-----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, RRVm4nvjNwtXJ7YRSffcps1XAm6PA8D8ZLC2rEbGyGFbuCHIF3CJiDFJGSwSNc5e ixyc+ms7yskDcTA6FCBPKw== 0001047469-99-012405.txt : 19990331 0001047469-99-012405.hdr.sgml : 19990331 ACCESSION NUMBER: 0001047469-99-012405 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCOTT TECHNOLOGIES INC CENTRAL INDEX KEY: 0000720032 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 521297376 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-12558 FILM NUMBER: 99578490 BUSINESS ADDRESS: STREET 1: 5875 LANDERBROOK DR STREET 2: STE 250 CITY: MAYFIELD HEIGHTS STATE: OH ZIP: 44124 BUSINESS PHONE: 4404461333 MAIL ADDRESS: STREET 1: 5875 LANDERBROOK DR STREET 2: STE 250 CITY: MAYFIELD HEIGHTS STATE: OH ZIP: 44124 FORMER COMPANY: FORMER CONFORMED NAME: FIGGIE INTERNATIONAL INC /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FIGGIE INTERNATIONAL HOLDINGS INC DATE OF NAME CHANGE: 19870112 10-K405 1 10-K405 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended 12/31/98 Commission file number 1-8591 -------- ------ SCOTT TECHNOLOGIES, INC. - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 52-1297376 ------------------------------ ------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 5875 LANDERBROOK DRIVE, MAYFIELD HEIGHTS, OHIO 44124 - ---------------------------------------------- -------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code (440) 446-1333 ------------- Securities registered pursuant to Section 12(G) of the Act: Common Stock, Par Value $.10 Per Share - -------------------------------------------------------------------------------- (TITLE OF CLASS) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES |X| NO |_| INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. |X| STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT. (THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF FILING.) At March 17, 1999 - $232,132,328 - -------------------------------------------------------------------------------- INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. Outstanding as of 3/17/99 Common Stock, Par Value $.10 Per Share 18,186,983 - -------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE: LIST THE FOLLOWING DOCUMENTS IF INCORPORATED BY REFERENCE AND THE PART OF THE FORM 10-K INTO WHICH THE DOCUMENT IS INCORPORATED: (1) ANY ANNUAL REPORT TO SECURITY HOLDERS; (2) ANY PROXY OR INFORMATION STATEMENT; AND (3) ANY PROSPECTUS FILED PURSUANT TO RULE 424 (b) OR (c) UNDER THE SECURITIES ACT OF 1933. (THE LISTED DOCUMENTS SHOULD BE CLEARLY DESCRIBED FOR IDENTIFICATION PURPOSES.) Proxy Statement Re: Annual Stockholders' Meeting to be held in 1999 (See Part III) Certain documents incorporated from prior filings (See Part IV) TABLE OF CONTENTS PART I.........................................................................4 Item 1. Business........................................................4 Customers.............................................................5 Competition...........................................................5 Patents and Trademarks................................................5 Backlog of Orders.....................................................5 Raw Materials.........................................................5 Effect of Environmental Compliance....................................5 Employees.............................................................6 Research and Development..............................................6 Distribution..........................................................6 Interstate Electronics................................................6 Financial Information About the Company's Business Segments...........7 Executive Officers of the Company.....................................8 Item 2. Properties......................................................9 Principal Facilities..................................................9 Item 3. Legal Proceedings...............................................9 Item 4. Submission of Matters to a Vote of Security Holders............10 PART II.......................................................................11 Item 5. Market for the Company's Common Stock and Related Stockholder Matters............................................11 Item 6. Summary of Selected Financial Data.............................12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................13 Forward-Looking Information..........................................13 Financial Summary....................................................13 Scott Aviation.......................................................14 Corporate and Unallocated Costs and Expenses.........................16 Discontinued Operations..............................................17 Extraordinary Item...................................................17 Financial Position and Liquidity.....................................18 Factors Affecting the Company's Prospects............................18 Item 8. Financial Statements and Supplementary Data....................22 Report of Independent Public Accountants.............................22 Consolidated Statements of Operations ...............................23 Consolidated Balance Sheets..........................................24 Consolidated Statements of Stockholders' Equity and Comprehensive Income...............................................................26 Consolidated Statements of Cash Flows................................27 Notes to Consolidated Financial Statements...........................28 (1) Summary of Significant Accounting Policies................28 (2) Refinancing Costs.........................................29 (3) Discontinued Operations...................................30 (4) Income Taxes..............................................32 (5) Inventories...............................................34 (6) Receivables...............................................34 2 (7) Credit Facility...........................................34 (8) Long-Term Debt............................................35 (9) Leases....................................................36 (10) Contingent Liabilities....................................36 (11) Pension and Retirement