written request to the Trustee to institute such proceeding in its own name as Trustee hereunder; (3) such Holder or Holders shall have offered to the Trustee indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute such proceeding; and (5) no direction inconsistent with such written request shall have been given to the Trustee during such 60-day period by the Holders of a majority in aggregate principal amount of the Securities of such series then Outstanding; it being understood and intended that no one or more of Holders of Securities of any series or Coupons appertaining thereto shall have any right in any manner whatsoever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holder of the Securities or the Coupons, or to obtain or to seek to obtain preference or priority over any other such Holder or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all Holders of Securities of the affected series and Coupons. SECTION 6.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, ---------------------------------------------------- PREMIUM AND INTEREST. Notwithstanding any other provision in this Indenture or - -------------------- any provision of any Security of any series, the Holder of a Security of any series or Coupon appertaining thereto shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and interest on such Security or Coupon on or after the respective due dates expressed in such Security or Coupon or, in the case of redemption, on the date of redemption, and to institute suit for the enforcement of any such payment, and such rights shall not be impaired or affected without the consent of such Holder. SECTION 6.09. RESTORATION OF RIGHTS AND REMEDIES. In case the ---------------------------------- Trustee or any Holder shall have proceeded to enforce any right or remedy under this Indenture and such proceeding shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee or to such Holder, then, and in every such case, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder; and all rights, remedies and powers of the Company, the Trustee and the Holders shall continue as though no such proceeding had been taken. SECTION 6.10. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise ------------------------------ provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities and Coupons in the last paragraph of Section 2.08, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 6.11. DELAY OR OMISSION NOT WAIVER. No delay or omission of ---------------------------- the Trustee or of any Holder of Securities or Coupons to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 6.12. CONTROL BY HOLDERS. The Holders of not less than a ------------------ majority in aggregate principal amount of the Securities of any series affected then Outstanding shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee with respect to the Securities of such series, provided that: -------- (1) such direction shall not be in conflict with any rule of law or with this Indenture; (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction; and (3) subject to Section 7.01, the Trustee need not take any action which might involve the Trustee in personal liability or be unduly prejudicial to the Holders of the Securities of the affected series not joining in the giving of such direction. SECTION 6.13. WAIVER OF PAST DEFAULTS. Prior to the declaration of ----------------------- acceleration of the Maturity of any Securities of any series as provided by Section 6.02, the Holders of not less than a majority in aggregate principal amount of the Securities of such series at the time Outstanding with respect to which a default or breach or an Event of Default shall have occurred and be continuing may on behalf of the Holders of all of the Securities of such series waive any past default or breach or Event of Default and its consequences, except a default or breach or Event of Default in the payment of the principal of (or premium, if any) or interest on any Security of such series. Upon any such waiver, such default or breach shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture, but no such waiver shall extend to any subsequent or other default or breach or Event of Default or impair any right consequent thereon. SECTION 6.14. UNDERTAKING FOR COSTS. All parties to this Indenture --------------------- agree, and each Holder of any Security or Coupon by acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided, however, that the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, of the Securities of any series holding in the aggregate more than 10% in aggregate principal amount of the Securities of such series then Outstanding, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest (including interest evidenced by a Coupon) on any Security on or after the respective due dates expressed in such Security or Coupon or, in the case of redemption, on or after the date of redemption. SECTION 6.15. WAIVER OF STAY OR EXTENSION LAWS. The Company -------------------------------- covenants (to the fullest extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the fullest extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE SEVEN THE TRUSTEE SECTION 7.01. CERTAIN DUTIES AND RESPONSIBILITIES. The Trustee, ----------------------------------- prior to the occurrence of an Event of Default with respect to a particular series of Securities and after the curing or waiving of all Events of Default which may have occurred with respect to such series, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default with respect to a particular series of Securities has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Indenture relating to such series, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (a) prior to the occurrence of an Event of Default with respect to a particular series of Securities and after the curing or waiving of all Events of Default which may have occurred with respect to such series: (1) the duties and obligations of the Trustee shall be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein); (b) the Trustee shall not be liable for an error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (c) the Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it in good faith relating to Securities of any series in accordance with the direction of the Holders of not less than a majority in principal amount of the Securities of such series then Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, with respect to the Securities of such series under this Indenture. None of the provisions of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any personal financial liability in the performance of any duties hereunder, or in the exercise of any of its rights or powers, if there shall be reasonable grounds for believing that repayment of such funds or adequate security or indemnity against such risk or liability is not reasonably assured to it. SECTION 7.02. NOTICE OF DEFAULTS. Within 90 days after the ------------------ occurrence of any default hereunder with respect to the Securities of any series, the Trustee shall give notice of all defaults with respect to the Securities of such series actually known to any Responsible Officer of the Trustee (i) if any unregistered Securities of such series are then Outstanding, to the Holders thereof by publication at least once in an Authorized Newspaper in the Borough of Manhattan, The City of New York,(ii) if any unregistered Securities of such series are then Outstanding, to the Holders thereof who have filed their names and addresses with the Trustee pursuant to Section 5.04(c)(ii) by mailing such notice to such Holders at such addresses and (iii) if any registered Securities of such series are then Outstanding, to the Holders thereof by mailing such notice to such Holders at their addresses as they shall appear on the Security Register, unless in each case such defaults shall have been cured before the mailing or publication of such notice; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest on any of the Securities of such series, or in the payment of any sinking fund or analogous payment with respect to the Securities of such series, the Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders of the Securities of such series; and provided, further, that in the case of any default of the character specified in Section 6.01(4) with respect to Securities of such series, no such notice to the Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event or condition which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. SECTION 7.03. CERTAIN RIGHTS OF TRUSTEE. Except as otherwise ------------------------- provided in Section 7.01: (a) the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by a Company Direction or Company Request (unless other evidence in respect thereof is herein specifically prescribed); and any resolution of the Board of Directors shall be evidenced to the Trustee by a Certified Board Resolution; (c) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (d) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders, pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities which may be incurred therein or thereby; (e) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (f) prior to the occurrence of an Event of Default with respect to the Securities of any series and after the curing or waiving of all such Events of Default which may have occurred, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, approval or other paper or document, unless requested in writing to do so by the Holders of a majority in aggregate principal amount of Securities of any series then Outstanding; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is not, in the opinion of the Trustee, reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such costs, expenses or liabilities as a condition to so proceeding; the reasonable expense of every such investigation shall be paid by the Company or, if paid by the Trustee, shall be repaid by the Company upon demand; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by the Trustee hereunder; (h) the Trustee shall not be deemed to have notice of any default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default or Event of Default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture; and (i) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. SECTION 7.04. TRUSTEE NOT LIABLE FOR RECITALS IN INDENTURE OR IN -------------------------------------------------- SECURITIES. The recitals contained herein and in the Securities, except the - ---------- Trustee's certificate of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities of any series. The Trustee represents that it is duly authorized to execute and deliver this Indenture and perform its obligations hereunder. The Trustee shall not be accountable for the use or application by the Company of any of the Securities of any series or of the proceeds thereof. SECTION 7.05. TRUSTEE, PAYING AGENT OR SECURITY REGISTRAR MAY OWN --------------------------------------------------- SECURITIES. Subject to Sections 7.09 and 7.14, the Trustee or any paying agent - ---------- or Security Registrar with respect to any series of Securities, in its individual or any other capacity, may become the owner or pledgee of Securities of such series with the same rights it would have if it were not Trustee, paying agent or Security Registrar with respect to such Securities. SECTION 7.06. MONEYS RECEIVED BY TRUSTEE TO BE HELD IN TRUST. ---------------------------------------------- Subject to the provisions of Section 12.04 hereof, all moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. So long as no Event of Default with respect to Securities of any series shall have occurred and be continuing, all interest allowed on any such moneys shall be paid from time to time upon a Company Direction. SECTION 7.07. COMPENSATION AND REIMBURSEMENT. The Company covenants ------------------------------ and agrees: (a) to pay to the Trustee from time to time, and the Trustee shall be entitled to, such compensation as shall be agreed in writing from time to time between the Company and the Trustee for all services rendered by it hereunder (which shall not be limited by any provisions of law in regard to the compensation of a trustee of an express trust); (b) except as otherwise expressly provided, the Company will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents, attorneys and counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith; and (c) to indemnify each of the Trustee and any predecessor Trustee for, and to hold it harmless against, any and all loss, liability, damage, claim or expense including taxes (other than taxes based on the income of the Trustee) incurred without negligence or bad faith on the part of the Trustee, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim of liability in the premises. If any property other than cash shall at any time be subject to a lien in favor of the Holders, the Trustee, if and to the extent authorized by a receivership or bankruptcy court of competent jurisdiction or by the supplemental instrument subjecting such property to such lien, shall be entitled to make advances for the purpose of preserving such property or of discharging tax liens or other prior liens or encumbrances thereon. The obligations of the Company under this Section 7.07 to compensate and indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of the Indenture. Such additional indebtedness shall be secured by a lien, prior to that of the Securities of any series with respect to which the indebtedness arose, upon all property and funds held or collected by the Trustee, as such, relating to such series except funds held in Trust for the payment of principal of (and premium, if any) or interest on Securities of such series. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 6.01(5) or Section 6.01(6), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. SECTION 7.08. RIGHT OF TRUSTEE TO RELY ON AN OFFICERS' CERTIFICATE ---------------------------------------------------- WHERE NO OTHER EVIDENCE SPECIFICALLY PRESCRIBED. Except as otherwise provided - ----------------------------------------------- in Section 7.01, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, such matter (unless other evidence in respect thereof is herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee and such Certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted by it under the provisions of this Indenture upon the faith thereof. SECTION 7.09. DISQUALIFICATION; CONFLICTING INTERESTS. If the --------------------------------------- Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 7.10. CORPORATE TRUSTEE REQUIRED; REQUIREMENTS FOR -------------------------------------------- ELIGIBILITY. There shall at all times be a Trustee hereunder which shall be - ----------- eligible to act as Trustee under Section 310(a)(1) of the Trust Indenture Act, having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal or state authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Neither the Company nor any Person directly or indirectly controlling, controlled by or under common control with the Company shall serve as Trustee. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 7.11. SECTION 7.11. RESIGNATION AND REMOVAL OF TRUSTEE; APPOINTMENT OF -------------------------------------------------- SUCCESSOR. (a) No resignation or removal of the Trustee and no appointment of - --------- a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the Successor Trustee in accordance with the applicable requirement of Section 7.12. (b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 7.12 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may, at the expense of the Company, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (c) The Trustee may be removed at any time with respect to the Securities of any series by the Holders of a majority in aggregate principal amount of the Securities of such series then Outstanding by written notice delivered to the Trustee and to the Company. If the instrument of acceptance by a successor Trustee required by Section 7.12 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may, at the expense of the Company, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (d) If, at any time, (1) the Trustee shall fail to comply with Section 7.09(a) with respect to the Securities of any series after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security of such series for at least six months; or (2) the Trustee shall cease to be eligible under Section 7.10 and shall fail to resign after written request therefor by the Company or by any such Holder; or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case (i) the Company by a Certified Board Resolution may remove the Trustee with respect to all Securities of any or all series, as appropriate or (ii) subject to Section 6.14, any Holder who has been a bona fide Holder of a Security of an affected series for at least six months may, on behalf of such Holder and all other Holders similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee or Trustees. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Certified Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of such series (it being understood that any such successor Trustee may be appointed with respect to other Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 7.12. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by act of the Holders of a majority in aggregate principal amount of the Securities of such series then Outstanding delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 7.12, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company with respect to the Securities of such series. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 7.12, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of such Holder and all other Holders similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series (i) if any unregistered Securities of any affected series are then Outstanding, to the Holders thereof by publication of such notice at least once in an Authorized Newspaper in the Borough of Manhattan, The City of New York, (ii) if any unregistered Securities of any affected series are then Outstanding, to the Holders thereof who have filed their names and addresses with the Trustee pursuant to Section 5.04 by mailing such notice to such Holders at such addresses (and the Trustee shall make such addresses available to the Company for such purpose) and (iii) if any registered Securities of any affected series are then Outstanding, to the Holders thereof by mailing such notice to such Holders at their addresses as they shall appear on the Security Register. If the Company shall fail to give such notice within 10 days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be given at the expense of the Company. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. SECTION 7.12. ACCEPTANCE BY SUCCESSOR TO TRUSTEE. (a) In case of the ---------------------------------- appointment hereunder of a successor Trustee with respect to the Securities of one or more series, each successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee with respect to such applicable series of the Securities shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to such applicable series; but, on the request of the Company or the successor Trustee, such retiring Trustee shall upon payment of its charges then unpaid, execute, acknowledge and deliver an instrument transferring to such successor Trustee all such rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. (a) In case of the appointment hereunder of a successor Trustee with respect to the Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to its predecessor Trustee as provided in Section 7.11 an instrument accepting such appointment, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance shall become vested with all the rights, powers, trusts and duties of the predecessor Trustee with respect to all such Securities; but, on the request of the Company or the successor Trustee, such predecessor Trustee, with like effect as if originally named as Trustee herein, shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the predecessor Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such predecessor Trustee hereunder subject, nevertheless, to its lien, if any, provided for in Section 7.07. (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but less than all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute, acknowledge and deliver an indenture supplemental hereto in which each successor Trustee shall accept such appointment and which shall (i) contain such provisions as shall be deemed necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of each series to which the appointment of such successor Trustee related, (ii) if the retiring Trustee shall not be retiring with respect to the Securities of all series, contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of the series as to which the retiring Trustee shall not be retiring shall continue to be vested in the retiring Trustee and (iii) add to or change any of the provisions of this Indenture to the extent necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder. (c) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but less than all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute, acknowledge and deliver an indenture supplemental hereto in which each successor Trustee shall accept such appointment and which shall (i) contain such provisions as shall be deemed necessary or desirable to transfer and confirm to, and to vest in, each successor trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of each series to which the appointment of such successor Trustee relates, (ii) if the retiring Trustee is not retiring with respect to the Securities of all series, contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of the series as to which the retiring Trustee shall not be retiring shall continue to be vested in the retiring Trustee, and (iii) add to or change any of the provisions of this Indenture to the extent necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of each series to which the appointment of such successor Trustee relates, and such retiring Trustee shall duly assign, transfer and deliver to each successor trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of each series to which the appointment of such successor trustee relates. (d) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be. (e) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 7.13. SUCCESSOR TO TRUSTEE BY MERGER, CONSOLIDATION OR ------------------------------------------------ SUCCESSION TO BUSINESS. Any corporation into which the Trustee may be merged or - ---------------------- converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be qualified otherwise and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Securities of the particular series shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities of such series shall not have been authenticated, any successor to the Trustee with respect to the Securities of such series may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor Trustee; and in all such cases such certificates shall have the full force which it is anywhere in such Securities or in this Indenture provided that the certificate of authentication of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Securities of the particular series in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. SECTION 7.14. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. If -------------------------------------------------- and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). SECTION 7.15. APPOINTMENT OF ADDITIONAL AND SEPARATE TRUSTEES. ----------------------------------------------- Whenever the Trustee shall deem it necessary in order to conform to any law of any jurisdiction, or the Trustee shall be advised by counsel, satisfactory to it, that it is necessary and in the interest of the Holders of Securities of any series or in the event that the Trustee shall have been requested to do so by the Holders of a majority in principal amount of the Securities of any series then Outstanding, the Trustee and the Company shall execute and deliver an indenture supplemental hereto and all other instruments and agreements necessary or proper to constitute another bank or trust company, or one or more Persons appointed by the Company, either to act as additional trustee or trustees hereunder, jointly with the Trustee, or to act as separate trustee or trustees hereunder, in any such case with such powers with respect to the affected series of Securities as may be provided in such indenture supplemental hereto, and to vest in such bank, trust company or Person as such additional trustee or separate trustee, as the case may be, any property, title, right or power of the Trustee with respect to the affected series of Securities deemed necessary or advisable by the Trustee, subject to the provisions of this Section below set forth. In the event the Company shall not have joined in the execution of such indenture supplemental hereto within ten days after the receipt of a written request from the Trustee so to do, or in case an Event of Default with respect to the particular series of Securities shall occur and be continuing, the Trustee may act under the foregoing provisions of this Section without the concurrence of the Company; and the Company hereby appoints the Trustee its agent and attorney-in-fact to act for it under the foregoing provisions of this Section in either of such contingencies. The Trustee may execute, deliver and perform any deed, conveyance, assignment or other instrument in writing as may be required by any additional trustee or separate trustee for more fully and certainly vesting in and confirming to it any property, title, right or powers with respect to the affected series of Securities conveyed or conferred to or upon such additional trustee or separate trustee, and the Company shall, upon the Trustee's request, join therein and execute, acknowledge and deliver the same; and the Company hereby makes, constitutes and appoints the Trustee its agent and attorney-in-fact for it and in its name, place and stead to execute, acknowledge and deliver any such deed, conveyance, assignment or other instrument with respect to the affected series of Securities in the event that the Company shall not itself execute and deliver the same within ten days after receipt by it of such request so to do. Any supplemental indenture executed pursuant to the provisions of this Section shall conform to the provisions of the Trust Indenture Act as in effect as of the date of such supplemental indenture. Every additional trustee and separate trustee hereunder shall, to the extent permitted by law, be appointed and act, and the Trustee shall act with respect to a particular series of Securities, subject to the following provisions and conditions: (1) the Securities of such series shall be authenticated by the Trustee and all powers, duties, obligations and rights conferred upon the Trustee in respect of the receipt, custody, investment and payment of moneys, shall be exercised solely by the Trustee; (2) all other rights, powers, duties and obligations with respect to the Securities of such series conferred or imposed upon the Trustee and such additional trustee or separate trustee or any of them shall be conferred or imposed upon and exercised or performed by the Trustee and such additional trustee or trustees and separate trustee or trustees jointly, except to the extent that, under any law of any jurisdiction in which any particular act or acts are to be performed, the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations with respect to the Securities of such series shall be exercised and performed by such additional trustee or trustees or separate trustee or trustees; (3) no power hereby given to, or with respect to which it is hereby provided may be exercised by, any such additional trustee or separate trustee with respect to a particular series of Securities shall be exercised hereunder by such additional trustee or separate trustee except with the consent of the Trustee; and (4) no trustee with respect to a particular series of Securities hereunder shall be personally liable by reason of any act or omission of any other trustee with respect to such series of Securities hereunder. If at any time the Trustee shall deem it no longer necessary in order to conform to any such law or shall be advised by counsel that it is no longer so necessary in the interest of the Holders of Securities of any series or in the event that the Trustee shall have been requested to do so in writing by the Holders of a majority in principal amount of the Securities of such series then Outstanding, the Trustee and the Company shall execute and deliver an indenture supplemental hereto and all other instruments and agreements necessary or proper to remove any additional trustee or separate trustee with respect to such series. In the event that the Company shall not have joined in the execution of such indenture supplemental hereto, instruments and agreements, the Trustee may act on behalf of the Company to the same extent provided above. Any additional trustee or separate trustee with respect to any series of Securities may at any time by an instrument in writing constitute the Trustee its agent or attorney-in-fact, with full power and authority, to the extent which may be authorized by law, to do all acts and things and exercise all discretions which it is authorized or permitted to do or exercise with respect to such series, for and in its behalf and in its name. In case any such additional trustee or separate trustee shall die, become incapable of acting, resign or be removed, all the assets, property, rights, powers, trusts, duties and obligations of such additional trustee or separate trustee with respect to such series, as the case may be, so far as permitted by law, shall vest in and be exercised by the Trustee, without the appointment of a new successor to such additional trustee or separate trustee unless and until a successor with respect to such series is appointed in the manner hereinbefore provided. Any request, approval or consent in writing by the Trustee to any additional trustee or separate trustee of any series of Securities shall be sufficient warrant to such additional trustee or separate trustee, as the case may be, to take such action with respect to the particular series of Securities as may be so requested, approved or consented to. Each additional trustee and separate trustee appointed pursuant to this Section shall be subject to, and shall have the benefit of, Articles Six, Seven (other than Section 7.10) and Eight hereof and the following Sections of this Indenture shall be specifically applicable to each additional trustee and separate trustee: 5.04(a) (except to the extent that reference therein is made to its eligibility under Section 7.10) and (b), 6.03, 7.01, 7.02, 7.09 and 7.14; provided, however, that no resignation of an additional or separate trustee pursuant to Section 7.11 hereof shall be conditioned in any sense whatever upon the appointment of a successor to such trustee. ARTICLE EIGHT CONCERNING THE HOLDERS SECTION 8.01. EVIDENCE OF ACTION BY HOLDERS. (a) Whenever in this ----------------------------- Indenture it is provided that the Holders of a specified percentage in aggregate principal amount Outstanding of the Securities of any series may take any action (including the making of any demand or request, the giving of any direction, notice, consent or waiver or the taking of any other action) the fact that at the time of taking any such action the Holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by such Holders in person or