Benefits Plans.....................36 (12) Capital Stock.............................................38 (13) Stock Options.............................................40 (14) Restricted Stock Purchase Plans...........................41 (15) Employee Stock Bonus Plan.................................41 (16) Extraordinary Item - Early Extinguishment of Debt.........41 (17) Industry Segment Data.....................................42 QUARTERLY FINANCIAL DATA (UNAUDITED).................................43 Item 9. Disagreements on Accounting and Financial Disclosure......44 PART III......................................................................44 Item 10. Directors and Executive Officers of the Registrant........44 Item 11. Executive Compensation....................................44 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................44 Item 13. Certain Relationships and Related Transactions............44 PART IV.......................................................................45 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...............................................45 VALUATION AND QUALIFYING ACCOUNTS....................................51 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.............................52 SIGNATURES....................................................................53 EXHIBIT INDEX.................................................................54 SUBSIDIARIES OF THE COMPANY.............................................59 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS...............................60 3 Except as otherwise stated, the information contained in this Annual Report is as of December 31, 1998. Information contained in this Report includes forward-looking statements, which can be identified by the use of forward-looking terminology such as "believes," "may," "will," "expects," "intends," "plans," "anticipates," "estimates" or "continues" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. The Company undertakes no obligation to revise these forward-looking statements to reflect any future events or circumstances. The Company's actual results, performance or achievements, could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences are discussed under the caption "Factors Affecting the Company's Prospects." PART I Item 1. Business Scott Technologies, Inc. (referred to, with its subsidiaries and divisions, and their predecessor entities, unless the context otherwise requires, as the "Company") is comprised of one reporting segment which operates primarily in North America. The Company's strategy is to grow through strategic acquisitions, systematic market expansion and continued growth through new and "next generation" product development. The Company's segment is described below: Scott Aviation is a leading manufacturer of life support respiratory products and consists of two principal business units: Health and Safety; and Aviation and Government. The two units have benefited from several similarities. Scott Aviation has used its broad experience and expertise in high pressure gas regulation and distribution developed from the two product lines to provide end-users with products that are reliable, light weight, compact in size and user-friendly. Each unit has also benefited from the common use of manufacturing cell and team technology. In addition, Scott Aviation's uniform quality assurance program has allowed the units to work jointly to comply with the rigorous quality requirements of the government, regulatory agencies and customers. Scott Aviation's Health and Safety unit manufactures the Scott Air-Pak* (a self-contained breathing apparatus), air-purifying products, gas detection instruments and other life support products for firefighting and personal protection against environmental and safety hazards. Scott Aviation's Aviation and Government unit manufactures protective breathing equipment, pilot and crew oxygen masks, and emergency oxygen for passengers and crew members on commercial, government and private aircraft and ships. The Company's business is managed at the segment level. Financial, legal, real estate and certain administrative functions are performed at the corporate offices. The Company's real estate development activities, conducted through its subsidiary, STI Properties, Inc., are reported as a corporate department. During 1998, the Company announced its intent to divest its Interstate Electronics subsidiary "IEC." For further discussion of the Company's divested operations, see "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere herein. * Registered or common law trademarks and service marks of Scott Technologies, Inc. and its subsidiaries. 4 Customers Aviall, Inc., which is a distributor of Scott Aviation's aviation products, accounted for approximately 13.5%, 10.4% and 10.2% of the Company's 1998, 1997, and 1996 net sales, respectively. The U.S. Government accounted for 7.1%, 10.0% and 9.2% of the Company's total net sales for 1998, 1997 and 1996, respectively. The net sales to the U.S. Government are subject to the standard government contract clause that permits the government to terminate such contracts at its convenience. In the event of such termination, there are provisions to enable the Company to recover its costs plus a fee. The Company does not anticipate the termination of any of its major government contracts. No other single customer accounted for more than 10% of the Company's net sales. Competition Scott Aviation is engaged in industries characterized by substantial competition in the form of price, service, quality, and design. The Company believes that in the United States, Scott Aviation is among the leading manufacturers of protective breathing and emergency oxygen equipment. Patents and Trademarks Scott Aviation owns and is licensed under a number of patents and trademarks that are sufficient for its operations. Its business as a whole is not materially dependent upon any one patent, trademark or license or technologically related group of patents or licenses. Backlog of Orders As of December 31, 1998 and 1997, Scott Aviation had a backlog of orders of $61.2 million and $54.0 million, respectively. On these dates such backlog amounts were believed to be firm. However, realization of the backlog amounts depends on, among other things, general economic and business conditions in 1999 that cannot be predicted. Of the backlog, $4.8 million and $3.1 million at December 31, 1998 and 1997, respectively, are not expected to be completed within twelve months. Raw Materials The Company believes that the principal raw materials and purchased component parts for the manufacture of Scott Aviation's products are available from a number of suppliers and are generally available in sufficient quantities to meet its current requirements. Effect of Environmental Compliance At the present time, compliance with federal, state, and local provisions with respect to environmental protection and regulation has not had, and is not expected to have, a material impact on the Company's capital expenditures, earnings, operations, financial position or competitive position. 5 Employees As of December 31, 1998, the Company's workforce was comprised of 1,009 employees. Approximately 240 employees are covered by a collective bargaining agreement expiring on November 12, 1999. The Company considers its overall relations with its workforce to be satisfactory. Research and Development The Company's research and development activities consisted of customary product development activities at Scott Aviation. Research and development expenditures were $3.1 million, $3.3 million and $2.9 million for 1998, 1997 and 1996, respectively. Distribution Scott Aviation's products and services are marketed and sold through Company salesmen; independent distributors and dealers; manufacturers' agents and directly to government agencies. Interstate Electronics On October 21, 1998, the Company's Board of Directors announced that it intends to divest its Interstate Electronics subsidiary. As a result, any financial information about the Company's business segments for the years reported reflect IEC as a discontinued operation; however, in the consolidated statements of cash flows, items relating to discontinued operations have not been disaggregated. 6 Financial Information About the Company's Business Segments SCOTT TECHNOLOGIES, INC. AND SUBSIDIARIES formerly Figgie International Inc. (in thousands) Year Ended December 31, ----------------------- Sales to Unaffiliated Customers* by Product 1998 1997 1996 Line of Scott Aviation: --------- --------- --------- Health and Safety Products $ 90,351 $ 78,069 $ 70,783 Aviation and Government Products 86,757 80,189 65,901 --------- --------- --------- Total Sales to Unaffiliated Customers $ 177,108 $ 158,258 $ 136,684 ========= ========= ========= Major Customer Sales*: Aviall, Inc. $ 23,863 $ 16,511 $ 13,958 U.S. Government 12,654 15,885 12,591 --------- --------- --------- Total Major Customer Sales $ 36,517 $ 32,396 $ 26,549 ========= ========= ========= Export Sales - United States to*: Canada $ 9,502 $ 8,865 $ 8,172 Asia 7,368 3,979 3,485 Europe 5,291 6,052 5,508 Other 5,397 3,906 3,781 --------- --------- --------- Total U.S. Export Sales $ 27,558 $ 22,802 $ 20,946 ========= ========= ========= Operating Income(Loss)*: Scott Aviation $ 38,218 $ 32,941 $ 26,914 Corporate and Unallocated Expenses (9,889) (9,022) (14,019) --------- --------- --------- Total Operating Income $ 28,329 $ 23,919 $ 12,895 ========= ========= ========= Identifiable Assets: Scott Aviation $ 58,687 $ 51,067 $ 48,787 Corporate 158,655 219,047 164,129 Discontinued Operations 45,842 62,700 135,194 --------- --------- --------- Total Identifiable Assets $ 263,184 $ 332,814 $ 348,110 ========= ========= ========= Capital Expenditures: Scott Aviation $ 4,788 $ 3,480 $ 2,202 Corporate 1,152 2,227 2,183 Discontinued Operations 1,317 2,966 5,894 --------- --------- --------- Total Capital Expenditures $ 7,257 $ 8,673 $ 10,279 ========= ========= ========= Depreciation and Amortization: Scott Aviation $ 2,117 $ 1,562 $ 1,597 Corporate 254 313 441 Discontinued Operations 2,237 4,994 5,115 --------- --------- --------- Total Depreciation and Amortization $ 4,608 $ 6,869 $ 7,153 ========= ========= ========= * Excludes those operating units that are discontinued operations. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. 7 Executive Officers of the Company As of March 25, 1999, the following executive officers of the Company serve in the positions indicated: ROBERT P. COLLINS, Chairman of the Company's Board of Directors since November 1998; Director of Scott Technologies, Inc. since December 1997; Chief Executive Officer, Capstone Partners, Inc., a management consulting firm which assists international companies design and implement strategic expansion programs, since 1998; President and Chief Executive Officer, GE Fanuc Automation North America, Inc., a manufacturer of industrial control systems, from 1987 to 1998; Director of Comdial Corporations, a provider of integrated communications solutions for small and mid-size organizations, since 1998; Director of CSE Systems & Engineering Ltd., an engineering consulting firm and installer of automation systems, since 1999; age 60. GLEN W. LINDEMANN, President and Chief Executive Officer since September 1997; President, Scott Aviation from June 1989 to September 1997; Director of the Company since November 1996; age 59. MARK A. KIRK, Senior Vice President and Chief Financial Officer since July, 1998; President and Chief Operating Officer (May 1997 to July 1998), Chief Financial Officer (February 1997 to March 1998) of HMI Industries, Inc., a heavy metal stamping and consumer products company; Senior Vice President and Chief Financial Officer from 1993 to 1997 of Anchor Glass, a manufacturer of glass bottles and other containers. Mr. Kirk serves as a Director of HMI Industries, Inc.; age 41. DEBRA L. KACKLEY, Vice President, General Counsel and Secretary since April 1998; Corporate General Attorney from December 1996 to April 1998; Associate Attorney, Spieth, Bell, McCurdy and Newel, L.P.A., a law firm, from January 1992 to November 1996; age 43. RICHARD DELISLE, President, Scott Aviation since September 1997; Director of Manufacturing, from April 1996 to September 1997; Lead Auditor, SGS ICS, a certification agency performing ISO CE and Automotive QS audits, from March 1993 to April 1996; age 58. In September 1996, a petition was filed in the United States Bankruptcy Court in Delaware by Anchor Glass under Chapter 11 of the Bankruptcy Code in order to restructure the debt of the company and sell substantially all of its assets. Mr. Kirk was an executive officer of that company at that time. The sale was approved by the bankruptcy court in December 1996 and was consummated on February 5, 1997. After the sale in February 1997, Mr. Kirk ceased to be affiliated with Anchor Glass. 