by agent or proxy appointed in writing, or (b) by the record of such Holders voting in favor thereof at any meeting of such Holders duly called and held in accordance with the provisions of Article Nine, or (c) by a combination of such instrument or instruments and any such record of such a meeting of such Holders. SECTION 8.02. PROOF OF EXECUTION OF INSTRUMENTS AND OF HOLDING OF --------------------------------------------------- SECURITIES. Subject to the provisions of Sections 7.01, 7.03 and 9.05, proof of - ---------- the execution of any instrument by a Holder or his agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The ownership of a registered Security shall be proved by the Security Register relating to the series or by a certificate of the Security Registrar. The ownership of an unregistered Security or any Coupon attached to such Security at its issuance shall be proved by the production of such Security or Coupon, or, with respect to unregistered Securities only, by a certificate executed by any trust company, bank, broker or other depositary, wherever situated, if such certificate shall be deemed by the Trustee to be satisfactory, showing that at the date therein mentioned such person had on deposit with such depositary, or exhibited to it, the Securities therein described; or such facts may be proved by the certificate or affidavit of the person holding such Security, if such certificate or affidavit is deemed by the Trustee to be satisfactory. The Trustee and the Company may assume that such ownership of any unregistered Security continues until (1) another certificate or affidavit bearing a later date issued in respect of the same Security is produced, (2) such Security is produced by some other Person or (3) such Security is no longer Outstanding. The amount of unregistered Securities held by any Person may also be proved in any other manner which the Trustee deems sufficient. The Trustee may require such additional proof of any matter referred to in this Section 8.02 as it shall deem necessary. The record of any meeting of Holders shall be proved in the manner provided in Section 9.06. SECTION 8.03. WHO MAY BE DEEMED OWNER OF SECURITIES. Prior to due ------------------------------------- presentment for registration of transfer of a registered Security of any series, the Company, the Trustee, any paying agent and any Security Registrar may deem and treat the Person in whose name such Security shall be registered, or, in the case of unregistered Securities, the bearer thereof or the owner thereof determined pursuant to Section 8.02, as the absolute owner of such Security (whether or not such Security shall be overdue and notwithstanding any notation of ownership or other writing thereon made by anyone) for the purpose of receiving payment of or on account of the principal of (and premium, if any) and interest on such Security and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Security Registrar shall be affected by any notice to the contrary; and all such payments so made to any such Holder for the time being, or upon his order, shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Security. SECTION 8.04. SECURITIES OWNED BY COMPANY OR CONTROLLED OR -------------------------------------------- CONTROLLING COMPANIES DISREGARDED FOR CERTAIN PURPOSES. In determining whether - ------------------------------------------------------ the Holders of the requisite aggregate principal amount Outstanding of Securities of any series have concurred in any direction, consent or waiver under this Indenture, Securities of such series which are owned by the Company or any other obligor on the Securities of such series or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Securities of such series shall be disregarded and deemed not to be Outstanding for the purposes of any such determination, except that for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Securities of such series which a Responsible Officer of the Trustee actually knows are so owned shall be so disregarded. Securities of such series so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section 8.04 if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Securities and that the pledgee is not the Company or any other obligor on the Securities of such series or a person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any such other obligor. In the case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection for the Trustee. SECTION 8.05. INSTRUMENTS EXECUTED BY HOLDERS BIND FUTURE HOLDERS. --------------------------------------------------- At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 8.01, of the taking of any action by the Holders of the percentage in aggregate principal amount of the Securities of any series then Outstanding specified in this Indenture in connection with such action, any Holder of a Security of such series which is shown by the evidence to be included in the Securities of the particular series the Holders of which have consented to such action may, by filing written notice with the Trustee at its Corporate Trust Office and upon proof of holding as provided in Section 8.02, revoke such action so far as concerns such Security. Except as aforesaid, any such action taken by the Holder of any Security shall be conclusive and binding upon such Holder and upon all future Holders and owners of such Security, and of any Security issued upon registration of transfer thereof or in exchange or substitution therefor, irrespective of whether or not any notation in regard thereto is made upon such Security or such other Security. Any action taken by the Holders of the percentage in aggregate principal amount of the Securities of any series specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the Holders of all such Securities. ARTICLE NINE HOLDERS' MEETINGS AND CONSENTS SECTION 9.01. PURPOSES FOR WHICH MEETING MAY BE CALLED. A meeting of ---------------------------------------- Holders of Securities of any series may be called at any time and from time to time pursuant to the provisions of this Article Nine for any of the following purposes: (1) to give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by Holders of Securities of such series pursuant to any of the provisions of Article Six; (2) to remove the Trustee and appoint a successor trustee with respect to Securities of such series pursuant to the provisions of Article Seven; (3) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 10.02; or (4) to take any other action authorized to be taken by or on behalf of the Holders of any specified aggregate principal amount Outstanding of Securities of such series under any other provision of this Indenture or under applicable law. SECTION 9.02. CALL OF MEETING BY TRUSTEE. The Trustee may at any -------------------------- time call a meeting of Holders of Securities of any series to take any action specified in Section 9.01, to be held at such time and at such place in New York, New York, or at such other location as the Trustee shall determine. With respect to registered Securities of any series, notice of every such meeting, setting forth the time and the place of such meeting, and in general terms the action proposed to be taken at such meeting, shall be mailed to such Holders at their addresses as they shall appear on the Security Register with respect to such Securities. With respect to unregistered Securities of any series, notice of every such meeting shall be published in an authorized newspaper on two separate days. Such notice shall be provided not less than 20 nor more than 120 days prior to the date fixed for the meeting. SECTION 9.03. CALL OF MEETINGS BY COMPANY OR HOLDERS. In case at any -------------------------------------- time the Company, pursuant to a Certified Board Resolution, or the Holders of at least 10% in aggregate principal amount of Securities of any series then Outstanding, shall have requested the Trustee to call a meeting of Holders of Securities of such series to take any action authorized in Section 9.01 by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have provided the notice of such meeting within 20 days after receipt of such request, then the Company or the Holders of such Securities in the amount above specified may determine the time and the place in New York, New York, for such meeting and may call such meeting by providing notice thereof as provided in Section 9.02. SECTION 9.04. WHO MAY ATTEND AND VOTE AT MEETINGS. To be entitled to ----------------------------------- vote at any meeting of Holders of a particular series of Securities, a Person shall (a) be a Holder of one or more Securities of such series or (b) be a Person appointed by an instrument in writing as proxy by a Holder of one or more Securities of such series. Subject to Section 8.01, the only Persons who shall be entitled to be present or to speak at any meeting of Holders of a particular series of Securities shall be the Persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. SECTION 9.05. REGULATIONS MAY BE MADE BY TRUSTEE. Notwithstanding ---------------------------------- any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities of a particular series, in regard to proof of the holding of Securities of such series and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem necessary. Except as otherwise permitted or required by any such regulations, the holding of Securities of such series shall be proved in the manner specified in Section 8.02 and the appointment of any proxy shall be proved in the manner specified in Section 8.02. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Holders as provided in Section 9.03, in which case the Company or such Holders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting may be elected by vote of the Holders of a majority in principal amount of Securities of the particular series then Outstanding represented at the meeting and entitled to vote. Subject to the provisions of Section 8.04, at any meeting each Holder of Securities of the particular series or proxy entitled to vote shall have one vote for each $1,000 principal amount of Securities of such series held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security of such series challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Securities of such series held by him or instruments in writing as aforesaid duly designating him as the Person to vote on behalf of other Holders of Securities of the particular series. At any meeting of Holders duly called pursuant to the provisions of Section 9.02 or Section 9.03 the presence of Persons holding or representing Securities of the particular series in an aggregate principal amount outstanding sufficient to take action on the business for the transaction of which such meeting was called shall constitute a quorum, but, if less than a quorum be present, the meeting may be adjourned from time to time by the Holders of a majority in principal amount outstanding of the Securities of such series represented at the meeting and entitled to vote, and the meeting may be held as so adjourned without further notice. SECTION 9.06. MANNER OF VOTING AT MEETINGS AND RECORD TO BE KEPT. -------------------------------------------------- The vote upon any resolution submitted to any meeting of Holders of Securities of any series shall be by written ballots on which shall be subscribed the signatures of the Holders or proxies entitled to vote. The chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Holders of Securities of any series shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 9.02. The record shall be signed and verified by the affidavits of the chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. SECTION 9.07. WRITTEN CONSENT IN LIEU OF MEETINGS. The written ----------------------------------- authorization or consent of the requisite percentage herein provided of Holders of Securities of any series entitled to vote at any meeting of Holders of Securities of a particular series, evidenced as provided in Article Eight and filed with the Trustee, shall be effective in lieu of a meeting of such Holders with respect to any matter provided for in this Article Nine. SECTION 9.08. NO DELAY OF RIGHTS BY MEETING. Nothing in this Article ----------------------------- Nine contained shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Holders of Securities of any series, or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Holders of Securities of such series under any of the provisions of this Indenture or of the Securities of such series. ARTICLE TEN SUPPLEMENTAL INDENTURES SECTION 10.01. PURPOSES FOR WHICH SUPPLEMENTAL INDENTURES MAY BE ------------------------------------------------- ENTERED INTO WITHOUT CONSENT OF HOLDERS. The Company, when authorized by a - --------------------------------------- Certified Board Resolution, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as then in effect) for one or more of the following purposes: (a) to evidence the succession of another corporation to the Company, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Company pursuant to Article Eleven; (b) to appoint one or more additional or separate trustees to act under this Indenture in the manner and to the extent contemplated by Section 7.15; (c) to add to the covenants of the Company such further covenants, restrictions, conditions or provisions for the protection of the Holders of Securities of any or all series as the Board of Directors and the Trustee shall consider to be for the protection of the Holders of Securities of such series, and to make the occurrence, or the occurrence and continuance, of a default of any such additional covenants, restrictions, conditions or provisions a default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth with respect to Securities of such series; provided, however, that in respect of any such additional covenant, restriction, condition or provision with respect to Securities of such series, such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default or may limit the right of the Holders of a majority in aggregate principal amount Outstanding of the Securities of such series to waive such default; (d) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision unless such change or elimination would not adversely affect such provision as applied to such Securities created prior to the execution of such supplemented indenture. (e) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture; to convey, transfer, assign, mortgage or pledge any property to or with the Trustee; or to make such other provisions in regard to matters or questions arising under this Indenture as shall not adversely affect the interests of Holders of Securities of any series; (f) to modify, amend or supplement this indenture to comply with the provisions of Sections 4.05 and 11.01; (g) to provide for the issuance of unregistered Securities, or for the exchange ability of registered Securities of any series with unregistered Securities of a series issued hereunder, or vice versa, and to make all appropriate changes for such purpose; (h) to provide for the issuance under this Indenture of Securities of a series having any form or terms contemplated by Sections 2.01 and 2.02; and (i) to evidence and provide for the acceptance of appointment hereunder by a successor trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 7.15. The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer, assignment, mortgage or pledge of any property thereunder, but the Trustee shall not be obligated to enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. The Trustee, subject to the provisions of Sections 7.01 and 7.03, may regard an Officers' Certificate or Opinion of Counsel as conclusive evidence that any such supplemental indenture with respect to any series of Securities complies with the provisions of this Article Ten. Any supplemental indenture authorized by the provisions of this Section 10.01 may be executed by the Company and the Trustee without the consent of the Holders of any Securities of any series then Outstanding, notwithstanding any of the provisions of Section 10.02. SECTION 10.02. MODIFICATION OF INDENTURE WITH CONSENT OF HOLDERS OF A ------------------------------------------------------ MAJORITY IN PRINCIPAL AMOUNT OF SECURITIES. With the consent (evidenced as - ------------------------------------------ provided in Section 8.01) of the Holders of not less than a majority in aggregate principal amount of the Securities of any series at the time Outstanding, the Company, when authorized by a Certified Board Resolution, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto with respect to Securities of the particular series (which shall conform to the provisions of the Trust Indenture Act as then in effect) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture relating to such series or of modifying in any manner the rights of the Holders of Securities of the particular series; provided, however, that no such supplemental indenture shall (i) extend the Stated Maturity of any Security, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of any interest thereon, or reduce any premium payable upon the redemption thereof, or reduce the amount of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of Stated Maturity thereof pursuant to Section 6.02, or change the currency or currency unit in which any Security is payable, without the consent of the Holder of each Security so affected, or (ii) reduce the aforesaid majority in aggregate principal amount of Securities of any series, the consent of the Holders of which is required for any such supplemental indenture, without the consent of the Holders of all Securities of each affected series. A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any series not so affected. Upon a Company Request, accompanied by a Certified Board Resolution authorizing the execution of any such supplemental indenture relating to Securities of a particular series, and upon the filing with the Trustee of evidence of the consent of Holders of Securities of the particular series as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the Holders of Securities of a particular series to approve under this Section 10.02 the particular form of any proposed supplemental indenture with respect to such series of Securities, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section 10.02, the Company shall mail a notice thereof by first-class mail to the Holders of registered Securities of each series affected thereby at their addresses as they shall appear on the Security Register for such Securities, or, in the case of unregistered Securities, shall give notice in the manner provided in Section 5.04 hereof, setting forth in general terms the substance of such supplemental indenture. Any failure of the Company to provide such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. SECTION 10.03. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution --------------------------------- and delivery of any supplemental indenture with respect to any series of Securities pursuant to the provisions of this Article Ten, this Indenture shall be and be deemed to be modified and amended with respect to the affected series of Securities in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the Holders of Securities of the series affected shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. The Trustee, subject to the provisions of Sections 7.01 and 7.03, may regard an Officers' Certificate and Opinion of Counsel as conclusive evidence that any such supplemental indenture with respect to any series of Securities complies with the provisions of this Article Ten, but the Trustee shall not be obligated to enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 10.04. SECURITIES MAY BEAR NOTATION OF CHANGES BY ------------------------------------------ SUPPLEMENTAL INDENTURES. Securities authenticated and delivered after the - ----------------------- execution, pursuant to the provisions of this Article Ten, of any supplemental indenture with respect to any series of Securities may, and shall if required by the Trustee, bear a notation in the form approved by the Trustee as to any matter provided for in such supplemental indenture. New Securities of the affected series so modified as to conform, in the opinion of the Trustee and the Board of Directors of the Company, to any modification of this Indenture contained in any such supplemental indenture with respect to such series of Securities may be prepared by the Company, authenticated by the Trustee and delivered in exchange for the Securities of the particular series then Outstanding. ARTICLE ELEVEN CONSOLIDATION, MERGER, SALE, CONVEYANCE OR LEASE SECTION 11.01. COMPANY MAY CONSOLIDATE, ETC., ON CERTAIN TERMS. The ----------------------------------------------- Company may consolidate with, or merge into, or sell, lease or convey all or substantially all of its assets to, any person, provided that in any such case, (i) either the Company shall be the continuing corporation, or the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by sale, lease or conveyance all or substantially all of the Company's assets shall be a corporation organized and existing under the laws of the United States of America or a State thereof or the District of Columbia and such corporation shall expressly assume the due and punctual payment of the principal of (and premium, if any) and any interest on all the Securities, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company by supplemental indenture satisfactory to the Trustee, executed and delivered to the Trustee by such corporation, and (ii) immediately after such merger or consolidation, or such sale, lease or conveyance, no Event of Default or no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing. The Company may not consolidate with, merge into, or sell, lease or convey all or substantially all of its assets to, another Person, if as a result of such consolidation, merger, sale, lease or conveyance, any property owned by the Company or a Restricted Subsidiary immediately prior thereto would be subject to a lien, unless (a) simultaneously therewith or prior thereto effective provision shall be made for the securing (equally and ratably with any other indebtedness of or guaranteed by the Company then entitled thereto) of the due and punctual payment of the principal of and interest on all of the Securities equally and ratably with (or prior to) the debt secured by such lien, or (b) the Company would be permitted to create such lien pursuant to Section 4.06 or 4.08 without equally and ratably securing the Securities. SECTION 11.02. SUCCESSOR CORPORATION TO BE SUBSTITUTED. In case of --------------------------------------- any such consolidation, merger, sale, conveyance or lease referred to in Section 11.01 and upon the assumption by the successor corporation or entity, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of and interest on all of the Securities and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Company, such successor corporation or entity shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as a party. Such successor corporation or entity thereupon may cause to be signed, and may issue either in its own name or in the name of Hussmann International, Inc. any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee, and, upon the order of such successor corporation or entity instead of the Company and subject to all the terms, conditions or limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities which previously should have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Securities which such successor corporation or entity thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof. In the event of any such sale or conveyance, but not any such lease, the Company or any successor corporation or entity which shall theretofore have such in the manner described in this Article Eleven shall be discharged from all obligations and covenants under this Indenture and the Securities and may be dissolved and liquidated. SECTION 11.03. OPINION OF COUNSEL TO BE GIVEN TRUSTEE. The Trustee, -------------------------------------- subject to Sections 7.01 and 7.03, shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that any such consolidation, merger, sale, conveyance or lease and any such assumption complies with the provisions of this Article Eleven. ARTICLE TWELVE SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS SECTION 12.01. SATISFACTION AND DISCHARGE OF INDENTURE. If at any --------------------------------------- time (a) the Company shall have delivered to the Trustee for cancellation all Securities of any series theretofore authenticated and delivered (other than Securities which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.08 or Securities for which payment money has theretofore been deposited in trust and thereafter repaid to the Company as provided in Section 12.05), or (b) all Securities of any series not theretofore delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit with the Trustee as trust funds the entire amount sufficient to pay at Stated Maturity or upon redemption all such Securities not theretofore delivered to the Trustee for cancellation, including principal (and premium, if any) and interest due or to become due at Stated Maturity or on such redemption date, as the case may be, and if in either case the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect (except the Company's obligations with respect to such Securities under Sections 2.06, 2.08, 4.03, 4.05, 5.01, 7.07, 7.11, 7.12, 12.02 and Article 3 of this Indenture, so long as any principal of (and premium, if any) or interest on such securities remains unpaid, and, thereafter, only the Company's rights and obligations under Section 4.05 and 7.07) and the Trustee, on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel as required by Section 14.05 and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 7.07 shall survive. SECTION 12.02. DEFEASANCE AND DISCHARGE OF SECURITIES OR CERTAIN ------------------------------------------------- OBLIGATIONS. Notwithstanding Section 12.01 and except as otherwise specified as - ----------- contemplated by Section 12.01, this Section 12.02 shall be applicable to the Securities of any series: (a) The Company shall be deemed to have paid and discharged the entire indebtedness on all the Outstanding Securities of that series, the provisions of this Indenture as it relates to such Outstanding Securities (except as to (i) the rights of Holders of Securities to receive, from the trust funds described in subparagraph (1) below, payment of the principal of (and premium, if any) and any installment of principal of (and premium, if any) or interest on such Securities on the Stated Maturity of such principal or installment of principal or interest or any mandatory sinking fund payments or analogous payments applicable to the Securities of that series on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Securities, (ii) the Company's obligations with respect to such Securities under Sections 2.06, 2.08, 4.03, 4.05, 5.01, 7.07, 7.11, 7.12, 12.02 and Article 3 of this Indenture, so long as any principal of (and premium, if any) or interest on such Securities remains unpaid and, thereafter, only the Company's rights and obligations under Sections 4.05 and 7.07, and (iii) the rights, powers, trusts, duties and immunities of the Trustee with respect to such series) shall no longer be in effect, and the Trustee, at the expense of the Company, shall, upon a Company Direction, execute proper instruments acknowledging the same, provided that the following conditions have been satisfied: (1) With reference to this Section 12.02(a), the Company has deposited or caused to be deposited with the Trustee irrevocably (subject to the provisions of Section 12.02(c) and the last paragraph of Section 6.06), as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities of that series, (A) money in an amount, or (B) Government Obligations which, through the payment of interest and principal in respect thereof in accordance with their terms, without consideration of any reinvestment thereof, will provide not later than the opening of business on the due date of any payment referred to in clause (i) or (ii) below of this subparagraph (1) money in an amount, or (C) a combination thereof, sufficient, after payment of all taxes in respect thereof payable by the Trustee, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge (i) the principal of (and premium, if any) and each installment of principal (and premium, if any) and interest on the Outstanding Securities of that series on the Stated Maturity of such principal or installment of principal or interest or any date fixed for redemption of such Outstanding Securities and (ii) any mandatory sinking fund payments or analogous payments applicable to Securities of such series on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Securities; (2) the Company has paid or caused to be paid all other sums payable in respect of such Securities, and such payment and the deposit set forth in subparagraph (1) above will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound; (3) no Event of Default or event which with the giving of notice or lapse of time, or both, would become an Event of Default with respect to the Securities of that series shall have occurred and be continuing on the date of such deposit and no Event of Default under Section 6.01(5) or event which with the giving of notice or lapse of time, or both, would become an Event of Default under Section 6.01(5) shall have occurred and be continuing on the 91st day after such date; (4) the Company has delivered to the Trustee an Opinion of counsel of recognized national standing or a ruling of the Internal Revenue Service to the effect that Holders of the Securities of that series will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit, defeasance and discharge had not occurred; and (5) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent in this Indenture provided for relating to the defeasance and discharge of the entire indebtedness on all Outstanding Securities of any such series as contemplated by this Section 12.02(a) have been complied with. (b) The Company may omit to comply with and shall be released from its obligations under any term, provision or condition set forth in Sections 4.06, 4.07, 4.08 and Article Eleven, and Section 6.01(4) with respect to Sections 4.06, 4.07, 4.08 and Article Eleven shall be deemed not to be an Event of Default, in each case with respect to the Securities of that series, provided, that the following conditions have been satisfied: (1) with reference to this Section 12.02(b), the Company has deposited or caused to be deposited with the Trustee irrevocably subject to the provisions of Section 12.02(c) and the last paragraph of Section 6.06), as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities of that series, (A) money in an amount, or (B) Government Obligations which, through the payment of interest and principal in respect thereof in accordance with their terms, without consideration of any reinvestment thereof, will provide not later than the opening of business on the due date of any payment referred to in clause (i) or (ii) below of this subparagraph (1) money in an amount, or (C) a combination thereof, sufficient, after payment of all taxes in respect thereof payable by the Trustee, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge (i) the principal of (and premium, if any) and each installment of principal (and premium, if any) and interest on the Outstanding Securities of that series on the Stated Maturity of such principal or installment of principal or interest or any date fixed for redemption of such Outstanding