8 Item 2. Properties The Company's principal manufacturing plants have approximately 258,000 square feet of floor area for manufacturing, warehousing and administrative uses. Approximately 253,000 square feet of this area is owned and the balance is leased. The Company believes its facilities are suitable for its purposes, having adequate productive capacity for present and anticipated needs. Approx. Floor Area Principal Facilities (Sq. Feet) -------------------- ---------- Monroe, NC 125,000 Lancaster, NY 110,000 South Haven, MI 23,000 Item 3. Legal Proceedings The Company has been cooperating with the U.S. Government in a civil investigation involving possible improprieties at an Army facility where the Company's Scott Aviation division was a supplier. The Company has furnished documents and other requested information and denies any wrongdoing. The Company is also involved in ordinary litigation incidental to its business and its former businesses. Management does not believe that such litigation will have a material adverse effect upon the Company. 9 Item 4. Submission of Matters to a Vote of Security Holders A special stockholders meeting was held on December 15, 1998. Holders on the record date for the annual meeting of 13,321,053 shares of Class A Common Stock (1/20th of a vote per share) and 4,549,822 shares of Class B Common Stock (1 vote per share) were entitled to cast 666,053 and 3,994,423 votes, respectively. Approval to Amend Article Fourth of the Corporation's Amended and Restated Certificate of Incorporation (the "Charter") to Eliminate the Corporation's Dual Class Capital Structure and to Provide for a Single, New Class of Common Stock Designated as "Common Stock". The amendment was approved pursuant to the following votes: FOR AGAINST ABSTAIN --- ------- ------- Combined 3,124,051 485,608 12,828 Class A 433,857 2,937 820 Class B 2,690,194 482,671 12,008 Approval to Amend Article Sixth of the Charter to Eliminate the Voting Limitations Imposed Generally Upon Any Stockholder Who Beneficially Owns More Than 20% of the Outstanding Voting Shares of Any Class of Stock and Make Certain Conforming Changes. The amendment was approved pursuant to the following vote: FOR AGAINST ABSTAIN --- ------- ------- 3,081,972 515,592 24,923 Approval to Amend Section 2 of Article 2 of the Corporation's Amended and Restated Bylaws to Lengthen the Notice Period Before a Stockholders' Meeting for the Nomination of Directors by Stockholders. The amendment was approved pursuant to the following vote: FOR AGAINST ABSTAIN --- ------- ------- 2,704,311 915,256 20,476 Approval to Amend Article Fourth of the Charter to Eliminate Certain Unnecessary Provisions Regarding Previously Outstanding Shares of Preference Stock and the Terms of Convertible and Redeemable Stock. The amendment was approved pursuant to the following vote: FOR AGAINST ABSTAIN --- ------- ------- 3,112,188 490,261 20,038 Approval to Amend the Scott Technologies, Inc. Key Employees' Stock Option Plan to Increase the Number of Shares Authorized for Issuance Under the Option Plan from 1,500,000 Shares to 3,000,000 Shares and to Revise Certain Other Provisions of the Option Plan. The amendment was approved pursuant to the following vote: FOR AGAINST ABSTAIN --- ------- ------- 2,706,143 881,306 35,038 10 PART II Item 5. Market for the Company's Common Stock and Related Stockholder Matters The Company's Common Stock is traded on the over-the-counter market and quoted in the Nasdaq Stock Market. Prior to December 16, 1998 the Company's two classes of stock were traded under the following symbols: Class A Common Stock "SCTTA" and Class B Common Stock "SCTTB." On December 15, 1998 the stockholders of the Company voted to collapse the dual classes of common stock into a single new class of common stock designated as "common stock." As of December 16, 1998 the new common stock is traded under the symbol: "SCTT." The high and low sales prices recorded on the Nasdaq Stock Market for each quarterly period during the years 1998 and 1997 are set forth below. The high and low sales prices for the fourth quarter of 1998 for Class A and Class B were through December 15, 1998. The high and low sale prices for the fourth quarter of 1998 for the new common stock were for the period December 16, 1998 through December 31, 1998.
1998 1997 ------------------------------------------------ ----------------------------------------------- Quarter Quarter ------------------------------------------------ ----------------------------------------------- 1st 2nd 3rd 4th 1st 2nd 3rd 4th --- --- --- --- --- --- --- --- Class A: Low $ 11.625 $ 12.875 $ 10.00 $ 10.375 $ 11.375 $ 11.625 $ 13.375 $ 12.875 High $ 14.00 $ 15.25 $15.1875 $ 15.625 $ 12.75 $ 14.625 $ 15.00 $ 15.25 Class B: Low $ 10.75 $ 12.00 $ 10.625 $ 10.75 $ 10.00 $ 10.50 $ 12.625 $ 11.50 High $ 12.625 $ 15.00 $ 15.375 $ 15.375 $ 11.875 $ 13.375 $ 14.812 $ 14.75 Common Stock Low N/A N/A N/A $ 14.625 N/A N/A N/A N/A High N/A N/A N/A $ 16.625 N/A N/A N/A N/A
As of March 17, 1999, there were 6,207 holders of Common Stock. No dividends were paid in 1998 or 1997. 11 Item 6. Summary of Selected Financial Data The following tables set forth selected consolidated financial data of the Company for the five years ended December 31, 1998. This data has been derived from the Company's audited consolidated financial statements. These tables should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company included elsewhere herein. The report of Arthur Andersen LLP, independent auditors, covering the Company's consolidated financial statements for the years ended December 31, 1998, 1997 and 1996, is also included elsewhere herein.
Year Ended December 31 ---------------------------------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Financial Data (in thousands) Net Sales $ 177,108 $ 158,258 $ 136,684 $ 112,569 $ 93,272 Income (Loss) from Continuing Operations before Extraordinary Item $ 9,494 $ 5,080 $ 22,902 $ (28,295) $ (101,225) (Loss) Income from Discontinued Operations, net of tax (16,373) (6,808) 398 12,205 (65,505) Extraordinary Loss, net of tax (1,689) (778) -- -- -- ----------- ----------- ----------- ----------- ----------- Net (Loss) Income $ (8,568) $ (2,506) $ 23,300 $ (16,090) $ (166,730) =========== =========== =========== =========== =========== Total Assets $ 263,184 $ 332,814 $ 348,110 $ 320,012 $ 583,762 Total Debt $ 100,031 $ 159,433 $ 183,541 $ 192,136 $ 385,530 Per Share Data - Basic EPS: Income (Loss) from Continuing Operations before Extraordinary Item $ 0.52 $ 0.27 $ 1.25 $ (1.57) $ (5.71) (Loss) Income from Discontinued Operations (0.90) (0.37) 0.02 0.68 (3.70) Extraordinary Loss (0.09) (0.04) -- -- -- ----------- ----------- ----------- ----------- ----------- Net (Loss) Income $ (0.47) $ (0.14) $ 1.27 $ (0.89) $ (9.41) =========== =========== =========== =========== =========== Per Share Data - Assuming Dilution: Income (Loss) from Continuing Operations before Extraordinary Item $ 0.52 $ 0.27 $ 1.22 $ (1.57) $ (5.71) (Loss) Income from Discontinued Operations (0.90) (0.36) 0.02 0.68 (3.70) Extraordinary Loss (0.09) (0.04) -- -- -- ----------- ----------- ----------- ----------- ----------- Net (Loss) Income $ (0.47) $ (0.13) $ 1.24 $ (0.89) $ (9.41) =========== =========== =========== =========== =========== Cash Dividends -- -- -- -- --
12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING INFORMATION Information contained in this Report includes forward-looking statements, which can be identified by the use of forward-looking terminology such as "believes," "may," "will," "expects," "intends," "plans," "anticipates," "estimates" or "continues" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. The Company undertakes no obligation to revise these forward-looking statements to reflect any future events or circumstances. The Company's actual results, performance or achievements, could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences are discussed under the caption "Factors Affecting the Company's Prospects." FINANCIAL SUMMARY Discussion of 1998 Compared to 1997 Net sales increased 11.9% in 1998 to $177.1 million from $158.3 million in 1997, principally due to a greater volume of sales at Scott Aviation. Gross profit increased 10.2% in 1998 to $57.3 million from $52.0 million in 1997 as a result of the higher sales. Operating income improved by $4.4 million to $28.3 million as a result of the improved gross profit. Income before income taxes from continuing operations improved by $8.2 million to $15.9 million in 1998 primarily due to the profit improvement previously mentioned combined with lower interest expense as a result of reduced debt levels. The loss on discontinued operations for 1998 included loss from operations and loss on disposal. Loss from operations represents Interstate Electronics subsidiary's "IEC" net operating results for 1998. Loss on disposal included (1) a third quarter pretax charge of $9.8 million comprised of: a $5.0 million addition to the self-insurance accrual to reflect recent adverse experience, a $3.2 million charge related to underfunded foreign pension plans, and a $1.6 million loss provision for litigation defense costs related to discontinued operations; and (2) a fourth quarter pretax charge of $7.0 million related to: a $2.5 million addition to environmental reserves, a $2.5 million addition to litigation reserves, and a $2.0 million addition to insurance reserves as part of the premium to purchase aggregate stop loss coverage. Discussion of 1997 Compared to 1996 Net sales increased 15.8% in 1997 to $158.3 million from $136.7 million in 1996 due to a greater volume of sales at Scott Aviation. Gross profit increased 21.8% in 1997 to $52.0 million from $42.7 million in 1996 as a result of higher sales and improved margins at Scott Aviation. Operating income improved by $11.0 million to $23.9 million as a result of the improved gross profit and lower corporate general and administrative expense. A decrease in refinancing costs, lower net interest expense, and an increase in other income also contributed to a pretax gain from continuing operations of $7.8 million compared with a loss of $4.8 million in 1996. In 1997, the Company also recorded a $6.8 million charge, net of tax, related to discontinued operations and a $0.8 million charge, net of tax, related to the early extinguishment of debt. 13 Segment Information The Company currently has one operating segment, Scott Aviation. The results of operations are as follows: Scott Aviation Financial Review The annual results of operations were as follows (in thousands):
98 vs 97 97 vs 96 1998 1997 change 1996 change ---- ---- ------ ---- ------ Net Sales $177,108 $158,258 $ 18,850 $136,684 $ 21,574 Cost of Sales 119,853 106,234 13,619 93,963 12,271 -------- -------- -------- -------- -------- Gross Profit on Sales 57,255 52,024 5,231 42,721 9,303 % of Sales 32.3% 32.9% 31.3% Operating Expenses: Selling, General and Administrative 15,924 15,745 179 12,869 2,876 Research and Development 3,113 3,338 (225) 2,938 400 -------- -------- -------- -------- -------- Total Operating Expenses 19,037 19,083 (46) 15,807 3,276 -------- -------- -------- -------- -------- Operating Income $ 38,218 $ 32,941 $ 5,277 $ 26,914 $ 6,027 -------- -------- -------- -------- -------- % of Sales 21.6% 20.8% 19.7%
1998 quarterly results were as follows (in thousands):