Securities and (ii) any mandatory sinking fund payments or analogous payments applicable to Securities of such series on the day on which such payments are due and in accordance with the terms of this Indenture and of such Securities; (2) such deposit shall not cause the Trustee with respect to the Securities of that series to have a conflicting interest for purposes of the Trust Indenture Act with respect to the Securities of any series; (3) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound; (4) no Event of Default or event which with the giving of notice or lapse of time, or both, would become an Event of Default with respect to the Securities of that series shall have occurred and be continuing on the date of such deposit and no Event of Default under Section 6.01(5) or event which with the giving of notice or lapse of time, or both, would become an Event of Default under Section 6.01(5) shall have occurred and be continuing on the 91st day after such date; (5) the Company has delivered to the Trustee an Opinion of Counsel of recognized national standing to the effect that Holders of the Securities of such series will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance of certain obligations and will be subject to federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit and defeasance had not occurred; and (6) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent in this Indenture provided for relating to the defeasance contemplated by this Section 12.02(b) have been complied with. (c) The Trustee shall deliver or pay to the Company from time to time upon a Company Direction any money or Government Obligations held by it as provided in this Section 12.02 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are then in excess of the amount thereof which then would have been required to be deposited for the purpose for which such money or Government Obligations were deposited or received. SECTION 12.03. APPLICATION BY TRUSTEE OF FUNDS DEPOSITED FOR PAYMENT ----------------------------------------------------- OF SECURITIES. All moneys with respect to a particular series of Securities - ------------- deposited with the Trustee pursuant to Section 12.01 or Section 12.02 shall be held in trust and applied by it to the payment, either directly or through any paying agent (including, except in the case of Section 12.02(a), the Company acting as its own paying agent), to the Holders of Securities of such series for the payment or redemption of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal (and premium, if any) and interest. SECTION 12.04. REPAYMENT OF MONEYS HELD BY PAYING AGENT. In ---------------------------------------- connection with the satisfaction and discharge of this Indenture, all moneys then held by any paying agent (other than the Trustee, if the Trustee is serving as a paying agent) under the provisions of this Indenture shall, upon a Company Direction, be repaid to the Company or paid to the Trustee and thereupon such paying agent shall be released from all further liability with respect to such moneys. SECTION 12.05. REPAYMENT OF MONEYS HELD BY TRUSTEE. Any moneys ----------------------------------- deposited with the Trustee or any paying agent for the payment of the principal of (and premium, if any) or interest on any Securities of any series and not applied but remaining unclaimed by the Holders of Securities of that series for two years after the date upon which the principal of (and premium, if any) or interest on such Securities shall have become due and payable, shall be repaid to the Company by the Trustee or such paying agent by Company Direction; and the Holders of any of the Securities of that series entitled to receive Such payment shall thereafter look only to the Company for the payment thereof and all liability of the Trustee or such paying agent with respect to such moneys shall thereupon cease; provided, however, that the Trustee or such paying agent, before being required to make any such repayment, may at the expense of the Company cause to be published once a week for two successive weeks (in each case on any day of the week) in an Authorized Newspaper, a notice that such moneys have not been so applied and that after a date named therein any unclaimed balance of said moneys then remaining will be returned to the Company. ARTICLE THIRTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES SECTION 13.01. INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS AND ---------------------------------------------------- EMPLOYEES OF COMPANY EXEMPT FROM INDIVIDUAL LIABILITY. No recourse under or - ----------------------------------------------------- upon any obligation, covenant or agreement of this Indenture, or of any Security or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, stockholder, officer, director or employee, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, stockholders, officers, directors or employees, as such, of the Company or of any successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Securities or implied therefrom; and that any and all such personal liability, either at common law or on equity or by constitution or statute of, and any and all such rights and claims against, every such incorporator, stockholder, officer, director or employee, as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Securities or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution and delivery of this Indenture and the issue of Securities hereunder. ARTICLE FOURTEEN MISCELLANEOUS PROVISIONS SECTION 14.01. SUCCESSORS AND ASSIGNS OF COMPANY BOUND BY INDENTURE. ---------------------------------------------------- All the covenants, stipulations, promises and agreements in this Indenture contained by or in behalf of the Company shall bind its successors and assigns, whether so expressed or not. SECTION 14.02. ACTS OF BOARD, COMMITTEE OR OFFICER OF SUCCESSOR ------------------------------------------------ CORPORATION VALID. Any act or proceeding by any provision of this Indenture - ----------------- authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the like board, committee or officer of any corporation that shall at that time be the successor of the Company. SECTION 14.03. REQUIRED NOTICES OR DEMANDS. Unless otherwise --------------------------- provided in this Indenture, any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by any Holders to or on the Company may be given or served by being deposited postage prepaid in a post office letter box in the United States addressed (until another address is filed by the Company with the Trustee), as follows: Hussmann International, Inc., 12999 St. Charles Rock Road, Bridgeton, Missouri 63044-2483, to the attention of the Treasurer. Any notice, direction, request or demand by the Company or by any Holder to or upon the Trustee may be given or made, for all purposes, by being deposited first-class postage prepaid in a post office letter box in the United States or airmail postage prepaid if sent from outside the United States, addressed to the Corporate Trust Office, Attention: Corporate Trust Trustee Administration. Any notice required or permitted to be mailed to a Holder of registered Securities of any series by the Company or the Trustee pursuant to the provisions of this Indenture shall be deemed to be properly mailed by being deposited postage prepaid in a post office letter box in the United States addressed to such Holder at the address of such Holder as shown on the Security Register for the particular series of Securities. Any notice required or permitted to be given to a Holder of unregistered Securities of any series shall be deemed to be properly given if such notice is published in an Authorized Newspaper in New York, New York or such other cities as shall be specified with respect to such Securities. SECTION 14.04. INDENTURE AND SECURITIES TO BE CONSTRUED IN ACCORDANCE ------------------------------------------------------ WITH THE LAWS OF THE STATE OF NEW YORK. This Indenture and each Security shall - -------------------------------------- be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be governed by and construed in accordance with the laws of such State, without regard to conflicts of laws principles thereof. The descriptive headings of the Articles and Sections of this Indenture are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. SECTION 14.05. OFFICERS' CERTIFICATE AND OPINION OF COUNSEL TO BE -------------------------------------------------- FURNISHED UPON APPLICATION OR REQUEST BY THE COMPANY. Upon any application or - ---------------------------------------------------- request by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture (including any covenants compliance with which constitutes a condition precedent) which relate to the authentication and delivery of the Securities of any series, to the release or the release and substitution of property subject to the lien of the Indenture, to the satisfaction and discharge of the Indenture, or to any other action to be taken at the request or upon the application of the Company have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent have been complied with, except that in the case of any such application or request as to which the furnishing of any such document is specifically required by any provision of this Indenture relating to such application or request, no additional certificate or opinion, as the case may be, need be furnished. Each certificate (other than an annual certificate delivered pursuant to Section 4.09) or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. SECTION 14.06. PAYMENTS DUE ON NON-BUSINESS DAYS. In any case where --------------------------------- the date of maturity of interest on or principal of any Security or the date fixed for redemption of any Security shall not be a Business Day, then payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for redemption, and no interest shall accrue for the period after such date. SECTION 14.07. MONEYS OF DIFFERENT CURRENCIES TO BE SEGREGATED. The ----------------------------------------------- Trustee shall segregate moneys, funds and accounts held by the Trustee hereunder in one currency (or unit thereof) from any moneys, funds or accounts in any other currencies (or units thereof), notwithstanding any provision herein which would otherwise permit the Trustee to commingle such amounts. SECTION 14.08. PAYMENT TO BE IN PROPER CURRENCY. Other than as -------------------------------- provided herein or in the Security, an Officers' Certificate or a supplemental indenture, the obligation of the Company to make any payment of principal of (and premium, if any) and interest, if any, on such Security shall not be discharged or satisfied by any tender by the Company, or collection by the Trustee, in any currency or currency unit other than that in which such Security is denominated (the "Specified Currency"), except to the extent that the Trustee timely holds for such payment the full amount of the Specified Currency when due and payable. If any such tender or collection is made in other than the Specified Currency, the Trustee may take such actions as it considers appropriate to exchange such other currency or currency unit for the Specified Currency. The costs and risks of any such exchange, including without limitation the risks of delay and exchange rate fluctuation, shall be borne by the Company, the Company shall remain fully liable for any shortfall or delinquency in the full amount of the Specified Currency then due and payable and in no circumstances shall the Trustee be liable therefor. The Company waives any defense of payment based upon any such tender or collection which is not in the Specified Currency, or which, when exchanged for the Specified Currency by the Trustee, is less than the full amount of the Specified Currency then due and payable. Notwithstanding the foregoing, if a Specified Currency is not available to make any payment of principal of (and premium, if any) and interest, if any, on a Security denominated in other than Dollars due to the imposition of exchange controls or other circumstances beyond the Company's control, the Company shall be entitled to satisfy its obligation by making such payment in Dollars on the basis of the Market Exchange Rate on the date of such payment, or if such Market Exchange Rate is not then available, on the basis of the most recently available Market Exchange Rate. For any Specified Currency, "Market Exchange Rate" shall mean the noon buying rate in New York, New York for cable transfers of such Specified Currency as certified for customs purposes by the Federal Reserve Bank of New York. SECTION 14.09. PROVISIONS REQUIRED BY TRUST INDENTURE ACT TO CONTROL. ----------------------------------------------------- If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed pursuant to Section 318(c) of the Trust Indenture Act, the imposed duties shall control. SECTION 14.10. INDENTURE MAY BE EXECUTED IN COUNTERPARTS. This ----------------------------------------- Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. SECTION 14.11. SEPARABILITY CLAUSE. In case any provision in this ------------------- Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. The Trustee hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions hereinabove set forth. IN WITNESS WHEREOF, HUSSMANN INTERNATIONAL, INC. and THE BANK OF NEW YORK have caused this Indenture to be duly executed, all as of the day and year first above written. HUSSMANN INTERNATIONAL, INC. By: /s/ Michael D. Newman --------------------- Name: Michael D. Newman Title: Chief Financial Officer THE BANK OF NEW YORK, AS TRUSTEE By: /s/ Robert A. Massimillo ------------------------ Name: Robert A. Massimillo Title: Assistant Vice President EX-10.9 5 DEFERRED COMPENSATION PLAN FOR DIRECTORS Exhibit 10.9 HUSSMANN INTERNATIONAL, INC. DEFERRED COMPENSATION PLAN FOR DIRECTORS (EFFECTIVE AS OF FEBRUARY 26, 1998) I. GENERAL 1. PURPOSE. The primary purpose of this Plan is to establish a method for the payment of deferred compensation to directors of Hussmann International, Inc. (the "Company") which will assist the Company in attracting and retaining as members of its Board of Directors those persons whose abilities, experience and judgment will contribute to the continued progress of the Company. 2. ELIGIBILITY. Each director of the Company (other than the Chairman) who is not an employee of the Company or any subsidiary of the Company (a "Non- Employee Director") shall be eligible to participate in this Plan. 3. ADMINISTRATION. This Plan shall be administered by the Board of Directors or a committee of the Board of Directors (the "Committee"), which shall have full power and authority to interpret, construe and administer this Plan in accordance with the provisions herein set forth. The Plan administrator's interpretation and construction of this Plan, and actions under this Plan, and the Plan administrator's determination of the amount or recipient of payments to be made from this Plan, shall be conclusive and binding on all persons for all purposes. The expenses of administering this Plan shall be paid by the Company and shall not be charged against this Plan. II. DEFERRAL OF RETAINER AND FEES 1. RIGHT TO DEFER COMPENSATION. Each Non-Employee Director may participate in this Plan by executing an agreement with the Company (an "Agreement") prior to the beginning of any calendar quarter to defer payment of all or a portion of the compensation to which such Director is entitled for services performed during and after such calendar quarter as a director, consisting of the annual cash retainer (including, if applicable, the portion attributable to services as Chairman of a Board committee) or Board and committee meeting fees, or both such retainer and meeting fees (collectively sometimes referred to as "compensation" or "deferred compensation"). An Agreement shall be delivered to the Vice President-Human Resources of the Company. A participant may not revoke or change an election to defer compensation for a calendar quarter after the beginning of such quarter, but may change or revoke an election for any subsequent quarter by executing with the Company a new Agreement prior to the quarter for which the change or revocation is to become effective. Elections to defer compensation shall be irrevocable as to all compensation which shall have been earned while such election was in effect. 2. DEFERRED COMPENSATION ACCOUNT. The Company shall maintain a bookkeeping account for each participant in the Plan to which there shall be credited, as of the date the compensation would have been payable, the amount of any compensation deferred. 3. INTEREST ON DEFERRED COMPENSATION ACCOUNT. So long as a participant is serving as a Director of the Company, on June 30 and December 31 of each year, accrued interest shall be credited in arrears to each Plan account in respect of the amount of deferred compensation (and previously credited accrued interest) then credited to such account at the prime rate of interest then quoted by Mercantile Bank of St. Louis N.A. (the "Prime Rate"). Any such interest shall be credited for the period from and including the most recent January 1 or July 1, as applicable (or from and including the date as of which any deferred compensation was credited to such account), to and including June 30 or December 31, as applicable. As of the date a participant ceases to serve as a Director of the Company for any reason, and thereafter as of the date of each payment to the participant, accrued interest shall be credited in arrears to that participant's Plan account at the Prime Rate. 4. PAYMENT OF DEFERRED COMPENSATION. (a) Except as otherwise set forth in this Plan, a participant's account shall be paid or commence to be paid to the participant on the later of (i) the date(s) elected by the participant in the participant's deferred compensation Agreement or other form of election provided by the Company or (ii) the first January occurring after the Participant ceases to serve as a Director for any reason; provided, however, that the date(s) elected by the participant shall be at least one year after the execution of the Agreement or other form of election. Each participant shall receive payment of the amount credited to that participant's account either in a single lump sum or in quarterly or annual installments over a period not to exceed ten years, as elected by the participant. (b) If a participant does not make an election pursuant to Section II.4(a), then commencing with the first January 1 occurring after the participant ceases to serve as a Director of the Company for any reason, the Company shall make quarterly payments of deferred compensation plus accrued interest over a term equal to the greater of (i) three years or (ii) the number of years and portion thereof during which the participant had in effect an election to defer compensation under this Article II. The amount payable for any quarter shall be determined by dividing the amount then credited to the participant's account by the number of remaining quarters in which a payment is to be made by the Company. 2 III. STOCK UNITS 1. CREDITING OF STOCK UNITS. (a) Each Non-Employee Director as of February 26, 1998 shall be credited as of February 26, 1998 with the number of stock units (carried to four decimal places) determined by dividing $18,164.38 by the Fair Market Value of a share of Common Stock of the Company as of February 26, 1998. "Fair Market Value" shall mean, as of any date, the average closing price per share, as reported for New York Stock Exchange Composite Transactions, for the 20 trading days immediately preceding the date of determination. (b) On the date of each annual meeting of stockholders, beginning with the 1999 annual meeting, each Non-Employee Director serving as such immediately after such annual meeting shall be credited as of that date with the number of stock units (carried to four decimal places) determined by dividing $15,000 by the Fair Market Value of a share of Common Stock as of that date. (c) Each individual who first begins to serve as a Non-Employee Director after February 26, 1998 (the "First Service Date") shall be credited as of the First Service Date with a number of stock units (carried to four decimal places) equal to (i) the product of (A) the actual number of days from and after the First Service Date through and including the date of the first annual meeting of stockholders held after the First Service Date divided by 365 or 366, as applicable, multiplied by (B) $15,000, which product is (ii) divided by the Fair Market Value of a share of Common Stock as of the First Service Date. 2. DIVIDEND EQUIVALENTS. On each dividend payment date in respect of the Common Stock, each participant in this Plan shall be credited with an amount equal to (i) the product of the number of stock units credited to that participant's account as of the record date for such dividend multiplied by (ii) the per share amount of the dividend. 3. INTEREST ON DIVIDEND EQUIVALENT ACCOUNT. So long as a participant is serving as a Director of the Company, on June 30 and December 31 of each year, accrued interest shall be credited in arrears to each Plan account in respect of the amount of dividend equivalents (and previously credited accrued interest) then credited to such account at the Prime Rate. Any such interest shall be credited for the period from and including the most recent January 1 or July 1, as applicable (or from and including the dividend payment date applicable to any dividend equivalents), to and including June 30 or December 31, as applicable. As of the date a participant ceases to serve as a Director of the Company for any reason, and thereafter as of the date of each payment to the participant, accrued interest shall be credited in arrears to that participant's Plan account at the Prime Rate. 4. BOOKKEEPING ACCOUNT. The Company shall maintain bookkeeping accounts for each participant in the Plan to which there shall be credited stock units, dividend equivalents and interest in accordance with Sections III.1, III.2 and III.3. 3 5. ADJUSTMENTS. In the event of any stock split, stock dividend, spin- off, split-up, recapitalization, merger, consolidation, combination or exchange of shares, liquidation or the like, the number and class of stock units credited to each stock unit account shall be appropriately adjusted by the Board or a committee designated by the Board. 6. PAYMENT OF ACCOUNTS. (a) Except as otherwise set forth in this Plan, a participant's account shall be paid or commence to be paid to the participant on the later of (i) the date(s) elected by the participant in the participant's form of election provided by the Company or (ii) the first January occurring after the participant ceases to serve as a Director for any reason. Each participant shall receive certificates for Common Stock representing the whole number of stock units credited to that participant's stock unit account as of the effective date of the participant's cessation of service as a Director of the Company, either in a single lump sum or in annual installments over a period not to exceed ten years, and cash in an amount equal to the amount credited to the participant's dividend equivalent account, including interest previously credited, either in a single lump sum or in quarterly or annual installments over a period not to exceed ten years, as elected by the participant; provided, however, that the Company shall, at the time of the first such distribution of Common Stock, pay cash in lieu of any fractional stock unit based on the Fair Market Value of the Common Stock as of the effective date of the participant's cessation of service as a Director of the Company. (b) If a participant does not make an election pursuant to Section III.6(a), then within 30 days after the participant ceases to serve as a Director of the Company for any reason: (i) The Company shall distribute to the participant one or more certificates for Common Stock representing the whole number of stock units credited to that participant's stock unit account as of the effective date of the participant's cessation of service and the Company shall pay cash in lieu of any fractional stock unit based on the Fair Market Value of the Common Stock as of the effective date of the participant's cessation of service as a Director of the Company; and (ii) The Company shall pay to the participant cash in an amount equal to the amount credited to the participant's dividend equivalent account, including interest previously credited. 4 IV. MISCELLANEOUS (a) In the event a participant dies prior to receiving payment of any amount under this Plan to which the participant is entitled, the unpaid amount shall be paid to the beneficiary(ies) designated by the participant in a written instrument filed with the Vice President-Human Resources of the Company. Such amount shall be paid at the same time and in the same manner as such amount would have been paid had the participant survived; provided, however, that the Plan administrator may accelerate the time of any payment in its discretion. If such beneficiary is a natural person, any amounts remaining unpaid upon the death of the designated beneficiary shall be paid to the estate of such beneficiary. If a participant fails to make an effective beneficiary designation, any amounts remaining unpaid upon the death of the participant shall be paid to the estate of the participant. If, in the opinion of the Plan administrator, a participant or beneficiary who is entitled to a payment hereunder shall be mentally or physically disabled, any payment to such participant or beneficiary may, with the approval of the Plan administrator, be paid to the participant or beneficiary, to his or her legal representative, or to any other person for the benefit of the participant or beneficiary. (b) Deferred compensation, stock units, interest and any other amounts payable hereunder may not be voluntarily or involuntarily sold, transferred or assigned and shall not be subject to any legal attachment, levy or garnishment. (c) Participation in this Plan shall not confer upon any person any right to be nominated for re-election to the Board of Directors or to be re- elected to the Board of Directors. (d) Notwithstanding the payment provisions of this Plan, in the event of a "Change in Control" of the Company, as that term is defined in the Change in Control Agreement, dated as of January 30, 1998 by and between the Company and certain designated executives of the Company, each participant shall thereupon be entitled to receive a lump sum payment consisting of all deferred compensation, stock units, interest and any other amounts which have accrued to the participant's account(s) under this Plan. (e) Except as set forth in clause (f) below, the Company shall not be required to reserve, or otherwise set aside, assets or funds for the payment of its obligations hereunder. A participant's rights to receive benefits shall be no greater than the rights of any unsecured general creditor of the Company. (f) A participant shall not have any rights as a stockholder of the Company with respect to any stock units. The Company shall at all times prior to the distribution of Common Stock to a participant reserve and keep available, either in its treasury or out of its authorized but unissued shares of Common Stock, the full number of shares that may be payable under this Plan. 5 (g) This Plan and all determinations made and actions taken pursuant hereto, to the extent not governed by the Internal Revenue Code or the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflict of laws. (h) The Board of Directors may terminate this Plan at any time, or amend or modify it from time to time in any respect. The amendment or termination of this Plan shall not in any way affect the rights of participants, or their executors, administrators, beneficiaries or similar persons, to the extent of credits to their account at the time of amendment or termination. (i) The Company shall pay all legal fees and expenses which a participant may incur as a result of the Company or a subsidiary contesting the validity or enforceability of this Plan or any related agreement. 6 EX-10.10 6 FORM OF DEFERRED COMPENSATION AND PAYMENT Exhibit 10.10 HUSSMANN INTERNATIONAL, INC. DEFERRED COMPENSATION AND PAYMENT AGREEMENT FOR DIRECTORS THIS AGREEMENT is made and entered into this _____ day of __________, 1998, by and between Hussmann International, Inc., a Delaware corporation (the "Company"), and _________________________ (the "Participant"). WITNESSETH: WHEREAS, the Company has a Deferred Compensation Plan for Directors (the "Plan") in which the Participant is eligible to participate; and WHEREAS, the Participant desires to defer all or a portion of the Participant's annual cash retainer for service as a director of the Company ("Retainer") and/or all or a portion of the meeting fees payable to the Participant for attendance at meetings of the Board of Directors or a committee of the Board of Directors ("Fees"), in accordance with the terms and conditions of the Plan and this Agreement; and WHEREAS, the Participant desires to make an election for the payment of (i) the Participant's stock units ("Stock Units") set forth or to be set forth in a separate Stock Unit account on the Company's books for the benefit and in the name of the Participant ("Stock Unit Account") and (ii) dividend equivalents ("Dividend Equivalents") set forth or to be set forth in a separate Dividend Equivalent account on the Company's books for the benefit and in the name of the Participant ("Dividend Equivalent Account"), in accordance with the terms and conditions of the Plan and this Agreement: NOW, THEREFORE, the parties hereto agree as follows: 1. PARTICIPANT'S ELECTION TO DEFER RETAINER. The Participant hereby irrevocably elects to defer payment of ____% (insert 25, 50, 75 or 100) of the Retainer otherwise payable to the Participant. Such Retainer shall be deferred beginning with the calendar quarter commencing _______, 19__ (insert January 1, April 1, July 1 or October 1 and the year) and ending on ________, ____ (insert March 31, June 30, September 30 or December 31 and the year). The Participant may revoke or change the foregoing election for any calendar quarter by executing a new Agreement prior to such quarter. 2. PARTICIPANT'S ELECTION TO DEFER FEES. The Participant hereby irrevocably elects to defer payment of _____% (insert 25, 50, 75 or 100) of the Fees otherwise payable to the Participant during the period set forth in Section 1. The Participant may revoke or change the foregoing election for any calendar quarter by executing a new Agreement prior to such quarter. 3. AGREEMENT OF THE COMPANY TO DEFER RETAINER AND/OR FEES. The Company agrees to establish a separate deferred compensation account on its books for the benefit and in the name of the Participant ("Deferred Compensation Account") in which the amount of Retainer and/or Fees deferred by the Participant ("Deferred Compensation") under this Agreement shall be credited. Deferred Compensation shall be credited to the Deferred Compensation Account as of the date on which such Deferred Compensation would have been paid to the Participant but for the Participant's election to defer payment of such amount(s). 