First Second Third Fourth Twelve Quarter Quarter Quarter Quarter Months -------- -------- -------- -------- -------- Net Sales $ 46,214 $ 45,964 $ 43,197 $ 41,733 $177,108 Cost of Sales 31,311 30,380 29,468 28,694 119,853 -------- -------- -------- -------- -------- Gross Profit on Sales 14,903 15,584 13,729 13,039 57,255 % of Sales 32.2% 33.9% 31.8% 31.2% 32.3% Operating Expenses: Selling, General and Administrative 3,904 3,926 3,948 4,146 15,924 Research and Development 891 793 800 629 3,113 -------- -------- -------- -------- -------- Total Operating Expenses 4,795 4,719 4,748 4,775 19,037 -------- -------- -------- -------- -------- Operating Income $ 10,108 $ 10,865 $ 8,981 $ 8,264 $ 38,218 -------- -------- -------- -------- -------- % of Sales 21.9% 23.6% 20.8% 19.8% 21.6%
Discussion of 1998 Compared to 1997 Net sales increased for the year due to increased shipments of oxygen products to Aviation and Government customers of approximately 8%, and increased shipments of Scott Air-Paks* to Health and Safety customers of approximately 18%. In 1998 and 1997, sales of $1.6 million and $9.5 million, respectively, were represented by a multi-year contract with the U.S. Government for emergency escape breathing devices; shipments under such contract ended in February 1998. * Registered or common law trademarks and service marks of Scott Technologies, Inc. and its subsidiaries. 14 Gross profit increased in 1998 to $57.3 million compared to last year's $52.0 million as a result of significantly increased sales. The 1998 gross margin of 32.3% represented a slight decrease when compared to the 1997 gross margin due to competitive pricing pressures. Selling, general and administrative expenses have increased slightly in dollar amounts in support of increased sales, but as a percentage of net sales were lower when compared to 1997. Research and development expenses in 1998 were slightly lower when compared to the prior year. Discussion of 1997 Compared to 1996 Net sales increased for the year due to increased shipments of oxygen products to Aviation and Government customers of approximately 22%, and increased shipments of Scott Air-Paks to Health and Safety customers of approximately 13%. In 1997 and 1996, sales of $9.5 million and $10.9 million, respectively, were represented by a multi-year contract with the U.S. Government for emergency escape breathing devices. Gross profit and gross margin increased for the year due to significant increased sales volume. Selling, general and administrative expenses increased in dollar amounts in support of increased sales, but as a percentage of net sales were only slightly higher when compared to 1996. Research and development expenses in 1997 were higher than in 1996 due to new product development expenses incurred during the first half of 1997, primarily for health and safety products. 15 CORPORATE AND UNALLOCATED COSTS AND EXPENSES Financial Review Corporate activity and unallocated costs and expenses were as follows (in thousands):
98 vs 97 97 vs 96 1998 1997 change 1996 change ---- ---- ------ ---- ------ Selling, General and Administrative $ 9,889 $ 9,022 $ 867 $ 14,019 $ (4,997) ======== ======== ======== ======== ======== Other Expenses (Income): Refinancing Costs 652 524 128 993 (469) Interest Expense 12,550 21,811 (9,261) 19,112 2,699 Interest Income (3,396) (5,214) (1,818) (2,079) 3,135 Other, Net 2,602 (954) 3,556 (321) (633)
1998 quarterly results were as follows (in thousands):
First Second Third Fourth Twelve Quarter Quarter Quarter Quarter Months ------- ------- ------- ------- ------ Selling, General and Administrative $ 2,246 $ 2,140 $ 2,629 $ 2,874 $ 9,889 Other Expenses (Income): Refinancing Costs 259 131 131 131 652 Interest Expense 4,216 3,085 2,594 2,655 12,550 Interest Income (1,441) (909) (543) (503) (3,396) Other, Net 542 666 826 568 2,602
Discussion of 1998 Compared to 1997 Selling, general and administrative expenses increased $0.9 million in 1998 compared with 1997. The increase was primarily due to a $1.1 million charge for severance costs associated with cost reduction initiatives in the fourth quarter of 1998. Interest expense decreased for 1998 due to lower outstanding debt in 1998 compared with 1997 and interest expense recorded in 1997 on the discounted present value of insurance reserves. Interest income decreased for 1998 due primarily to the reduction in the Company's cash position, combined with interest income recognized in 1997 connected with negotiated federal and foreign tax audits. Discussion of 1997 Compared to 1996 Selling, general and administrative expenses decreased significantly in 1997 compared to 1996 due to the continuing benefit from prior years' corporate cost-cutting initiatives. Interest expense increased due to interest on the discounted self-insurance reserves. Interest income increased due to the improvement in the Company's cash position, interest from federal and foreign tax refunds, and interest on net proceeds from the sale of the Snorkel division. 16 DISCONTINUED OPERATIONS On October 21, 1998, the Company's Board of Directors announced that it intends to divest its IEC subsidiary. As a result, income from operations of discontinued operations, net of tax, in 1998, 1997, and 1996, represents the operating results of the Company's Taylor Environmental division from January 1, 1996 through its sale on November 25, 1996, the operating results of the Company's Snorkel division from January 1, 1996 through its sale on November 17, 1997, and the operating results of the Company's IEC subsidiary from January 1, 1996 through December 31, 1998. In 1998, loss on disposal included (1) a third quarter pretax charge of $9.8 million comprised of: a $5.0 million addition to the self-insurance accrual to reflect recent adverse experience, a $3.2 million charge related to underfunded foreign pension plans, and a $1.6 million loss provision for litigation defense costs related to discontinued operations and (2) a fourth quarter pretax charge of $7.0 million related to: a $2.5 million addition to environmental reserves, a $2.5 million addition to litigation reserves, and a $2.0 million addition to insurance reserves as part of the premium to purchase aggregate stop loss coverage. Loss on disposal of discontinued operations in 1997 of $7.3 million, net of tax benefit, represents a $17.0 million provision to increase the Company's self-insurance accrual to reflect the cost of the December 1997 settlement of a