4. INTEREST ON DEFERRED COMPENSATION ACCOUNT AND DIVIDEND EQUIVALENT ACCOUNT. So long as the Participant is serving as a Director of the Company, interest shall be credited to the Deferred Compensation Account and Dividend Equivalent Account on June 30 and December 31 of each year in respect of the amount of Deferred Compensation and Dividend Equivalents (and in each case previously credited accrued interest) then credited to the Deferred Compensation Account and Dividend Equivalent Account at the prime rate of interest then quoted by Mercantile Bank of St. Louis N.A. (the "Prime Rate"). Any such interest shall be credited for the period from and including the most recent January 1 or July 1, as applicable (or from and including the date as of which Deferred Compensation or Dividend Equivalents, as applicable, were credited to the applicable Account), to and including June 30 or December 31, as applicable. As of the date the Participant ceases to serve as a Director of the Company for any reason, and thereafter as of the date of each payment to the Participant, accrued interest shall be credited in arrears to the Deferred Compensation Account and the Dividend Equivalent Account at the Prime Rate. 5. PAYMENT OF DEFERRED COMPENSATION, DIVIDEND EQUIVALENTS AND INTEREST. The Participant hereby elects to receive payment of, and the Company hereby agrees to pay the Participant, the total amount credited to the Deferred Compensation Account and the Dividend Equivalent Account as follows: (a) a lump sum payment in _______________(insert month and year at least one year after the date of this Agreement) or, if later, during the first January occurring after the Participant's cessation of service as a Director of the Company; or (b) ____ ANNUAL; ____ QUARTERLY (insert a whole number not exceeding 10 in the case of annual payments and not exceeding 40 in the case of quarterly payments) installments commencing on ____________________ (insert month and year at least one year after the date of this Agreement) or, if later, the first January 1 occurring after the Participant's cessation of service as a Director of the Company. 6. PAYMENT OF STOCK UNITS. The Participant hereby elects to receive certificates for Common Stock representing the whole number of Stock Units credited to the Participant's Stock Unit Account as of the effective date of the Participant's cessation of service as a Director of the Company, and the Company hereby agrees to distribute to the Participant, the Stock Units as follows: (a) a lump sum distribution in _______________ (insert month and year) or, if later, during the first January occurring after the Participant's cessation of service as a Director of the Company; or 2 (b) _____ ANNUAL (insert a whole number not exceeding ten) installments commencing on _____________________ (insert month and year) or, if later, the first January 1 occurring after the Participant's cessation of service as a Director of the Company; provided, however, that the Company shall, at the time of the first distribution of Common Stock, pay cash in lieu of any fractional Stock Unit based on the Fair Market Value (as defined in the Plan) of the Common Stock as of the effective date of the Participant's cessation of service as a Director of the Company. 7. CALCULATION OF INSTALLMENT PAYMENT AMOUNTS. The amount of any installment payment shall equal the amount determined by dividing the current balance in the Deferred Compensation Account and Dividend Equivalent Account or Stock Unit Account, as applicable, as of a specified payment date (which amount shall include in respect of the Deferred Compensation Account and Dividend Equivalent Account interest accrued from and including the most recent date to which interest has been credited to but excluding such payment date) by the number of remaining installment payments. The Committee may modify installment payments of Common Stock in respect of Stock Units to the extent necessary to pay the Stock Unit Account in whole shares of Common Stock. 8. DEATH OF PARTICIPANT. In the event that the Participant shall die prior to the payment of the unpaid balance in any of the Deferred Compensation Account, the Dividend Equivalent Account or the Stock Unit Account, such unpaid balance shall be paid to the beneficiary(ies) designated on the attached Exhibit ------- A or, if no beneficiary(ies) is designated, to the estate of the Participant. - - 9. INCORPORATION OF DEFERRED COMPENSATION PLAN. The terms and conditions of the Plan are hereby incorporated by reference and form a part of this Agreement. 3 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. ATTEST: HUSSMANN INTERNATIONAL, INC. By: ________________________ By:_________________________ Name: ______________________ Name:_______________________ Title: _____________________ Title:______________________ ____________________________ Participant's Signature ____________________________ Print Name ____________________________ Home Address ____________________________ Participant's Social Security Number 4 EXHIBIT A HUSSMANN INTERNATIONAL, INC. DEFERRED COMPENSATION PLAN FOR DIRECTORS BENEFICIARY DESIGNATION FORM You may designate a primary beneficiary and a secondary beneficiary. You may name more than one person as a primary or secondary beneficiary. For example, you may wish to name your spouse as primary beneficiary and your children as secondary beneficiaries. Your secondary beneficiary(ies) will receive nothing if any of your primary beneficiaries survive you. All primary beneficiaries will share equally unless you indicate otherwise. The same rule applies for secondary beneficiaries. Part A - Designate Your Beneficiary(ies): Primary Beneficiary(ies) (give name, address and relationship to you): ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Secondary Beneficiary(ies) (give name, address and relationship to you): ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ I certify that my designation of beneficiary set forth above is my free act and deed. IF YOU ARE MARRIED AND ARE NOT NAMING YOUR SPOUSE AS THE SOLE PRIMARY BENEFICIARY, YOUR SPOUSE MUST COMPLETE AND EXECUTE THE CONSENT ATTACHED TO THIS FORM. IF YOU MARRY OR BECOME DIVORCED AFTER THE DATE OF THIS FORM, YOUR MARRIAGE WILL BE DEEMED TO REVOKE ANY PRIOR BENEFICIARY DESIGNATION, AND YOUR DIVORCE WILL BE DEEMED TO REVOKE ANY PRIOR DESIGNATION OF YOUR DIVORCED SPOUSE, IF WRITTEN EVIDENCE OF SUCH MARRIAGE OR DIVORCE IS RECEIVED BY THE VICE PRESIDENT - HUMAN RESOURCES BEFORE PAYMENT OF ANY DEFERRED COMPENSATION. THEREFORE, IF YOU ARE MARRIED OR DIVORCED AFTER MAKING A BENEFICIARY DESIGNATION, YOU SHOULD FILE A NEW DESIGNATION EVEN IF YOU WANT YOUR BENEFICIARY DESIGNATION(S) TO REMAIN THE SAME. _________________________ ___________________________________ Name (Please Print) Signature ___________________________________ Date 5 This Beneficiary Designation Form shall be effective on the day it is received by the Vice President - Human Resources of the Company at 12999 St. Charles Rock Road, Bridgeton, Missouri 63044-2483 (Facsimile: 314/298-6484). This Form shall be (i) delivered to the Vice President - Human Resources by personal delivery, facsimile, United States mail or by express courier service and (ii) deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission or upon actual receipt by the Vice President - Human Resources if by United States mail or express courier service; provided, however, that if this Form is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. Part B - Spouse's Consent to Designation of Beneficiary I hereby consent to my spouse's designation of beneficiary under Part A of this Form and I understand that the effect of this consent is that (i) if other beneficiaries are designated in addition to myself, I may receive only a portion of the payments payable under the Deferred Compensation Plan for Directors after my spouse's death or (2) if I am not named as a beneficiary, I may not receive any portion of the payments payable under the Deferred Compensation Plan for Directors after my spouse's death. ____________________________ ___________________________________ Name (Please Print) Signature ___________________________________ Date 6 EX-13 7 ANNUAL REPORT TO STOCKHOLDERS HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT Exhibit 13 ---------- growth - ------------------------------------------ MANAGING EVERY ASPECT OF A DYNAMIC PROCESS [PICTURE APPEARS HERE] [PICTURE APPEARS HERE]
For the Years Ended December 31, Pro Forma - ----------------------------------------------------------------------- (Dollars in millions except per share data) 1998 1997 ------------------- Sales and Revenues $1,221.2 $1,096.2 Gross Profit 258.2 215.2 Operating Income 122.3 94.8 Income Before Income Tax Expense and Minority Interests 100.0 80.4 Net Income 62.4 51.9 Pro Forma Basic Earnings Per Share 1.23 1.02 Pro Forma Diluted Earnings Per Share $ 1.20 $ 1.01 1998 1997 ------------------- Working Capital $ 193.6 $ 189.6 Total Assets 653.7 627.2 Long-term Debt 204.8 243.2 Total Shareholders' Equity $ 185.5 $ 139.1
1. [PICTURE APPEARS HERE] [GRAPH APPEARS HERE] Sales and Revenues in millions Adjusted Historical* Net Income in millions Sales and Revenues to Unaffiliated Customers in millions * See notes to consolidated financial statements 2. [PICTURE APPEARS HERE] PROFILE OF A MARKET LEADER Hussmann International, Inc., serves the world's commercial food industry with a complete line of refrigeration products and systems. With 1998 revenues of $1.2 billion, Hussmann is the world's largest manufacturer of food store equipment. Including the Company's pending acquisition of Koxka in Spain, Hussmann has leading market share positions in many of the world's largest markets for such products, including the United States, Canada, Mexico, the United Kingdom, Spain, Portugal and China. Hussmann products are sold in more than 80 countries around the globe. The Company's product lines consist of a broad range of remote refrigerated display cases, self-contained merchandisers, a complete array of refrigeration systems, beverage coolers, commercial and industrial refrigeration equipment (including air handlers, condensers and coils) and walk-in storage coolers and freezers. The Company supports these products with an extensive network of service and installation facilities in key markets throughout the world. Hussmann's global manufacturing network consists of 21 plants in nine countries: U.S., Canada, Mexico, Brazil, Spain, U.K., Australia, New Zealand and China. 3. HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT There are many paths to growth, and all are part of the Hussmann strategy. - ------------------------------------------------------------------------------ growth efficiency consolidation restructuring expansion opportunity research TO THRIVE IN A HIGHLY COMPETITIVE GLOBAL MARKETPLACE, A COMPANY MUST FOCUS ON THE FUTURE - FOCUS ON GROWTH. THE BEST PERFORMERS UNDERSTAND GROWTH IS NOT A SINGLE-MINDED ENDEAVOR. IT IS NOT JUST ABOUT INCREASING TOPLINE REVENUES. RATHER, IT IS A DYNAMIC PROCESS, INCORPORATING EVERY ASPECT OF THE COMPANY'S STRATEGY AND OPERATIONS. THIS IS THE APPROACH BEING TAKEN AT HUSSMANN. AS THE WORLD'S LARGEST MANUFACTURER OF FOOD STORE EQUIPMENT, HUSSMANN LEADS THE INDUSTRY IN SALES VOLUME INCREASES - A REFLECTION OF HOW ITS SUPERIOR PRODUCTS FARE IN AN ATTRACTIVE, GROWING MARKET. BUT VOLUME IS JUST PART OF THE SUCCESS STORY. THE COMPANY IS ALSO DRIVING GROWTH THROUGH NEW MANUFACTURING EFFICIENCIES. EXPANSION INTO NEW GEOGRAPHIES. THE RESTRUCTURING AND CONSOLIDATION OF KEY OPERATIONS. THE EXPLORATION OF ATTRACTIVE NEW MARKETS. AND RESEARCH AND DEVELOPMENT INTO THE TECHNOLOGIES THAT WILL DRIVE TOMORROW'S GROWTH. THIS ANNUAL REPORT SHOWS HOW THE COMPANY IS PURSUING ALL OF THESE AVENUES TO CREATE VALUE FOR HUSSMANN SHAREHOLDERS. 4. LETTER TO THE SHAREHOLDERS - ------------------------------------------------------------------------------ Hussmann's Pro Forma Net Income Improves 20 Percent in 1998; Stage Is Set For Future Growth TO OUR FELLOW SHAREHOLDERS: We are pleased to report Hussmann turned in a record setting performance in our inaugural year as an independent company. We made outstanding progress across all phases of our business. Hussmann has been a leader in the refrigerated food store equipment business for more than 90 years, but for most of the past three decades, we have operated as a subsidiary of a holding company. That changed on January 30, 1998, when we were spun off from Whitman Corporation and were challenged to prove ourselves as a stand-alone business. Prove it, we did -- with strong year-over-year increases in sales and revenues and net income and other initiatives to position the Company for continued growth. Let's take a closer look at the highlights of our 1998 performance, starting with financial results. During 1998, we posted sales and revenues of $1.2 billion, up 11 percent compared to 1997. Excluding a $2 million after-tax restructuring charge taken in the fourth quarter of 1998 and a $2 million adjustment to estimated tax benefits recorded during 1997, Hussmann's net income totaled $62.4 million in 1998, a 20 percent increase compared to the prior year. Pro forma diluted earnings per share reached $1.20, up 19 percent versus 1997's pro forma results. Hussmann's 1998 numbers illustrate two important points about our business: . Solid revenue growth shows the fundamentals of our market are quite attractive. Demand for food store equipment remains high in key world areas. . Net income performance shows we were effective at pressing our advantage as the market leader. We strive to make smart, disciplined decisions and investments to improve our margins, increase operating efficiencies, win new business and create value for our customers and shareholders. The year's results were driven by Hussmann's improved performance in North America (U.S. and Canada), a market which generated nearly 75 percent of the Company's sales and revenues and an even greater portion of our operating income. Our business in this core market benefited from a number of positive marketplace trends, such as expanded perishable sections in grocery stores, high levels of capital spending for both new store construction and remodels, and increasing competition among regional and national grocery chains. We expect these trends to continue for some time to come, generating elevated demand for food store equipment. Hussmann stands to benefit more than most from today's outstanding selling environment because we offer the industry's highest value products, anchored by our Impact(R) line of refrigerated merchandisers. Hussmann has consistently gained market share in each of the last several years. Our operations in Mexico enjoyed a record setting year. Sales of both supermarket cases, as well as refrigerated bottle coolers in Mexico and surrounding Latin American countries, grew substantially in 1998. In addition, we got our business back on track in the United Kingdom, where an aggressive restructuring effort turned 1997's $6.2 million operating loss into $1.2 million of operating income in 1998. Beyond the successes we achieved in our established markets, we also made considerable progress in our efforts to develop new business in other key regions of the world. . We announced plans to acquire Koxka, the leading food store equipment manufacturer in Spain. This business gives us a strong base on which to build a more competitive position in Europe, the world's second largest market for food store equipment. . With our acquisition of 65 percent of McAlpine Investments, Ltd., we strengthened our presence in Australia and New Zealand, growing markets for our products and services. . We made substantial investments to transfer our world-class product technology to Fast Frio, our Brazilian joint venture acquired in 1997. Brazil is the tenth largest economy in the world, with a growing, modern population and an expanding need for products from our industry. 5. HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT - -------------------------------------------------------------------------------- . Our small business in Asia managed to post an operating profit in 1998. Despite immense economic turmoil in the region, sales grew by 9 percent in Asia-Pacific for the year. Long-term, we expect our Chinese operation will play a strategically important role in helping Hussmann serve emerging markets throughout the region. . Our improved manufacturing base in Brazil, combined with our purchase of Koxka, is allowing us to address difficulties with our Chilean operation. Throughout 1998, we experienced declining sales and operating results in Chile as that nation's economy was hit badly by weakening export sales to Asia and declining worldwide copper prices, its chief export. We announced a restructuring initiative at year end which will: 1) result in the closure of a small manufacturing plant and several service facilities; 2) combine our remaining Chilean sales operations with Koxka's existing sales and distribution business in Chile; and 3) shift a portion of the manufacturing requirements for Chile and other Andean nations to Hussmann Brazil. No less significant than these international moves were the strides we made to enhance the performance of the business overall. Proof of our commitment can be seen in gross margins, which improved 1.5 points to 21.1 percent in 1998. Some of this improvement resulted from our ability to secure favorable prices on key commodities such as copper, aluminum, sheet metal and glass. But the actions we took to boost productivity and reduce costs were equally important factors in our margin expansion. For example, we achieved lower manufacturing costs through investments in automation at our largest production facility. We consolidated our refrigeration systems operations to realize greater manufacturing efficiencies. And we are implementing company-wide purchasing and productivity programs making virtually all of our operations more profitable. In our 1997 report, we told you about the ambitious "Target 2000" challenge adopted in 1995: to achieve annual sales and revenues of more than $1.5 billion and operating income of $165 million by the end of the year 2000. This goal was set at the end of 1994, when Hussmann posted sales of $860 million and $83 million in operating income. Once Target 2000 is achieved, Hussmann will have grown sales by 75 percent and operating income will have more than doubled. It's an aggressive goal. To get there, we'll need to increase sales by slightly greater than 11 percent annually and grow operating income at double that rate for the next two years. We are confident we can make it happen by focusing on a range of activities such as continued cost reductions, internally-generated growth initiatives, and assimilating recent acquisitions. We remain committed to delivering the returns you expect on your investment in Hussmann. [PICTURE OF J. LARRY VOWELL AND RICHARD G. CLINE APPEARS HERE] J. Larry Vowell Richard G. Cline President and Chief Executive Officer Chairman of the Board of Directors 6. [PICTURE APPEARS HERE] Bridgeton, Missouri 7. HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT EFFICIENCY - -------------------------------------------------------------------------------- Capital investments drive substantial improvements in operating margins One of Hussmann's most important accomplishments in 1998 was margin expansion. Simply put, the Company is earning more on every dollar of sales -- 21.1 percent gross profit margin in 1998, compared to 19.6 percent in 1997. This outstanding performance reflects the impact of Hussmann's comprehensive initiatives to improve efficiency across its operations. The effort began more than five years ago, with a concentrated focus on updating and automating production processes at Hussmann's flagship manufacturing plant in suburban St. Louis. The Bridgeton, MO, plant is the largest food equipment manufacturing facility in the world -- with more than 1.6 million square feet of floor space under one roof. It's also one of the most efficient plants of its kind, thanks to capital investments totaling more than $50 million since 1993. Computer operated machinery and robotics technology have been installed throughout the plant. These advanced technologies are having a dramatic impact on both production volumes and product quality. For example, sheet metal fabrication time has been cut from six weeks to three days on Hussmann's best- selling products, and the quality of the parts has improved ten-fold. As a direct result of new, more efficient manufacturing techniques, the Bridgeton plant has set a record for production volume each year since 1995. Hussmann is now moving quickly to capture similar efficiencies at other manufacturing facilities around the world. The Company has established its market-leading Impact product line as a global product platform. Investments in plants in Brazil, the U.K. and China have allowed the Company to standardize this single product platform worldwide, driving continued improvements in operating efficiency. An equally important opportunity is the investment Hussmann is making in a global information system referred to as ERP, Enterprise Resource Planning. In 2000, the Company will complete a $33 million effort to replace/enhance its computer and information systems worldwide. This new ERP infrastructure will link all Hussmann sites into a single, seamless system -- making it possible to achieve new efficiencies in purchasing, engineering design, financial controls and many other critical business functions. By focusing on high-impact projects such as ERP and production automation, Hussmann continues to achieve an attractive return on invested capital, averaging more than 14 percent over the past five years on a pro forma basis. In short, these investments are paying off -- in the form of increased capacity, improved productivity and a strengthened reputation as the leader in product quality and innovation. [PICTURE APPEARS HERE] Robotics technology in use at the Company's flagship plant in Bridgeton, MO 8. CONSOLIDATION - ----------------------------------------------------------------------------- A realigned manufacturing network promises ongoing savings Two of Hussmann's most important product lines -- refrigerated display cases and refrigeration systems -- will benefit from a project announced in 1998 to realign and consolidate the Company's manufacturing operations in North America. The project will alleviate capacity issues in display case production caused by strong growth trends in recent years. It will also address a number of inefficiencies in Hussmann's existing manufacturing network. The centerpiece of the consolidation project: a new 360,000 square foot manufacturing plant near Atlanta, GA, that began producing refrigeration systems in the third quarter of 1998. Formerly, these products were manufactured at five different plants in North America: Bridgeton, MO; Chino, CA; Montgomery, AL; Brantford, Ontario; and a smaller existing facility in Atlanta. By consolidating the production of refrigeration systems at just two sites --the new, larger plant in Atlanta, and the current plant in Chino -- Hussmann expects to achieve significant new efficiencies and economies of scale. In fact, the project will ultimately produce ongoing cost savings of about $2.8 million annually. Another major benefit of the plant consolidation project will be realized at Bridgeton, where Hussmann has experienced capacity issues for several years on its best-selling product line. Despite heavy investments which resulted in increased production capabilities, the Bridgeton plant has been operating at capacity since 1995 in the manufacturing of the Company's increasingly popular Impact line of refrigerated display cases. A series of capital investments and projects to alleviate bottlenecks have led to incremental production capacity at Bridgeton. Even so, the demand for Impact cases continues to challenge the Company's ability to meet demand during peak periods. The new refrigeration systems plant in Atlanta will allow Hussmann to expand its case manufacturing capacity -- by freeing up the nearly 150,000 square feet of floor space in Bridgeton which was devoted to refrigeration systems. As a result, both product lines stand to benefit from the efficiencies created by the consolidation project. The Company is now in the process of installing another production line for refrigerated display cases at the Bridgeton plant. This new line will expand production capacity by 20 percent, minimize lead time fluctuations and provide for future growth. In addition, the new capacity will allow the Company to begin to produce several new products and offer enhancements to existing lines. This new capacity will in effect make Bridgeton a dedicated facility for refrigerated display cases. As a result of the consolidation project, several of Hussmann's manufacturing facilities in North America will achieve new efficiencies by specializing in particular product lines. In addition to the changes at Bridgeton, Atlanta and Chino, Hussmann's Montgomery plant will now focus on walk-in storage coolers and freezers, and the Brantford plant will strictly produce specialty display cases. [PICTURE APPEARS HERE] Large parallel refrigeration systems being produced and prepared for shipping at Hussmann's new facility near Atlanta 9. HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT [PICTURE APPEARS HERE] 10. [PICTURE APPEARS HERE] London, England 11. HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT RESTRUCTURING - -------------------------------------------------------------------------------- Decisive action restores profitability in a difficult market Even healthy businesses can sometimes encounter external challenges which threaten their future success. That's exactly the situation Hussmann faced recently in the United Kingdom -- one of the world's larger markets for food store equipment and home to several of Europe's leading supermarket chains. But thanks to a broad-based restructuring initiative, Hussmann now has this part of its business back on track. As recently as 1995, Hussmann's business in the U.K. was generating over $150 million in annual sales and nearly $6 million in operating income. Then came "greenspace" legislation: new laws in the U.K. which dramatically curtailed the construction of supermarkets on undeveloped tracts outside of established urban areas. The new laws had an immediate impact on Hussmann's business. Demand for product dropped 30 percent within two years and 1995's operating income reversed to a $6 million loss in 1997. As reported last year, Hussmann launched an aggressive restructuring program to downsize its U.K. operations and effectively target a much smaller base of profitable business. The overhaul included a range of actions: . Hussmann closed an oversized and inefficient manufacturing facility in Glasgow, Scotland, shrinking its manufacturing space in the U.K. by 73 percent, and significantly reducing fixed operating costs. . The Company introduced new production capacity and processes at Milton Keynes, England, outfitting the plant to manufacture Impact display cases based on the global product platform established in the United States. . Hussmann's branch network was cut from 20 locations to just eight across the U.K. As a result, the Company's local resources and overhead expenses now more appropriately reflect the size of the business opportunities going forward. . Hussmann's marketing tactics have been revised, with an overall objective of improving the Company's sales mix -- reducing its dependence on lower-margin service and contracting business, while increasing the focus on higher-margin manufacturing sales. The introduction of Impact display cases has won new business for Hussmann, and the Company is building on the sales momentum generated by this key product line. Initially, Hussmann expected it to take about two years to return the U.K. operations to profitability. By acting quickly and decisively, the timetable was cut in half. In 1998, Hussmann posted more than $1 million in operating income in the U.K. With this unit stabilized and with the recently announced acquisition of Koxka (a leading manufacturer headquartered in Spain with a significant presence on the European continent), Hussmann is well positioned to accelerate growth plans throughout all of Europe. [PICTURE APPEARS HERE] Hussmann has a large service and contracting business in the U.K. and a manufacturing plant in Milton Keynes, England. 12. EXPANSION - -------------------------------------------------------------------------------- Acquisitions provide a rapid entry into attractive international markets Hussmann has grown to become the world's largest food store equipment manufacturer in part by using a proven acquisition strategy to enter and develop promising new geographic markets. Over the years, acquisitions have enabled Hussmann to build market-leading positions throughout the globe. More recently, the Company has used the same approach to set the stage for expansion into important world areas such as continental Europe, Latin America and Asia-Pacific. Late in 1998, Hussmann announced plans to acquire Koxka, the largest commercial refrigeration manufacturer in Spain. Koxka currently has the number one market position in both Spain and Portugal and has a growing presence in France and Germany, among other attractive markets. This acquisition which will close in March or April of 1999, will give Hussmann an excellent opportunity to compete for business in continental Europe - the world's second largest market for refrigeration equipment. In the past, several dominant competitors, including Koxka, have blocked Hussmann's efforts to build a major European presence outside the U.K. By combining Koxka with its U.K. operations, Hussmann will immediately become Europe's third largest competitor. The Koxka acquisition creates many other opportunities to capture synergies and generate growth globally. Hussmann can use its technology in product areas such as beverage coolers and refrigeration systems to strengthen Koxka's existing product lines. Likewise, Koxka's self-contained or superette products (sold primarily to smaller food markets and specialty stores) can now be offered through Hussmann's distribution network in the U.K., Latin America and Asia- Pacific. To strengthen the Company's base of business in Australia and New Zealand, as well as among the island nations of the South Pacific, Hussmann acquired a majority interest in McAlpine Investments, Ltd. (MIL) in 1998. MIL is a leading distributor of commercial refrigeration products in Australia and New Zealand, two growing markets for Hussmann products. MIL also manufactures a limited range of products, including walk-in cooler panels and specialty display cases. Hussmann made significant progress in developing new growth opportunities in Latin America during 1998. The Company completed the integration of Fast Frio, Brazil's second-largest case and refrigeration manufacturer. After acquiring a majority stake in the business in 1997, Hussmann invested several million dollars to transfer technology and install new production capabilities at Fast Frio's manufacturing plant in 1998. The Company also invested aggressively in sales promotion and marketing programs to introduce Hussmann's products and build an initial market share position. Hussmann can now produce world-class Impact display cases, refrigeration systems and bottle coolers for customers in Brazil and surrounding nations. By the fourth quarter of 1998, the operation posted a small operating profit and is moving to gain the number one market share position in Brazil, home to the world's tenth largest economy. [PICTURE APPEARS HERE] In 1998, Hussmann began to aggressively introduce its products and technology into Brazil following the 1997 joint venture acquisition of Fast Frio. 13. HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT [PICTURE APPEARS HERE] 14. [PICTURE APPEARS HERE] Mexico City, Mexico 15. HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT OPPORTUNITY - -------------------------------------------------------------------------------- A Promising product line is poised to generate significant growth Hussmann's mainstay product lines - supermarket display cases and refrigeration systems - are healthy, growing businesses. Even so, they don't represent the Company's only opportunities for growth. In fact, Hussmann is now making strategic investments in a part of its business - refrigerated bottle coolers - that may be poised for break-out gains in sales and market share. Hussmann has proven strengths in this product segment. For example, its bottle cooler product line is competitively well positioned, and the Company has manufactured these products for 30+ years in Mexico, where it is the leading supplier to major soft drink companies and breweries. Recent developments are creating even more opportunities to sell these products to bottlers in Mexico and Latin America, as well as to affiliates of the world's largest soft drink companies, Coca-Cola and Pepsi. Hussmann's independence led to one such opportunity. Under the Company's former corporate ownership structure, Hussmann was affiliated with Pepsi General Bottling - a relationship that caused Hussmann to lose millions of dollars in annual sales to Coca-Cola and its affiliates throughout the world. As a newly- independent company in 1998, Hussmann re-established contacts with Coca-Cola and started to recapture those lost sales. Hussmann is exploring other opportunities to expand bottle cooler sales as well. The Company has strengthened or established relationships with major brewers such as Modelo, makers of Mexico's Corona beer, and Brahma, the largest brewery in Brazil and that country's largest Pepsi bottler. In 1998, Hussmann added a key component to its market development effort by appointing a global product manager for the bottle cooler product line. The product manager will be responsible for extending Hussmann's base of business beyond Mexico and Latin America. Already, the Company is in discussions to serve as a preferred supplier to bottlers in developing markets around the globe, as well as to support both Coke and Pepsi's aggressive plans for international expansion. To gear up for the expected growth in this product line, Hussmann is now building an additional bottle cooler manufacturing plant in Mexico, and is in the process of adding a bottle cooler production line at the Company's joint venture in Brazil. Over the next several years, Hussmann's goal is to more than double the revenues generated through the sale of bottle cooler products. Eventually, it could become Hussmann's next $100 million product line - a powerful engine driving the Company's continued growth. [PICTURE APPEARS HERE] Refrigerated bottle coolers are presenting new opportunities for growth in Latin America and elsewhere. 16. [PICTURE APPEARS HERE] Bridgeton, Missouri 17. HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT RESEARCH - -------------------------------------------------------------------------------- Tomorrow's success is taking shape today in Hussmann design centers Hussmann is recognized throughout the supermarket industry as the leader in product design and innovation. It is a reputation built on a combination of strategic investments and strong ties to the marketplace. Each year, the Company invests millions of dollars in new product development at its technology design centers in the U.S., Canada and Mexico. Hussmann is careful to ensure this research and development work is rooted in real-world opportunities. The Company actively solicits input from customers at its annual Global Product Design Conference. Hussmann also gathers insights into emerging trends and market needs from its field sales force and from other key customers around the world. The result of these efforts? In the past two years alone, Hussmann has introduced 22 new products, not including numerous enhancements and additions to its best-selling Impact line of merchandisers. Impact's beauty is more than skin-deep. It offers customers important benefits such as the industry's best energy performance (up to a 30 percent improvement over previous generations of equipment), excellent design flexibility, and full compliance with both environmental and food storage regulations. This innovative product line, which was conceived, designed and engineered in Hussmann's research centers, creates manufacturing advantages for Hussmann, as well. Impact has been introduced as the Company's global product platform, providing a level of standardization and quality unmatched in the industry. The industry's best merchandiser got even better in 1998, when Hussmann introduced a significant improvement to the Impact line. The Company's new, patent pending modular defrost technology squeezes out an additional 7 percent energy savings - on top of Impact's market-leading energy performance- through an ingenious defrost cycle. This new technology virtually eliminates peaks and valleys in power demand, permitting more efficient energy consumption and unparalleled stability in food temperatures. Beyond advancing the state-of-the-art in its core business, Hussmann continues to develop products which target emerging consumer trends. For example, the Company is expanding its range of products designed to display prepared foods. These products appeal not only to Hussmann's traditional supermarket customers, but also to convenience stores, specialty food marts and the growing number of restaurants featuring take-out meals and gourmet groceries. Other product lines benefiting from Hussmann's commitment to research and development include refrigeration systems, bottle coolers and self-contained display units. To keep its products on the cutting edge, Hussmann employs more than 100 design professionals at its various research centers. The centers are equipped with computer-aided engineering tools and sophisticated testing labs, all of which combine to speed the Company's time-to-market with new products and extend Hussmann's position as the industry leader in product innovation. [PICTURE APPEARS HERE] Research and development employees construct equipment prototypes and test the operating efficiency of a refrigerated display merchandiser. 18. 1998 FINANCIALS - -------------------------------------------------------------------------------- COMMUNITY COMMITMENT Throughout its more than 90 years in business, Hussmann has worked actively to improve the quality of life in the communities where it has a corporate presence. The Company generously supports the United Way and other local charities through financial contributions, volunteer activities of its employees, and donations of food supplies and equipment. Hussmann also has long- standing relationships with the Boy Scouts of America and Junior Achievement, both at the national and local level. The Company's executives serve on each organization's Board of Directors, and support their leadership development programs through extensive employee involvement and major financial contributions. Financial Contents Five Year Summary 19 Management's Discussion 20 and Analysis Introduction 20 Pro Forma Financial Information 21 Pro Forma Results of Operations 23 Non-recurring and 23 Restructuring Charges Consolidated Statements 28 of Operations Consolidated Balance Sheets 29 Consolidated Statements 30 of Cash Flows Consolidated Statements 31 of Shareholders' Equity and Comprehensive Income Notes to Consolidated 32 Financial Statements Management's Responsibilities 42 for Financial Reporting Independent Auditors' Report 42 General Information 43
19. FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA - -------------------------------------------------------------------------------- The following table presents selected historical consolidated and combined financial information of Hussmann International, Inc. and its subsidiaries ("Hussmann"or the "Company") or the group of companies that became wholly and majority-owned subsidiaries of Hussmann International, Inc. on January 30, 1998, which for all periods presented (except as of December 31, 1998), was composed of wholly-owned subsidiaries of Whitman Corporation ("Whitman"), including Hussmann Corporation and its wholly and majority-owned subsidiaries and other Hussmann companies owned by Whitman but directly managed by Hussmann Corporation. Prior to the formation of Hussmann, the historical financial statements were combined for financial reporting purposes. For all periods presented herein, the financial statements and financial information will be referred to as consolidated. The consolidated historical financial information for the years ended December 31, 1994 through 1997 may not necessarily reflect future results of operations or financial position of Hussmann or what the results of operations or financial position of Hussmann would actually have been had Hussmann operated as an independent, publicly held company during those periods. PROFORMA (A) AS OF AND FOR THE YEARS ENDED DECEMBER 31, In millions, except per share data ------------------- ----------------------------------------------- 1998 1997 1998 (b) 1997 (b) 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- CONSOLIDATED OPERATING RESULTS DATA: Sales and revenues $1,221.2 $1,096.2 $1,221.2 $1,096.2 $1,005.7 $921.7 $859.5 Gross profit 258.2 215.2 257.2 206.7 203.9 179.3 178.1 Gross profit percent 21.1% 19.6% 21.1% 18.9% 20.3% 19.5% 20.7% Depreciation and amortization 23.0 22.4 23.0 22.4 20.2 19.6 17.3 Non-recurring charges - - 1.4 47.8 - - - Operating income 122.3 94.8 119.9 43.0 93.8 78.7 82.5 Operating income percent 10.0% 8.6% 9.8% 3.9% 9.3% 8.5% 9.6% Whitman charges - - 1.5 28.4 26.7 28.6 28.3 Interest expense 18.9 15.6 18.8 18.9 18.0 16.8 15.6 Net income (loss) $ 62.4 $ 51.9 $ 57.5 $ (12.8) $ 34.1 $ 23.9 $ 23.6 Pro forma basic earnings per share 1.23 1.02 1.13 - - - - Pro forma diluted earnings per share 1.20 1.01 1.11 - - - - Dividends per share - Hussmann Common Stock .08 - .08 - - - - CONSOLIDATED BALANCE SHEET DATA: Working capital $ 193.6 $ 189.6 $ 193.6 $ 179.5 $ 233.6 $194.2 $174.3 Property and equipment, net 168.4 161.0 168.4 159.9 138.4 127.3 117.2 Total assets 653.7 627.2 653.7 614.0 611.4 547.4 503.6 Loans and advances - Whitman - - - 173.8 211.4 186.9 150.6 Long-term debt (including current portion) 204.8 243.2 204.8 3.2 2.2 1.2 0.5 Total shareholders' equity $ 185.5 $ 139.1 $ 185.5 $ 186.6 $ 192.6 $161.1 $173.2 CASH FLOWS PROVIDED BY (USED IN): Operating activities $ 44.7 $ 76.3 $ 26.1 $ (4.0) $ 9.3 Capital investments (30.6) (38.6) (33.5) (29.3) (32.7) Investing activities (33.4) (63.0) (27.3) (36.7) (32.6) Dividends paid to Whitman (80.6) (2.2) (8.3) (7.3) (11.8) Financing activities $ (22.5) $ (21.5) $ 14.3 $ 32.9 $ 4.3 - ----------------------------------------------------------------------------------------------------------------------
(a) The 1998 and 1997 pro forma information reflects the adjustments as if Hussmann were an independent, publicly held company, excluding the effects of the non-recurring, restructuring charges and Whitman charges, and including the borrowings under the Credit Facility for 1997. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this annual report. (b) Included in the years ended December 31, 1998 and 1997 are non-recurring, restructuring charges of $2.4 million ($2.0 million after-tax) and $56.3 million ($47.0 million after-tax), respectively. Also included in 1998 is an adjustment to the estimated tax benefits recorded for the restructuring in the U.K. during 1997. See notes to consolidated financial statements. 20. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- INTRODUCTION Hussmann manufactures, sells, installs and services merchandising and refrigeration systems for the world's commercial food industry. Products include refrigerated and non-refrigerated display merchandisers, refrigeration systems and controls, beverage coolers, air handlers, evaporative condensers, heat exchange coils and walk-in storage coolers and freezers. Hussmann operates in three geographic segments: U.S. and Canada, Europe (U.K.) and Other International, which includes Mexico, Latin America, Asia-Pacific, New Zealand, and Australia. During 1998 and 1997, approximately 74% and 78% respectively, of consolidated sales and revenues were derived from the U.S. and Canada. In general, the markets in which Hussmann participates are highly competitive with competition based primarily on quality, technology, energy conservation and price. Hussmann's competitors vary according to product and geographic area, and include companies which manufacture a variety of products for the commercial food industry and those which specialize in a particular product. Hussmann sells its products primarily to supermarkets and convenience stores, including international, national and local retailers. In addition, Hussmann's sales are historically seasonal, with the greatest demand for its products occurring in the third and fourth quarters of the year. This demand results from customers' seasonal construction cycles and the desire to complete stores prior to the year-end holiday season. Approximately 2% and 3% of Hussmann's 1998 sales and revenues were generated in Brazil and the Asia-Pacific region, respectively. The recent economic volatility in these parts of the world is not expected to have a material effect on 1999 operating results. In Brazil, the majority of the Company's sales are to well-capitalized, national and international companies, with long-term commitments to the country and the surrounding regions. Further, despite the volatility in Asia-Pacific, Hussmann increased sales and revenues in that region during 1998 by 9%, excluding acquisitions. As previously stated, on January 30, 1998, Hussmann was spun off from Whitman and became an independent, publicly held company. The following pro forma consolidated statements of operations provide a reconciliation of what Management believes 1998 and 1997 operating results would have been had Hussmann been an independent, publicly held company for the periods presented, excluding the impact of the restructuring and non-recurring charges, and including the impact of the borrowings under the credit facility. Management believes the 1998 and 1997 pro forma consolidated operating results provide a more meaningful presentation for purposes of analyzing Hussmann's financial performance. 21. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------- For the year ended December 31, 1997 (Unaudited; in millions, except share data)
Pro Forma Historical Adjustments Pro Forma - -------------------------------------------------------------------------------------------------------------------------- Sales and revenues $1,096.2 $ - $ 1,096.2 Cost of goods sold 889.5 (8.5) (a) 881.0 - -------------------------------------------------------------------------------------------------------------------------- Gross profit 206.7 8.5 215.2 Selling, general and administrative expenses 115.9 4.5 (b) 120.4 Non-recurring charges 47.8 (47.8) (a) - - -------------------------------------------------------------------------------------------------------------------------- Operating income 43.0 51.8 94.8 - -------------------------------------------------------------------------------------------------------------------------- Whitman charges 28.4 (28.4) (b) - Interest expense: Whitman 17.3 (17.3) (b) - Other 1.6 14.0 (c) 15.6 - -------------------------------------------------------------------------------------------------------------------------- Total interest expense 18.9 (3.3) 15.6 Other income, net 1.2 - 1.2 - -------------------------------------------------------------------------------------------------------------------------- Income (loss) before income tax expense and minority interests (3.1) 83.5 80.4 Income tax expense 9.4 18.8 (d) 28.2 - -------------------------------------------------------------------------------------------------------------------------- Income (loss) before minority interests (12.5) 64.7 52.2 Minority interests (0.3) - (0.3) - -------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ (12.8) $ 64.7 $ 51.9 - -------------------------------------------------------------------------------------------------------------------------- Pro forma weighted average shares - Basic - - 50,731,000 Pro forma basic earnings per share - - $ 1.02 - -------------------------------------------------------------------------------------------------------------------------- Pro forma weighted average shares - Diluted - - 51,159,000 Pro forma diluted earnings per share - - $ 1.01 - --------------------------------------------------------------------------------------------------------------------------
(a) To eliminate restructuring related inventory write-downs and other non- recurring charges. (b) To record the estimated additional administrative expenses that would have been incurred by Hussmann as a publicly held, independent company and to eliminate Whitman charges and interest paid to Whitman. (c) To record the interest expense on funds assumed to be borrowed under Hussmann's credit facility. It was assumed $240 million was borrowed at an interest rate of 6%. (d) To record the income tax effect of adjustments (a), (b) and (c). 22. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------- For the year ended December 31, 1998 (Unaudited; in millions, except share data)
Pro Forma Historical Adjustments Pro Forma - --------------------------------------------------------------------------------------------------------------------------- Sales and revenues $ 1,221.2 $ - $ 1,221.2 Cost of goods sold 964.0 (1.0) (a) 963.0 - --------------------------------------------------------------------------------------------------------------------------- Gross profit 257.2 1.0 258.2 Selling, general and administrative expenses 135.9 - 135.9 Non-recurring charges 1.4 (1.4) (a) - - --------------------------------------------------------------------------------------------------------------------------- Operating income 119.9 2.4 122.3 - --------------------------------------------------------------------------------------------------------------------------- Whitman charges 1.5 (1.5) (b) - Interest expense: Whitman 1.0 (1.0) (b) - Other 17.8 1.1 (c) 18.9 - --------------------------------------------------------------------------------------------------------------------------- Total interest expense 18.8 0.1 18.9 Other expense, net (3.4) - (3.4) - --------------------------------------------------------------------------------------------------------------------------- Income before income tax expense and minority interests 96.2 3.8 100.0 Income tax expense 39.0 (1.1) (d) 37.9 - --------------------------------------------------------------------------------------------------------------------------- Income before minority interests 57.2 4.9 62.1 Minority interests 0.3 - 0.3 - --------------------------------------------------------------------------------------------------------------------------- Net income $ 57.5 $ 4.9 $ 62.4 - --------------------------------------------------------------------------------------------------------------------------- Pro forma weighted average shares - Basic 50,841,000 - 50,841,000 Pro forma basic earnings per share $ 1.13 $ 0.10 $ 1.23 - --------------------------------------------------------------------------------------------------------------------------- Pro forma weighted average shares - Diluted 52,006,000 - 52,006,000 Pro forma diluted earnings per share $ 1.11 $ 0.09 $ 1.20 - ---------------------------------------------------------------------------------------------------------------------------
(a) To eliminate the current year Chilean restructuring charge which includes inventory write-downs and other non-recurring charges. (b) To eliminate Whitman charges and interest paid to Whitman. (c) To record the interest expense on funds assumed to be borrowed under Hussmann's credit facility. It was assumed $240 million was borrowed at an interest rate of 6% for the period of January 1 through January 30, 1998. (d) To record the income tax effect of adjustments (a), (b), and (c), and the adjustment to the estimated tax benefits recorded in prior year related to the restructuring in the U.K. of approximately $2 million. 23. - ------------------------------------------------------------------------------- NON-RECURRING AND RESTRUCTURING CHARGES During the fourth quarter of 1998, due to an overall deterioration in the economy of Chile, Hussmann announced plans to restructure its Chilean operations. Ultimately, the jobs of 155 of 175 Chilean employees will be terminated, a small manufacturing operation will be closed, the Company will exit unprofitable service and contracting businesses and certain assets will be written down to their estimated market value. Hussmann's remaining sales operation in Chile will merge with Koxka C.E., S.A. ("Koxka"; see note 21 of the notes to consolidated financial statements), a pending acquisition with a sales and distribution business in Chile, to form a new regional sales center. The sales center will serve the Andean countries of Chile, Peru, Ecuador, Colombia and Bolivia. Much of the product supply for Chile, Peru and Bolivia will shift to Brazil, now that Hussmann's Brazilian operation is fully functional and producing Hussmann product lines. The ability to economically supply product out of Brazil, as well as the pending acquisition of Koxka, will allow Hussmann to move quickly to strategically address the redefined market in Chile and improve the profitability in Brazil. In addition, during 1998, the Company adjusted its estimates of tax benefits originally recorded for the 1997 restructuring of the U.K. operations. The approximate $2.0 million adjustment to the income tax provision has been reflected as a pro forma adjustment to the December 31, 1998, historical information and has been included in the pro forma financial statements above. In the second half of 1997, Hussmann recorded charges totaling $56.3 million (substantially all of which were non-cash) related to the recognition of goodwill impairment, the closure of certain sales and service branches in the U.K., the restructuring of its U.K. operations and the consolidation of certain operations in North America. Hussmann's 1997 operating loss in the U.K. was $6.2 million, excluding the aforementioned charges. The declining sales in the U.K. were attributable to changes in legislation in the U.K., which significantly limited new grocery store construction outside of existing urban areas. Of the total, $30.7 million ($29.6 million on an after-tax basis) related to the recognition of goodwill impairment and the closure of sales and service branches in the U.K. The remaining portion related to Management's decision during the fourth quarter of 1997 to restructure the U.K. operations and the consolidation of certain North American operations. The U.K. restructuring plan included closing a manufacturing facility in Glasgow, Scotland, and the consolidation of two other manufacturing facilities in Milton Keynes, England. These actions resulted in the elimination of approximately 320 jobs, primarily in the U.K. The total costs were approximately $25.6 million ($17.4 million on an after-tax basis) which includes $12.6 million for the write-down of inventory and equipment, $10.9 million in severance and termination benefits, and $2.1 million for lease termination and other closing costs. The U.K. restructuring was completed by the second quarter of 1998 and resulted in lower employee costs and improved manufacturing productivity. PRO FORMA RESULTS OF OPERATIONS - 1998 COMPARED TO 1997 Sales and Revenues. Sales and revenues to unaffiliated customers in 1998 of $1,221.2 million were $125.0 million or 11% over 1997 sales and revenues of $1,096.2 million. The U.S. and Mexico had record years, with solid volume growth particularly in the production and sale of supermarket cases, and the U.K. experienced a remarkable turnaround following last year's extensive restructuring. Acquisitions in Mexico and New Zealand/Australia also contributed to sales growth in 1998. The following is a summarized analysis of the increase in sales and revenues (in millions).
1998 Sales Increase and Change (Decrease) revenues from 1997 from 1997 - ---------------------------------------------------------------------- U.S. and Canada $ 901.7 $ 49.0 6% Europe (U.K.) 144.8 21.2 17 Other International 174.7 54.8 46 - ---------------------------------------------------------------------- Total $1,221.2 $125.0 11% - ----------------------------------------------------------------------
UNITED STATES AND CANADA Sales and revenues in the United States and Canada grew 6% during the year to a record $901.7 million. The majority of this growth was in supermarket cases produced in the Company's largest manufacturing facility located in Bridgeton, Missouri. Total supermarket case growth for Hussmann was approximately 10% for the year. The Company's sales growth in the U.S. and Canada was partially mitigated by flat sales in refrigeration systems, as the Company implemented its planned manufacturing consolidation of refrigeration systems in 1998. EUROPE (U.K.) The 17% increase in sales and revenues in the Company's U.K. operations came on the heels of the substantial restructuring efforts announced in the last half of 1997. Additionally in 1998, volume improvement was driven by increased equipment orders (which typically have higher margins than service and contracting) from the Company's newly reconfigured U.K. plant which began production in March 1998. OTHER INTERNATIONAL Other International sales and revenues improved $54.8 million or 46% during the year, driven by record setting sales in Mexico and recent acquisitions in this segment. Sales and revenues in Other International increased $43.9 million from the acquisitions of Industrias Gilvert in Mexico and McAlpine Investments Ltd. ("MIL", see note 4 of 24. - -------------------------------------------------------------------------------- the notes to consolidated financial statements) in New Zealand/ Australia, partially offset by a decline in Chilean sales. Sales and revenues in Asia-Pacific, excluding acquisitions, increased 9% during 1998, despite the economic turmoil in that region. GROSS PROFIT. Gross profit increased 20% or $43.0 million in 1998. This increase is partly related to the 11% overall improvement in sales and revenues. In addition, gross profit margins improved 1.5 points, driven mainly by leverage over fixed manufacturing costs, gains from other operating efficiencies and a favorable market for purchased raw materials. TOTAL SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES . Total SG&A increased $15.5 million to $135.9 or 13% over the comparable 1997 period. The increase was related to acquisitions, increased bonuses and commissions for the record setting year in 1998, compensation costs related to a restricted stock program implemented by Whitman and additional costs and expenses associated with Hussmann's implementation of a company-wide information system. OPERATING INCOME. Operating income in 1998 of $122.3 million was $27.5 million or 29% over 1997 operating income of $94.8 million. Increases in the U.S., the U.K. and Mexico drove the overall improvement in operating income during 1998. The following is a summarized analysis of operating income by business segment (in millions).
1998 Increase Operating Change (Decrease) income from 1997 from 1997 - --------------------------------------------------------- U.S. and Canada $135.6 $27.8 26% Europe (U.K.) 1.2 7.4 Fav Other International 12.5 (4.7) (27) Corporate (27.0) (3.0) - - --------------------------------------------------------- Total $122.3 $27.5 29% - ---------------------------------------------------------
UNITED STATES AND CANADA Operating income in the United States and Canada increased 26% during the year to $135.6 million. This improvement was driven by substantially higher volume and margins at the Company's largest manufacturing plant in Bridgeton, Missouri, and substantial improvements in margins at the Company's specialty case manufacturing operation. EUROPE (U.K.) The Company's European segment recorded operating income in three of the four quarters in 1998 and returned to profitability for the full year in 1998. Restructuring efforts announced in the last half of 1997, as well as increased volume, helped the segment attain operating income of $1.2 million in 1998, compared to an operating loss of $6.2 million in 1997. Volume improvements at the Company's reconfigured manufacturing facility in Milton Keynes, England, were driven by increased equipment orders from a major retail customer. Increased capacity at the Milton Keynes facility brought on increased production in March 1998, after the Company closed its larger manufacturing facility in Glasgow, Scotland, which occupied 300,000 square feet of manufacturing space. The new operationally efficient facility in Milton Keynes now services substantially the same market with 80,000 square feet of manufacturing capacity. OTHER INTERNATIONAL Operating income in Other International was down $4.7 million or 27% to $12.5 million for the year. Operating income was significantly impacted during the year by hyperinflationary accounting in Mexico and an overall operating decline in the Company's Chilean operation. Hussmann, like all U.S. based companies, is required to report results from a foreign operation in U.S. dollars if the country in question has experienced cumulatively high levels of inflation over the previous three years. This accounting convention reduced earnings significantly in this year's fourth quarter and for the year. Despite the effects of dollar functional accounting on its results, Hussmann Mexico still recorded in excess of a 20% improvement in operating income for the full year on the strength of improved sales of supermarket cases and refrigerated bottle coolers. Losses in Chile were heavily weighted in the final half of 1998, in particular the fourth quarter as a deteriorating Chilean economy accounted for a decrease in sales from $11.7 million in 1997 to $5.1 million in 1998. Additionally, operating income in Other International was reduced by start-up losses in Brazil relating to the required spending to introduce Hussmann technology and products into the Brazilian market. In Brazil, Hussmann began producing Impact cases and refrigeration systems in 1998 and invested aggressively throughout the year to establish its market position. The product introduction plan is progressing, with Brazilian sales up more than 12% for the year. INTEREST EXPENSE. Interest expense of $18.9 million in 1998 increased $3.3 million or 21% from 1997. This increase relates primarily to higher levels of debt and interest rates in the Company's international operations and the negative effects of the timing of cash flow. EFFECTIVE INCOME TAX RATE. Hussmann's effective income tax rate, excluding the aforementioned adjustment to U.K.'s 1997 restructuring charges and the Chilean restructuring reserve, was 37.9% in 1998, or 2.7 percentage points higher than the 1997 effective tax rate of 35.2%. This increase relates primarily to higher levels of taxable income being generated in the U.S., (which typically has higher effective tax rates), the effects of hyperinflationary accounting in Mexico, and lower taxable income or net losses in countries having lower effective tax rates. 25. HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS - ACTUAL 1997 COMPARED TO ACTUAL 1996 SALES AND REVENUES. Sales and revenues in 1997 of $1,096.2 million were $90.5 million or 9% over 1996 sales and revenues of $1,005.7 million. Sales and revenue increases in the U.S., Brazil and Mexico drove the overall improvement. The following is a summarized analysis of the increase in sales and revenues (in millions).