specific personal injury lawsuit against a previously discontinued business; the gain from the sale of the Company's Snorkel division of $23.6 million; a $9.2 million addition to the self-insurance accrual for discontinued businesses to reflect general adverse experience on claims per a December 1997 actuarially prepared valuation; a $6.5 million allowance against the carrying value of deferred divestiture proceeds to reflect probable settlements of ongoing disputes underlying prior divestitures; a $1.5 million loss provision for litigation arising from a discontinued unit as a result of a December 1997 lawsuit; and $1.6 million of other adjustments. Loss on disposal in 1996 represents a loss provision of $28.3 million, which is net of a tax benefit of $15.2 million, recorded by the Company in the fourth quarter of 1996. The provision reflects valuation adjustments to recorded assets arising from and accruals for costs and probable losses on obligations related to previously discontinued businesses. The loss consists of a $20.5 million addition to the self-insurance accrual as a result of a December 1996 actuarially prepared valuation of the liabilities to negotiate the sale of a minority position to a third party; a $14.8 million write-down of carrying value of net assets related to discontinued operations and of deferred proceeds to reflect fourth quarter negotiated resolutions of disputes and events that gave rise to greater risk of realization; a $2.6 million reserve for litigation arising from the businesses of the discontinued units; and a $5.6 million accrual to buy out certain employee benefit legacy obligations. EXTRAORDINARY ITEM In 1998, the Company paid $64.0 million to extinguish $60.6 million of its 9.875% Senior Notes due October 1, 1999. The payments included a $2.7 million premium for the early retirement of the debt and $0.7 million of accrued interest. Accordingly, the Company recorded an extraordinary after-tax loss of $1.7 million on the premiums to extinguish $60.6 million of Senior Notes. In the fourth quarter of 1997, the Company prepaid the mortgage on its former Willoughby, Ohio headquarters facility and purchased in the open market $15.7 million of its 9.875% Senior Notes due in 1999. The premiums associated with these early extinguishments of debt were $1.3 million and are presented, net of a tax benefit of $0.5 million, as an extraordinary loss. 17 FINANCIAL POSITION AND LIQUIDITY At December 31, 1998, cash and cash equivalents per the Company's consolidated statements of cash flows totaled $39.4 million, a decrease of $64.8 million from December 31, 1997 primarily related to the repurchase of debt. Net cash provided by operating activities was $3.0 million reflecting a net loss of $8.6 million, depreciation and amortization of $4.6 million and the net change in other operating activities of $7.0 million. Net cash provided by investing activities was $0.8 million reflecting proceeds from the sale of property, plant and equipment of $8.0 million; capital expenditures for continuing operations of $5.9 million for machinery, equipment, tooling and real estate development costs; and capital expenditures for discontinued operations of $1.3 million. Net cash used by financing activities was $68.6 million which included $1.6 million borrowing against the Company's credit facility; $63.6 million for principal payments on debt; $9.2 million to repurchase 684,600 shares of common stock at market prices; and $2.6 million in proceeds from the issuing of common stock in connection with the Company's stock option plan. Liquidity is provided by the Company's cash and cash equivalents which totaled $39.4 million at December 31, 1998, and by an Amended Credit Agreement entered into by the Company on December 31, 1998, under which $32.6 million was available, pursuant to an agreed borrowing availability during the first 30 day period of the Revolver in the amount of $50 million less outstanding letters of credit (See also Note 7 "Credit Facility" to the financial statements), and by the expected Earn-Out proceeds of $20-$40 million from the divestiture of Snorkel (See also Note 3 "Discontinued Operations" to the financial statements). In 1998, the Company used cash to reduce its debt by repurchasing $60.6 million of 9.875% Senior Notes. The repurchasing of the Senior Notes has resulted in lower interest expense and, to a lesser extent, lower interest income. The Company expects to continue to focus on internal growth and market expansion at Scott Aviation; investigate acquisitions; and consider alternative strategies that may further enhance stockholder value. The Company's cash balance at December 31, 1998 is available for general corporate purposes. Those purposes may include investment in the current operations of the Company, payment of liabilities associated with previously divested businesses, use as all or a portion of the purchase price of possible acquisitions, additional repurchases of its 9.875% Senior Notes and stock repurchases. The Company's Board of Directors has authorized the Company to purchase up to 3 million shares of its common stock. In 1998, the Company repurchased 684,600 shares of common stock at market prices. FACTORS AFFECTING THE COMPANY'S PROSPECTS The prospects of the Company may be affected by a number of factors, including the matters discussed below: DEPENDENCE ON GOVERNMENT CONTRACTS - Sales to the U.S. Government represented approximately 40% of the Company's combined total net sales of IEC and Scott Aviation in each of the last three years. With the discontinuance of IEC, these sales represented 7.1%, 10.0% and 9.2% of Scott Aviation's sales in 1998, 1997 and 1996, respectively. The Company expects to continue to derive a portion of Scott Aviation's revenues from Government contracts. Consequently, fluctuations in military spending by the U.S. Government could adversely affect the Company's revenues and profitability. In addition, since these contracts 18 are the result of competitive bidding processes, there can be no assurance that the Company will be awarded future