1997 Increase Sales and Change (Decrease) revenues from 1996 from 1996 - --------------------------------------------------------------------------- U.S. and Canada $ 852.7 $ 54.4 7% Europe (U.K.) 123.6 (16.0) (11) Other International 119.9 52.1 77 - --------------------------------------------------------------------------- Total $1,096.2 $ 90.5 9% - ---------------------------------------------------------------------------
The 7% increase in sales and revenues in the U.S. and Canada was principally driven by continued strong U.S. supermarket demand. The decrease in sales and revenues in the U.K. of 11% was due to a continued soft market in the U.K., plus start-up delays at the plant in Milton Keynes, England. The increase in sales and revenues of 77% or $52.1 million in Other International was principally due to the acquisition of Fast Frio in Brazil in January 1997, (which had $24.0 million of sales and revenues in 1997), and increased sales in Mexico which were 31% or $20.5 million above 1996. GROSS PROFIT AND OPERATING INCOME. As a percent of sales and revenues, 1997 gross profit margin was 19% compared to 20% in 1996. U.S. and Canada gross profit percentage in 1997 of approximately 20% was consistent with 1996. The U.S. market has been particularly price competitive since 1995. Productivity improvements from the new Impact product line were mostly offset by inflation in material costs which was not offset by customer price increases. Gross profit percentages in both the U.K. and Other International were below 1996 levels due to lower sales volume, manufacturing inefficiencies, inventory write-downs related to the restructuring in the U.K. and a negative change in sales mix in Mexico driven by strong growth in exports from bottle coolers. Total selling, general and administrative ("SG&A") expenses, (including amortization expense), increased by 5% from $110.1 million in 1996 to $115.9 million in 1997. The increase in SG&A expenses is primarily due to operating costs in Brazil. Operating income in 1997 of $43.0 million would have been $99.3 million excluding non-recurring charges of $47.8 million and U.K. restructuring-related inventory write-downs of $8.5 million. This would have represented an increase of $5.5 million or 6% from 1996 operating income of $93.8 million. The U.K. operations had an operating loss of $55.4 million in 1997 compared to $0.0 in 1996. The recognition of goodwill impairment ($26.0 million), restructuring ($18.5 million), and the consolidation of sales and service branches ($4.7 million), were the primary contributing factors to the decrease. Lower volume combined with start-up driven manufacturing inefficiencies at the Milton Keynes plant also contributed to the decrease. Operating income for Other International of $17.2 million increased $2.9 million or 20% over 1996 operating income of $14.3 million, attributable mainly to increased exports from Mexico in 1997 compared to 1996 and the inclusion of the acquisition of Fast Frio in Brazil. INTEREST EXPENSE. Interest expense of $18.9 million increased $0.9 million or 5% from 1996 to 1997 primarily due to additional funds advanced from Whitman to support capital expenditures and acquisitions. Effective Income Tax Rate. Hussmann's pro forma effective income tax rate, excluding non-recurring charges, was 35.2% in 1997, or 1.2 points higher than the 1996 effective rate of 34.0%, due principally to a one-time Mexican deferred tax adjustment in 1996, offset in part by slightly higher effective state income tax rates in the U.S. LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES CASH FLOWS FROM OPERATIONS. Hussmann generated net cash from operations of $44.7 million, $76.3 million, and $26.1 million during the years ended December 31, 1998, 1997 and 1996, respectively. The decrease in 1998 cash flow from operations is attributable to the use of cash to fund working capital (inventory, receivables and payables) requirements during 1998 compared to 1997. The $50.2 million improvement in 1997 cash flows from operating activities was principally driven by improvement in cash flow from working capital. CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing activities was $33.4 million, $63.0 million and $27.3 million during the years ended December 31, 1998, 1997 and 1996, respectively. Capital investments of $30.6 million, $38.6 million and $33.5 million, respectively, were the principal component of investing activities. Additionally, in 1997 Hussmann paid $26.4 million, net for acquisitions, including a 70% interest in Fast Frio in Brazil, 100% of Industrias Gilvert in Mexico, and the remaining 25% interest in Frio-Lux in Chile. In 1998 and 1996, there were no material acquisitions. Management expects capital investments to approximate $40 million per year during 1999 and 2000, excluding any net cash used for acquisitions and capital investments made with respect to any such acquisitions. As previously mentioned, Hussmann has recently entered into a definitive agreement to purchase Koxka. The acquisition of Koxka should be consummated late in first quarter 1999, with a purchase price of approximately $145 million. Subsequent to the 26. - -------------------------------------------------------------------------------- consolidation of Koxka, Management will continue to evaluate potential acquisitions that fit Management's strategies for growth. During 1998, approximately 29% of capital investments represents the cost of converting to an integrated company-wide information system and approximately 16% represents the cost of expanding production of refrigerated display cases at the Bridgeton, Missouri, plant and consolidating production of refrigeration systems. CASH FLOWS FROM FINANCING ACTIVITIES. Net cash (used in) provided by financing activities was $(22.5) million, $(21.5) million and $14.3 million during the years ended December 31, 1998, 1997 and 1996, respectively. The significant activity during 1998 related to the settlement of obligations with Whitman and replacing the intercompany financing with additional borrowings. During the spin-off, Hussmann repaid the Whitman obligations with $240 million borrowed from its $350 million Credit Facility (defined below). In addition, in June 1998, the Company issued $125 million of its $250 million principal amount shelf registration of senior notes (the "Senior Notes"). The proceeds from the offering were used to pay down the existing Credit Facility. Prior to the Spin- off, Whitman served as the primary source of financing for Hussmann. Under Whitman's cash management system, Hussmann advanced cash not needed for current operations to Whitman at the then current commercial bank prime lending rate and Whitman advanced cash to Hussmann on the same basis. For 1997, there was a decrease in advances from Whitman of $37.6 million due to improved cash flow resulting from higher sales volumes and improved working capital management. Prior to 1997, due to Hussmann's investing activities, such as capital investments, and the allocation of expenses by Whitman to Hussmann, Hussmann was a net cash user and, accordingly, there was a net increase in advances from Whitman of $24.5 million during the year ended December 31, 1996. These advances are included in loans and advances - Whitman on Hussmann's consolidated balance sheets. AVAILABLE CASH AND BORROWINGS. Hussmann's cash and cash equivalents totaled $26.1 million as of December 31, 1998, compared to $38.4 million as of December 31, 1997. Prior to the spin-off, Hussmann entered into a five-year unsecured revolving credit facility (the "Credit Facility") with a syndicate of commercial banks and financial institutions that enables Hussmann to borrow funds at variable interest rates on a revolving credit basis up to an aggregate principal amount of $350 million. At December 31, 1998, $280 million was available for additional borrowings under the Credit Facility. In June 1998, Hussmann issued $125 million 6-3/4% Senior Notes due June 2008. The $125 million Senior Notes were part of the $250 million shelf registration filed by Hussmann with the Securities and Exchange Commission (the "SEC")on May 29, 1998 (the "Shelf Registration"). The proceeds from the Senior Notes were used to repay borrowings incurred under the Credit Facility. Management believes cash flows from operations, unused amounts available under the Credit Facility and the Shelf Registration will be sufficient to satisfy Hussmann's working capital, capital investments, acquisitions and other financing requirements for the foreseeable future. Management believes Hussmann will be able to access capital markets on satisfactory terms, although there can be no assurance that will be the case. Hussmann's products use copper wiring and tubing. As a result, Hussmann's results are subject to fluctuations in the price of copper. Hussmann uses hedging instruments to mitigate a portion of these risks. In February 1998, the Board of Directors of Hussmann approved a plan to expand production capacity of refrigerated display cases at its Bridgeton, Missouri plant by 20% and consolidate the production of refrigeration systems from five to two North American manufacturing locations. The reconfiguration of the Bridgeton plant and realignment of refrigeration production will require $12.6 million of capital investment. The Bridgeton refrigeration production has been split between a new 360,000 square foot plant in Suwanee, Georgia, and an existing facility in Chino, California. The new Bridgeton case line is scheduled to begin production during the second or third quarter of 1999. The new plant in Suwanee began production of refrigeration systems in the third quarter of 1998. NON-U.S. OPERATIONS. The most significant non-U.S. operations are located in Canada, Mexico and the U.K., with smaller operations located in, among other countries, New Zealand, Australia, Brazil, Chile, China and Singapore. Because Hussmann's non-U.S. entities conduct the majority of their business in their respective local currencies, Hussmann is subject to foreign currency risks when translating its non-U.S. entity financial statements into U.S. dollars for financial reporting purposes. In addition to the foreign currency translation risks faced by Hussmann, other risks associated with non-U.S. operations include the potential for restrictive actions taken by host country governments, the risks relating to non-U.S. economic and political conditions, and the risks relating to limits on the transfer of funds from non-U.S. entities to Hussmann. Hussmann did not use foreign currency risk management instruments to manage its exposure to changes in currency exchange rates in 1998. However, as the significance of Hussmann's foreign operations grows, Management will continue to monitor whether it would be appropriate to use foreign currency risk management instruments to mitigate its larger exposures. 27. HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT - -------------------------------------------------------------------------------- YEAR 2000 The Company has assessed the Year 2000 ("Y2K") issue as it relates to information technology ("IT") and has determined it must modify or upgrade certain portions of the hardware and software in its information systems. The Company is utilizing both internal and external resources to complete the reprogramming, upgrades and testing necessary to complete this modification and replacement process. The Company's Y2K efforts are being carried out by the Company's Y2K Team which has created a plan to complete Y2K reprogramming and testing of the Company's information systems ("the Plan") by June 30, 1999. Progress against the Plan is monitored and reported to Management and to the Audit and Finance Committee of the Board of Directors on a regular basis. The Y2K Team believes it remains on schedule, according to the Plan. As of December 31, 1998, the Company has incurred approximately $2.0 million related to Y2K work and anticipates the cost of its remaining Y2K work (which will be incurred over the next 12 months) to total about $5.0 million. This amount will not have a material adverse effect on Hussmann's results of operations, financial condition or cash flows. The Company is continuing to address its non-IT Y2K issues. The Company's Y2K Team is reviewing equipment embedded with microprocessors, products sold and service contracts entered into to determine what exposure, if any, the Company has in this area. At this time the Company is unable to estimate the total costs related to its non-IT Y2K issues, however, based upon results of reviews performed to date, Management does not believe such costs will be material. Also as part of the non-IT Y2K Plan, the Company is in the process of determining and assessing the Y2K compliance status of third parties with which it does business. The Company has contacted its key suppliers and customers to evaluate their Y2K readiness. Contingency plans to help protect the Company's business from Y2K-related interruptions have been developed. The Company will reassess its contingency plans as it completes its review process. The expected costs of the projects and the date on which Hussmann plans to complete all of the Y2K work are based on Management's best estimates, which are derived from numerous assumptions about future events, including the availability of certain resources, third-party modification plans, and other factors. However, there can be no guarantee these estimates will be achieved and actual results could differ materially from those plans. Certain of the non-IT Y2K issues have far reaching implications, some of which cannot be anticipated or predicted with any degree of certainty. Specific factors that might cause material differences include, but are not limited to, the availability and cost of personnel trained in this area, and the ability to identify and correct all relevant computer codes. In addition, there can be no assurances the systems or products of third parties on which the Company relies will be timely converted or that a failure by a third party, or a conversion incompatible with the Company's systems, would not have a material adverse effect on the Company. NEW ACCOUNTING STANDARD In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). This SOP provides guidance on accounting for the costs of computer software developed or obtained for internal use. Specifically, it addresses when and what types of costs associated with internally developed software should be expensed or capitalized. The SOP addresses both internal costs and external costs and the stages of completion of the entire project. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. Management believes the costs being incurred on the company-wide integrated computer system are being properly accounted for in accordance with SOP 98-1. This SOP should not have a material impact on the consolidated financial statements of the Company going forward, other than which has already been disclosed. SAFE HARBOR STATEMENT Management has made and will make certain forward-looking statements in its reports filed with the SEC, reports to shareholders and in certain other contexts relating to future revenues, costs, expenses, production schedules, profitability, financial resources, and the Y2K issue, among others. These statements are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on Management's beliefs and assumptions using information currently available. Accordingly, Hussmann's actual results may differ materially from those projected, expressed or implied in such forward-looking statements due to known and unknown risks and uncertainties that exist in Hussmann's operations and business environment, including among other factors: 1) the failure by Hussmann to produce anticipated cost savings or improve productivity; 2) the timing and magnitude of capital investments; 3) economic and market conditions in the U.S. and worldwide; 4) currency exchange rates; 5) changes in customer spending levels and demand for new products; 6) cost and availability of raw materials; 7) the continuation of growth in significant developing markets such as in Latin American and Asia-Pacific; 8) overall competitive activities; 9) failure of the Company, its suppliers or vendors to achieve Y2K compliance in a timely manner and 10) other risks described in the Company's filings with the SEC. 28. CONSOLIDATED STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------- For the years ended December 31 (in millions, except share data)
1998 1997 1996 - ------------------------------------------------------------------------------------------------- Sales and revenues $ 1,221.2 $1,096.2 $1,005.7 Cost of goods sold 964.0 889.5 801.8 - ------------------------------------------------------------------------------------------------- Gross profit 257.2 206.7 203.9 Selling, general and administrative expenses 134.7 114.4 108.6 Amortization expense 1.2 1.5 1.5 Non-recurring charges 1.4 47.8 - - ------------------------------------------------------------------------------------------------- Operating income 119.9 43.0 93.8 - ------------------------------------------------------------------------------------------------- Whitman charges 1.5 28.4 26.7 Interest expense: Whitman 1.0 17.3 16.7 Other 17.8 1.6 1.3 - ------------------------------------------------------------------------------------------------- Total interest expense 18.8 18.9 18.0 Other income (expense), net (3.4) 1.2 2.9 - ------------------------------------------------------------------------------------------------- Income (loss) before income tax expense and minority interests 96.2 (3.1) 52.0 Income tax expense 39.0 9.4 17.6 - ------------------------------------------------------------------------------------------------- Income (loss) before minority interests 57.2 (12.5) 34.4 Minority interests 0.3 (0.3) (0.3) - ------------------------------------------------------------------------------------------------- Net income (loss) $ 57.5 $ (12.8) $ 34.1 - ------------------------------------------------------------------------------------------------- Pro forma weighted average shares - Basic* 50,841,000 - - Pro forma basic - EPS* $ 1.13 - - - ------------------------------------------------------------------------------------------------- Pro forma weighted average shares - Diluted* 52,006,000 - - Pro forma diluted - EPS* $ 1.11 - - - -------------------------------------------------------------------------------------------------
* Discussion regarding the computation of pro forma earnings per share is contained in note 2 of notes to consolidated financial statements. See accompanying notes to consolidated financial statements. 29. HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- As of December 31 (in millions, except share data)
ASSETS 1998 1997 - --------------------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 26.1 $ 38.4 Receivables, net of allowance for doubtful accounts of $2.7 and $1.9, respectively 285.3 208.8 Inventories 106.9 146.7 Other current assets 11.5 7.4 - ---------------------------------------------------------------------------------------------------------- Total current assets 429.8 401.3 Property and equipment, net 168.4 159.9 Goodwill, net 29.4 25.1 Other assets 26.1 27.7 - ---------------------------------------------------------------------------------------------------------- Total assets $ 653.7 $ 614.0 - ---------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt and current maturities long-term debt $ 16.9 $ 6.2 Accounts payable 137.5 126.8 Income taxes payable 9.1 14.2 Accrued expenses 72.7 74.6 - ---------------------------------------------------------------------------------------------------------- Total current liabilities 236.2 221.8 Loans and advances - Whitman - 173.8 Long-term debt 200.7 3.2 Other liabilities 31.3 28.6 - ---------------------------------------------------------------------------------------------------------- Total liabilities 468.2 427.4 Shareholders' equity: Preferred stock, $.001 par value, 20,000,000 shares authorized, none issued or outstanding - - Common stock, $.001 par value, 150,000,000 shares authorized, 51,006,000 issued, 50,763,000 shares outstanding 0.1 - Additional paid-in capital 90.6 52.3 Retained earnings 161.0 188.1 Cumulative translation adjustment (59.3) (53.8) Minimum pension liability adjustment, net of tax (2.9) - Treasury stock, at cost: 243,000 shares (4.0) - - ---------------------------------------------------------------------------------------------------------- Total shareholders' equity 185.5 186.6 - ---------------------------------------------------------------------------------------------------------- Total liabilities and shareholders` equity $ 653.7 $ 614.0 - ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 30. CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
For the years ended December 31 (in millions) 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $ 57.5 $ (12.8) $ 34.1 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 23.0 22.4 20.2 Non-recurring charges 1.4 47.8 - Changes in assets and liabilities, exclusive of acquisitions: Receivables, net (68.1) (3.6) (13.9) Inventories 40.9 11.6 (30.4) Accounts payable (0.3) 10.0 4.4 Income taxes payable (5.1) 3.8 6.7 Other assets and liabilities (4.6) (2.9) 5.0 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 44.7 76.3 26.1 - ---------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital investments (30.6) (38.6) (33.5) Proceeds from sales of property and equipment 0.5 2.0 6.2 Companies acquired, net of cash (3.3) (26.4) - - ---------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (33.4) (63.0) (27.3) - ---------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net increase (decrease) in short-term debt 9.9 4.3 (1.9) Net increase (decrease) in loans and advances from Whitman - (37.6) 24.5 Settlement of Whitman obligations, net (221.7) - - Proceeds from issuance of long-term debt 430.4 - - Principal payments on long-term debt (234.1) - - Acquisition of treasury stock (4.0) - - Capital contribution from Whitman - 14.0 - Dividends paid (3.0) (2.2) (8.3) - ---------------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (22.5) (21.5) 14.3 - ---------------------------------------------------------------------------------------------------------------------------------- Effects of foreign exchange rate changes on cash and cash equivalents (1.1) (0.5) (0.1) - ---------------------------------------------------------------------------------------------------------------------------------- Net change in cash and cash equivalents (12.3) (8.7) 13.0 Cash and cash equivalents, beginning of year 38.4 47.1 34.1 - ---------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 26.1 $ 38.4 $ 47.1 - ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 31. HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME - --------------------------------------------------------------------------------
For the years ended December 31 (in millions) Common Minimum Stock No. Additional Cumulative Pension Treasury of Shares Common Paid-in Retained Translation Liability, Stock, (in thousands) Stock Capital Earnings Adjustment net at cost Total - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 - - $ 38.3 $ 176.0 $ (53.2) - - $161.1 - ---------------------------------------------------------------------------------------------------------------------------------- Comprehensive income: Net income 34.1 34.1 Cumulative translation adjustment 4.7 4.7 - ---------------------------------------------------------------------------------------------------------------------------------- Total comprehensive income - - - 34.1 4.7 - - 38.8 - ---------------------------------------------------------------------------------------------------------------------------------- Dividends paid to Whitman (8.3) (8.3) Stock plans, net 1.0 1.0 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1996 - - 38.3 202.8 (48.5) - - 192.6 - ---------------------------------------------------------------------------------------------------------------------------------- Comprehensive income: Net loss (12.8) (12.8) Cumulative translation adjustment (5.3) (5.3) - ---------------------------------------------------------------------------------------------------------------------------------- Total comprehensive loss - - - (12.8) (5.3) - - (18.1) - ---------------------------------------------------------------------------------------------------------------------------------- Dividends paid to Whitman (2.2) (2.2) Capital contribution from Whitman 14.0 14.0 Stock plans, net 0.3 0.3 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 - - 52.3 188.1 (53.8) - - 186.6 - ---------------------------------------------------------------------------------------------------------------------------------- Comprehensive income: Net income 57.5 57.5 Cumulative translation adjustment (5.5) (5.5) Minimum pension liability adjustment, net - (2.9) (2.9) - ---------------------------------------------------------------------------------------------------------------------------------- Total comprehensive income - - - 57.5 (5.5) (2.9) - 49.1 - ---------------------------------------------------------------------------------------------------------------------------------- Issuance of common stock 50,731 0.1 0.1 Dividends declared (4.0) (4.0) Settlement with Whitman 34.5 (80.6) (46.1) Repurchase of common stock (243) (4.0) (4.0) Stock plans, net 275 3.8 3.8 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 50,763 $0.1 $ 90.6 $ 161.0 $ (59.3) $(2.9) $(4.0) $185.5 - ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 32. (In millions, except share data) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (1) NATURE OF BUSINESS Hussmann manufactures, sells, installs and services merchandising and refrigeration systems for the commercial food industry throughout the world. Hussmann operates manufacturing facilities in the U.S., Canada, the U.K., Mexico, Brazil, China, New Zealand and Australia. On January 30, 1998, Whitman Corporation ("Whitman") distributed (the "Distribution") 50.7 million shares of common stock of Hussmann ("Hussmann Common Stock") to Whitman's shareholders at the rate of one share of Hussmann Common Stock and associated Right (as defined below) for every two shares of Whitman common stock. As a result of the spin-off (the "Spin-off"), Hussmann became an independent, publicly held company. These financial statements present the operations of Hussmann International, Inc. and its subsidiaries (as required by the context, "Hussmann"or the "Company"refers to Hussmann International, Inc. or to the group of companies that became wholly and majority-owned subsidiaries of Hussmann International, Inc. on January 30, 1998), which for all periods presented (except as of December 31, 1998), was composed of wholly-owned subsidiaries of Whitman Corporation, including Hussmann Corporation and its wholly-owned subsidiaries and other Hussmann companies owned by Whitman but directly managed by Hussmann Corporation. Prior to the formation of Hussmann, the historical financial statements were combined for financial reporting purposes. For all periods presented herein, the financial statements will be referred to as consolidated financial statements. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to current year presentation. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include accounts of Hussmann and its wholly and majority-owned subsidiaries. Investments of less than 50% in joint ventures are accounted for using the equity method. All significant intercompany transactions have been eliminated. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of deposits with banks and financial institutions which are unrestricted as to withdrawal or use, and which have original maturities of three months or less. INVENTORIES Inventories are valued at the lower of cost (principally determined on the first-in, first-out or average methods) or net realizable value. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation is computed using the straight-line method. Expenditures for maintenance and repairs are expensed as incurred. The approximate ranges of annual depreciation rates are 2% to 5% for buildings and improvements and 8% to 33% for machinery and equipment. Gains or losses from the sale of property and equipment are reported in other income (expense), net. GOODWILL Goodwill represents the excess of cost over fair market value of the net assets of businesses acquired. Such amounts are amortized on a straight-line basis over the periods estimated to be benefited. Amortization periods range from 10 to 40 years. Goodwill is stated net of accumulated amortization of $10.0 and $8.8 as of December 31, 1998 and 1997, respectively. CARRYING VALUES OF LONG-LIVED ASSETS Hussmann evaluates the carrying values of long-lived assets and identifiable intangibles used in the business whenever events and circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of the asset is measured by a comparison of the carrying amount of the asset to the future net cash flows expected to be generated. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less disposal costs. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS Assets and liabilities of non-U.S. operations whose functional currency is other than the U.S. dollar are translated to U.S. dollars using exchange rates in effect at the balance sheet date. Results from operations are translated at average exchange rates prevailing during the period. The resulting translation adjustments are recorded as a component of shareholders' equity. For those non- U.S. entities of Hussmann operating in countries where economies are considered to be highly inflationary, foreign currency translation gains and losses are included in results from operations as other income (expense), net. 33. HUSSMANN INTERNATIONAL, INC. 1998 REPORT - -------------------------------------------------------------------------------- REVENUE RECOGNITION Revenue is recognized when products are shipped or when services are performed. Revenue for installation projects is recognized generally upon the completion of the project and acceptance by the customer. Generally, products sold carry a one-year warranty while installation projects carry a three-month warranty. Hussmann estimates and records provisions for warranties in the period the sale is reported, based on historical experience. RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred. These costs amounted to $6.4, $5.6 and $6.0 in 1998, 1997 and 1996, respectively. INCOME TAXES Hussmann's U.S. operations have been included in the consolidated U.S. Federal and certain state unitary income tax returns of Whitman for the years ended December 31, 1997 and 1996, and for the period ended January 30, 1998. For those periods in which Hussmann was part of Whitman, Hussmann's income tax expense was allocated to Hussmann as if Hussmann had filed separate income tax returns. No provision has been made for U.S. income taxes on the undistributed earnings of non-U.S. subsidiaries (approximately $73.0 at December 31, 1998) which currently is not intended to be remitted to the U.S., primarily because retention of a significant portion of these earnings is considered essential for continuing operations and the additional taxes are considered to be immaterial based upon available foreign tax credits. No deferred tax liability has been recognized with regard to the potential remittance of such undistributed income. PRO FORMA EARNINGS PER SHARE Hussmann adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" ("SFAS 128"), effective January 1, 1998. In accordance with SFAS 128, basic earnings per share is calculated using the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using the weighted average number of common shares outstanding during the period plus shares issuable upon the assumed exercise of dilutive common stock options using the treasury stock method. Although the Spin-off did not occur until January 30, 1998, for purposes of presentation, Hussmann has calculated earnings per share on a pro forma basis assuming the Spin-off occurred January 1, 1998, for both basic and diluted earnings per share. The number of shares of Hussmann Common Stock used in the calculation of pro forma earnings per share for the year ended December 31, 1998, is as follows (in thousands):
1998 Pro forma weighted average shares outstanding - Basic 50,841 - ------------------------------------------------------------------ Dilutive effect of stock options 1,165 - ------------------------------------------------------------------ Pro forma weighted average shares outstanding - Diluted 52,006 - ------------------------------------------------------------------
Options to purchase 482,000 shares of Hussmann Common Stock at $17.94 per share were outstanding since June 1998, but were not included in the computation of pro forma diluted - EPS, due to the exercise price of these options being greater than the average market price of Hussmann Common Stock. These options expire in 2008. STOCK-BASED COMPENSATION Hussmann measures the compensation cost of equity instruments issued under employee compensation plans under the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related interpretations, in accounting for its fixed stock option plans. Compensation expense related to restricted stock awards is recognized over the applicable vesting periods. COMPREHENSIVE INCOME On January 1, 1998, Hussmann adopted SFAS No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. This statement requires Hussmann to report separately, the translation adjustments of SFAS 52, Foreign Currency Translation and changes to the minimum pension liability adjustment as components of comprehensive income. Management has chosen to disclose the requirements of this statement within the consolidated statements of shareholders' equity and comprehensive income. (3) TRANSACTIONS WITH WHITMAN CASH MANAGEMENT AND ADVANCES Prior to the Spin-off, Whitman managed all excess cash for Hussmann. Cash balances owed to Whitman were advanced at the then current commercial bank prime lending rate. All advances to or from Whitman are included in loans and advances - Whitman in the consolidated balance sheets. Interest expense on such advances is included in interest expense: Whitman in the consolidated statements of operations. DIVIDENDS PAID TO / CAPITAL CONTRIBUTIONS FROM WHITMAN For the years ended December 31, 1998, 1997 and 1996, Hussmann paid dividends to Whitman and Whitman made capital contributions to Hussmann, as summarized in the consolidated statements of shareholders' equity and comprehensive income. 34. - -------------------------------------------------------------------------------- NOTE PAYABLE TO WHITMAN Included in loans and advances - Whitman at December 31, 1997, is a junior subordinated note in the amount of $117.3 which was repaid in conjunction with the Spin-off. WHITMAN CHARGES Whitman allocated portions of its general and administrative expenses to its subsidiaries. Hussmann's share of such costs were $1.5, $28.4, and $26.7 in 1998, 1997 and 1996, respectively. Such charges represent an allocation of Whitman's estimated total expenses, and were charged to Whitman's subsidiaries based on budgeted revenues. Whitman considered this method to be a reasonable basis for allocation. (4) ACQUISITIONS As previously reported on Form 8-k, filed on August 31, 1998, with the Securities and Exchange Commission (the "SEC"), Hussmann acquired a 65% interest in Mcalpine Investments, Ltd. ("MIL") on August 17, 1998, for approximately $3.5. Mil consists of two separate operating companies engaged in the sale, installation, manufacture and service of commercial refrigeration products for the retail food industries in New Zealand, Australia and various island nations throughout the South Pacific. MIL's headquarters are located in Auckland, New Zealand. Mil has been an independent distributor and licensee of the company for several years, with combined sales and revenues of approximately $64.0 for the year ended December 31, 1997. This acquisition was accounted for using the purchase method of accounting, and accordingly, the results of operations are reflected in the consolidated statements of operations since the date of acquisition. The purchase price has been allocated to the assets acquired and the liabilities assumed of MIL based upon their estimated fair market value, and the excess cost over net tangible assets (approximately $5.9) is being amortized on a straight line basis over ten years. In 1997, Hussmann acquired a 70% interest in Fast Frio, a refrigeration manufacturer and distributor in Brazil, 100% of Industrias Gilvert, a manufacturer of refrigeration coils and related equipment located in Mexico, and the remaining 25% interest in Frio-Lux, an equipment distributor in Chile. The amount paid for 1997 acquisitions totaled $26.4, net of cash acquired. These acquisitions are individually and in the aggregate, immaterial to Hussmann consolidated. There were no significant acquisitions completed in 1996. (5) INVENTORIES Inventories consist of the following at December 31:
1998 1997 - -------------------------------------------------------------------------------------------------------- Raw materials and work in process $ 81.2 $ 118.9 Finished goods 25.7 27.8 - -------------------------------------------------------------------------------------------------------- $ 106.9 $ 146.7 - --------------------------------------------------------------------------------------------------------
(6) PROPERTY AND EQUIPMENT, NET Property and equipment consist of the following at December 31:
1998 1997 - -------------------------------------------------------------------------------------------------------- Land $ 5.3 $ 5.4 Buildings and improvements 81.8 80.3 Machinery and equipment 212.3 193.9 - -------------------------------------------------------------------------------------------------------- Total property and equipment 299.4 279.6 Accumulated depreciation (157.6) (135.4) Construction in progress 26.6 15.7 - -------------------------------------------------------------------------------------------------------- $ 168.4 $ 159.9 - --------------------------------------------------------------------------------------------------------
(7) ACCRUED EXPENSES Accrued expenses consist of the following at December 31:
1998 1997 - -------------------------------------------------------------------------------------------------------- Salaries and wages $ 25.0 $ 16.8 Restructuring 10.4 29.3 Other 37.3 28.5 - -------------------------------------------------------------------------------------------------------- $ 72.7 $ 74.6 - --------------------------------------------------------------------------------------------------------
(8) SHORT-TERM BORROWINGS AND LINES-OF-CREDIT Short-term borrowings at December 31, consist primarily of various short-term international bank borrowings as follows:
1998 1997 - -------------------------------------------------------------------------------------------------------- Short-term borrowings $12.8 $ 6.2 Weighted average interest rate at December 31 7.7% 6.4% - --------------------------------------------------------------------------------------------------------
Hussmann also has additional unsecured, uncommitted lines-of-credit available under agreements with various commercial banks and financial institutions for short-term borrowings up to $60.0 domestically, of which $0.0 is outstanding at December 31, 1998, and up to $30.0 internationally, of which $12.8 is outstanding at December 31, 1998. (9) LONG-TERM DEBT Long-term debt consists of the following at December 31:
1998 1997 - ----------------------------------------------------------------------------- 6-3/4% senior notes, due 2008 $125.0 $ - Revolving credit facility, due 2003 70.0 - Other 9.8 3.2 Less current maturities (4.1) - - ----------------------------------------------------------------------------- $200.7 $ 3.2 - -----------------------------------------------------------------------------
35. HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT - -------------------------------------------------------------------------------- 6-3/4% Senior Notes In June 1998, Hussmann issued $125.0 aggregate principal amount 6-3/4% Senior Notes. This issuance represents one-half of the $250.0 Shelf Registration filed by Hussmann with the SEC on May 29, 1998. The Senior Notes are senior unsecured obligations of Hussmann. The Senior Notes are redeemable at Hussmann's option at amounts equal to the greater of 100% of the principal amount of the Senior Notes or the sum of the present values of the remaining scheduled payments of principal and interest, discounted to the date of redemption on a semi-annual basis, plus any accrued but unpaid interest to the date of redemption. Interest is paid semi-annually on June 1 and December 1 until maturity in June 2008. REVOLVING CREDIT FACILITY On January 23, 1998, Hussmann entered into a five-year, unsecured revolving credit facility (the "Credit Facility") with a syndicate of commercial banks and financial institutions for borrowings up to $350.0. At December 31, 1998, there were $70.0 in borrowings outstanding under the Credit Facility, with $280.0 available for additional borrowings. The debt bears interest at variable rates, which ranged from 5.3% to 5.9% during 1998. An annual commitment fee of 0.1125% is payable quarterly on the entire amount of the facility. Hussmann paid approximately $0.4 in commitment fees under the Credit Facility during 1998. Borrowings under the Credit Facility are subject to certain financial and non-financial covenants and restrictions, including leverage, interest coverage, limitations on subsidiary indebtedness, and certain other general business restrictions. (10) OPERATING LEASES Hussmann leases certain facilities and equipment under non-cancelable operating leases. Rent expense incurred under such leases during 1998, 1997 and 1996 was $11.9, $9.5 and $9.6, respectively. Future minimum lease obligations under operating leases having original and remaining terms of one year or more at December 31, 1998 are as follows: - -------------------------------------------------- 1999 $ 9.0 2000 6.1 2001 4.7 2002 4.4 2003 4.1 Thereafter 37.7 - -------------------------------------------------- $66.0 - --------------------------------------------------
(11) SHAREHOLDERS' EQUITY PREFERRED STOCK Hussmann has 20,000,000 authorized shares of $.001 per share par value preferred stock. There are no shares of preferred stock issued or outstanding. The Board of Directors may authorize the issuance of preferred stock in one or more series, without further action by the shareholders. COMMON STOCK On January 8, 1998, the Board of Directors of Whitman declared a distribution of one share of Hussmann Common Stock for every two shares of Whitman common stock outstanding. As previously stated, on January 30, 1998, Hussmann was spun off from Whitman and 50,731,000 shares of Hussmann Common Stock were distributed to Whitman shareholders. Effective January 29, 1998, Hussmann's Board of Directors authorized 150,000,000 shares of Hussmann Common Stock with a par value of $.001 per share. As of December 31, 1998, 51,006,000 shares of common stock are issued and there are 50,763,000 shares outstanding. Holders of Hussmann Common Stock are entitled to one vote for each share held on all matters submitted to a vote of the shareholders. Subject to the rights of any holder of preferred stock, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors. In the event of liquidation, dissolution or wind up of the Company, holders of Hussmann Common Stock are entitled to share ratably in the distribution of all assets remaining after payment of liabilities, subject to the rights of the holders of preferred stock. During the second quarter of fiscal 1998, the Company's Board of Directors authorized the repurchase of shares of HussmannCommon Stock at a level sufficient to offset any dilution caused by the exercise of stock options. As of December 31, 1998, 243,000 shares of Hussmann Common Stock have been repurchased into the treasury. (12) STOCK-BASED COMPENSATION STOCK OPTIONS AND RESTRICTED STOCKUP In connection with the Spin-off, Hussmann adopted, and Whitman, as then sole shareholder of Hussmann, approved the Hussmann International Stock Incentive Plan (the "Plan"). The Plan authorizes the issuance of up to 5,512,945 shares of Hussmann Common Stock pursuant to the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock and performance awards. On January 30, 1998, outstanding stock options and restricted stock granted under the Whitman Stock Incentive Plan (the "Whitman Plan") were replaced with new non-qualified Hussmann stock options and restricted stock of equivalent value, with necessary adjustments made to the number and exercise price of the Hussmann options to preserve the economic value of the prior Whitman options and restricted stock as of the Spin-off. 36. - -------------------------------------------------------------------------------- Option grants under the Plan are at the market price on the date of grant. The options granted to replace those granted under the Whitman Plan are generally exercisable over a period of three years. The majority of options issued during 1998 under the Plan are exercisable at the end of a seven-year period, or sooner if certain shareholder return targets are met. The earliest these options may fully vest is in three years, and only if total shareholder return (as defined within the option agreement) meets or exceeds 15% for the three-year period. Once vested, the options are exercisable over a period of ten years from the grant date. As of December 31, 1998, there were 55,000 shares of restricted stock in which the restrictions had not lapsed. The restricted share awards vest over a three-year period from the date of grant. Compensation cost is recognized over the vesting period. No further shares of restricted stock have been awarded under the Plan. As stated in note 2, Hussmann applies APB 25 in accounting for its stock based incentive plan. Had compensation costs for the stock options issued during 1998 under the Plan been determined based upon the fair value methodology prescribed under SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"), Hussmann's net income for the year ended December 31, 1998, would have been impacted as follows: - ------------------------------------------------------------------------ Reported net income $57.5 Pro forma net income $54.9 Reported earnings per share - Diluted $1.11 Pro forma earnings per share - Diluted $1.06 - ------------------------------------------------------------------------
The weighted average fair value of options granted (which is amortized to expense over the estimated option vesting period) was estimated on the date of grant using the Black-Scholes option-pricing model for a peer group of companies. Hussmann used data from a peer group of companies because of a lack of historical information for Hussmann Common Stock. The following assumptions were used:
1998 - ------------------------------------------------------------------------ Risk-free interest rate 5.45% Expected life of option 6 Yrs. Expected volatility 26.5% Expected dividend yield 1.0% Weighted average fair market value of options granted in 1998 $ 5.87 - ------------------------------------------------------------------------
In accordance with SFAS 123, the weighted-average fair value of stock options granted is required to be based on a theoretical statistical model using the assumptions noted above. Because stock options do not trade on a secondary market, employees receive no benefit and derive no value from holding stock options without an increase in the market price of Hussmann Common Stock, not unlike all shareholders. The following table summarizes stock option activity under the Plan for the period ending December 31, 1998:
Weighted- Average Shares Exercise (in thousands) Price - ------------------------------------------------------------------------------------------------------ Outstanding, January 30, 1998 3,056 $11.40 Granted 3,205 15.12 Exercised (178) 10.02 Canceled (46) 13.34 - ------------------------------------------------------------------------------------------------------ Outstanding, December 31, 1998 6,037 $13.40 - ------------------------------------------------------------------------------------------------------
Options Outstanding - --------------------------------------------------------------------------------------------------------- Weighted- Average Weighted- Weighted- Range of Number of Remaining Average Exercisable Average Exercise Shares Life Exercise Shares (in Exercise Prices (in thousands in Years) Price thousands) Price - --------------------------------------------------------------------------------------------------------- $6.07-$7.68 461 3.0 $ 6.94 461 $ 6.94 $8.49-$9.87 493 6.0 9.38 485 9.38 $12.48-$13.69 2,723 8.2 13.27 946 13.31 $15.06-$17.94 2,360 9.2 15.65 2 16.86 - --------------------------------------------------------------------------------------------------------- Total Options 6,037 8.0 $13.40 1,894 $10.75 - ---------------------------------------------------------------------------------------------------------
SHAREHOLDER RIGHTS AGREEMENT AND SERIES A JUNIOR PARTICIPATING PREFERRED STOCK In 1997, Hussmann adopted a Rights Agreement providing for the issuance of one Preferred Stock Purchase Right (a "Right") with each share of Hussmann Common Stock. Each Right entitles the registered holder to purchase from Hussmann one one-hundredth of a share of Series A Junior Preferred Stock (a "Preferred Share") at a price of $150 per one one-hundredth of a Preferred Share, subject to adjustment. The Rights will become exercisable on the Rights Distribution Date, which is the earlier of the tenth day following a public announcement that a person(s) has acquired beneficial ownership of 15% or more of the outstanding shares of Hussmann Common Stock (an "Acquiring Person"), or ten business days after the commencement of a tender offer or exchange offer that would result in a person(s) acquiring beneficial ownership of 15% or more of the outstanding shares of Hussmann Common Stock. If a person becomes an Acquiring Person, each Right holder (other than the Acquiring Person) will be entitled to receive, upon exercise of the Right, a number of shares of Hussmann Common Stock having a market value of two times the exercise price of the Right. If Hussmann is acquired in a merger or other business combination, each Right holder (other than the Acquiring Person) will be entitled to receive, 37. HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT - -------------------------------------------------------------------------------- upon exercise of a Right, a number of the acquiring company's common shares having a market value at that time of two times the exercise price of the Right. In general, Hussmann can redeem all Rights for one cent per Right at any time until 10 days following the first public announcement that a person has become an Acquiring Person. The Hussmann Board of Directors, without the consent of the Rights holders, is also authorized to reduce the stock ownership thresholds to 10% or increase them to not more than 20%. The Rights will expire on December 31, 2007. Until a Right is exercised, the holder of a Right (merely by being a Right holder) will not have rights as a shareholder of Hussmann including voting or dividend rights. Each Preferred Share will be entitled to a minimum preferential quarterly dividend payment of at least $1.00 per share, but will be entitled to an aggregate dividend of 100 times the dividend declared per share of Hussmann Common Stock. Each Preferred Share will have 100 votes, to be voted together with the Hussmann Common Stock. In the event of a merger or other transaction in which shares of Hussmann Common Stock are exchanged, each Preferred Share will be entitled to receive 100 times the amount received per share of Hussmann Common Stock. (13) INCOME TAXES Income tax expense (benefit) as of December 31 consists of the following:
1998 1997 1996 - ----------------------------------------------------------------------------- Current: U.S. Federal $24.8 $ 12.2 $10.1 Non-U.S. 9.4 5.5 5.6 U.S. state and local 4.0 1.8 1.2 - ----------------------------------------------------------------------------- Total current 38.2 19.5 16.9 - ----------------------------------------------------------------------------- Deferred: U.S. Federal 0.4 (2.2) 0.1 Non-U.S. 0.3 (7.5) 0.6 U.S. state and local 0.1 (0.4) - - ----------------------------------------------------------------------------- Total deferred 0.8 (10.1) 0.7 - ----------------------------------------------------------------------------- $39.0 $ 9.4 $17.6 - -----------------------------------------------------------------------------
The items which give rise to differences between the income tax expense in the consolidated statements of operations and income taxes computed at the U.S. statutory rate are summarized as follows:
1998 1997 1996 - ------------------------------------------------------------------- Income tax expense computed at U.S. statutory rate $33.7 $(1.2) $18.1 State and local taxes, net of U.S. benefit 2.7 0.9 0.8 Higher (lower) non-U.S. effective tax rates 2.3 (0.3) (1.7) Non-deductible non-recurring charges - 9.7 - Other items, net 0.3 0.3 0.4 - ------------------------------------------------------------------- $39.0 $ 9.4 $17.6 - -------------------------------------------------------------------
Pretax income (loss) from non-U.S. operations amounted to $11.5, $(30.3), and $23.3 for the years ended December 31, 1998, 1997 and 1996, respectively. Significant components of the Company's deferred tax assets and liabilities at December 31 are as follows:
1998 1997 - -------------------------------------------------------------------------------- Deferred tax assets attributable to: Postretirement benefit accruals $ 6.3 $ 5.6 Restructuring accrual 5.3 10.8 Other accruals 9.9 7.6 Net operating losses 6.3 - Other 4.5 - - -------------------------------------------------------------------------------- Total deferred tax assets 32.3 24.0 - -------------------------------------------------------------------------------- Deferred tax liabilities attributable to: Property and equipment, principally depreciation method differences (8.5) (7.2) Pensions (5.1) (7.2) Inventories (7.8) (5.9) Other (0.7) (0.9) - ------------------------------------------------------------------------------- Total deferred tax liabilities (22.1) (21.2) - ------------------------------------------------------------------------------- Net deferred tax assets $ 10.2 $ 2.8 - ------------------------------------------------------------------------------- Net deferred tax assets included in: Other current assets $ 3.9 $ - Other assets 6.3 2.8 - ------------------------------------------------------------------------------- Net deferred tax assets $ 10.2 $ 2.8 - -------------------------------------------------------------------------------
Management believes it is more likely than not that all deferred tax assets will be realized and accordingly, no valuation allowance has been recorded. (14) DEFINED BENEFIT AND DEFINED CONTRIBUTION PLANS HUSSMANN-SPONSORED DEFINED BENEFIT PENSION PLANS Substantially all of Hussmann's U.S. employees are covered under various defined benefit pension plans sponsored and primarily funded by Hussmann. Plans covering salaried employees provide a normal 38. - -------------------------------------------------------------------------------- retirement benefit of 1% of covered compensation for each year of credited service (excluding the years 1989 - 1991) up to a maximum of 20 years. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. Plan assets are invested primarily in common stocks, corporate bonds and government securities. The Company utilizes information available at September 30 to measure its pension obligation and the funded status of its pension plans. The following tables detail the change in the projected pension benefit obligation, the change in plan assets, and the funded status of the pension plans at December 31, 1998 and 1997:
CHANGE IN BENEFIT OBLIGATION 1998 1997 - ---------------------------------------------------------------- Benefit obligation, beginning of year $151.3 $137.3 Change in foreign currency exchange rate (1.1) (1.4) Service cost 5.2 4.8 Interest cost 11.0 11.2 Plan amendments 1.3 - Actuarial loss 14.9 9.2 Plan spin-off (0.2) - Benefits paid (10.6) (9.8) - ----------------------------------------------------------------- Benefit obligation, end of year $171.8 $151.3 - ----------------------------------------------------------------- CHANGE IN PLAN ASSETS 1998 1997 - ----------------------------------------------------------------- Fair value of plan assets, beginning of year $172.0 $148.3 Change in foreign currency exchange rate (0.9) (1.5) Actual return on plan assets 6.8 31.0 Plan spin-off (0.2) - Company contribution 2.5 4.0 Plan participants' contributions 0.9 - Benefits paid (10.6) (9.8) - ----------------------------------------------------------------- Fair value of plan assets, end of year 170.5 172.0 - ----------------------------------------------------------------- Funded status (1.3) 20.7 Unrecognized transition asset (0.1) (0.2) Unrecognized net actuarial loss (gain) 2.0 (19.2) Unrecognized prior service cost 11.9 12.0 - ----------------------------------------------------------------- Prepaid benefit cost $ 12.5 $ 13.3 - ----------------------------------------------------------------- Net amount recognized in the balance sheet consists of: Prepaid pension cost $ 14.9 $ 15.7 Accrued pension liability (14.0) (6.4) Intangible asset 6.9 4.0 Minimum pension liability 4.7 - - ----------------------------------------------------------------- $ 12.5 $ 13.3 - -----------------------------------------------------------------
The following tables provide the actuarial assumptions used in the determination of net periodic pension cost for Hussmann-sponsored pension plans: WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
U.S. Plans 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------- Discount rate 6.5% 7.0% 7.5% Expected return on plan assets 9.5 9.5 9.5 Rate of compensation increase 4.0 4.5 6.0 - --------------------------------------------------------------------------------------------------------------
1998 1997 1996 ---------------------- ------------------------ ----------------------- Non-U.S. Plans Canada U.K. Mexico Canada U.K. Mexico Canada U.K. Mexico - ------------------------------------------------------------------------------------------------------------------------------------ Discount Rate 6.3% 8.5% 19.2% 6.5% 9.5% 18.7% 8.0% 9.5% 23.9% Expected return on plan assets 9.0 8.5 20.4 9.0 9.5 20.4 9.0 9.5 25.7 Rate of compensation increase 4.0 4.0 14.7 4.0 4.5 14.7 5.5 7.0 20.1 - ------------------------------------------------------------------------------------------------------------------------------------
The following table details the components of net periodic pension cost as of December 31:
COMPONENTS OF NET PERIODIC PENSION COST 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Service cost $ 5.2 $ 4.8 $ 4.2 Interest cost 11.0 11.2 10.4 Expected return on plan assets (13.5) (12.8) (11.6) Amortization of transition asset (0.1) (0.1) (0.1) Amortization of prior service cost 1.3 1.3 0.9 Amortization of actuarial loss (0.8) (0.1) (0.5) Plan spin-off (0.2) - - - ------------------------------------------------------------------------------------------------------------------------------------ $ 2.9 $ 4.3 $ 3.3 - ------------------------------------------------------------------------------------------------------------------------------------
The aggregate benefit obligation, and aggregate fair value of plan assets for Hussmann pension plans with accumulated benefit obligations in excess of plan assets are as follows at December 31:
1998 1997 - -------------------------------------------------------- Projected benefit obligation $49.5 $35.2 Accumulated benefit obligation 49.0 33.5 Fair value of plan assets 38.2 30.1 - --------------------------------------------------------
MULTI-EMPLOYER PENSION PLANS Hussmann participates in a number of multi-employer pension plans which provide benefits to certain union employees. Benefits are determined and funded annually based on terms of the plans or as stipulated in collective bargaining agreements. Amounts contributed to these plans totaled $3.6, $3.7 and $3.4 in 1998, 1997 and 1996, respectively. 39. HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT - -------------------------------------------------------------------------------- HUSSMANN-SPONSORED DEFINED CONTRIBUTION PLANS Substantially all U.S. salaried employees, certain U.S. hourly employees and certain Canadian employees who meet certain eligibility requirements may elect to participate in voluntary, contributory defined contribution plans to which Hussmann makes full or partial matching contributions. The Company's matching contributions to these plans amounted to $3.6, $3.7 and $3.1 during 1998, 1997 and 1996, respectively. (15) POSTRETIREMENT PLANS Hussmann provides substantially all former U.S. salaried employees who retired prior to July 1, 1989, and selected other employees in the U.S. and Canada with certain life and health care benefits. U.S. salaried employees retiring after July 1, 1989, are generally required to pay the full cost of these benefits. Eligibility for these benefits varies with the employee's classification prior to retirement. The postretirement benefit plans are unfunded plans, and as such, there are no plan assets. Benefits paid under Hussmann's postretirement benefit plans are independent of participant compensation levels. As such, the projected benefit obligation is equivalent to the accumulated benefit obligation. The following table details the change in the accumulated post-retirement benefit obligation plans at December 31, 1998 and 1997:
CHANGE IN BENEFIT OBLIGATION 1998 1997 - ------------------------------------------------------ Benefit obligation, beginning of year $15.3 $13.7 Service cost 0.1 0.1 Interest cost 1.0 1.0 Participant contributions 0.4 - Actuarial (gain) loss (0.4) 1.8 Benefits paid (1.3) (1.3) - ------------------------------------------------------ Benefit obligation, end of year $15.1 $15.3 - ------------------------------------------------------ Unamortized prior service cost 0.1 0.1 Unrecognized net actuarial loss (0.8) (0.9) - ------------------------------------------------------ Accrued benefit cost $14.4 $14.5 - ------------------------------------------------------
The discount rates used in the determination of net periodic benefit cost for Hussmann-sponsored postretirement benefit plans for the years ended December 31, 1998, 1997 and 1996 are 7.0%, 7.0%, and 7.5%, respectively. For 1999 measurement purposes, an 8.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for U.S. non-Medicare eligible plan participants, a 6.5% rate of increase was assumed for Medicare eligible U.S. plan participants and an 8.3% rate of increase was assumed for all other plan participants. The rates used for non-Medicare eligible and Medicare eligible plan participants were assumed to decrease gradually until reaching 6.0% and 4.5%, respectively, in 2003, and remain at those levels thereafter. The rates used for all other plan participants were assumed to decrease gradually until reaching 5.5% in 2006, and remain at that level thereafter.
COMPONENTS OF NET PERIODIC BENEFIT COST 1998 1997 1996 - ---------------------------------------------------------------------------------------------------- Service cost $ 0.1 $ 0.1 $ 0.1 Interest cost 1.0 1.0 1.0 - ----------------------------------------------------------------------------------------------------- $ 1.1 $ 1.1 $ 1.1 - -----------------------------------------------------------------------------------------------------
Assumed health care cost trend rates have a significant effect on the amounts reported for the post-retirement benefits plan. A one-percentage point change in assumed health care cost trend rates would have the following effects at December 31, 1998:
1-Percentage 1-Percentage Point Point Increase Decrease - ---------------------------------------------------------------------------------------------------------------- Effect on service and interest cost components $ 0.1 $(0.1) Effect on postretirement benefit obligation 0.6 0.8 - ----------------------------------------------------------------------------------------------------------------
MULTI-EMPLOYER POSTRETIREMENT MEDICAL AND LIFE INSURANCEUP Hussmann also participates in a number of multi-employer postretirement plans designed to provide health care and survivor benefits to union employees during their working lives and after retirement. Amounts contributed to these plans totaled $4.6, $5.2 , and $5.1 during 1998, 1997 and 1996, respectively. (16) NON-RECURRING CHARGES The 1998 non-recurring charge relates to the recognition of employee termination costs and the write-down of certain assets in Chile. The 1997 charge recognizes goodwill impairment, the closure of certain sales and service branches in the U.K., the restructuring of the U.K. operations, and the consolidation of certain North American operations. During the fourth quarter of 1998, due to an increasingly weakening economy in Chile and the pending acquisition of Koxka, Management decided to restructure its operations and terminate a substantial portion of its employees located in Chile, close a small manufacturing operation and write-down certain assets to their estimated fair market value. Therefore, during the fourth quarter of 1998, Hussmann recorded a non-recurring charge of $2.4 ($2.0 on an after-tax basis) to restructure operations in Chile. The $2.4 charge consisted of an inventory write-down of $1.0, and the remaining portion related to employee termination costs and the write-down of certain assets. 40. - -------------------------------------------------------------------------------- During the third quarter of 1997, Hussmann recorded non-recurring charges of $30.7 ($29.6 on an after-tax basis) consisting of approximately $26.0 relating to the recognition of goodwill impairment and $4.7 related to the closure of sales and service branches in the U.K. In addition, during the fourth quarter of 1997, Management decided to restructure the U.K. operations. The restructuring plan included closing a manufacturing facility in Scotland and the consolidation of two manufacturing facilities in Milton Keynes, England. Additionally, the charge also included the consolidation of certain North American operations. These actions resulted in the elimination of approximately 320 jobs, primarily in the U.K. The total costs were approximately $25.6 ($17.4 on an after-tax basis) which includes $8.5 for the write-down of inventory, $4.1 for the write-down of equipment, $10.9 in severance and termination benefits, and $2.1 for lease termination and other closing costs. Other than severance cost, the majority of the charges recorded for the restructuring were non-cash. Also during 1998, Hussmann adjusted its estimates of the tax benefits to be realized from the U.K. restructuring. The approximate $2.0 adjustment was reflected in the 1998 tax provision. (17) OTHER FINANCIAL INFORMATION Other financial information is as follows:
1998 1997 1996 - ----------------------------------------------------------------------------------------- Interest paid $ 17.7 $ 18.3 $ 18.0 Income taxes paid 28.3 15.7 8.5 Capitalized interest 0.8 - - Interest income 2.1 1.8 2.1 Foreign exchange gain (loss) $(4.3) $ 0.4 $ 0.3 - -----------------------------------------------------------------------------------------
(18) CONTINGENCIES Hussmann is involved in certain claims and legal proceedings arising in the normal course of business. Although it is impossible to predict the ultimate outcome of these matters, in the opinion of Management, after appropriate consultation with legal counsel, the outcome of any such proceedings individually or in the aggregate will not have a material adverse effect on Hussmann's results of operations or financial condition. (19) BUSINESS SEGMENT INFORMATION As the products and services sold by Hussmann are similar throughout the world, Hussmann manages the business with separate senior management teams responsible for geographic regions. Therefore, the following segments correspond to these geographic regions. Summarized information about Hussmann's operations in each of these business segments as of December 31 is as follows:
Sales and revenues Operating income ------------------------- ------------------------- 1998 1997 1996 1998 1997 1996 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ U.S. and Canada $ 901.7 $ 852.7 $ 798.3 $135.6 $102.8 $ 94.4 Europe (U.K) 144.8 123.6 139.6 1.2 (55.4) - Other Interantional 174.7 119.9 67.8 10.1 17.2 14.3 - ------------------------------------------------------------------------------------ Total before corporate and other expenses $1,221.2 $1,096.2 $1,005.7 $146.9 $ 64.6 $108.7 - ------------------------------------------------------------------------------------ Corporate adminis- trative expenses (27.0) (21.6) (14.9) - ------------------------------------------------------------------------------------ Total operating income 119.9 43.0 93.8 Whitman charges (1.5) (28.4) (26.7) Interest expeses) (18.8) (18.9) (18.0) Other (expense), net (3.4) 1.2 2.9 - ------------------------------------------------------------------------------------ Income (loss) before income tax expense and minority interests $ 96.2 $ (3.1) $ 52.0 - ------------------------------------------------------------------------------------
Depreciation and Identifiable assets amortization Capital Investments ------------------------ ------------------------ ----------------------- 1998 1997 1996 1998 1997 1996 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------ U.S. and Canada $ 358.3 $ 332.1 $ 350.3 $ 13.6 $ 13.8 $ 12.5 $ 14.9 $ 16.3 $ 19.4 Europe (U.K.) 79.4 77.1 115.0 1.6 2.7 2.9 2.7 1.1 6.2 Other International 160.9 134.8 84.1 4.3 2.8 2.0 4.8 9.5 6.8 Corporate 55.1 70.0 62.0 3.5 3.1 2.8 8.2 11.7 1.1 - ------------------------------------------------------------------------------------------------------------------ $ 653.7 $ 614.0 $ 611.4 $ 23.0 $ 22.4 $ 20.2 $ 30.6 $ 38.6 $ 33.5 - ------------------------------------------------------------------------------------------------------------------
During the years presented, no individual customer accounted for more than 10% of Hussmann's consolidated sales and revenues. Sales and revenues, long- lived assets, and deferred tax assets related to Hussmann operations located in the U.S. consist of the following:
1998 1997 1996 - -------------------------------------------------------------------------------------- Sales and revenues $829.9 $779.8 $727.5 Long-lived assets 118.1 109.8 99.8 Deferred tax assets 18.7 22.1 12.2 - --------------------------------------------------------------------------------------
Sales and revenues, long-lived assets, and deferred tax assets related to Hussmann operations located outside of the United States consist of the following:
1998 1997 1996 - -------------------------------------------------------------------------------------- Sales and revenues $391.3 $316.4 $278.2 Long-lived assets 79.7 75.2 77.3 Deferred tax assets 13.6 1.9 1.6 - --------------------------------------------------------------------------------------
Sales and revenues are attributed to the location from which products are shipped or services are provided. 41. HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT - -------------------------------------------------------------------------------- (20) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) FINANCIAL RESULTS The following table presents Hussmann's sales and revenues, gross profit and net income (loss) on a quarterly basis:
First Second Third Fourth Full Quarter Quarter Quarter Quarter Year - ------------------------------------------------------------------- 1998 Sales and revenues $245.9 $292.9 $333.2 $349.2 $1,221.2 Gross profit 40.8 63.6 75.3 77.5 257.2 Net income $ 4.2 $ 15.7 $ 20.2 $ 17.4 $ 57.5 - ------------------------------------------------------------------- 1997 Sales and revenues $198.6 $250.8 $283.8 $363.0 $1,096.2 Gross profit 34.9 48.4 62.6 60.8 206.7 Net income (loss) $ (0.7) $ 5.7 $(15.9) $(1.9) $(12.8) - ------------------------------------------------------------------- 1996 Sales and revenues $194.6 $226.0 $261.5 $323.6 $1,005.7 Gross profit 34.5 48.1 56.0 65.3 203.9 Net income (loss) $ (1.8) $ 6.6 $ 13.2 $ 16.1 $ 34.1 - -------------------------------------------------------------------
STOCK PRICES Hussmann's stock is traded on the New York Stock Exchange (the "NYSE") under the ticker symbol "HSM". Hussmann Common Stock began trading on the NYSE on January 30, 1998, following the Spin-off. The following table presents the high and low market closing prices for Hussmann Common Stock and cash dividend information for each quarter of 1998.
Dividends 1998 High Low Declared - ---------------------------------------------- First quarter $18.75 $13.63 $0.02 Second quarter 19.50 17.00 0.02 Third quarter 18.94 12.63 0.02 Fourth quarter $19.38 $12.00 $0.02 - ----------------------------------------------
(21) SUBSEQUENT EVENT As previously reported on Form 8-K, filed with the SEC on January 8, 1999, Hussmann signed a definitive agreement on January 6, 1999, to acquire Koxka for approximately $145.0. Koxka, a company headquartered in Spain and listed on the Madrid Stock Exchange, is the leading commercial refrigeration company in Spain and Portugal. The acquisition is expected to be completed in March 1999. 42. - -------------------------------------------------------------------------------- MANAGEMENT'S RESPONSIBILITIES FOR FINANCIAL REPORTING The integrity and objectivity of the consolidated financial statements included herein are the responsibility of Management. The statements have been prepared in conformity with generally accepted accounting principles and, where appropriate, include certain estimates based on the informed judgment of Management. Financial information appearing elsewhere in this annual report is consistent with the consolidated financial statements. In meeting its responsibility for the reliability of the consolidated financial statements, Management relies on a system of internal accounting controls. This system is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with Management's authorization and recorded properly to permit the preparation of the consolidated financial statements in accordance with generally accepted accounting principles. The design of this system recognizes errors and irregularities may occur and estimates and judgments are required to assess the relative cost and expected benefits of such controls. Management believes the accounting controls provide reasonable assurance that errors and irregularities which could be material to the consolidated financial statements are prevented or would be detected within a reasonable period of time. For all periods presented (except as of December 31, 1998), Hussmann International, Inc. and its subsidiaries, or the group of companies that became subsidiaries of Hussmann International, Inc. on January 30, 1998, was composed of wholly and majority-owned subsidiaries of Whitman Corporation, including Hussmann Corporation and other Hussmann companies owned by Whitman but directly managed by Hussmann Corporation. While under Whitman ownership, the Board of Directors of Whitman, acting through its Audit Committee, had the responsibility for determining that Management fulfilled its duties in connection with the preparation of the consolidated financial statements of Whitman. As a separate, stand-alone, public company, Hussmann's Board of Directors and Audit and Finance Committee have assumed those responsibilities. Hussmann's independent auditors, KPMG LLP, were engaged to audit the consolidated financial statements of Hussmann and to issue their report thereon. To express their opinion on the consolidated financial statements and issue their report in conformity with generally accepted auditing standards, the independent auditors must review and evaluate Hussmann's accounting controls and conduct such tests and other procedures as they deem necessary. KPMG's report appears on the following column. INDEPENDENT AUDITORS' REPORT THE BOARD OF DIRECTORS HUSSMANN INTERNATIONAL, INC.: We have audited the accompanying consolidated balance sheet of Hussmann International, Inc. (Hussmann) as of December 31, 1998, and the combined balance sheet of Hussmann as of December 31, 1997, and the related combined statements of operations, cash flows, and shareholders' equity and comprehensive income for each of the years in the three-year period ended December 31, 1998. These financial statements are the responsibility of Hussmann's Management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated and combined financial statements referred to above present fairly, in all material respects, the financial position of Hussmann as of December 31, 1998 and 1997, respectively, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. KPMG LLP January 29, 1999 St. Louis, Missouri 43. HUSSMANN INTERNATIONAL, INC. 1998 ANNUAL REPORT GENERAL INFORMATION - -------------------------------------------------------------------------------- GENERAL OFFICES Hussmann International, Inc. 12999 St. Charles Rock Road Bridgeton, MO 63044-2483 314/291-2000 www.hussmann.com DATE AND STATE OF INCORPORATION Hussmann Corporation - 1929 -- Missouri Hussmann International, Inc. - August 1997 -- Delaware NUMBER OF SHAREHOLDERS 14,485 as of March 5, 1999 NUMBER OF EMPLOYEES 9,100 worldwide NOTICE OF ANNUAL MEETING May 13, 1999 Hyatt Regency - Union Station One St. Louis Union Station St. Louis, MO 63103 INDEPENDENT ACCOUNTANTS KPMG LLP St. Louis, MO FISCAL YEAR END December 31, 1998 FORM 10-K INFORMATION AND INVESTOR INQUIRIES Shareholders may obtain, without charge, an additional copy of the Company's most recent Annual Report or a copy of the Form 10-K as filed with the Securities and Exchange Commission, excluding exhibits, by directing inquiries to: HUSSMANN INTERNATIONAL, INC. ATTN: INVESTOR RELATIONS 12999 ST. CHARLES ROCK ROAD BRIDGETON, MO 63044-2483 314/291-2000 TRANSFER AGENT AND REGISTRAR Shareholder inquiries should be directed as indicated below. For address changes and other miscellaneous inquiries: FIRST CHICAGO TRUST COMPANY OF NEW YORK C/O EQUISERVE P.O. BOX 2500 JERSEY CITY, NJ 07303-2500 201/324-1225 800/446-2617 201/222-4955 (TDD Hearing Impaired) Shareholders may also communicate with First Chicago through the Internet. WWW.EQUISERVE.COM FCTC@EM.FCNBD.COM EXCHANGE LISTING New York Stock Exchange, Inc. (Ticker Symbol-HSM) EX-21 8 SUBSIDIARIES OF HUSSMANN INTERNATIONAL, INC. Exhibit 21 SUBSIDIARIES OF HUSSMANN INTERNATIONAL, INC.
Name Place of Incorporation Hussmann Corporation Missouri Krack Corporation Illinois Hussmann International Sales Corporation Barbados Luoyang Hussmann Refrigeration Co., Ltd.* China Guangzhou Hussmann Refrigeration Co., Ltd. China Refrigeracion Frio Lux S.A.I. Chile Hussmann Del Peru, S.A. Peru Hussmann Tempcool Holdings PTE LTD* Singapore Hussmann Netherlands B.V. Netherlands Hussmann-Mexico, S. de R.L. de C.V. Mexico American Refrigeration Products, S. de R.L. de C.V. Mexico Industrias Frigorificas, S.A. de C.V. Mexico Gilmart, S.A. de C.V. Mexico Industrias Gilvert, S.A. de C.V. Mexico Hussmann Refrigeration International B.V. Netherlands Hussmann Fast-Frio do Brasil Ltda.* Brazil Fastecnica Instalacoes e Assistencia Tecnica Ltda.* Brazil Hussmann Canada Inc. Canada Hussmann Holdings Limited England Hussmann (Europe) Limited England Hussmann Refrigeration (Hungary) Ltd.* Hungary Hussmann Australasia Limited* New Zealand McAlpine Hussmann Limited New Zealand McAlpine Hussmann Pty Limited Australia McAlpine Hussmann (Australia) Pty Limited Australia McAlpine Australia Pty Limited Australia
* Each of the above subsidiaries is 100% owned or controlled except as follows: Hussmann Tempcool Holdings PTE LTD (50%), Hussmann Fast Frio do Brasil Ltda. (84%), Fastecnica Instalacoes e Assistencia Tecnica S/C Ltda. (84%), Hussmann Refrigeration (Hungary) Ltd. (60%), Luoyang Hussmann Refrigeration Co., Ltd. (55%) and Hussmann Australasia Limited (65%). EX-23 9 CONSENT OF KPMG LLP Exhibit 23 ---------- Independent Auditors' Consent The Board of Directors Hussmann International, Inc.: We consent to incorporation by reference in the registration statement Nos. 333- 44623, 333-44799, and 333-58359 on Form S-8 and registration statement No. 333- 52987 on Form S-3 of Hussmann International, Inc. of our report dated January 29, 1999, relating to the consolidated balance sheet as of December 31, 1998 and the combined balance sheet as of December 31, 1997 of Hussmann International, Inc. and subsidiaries, and the related combined statements of operations, cash flows, and shareholders' equity and comprehensive income for each of the years in the three-year period ended December 31, 1998, which report appears in the December 31, 1998 annual report on Form 10-K of Hussmann International, Inc. /s/ KMPG LLP St. Louis, Missouri March 26, 1999 EX-27 10 FINANCIAL DATA SCHEDULES
5 THIS SCHEDULE CONTAINS SUMMMARY COMBINED AND CONSOLIDATED FINANCIAL INFORMATION EXTRACTED FROM HUSSMAN INTERNATIONAL'S COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO. 1,000,000 YEAR YEAR DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 DEC-31-1998 DEC-31-1997 26 38 0 0 288 211 3 2 107 147 430 401 326 295 158 135 654 614 236 222 201 177 0 0 0 0 0 0 186 187 654 614 1,221 1,096 1,221 1,096 964 890 964 890 0 0 0 0 19 19 96 (3) 39 9 57 (13) 0 0 0 0 0 0 58 (13) 1.13 0 1.11 0 AMOUNTS INCLUDE INTEREST EXPENSE PAID TO WHITMAN OF $1.0 AND $17.3 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, RESPECTIVELY. $174.0 OF THIS BALANCE REPRESENTS AMOUNTS DUE WHITMAN, HUSSMANN'S FORMER PARENT.
EX-99 11 PRESS RELEASE DATED MARCH 30, 1999 Exhibit 99 ---------- HUSSMANN COMPLETES KOXKA ACQUISITION; WILL RECORD ONE-TIME CHARGE FOR NON-CAPITALIZED ACQUISITION COSTS ST. LOUIS, MO, March 30, 1999...Hussmann International has completed the acquisition of Grupo Koxka (Koxka), the leading commercial refrigeration company in Spain and Portugal for $145 million. Through a cash tender offer, Hussmann secured virtually 100 percent of the outstanding shares of stock in Koxka, a publicly traded company on the Madrid Stock Exchange. Koxka manufactures a complete line of commercial and industrial refrigeration products, including standard and custom merchandising display cases for supermarkets, beverage coolers, ice cream merchandisers and an array of other self-contained food merchandisers. In 1998, Koxka had sales of approximately $135 million, EBITDA (earnings before interest, income taxes, depreciation and amortization) of approximately $20 million and net income of approximately $11 million. The acquisition gives Hussmann the leading industry position in Spain and Portugal and a strong competitive base in continental Europe. Prior to Hussmann's acquisition of Koxka, Hussmann's presence in Europe, the second largest market for commercial refrigeration, had been primarily limited to its $140 million operation in the United Kingdom. In its first quarter of 1999, which will be reported on April 28, Hussmann will record a one-time charge of approximately $10 million (pre-tax) for losses associated with the financial instruments used to hedge the purchase price of Koxka. Because Koxka was a publicly traded company in Spain, the purchase price was denominated in Spanish Pesetas. In order to avoid foreign exchange exposure, Hussmann hedged the Peseta exposure to lock in a U.S. Dollar purchase price of $145 million. Uncertainty in exchange rates, particularly prior to the launch of the new European currency in January, also influenced Hussmann's decision to guarantee the $145 million purchase price. During the period the hedging instruments were outstanding, the Spanish Peseta weakened significantly against the U.S. Dollar. Generally accepted accounting principles allow only direct costs of the acquisition to be capitalized in determining the purchase price. These costs will be approximately $135 million. Any gains or losses realized when settling the hedging instruments are not considered direct costs and must be reflected in the income statement of the corresponding period. Hussmann will record these costs, approximately $10 million, in its first quarter 1999. For the year ended December 31, 1998, Hussmann reported record sales and revenues of $1.2 billion and record net income of $62.4 million on a pro forma basis. Diluted earnings per share on a pro forma basis for the full year 1998 was $1.20. Hussmann International, Inc. (HSM-NYSE) is the world's leading manufacturer of food store equipment and commercial refrigeration products. -----END PRIVACY-ENHANCED MESSAGE-----