contracts, or that once awarded, the Government will not terminate such contracts at its convenience. COMPETITION - Scott Aviation's Health and Safety unit manufactures the Scott Air-Pak, air-purifying products, gas detection instruments and other life support products for firefighting and personal protection against environmental and safety hazards. Scott Aviation's Aviation and Government unit manufactures protective breathing equipment, pilot and crew oxygen masks, and emergency oxygen for passengers and crew members on commercial, government and private aircraft and ships. Both of these manufacturing units participate in markets which are technology based, industry regulated, and highly competitive. Failure by Scott Aviation to develop new products and/or remain competitive with changing industry conditions could adversely affect market share. The GPS and Displays markets that IEC participates in are highly competitive, subject to rapid change and significantly affected by new product introductions. Competition may intensify, particularly as companies well established in the defense industry increase their focus on GPS. In addition, the development and commercialization of new types of displays or position measuring systems could reduce the demand for IEC's products. Certain competitors in the respective markets have significantly greater financial, technical and marketing resources. These competitive factors could adversely affect the Company's financial condition, cash flow, results of operations or expected benefits from its restructuring initiatives. LEVERAGE - Part of the Company's strategy is to grow through acquisitions. Any such future acquisition could involve the incurrence of significant additional debt. In addition, the Company's Board of Directors has authorized the Company to purchase up to 3 million shares of its common stock. In 1998, 684,600 shares were purchased. Future purchases of common stock could affect leverage. The degree to which the Company is leveraged could: (i) impair the Company's ability to obtain future financing for acquisitions, a refinancing, or other purposes; (ii) make it more vulnerable than some of its competitors in a prolonged economic downturn; and (iii) restrict its ability to exploit new business opportunities and limit its flexibility to respond to changing business conditions. DISCONTINUED OPERATIONS - Since January 1, 1994, the Company has sold numerous businesses. The contract terms included representations, warranties, and indemnification provisions made by the Company. Remedies available for breaches of representations and warranties range from monetary relief in specific amounts for specific breaches to unlimited amounts. The Company has generally retained liability for the conduct of the sold businesses prior to the date of sale. As a result, the Company is subject to various known and contingent liabilities, including indemnification obligations, with respect to its discontinued operations. The Company has established accruals and reserves for losses that may arise out of workers' compensation, product liability and general liability claims, environmental risks, tax and other matters. The Company believes that its accruals and reserves are appropriate and adequate. However, as these contractual matters are subject to significant uncertainty, no assurances can be given that the ultimate resolution of these matters will not have a material adverse effect upon the Company's financial position, operating results or cash flows. Further, at December 31, 1998, the Company's balance sheet reflected $20.8 million of deferred divestiture proceeds which is net of a reserve of $12.5 million. Deferred divestiture proceeds include management's best estimates of the amounts expected to be realized after the resolution of the underlying 19 matters. Additionally, at December 31, 1998, the Company's balance sheet reflected $25.0 million of net assets of discontinued operations, which represents the net book value of IEC. The Company expects to realize net proceeds from the sale of IEC in excess of the carrying value. The amounts the Company will ultimately realize from these assets may differ materially from the amounts recorded. STRATEGIC PLAN - The Company's strategic plan is to grow through strategic acquisitions, systematic market expansion and continued growth through new and "next generation" product development. Part of the Company's strategy is to grow through acquisitions. There can be no assurance, however, that the Company will identify attractive acquisitions, that such acquisitions will be consummated, or that, if consummated, any anticipated benefits will be realized from such acquisitions. In addition, the availability of additional acquisition financing cannot be assured and, depending on the terms of such additional acquisitions, could be restricted by the terms of the Amended Credit Agreement. Moreover, the process of integrating acquired operations into the Company's existing operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of the Company's existing operations. Future acquisitions by the Company would likely result in amortization expense of goodwill, which could have a material adverse effect on the Company's financial condition and operating results. Expansion into international markets will depend on numerous factors that are beyond the Company's control, including its ability to develop or acquire additional manufacturing and distribution capabilities outside the United States. In addition, international expansion may increase the Company's exposure to certain risks inherent in doing business outside the United States, such as currency exchange rate fluctuations, compliance with foreign codes and standards and political risks. If the Company pursues this strategy through acquisitions, strategic alliances or joint ventures, any integration of the acquired businesses into the Company's business would entail expense and management attention. If the Company pursues this strategy through the establishment of new operations, it will be subject to the difficulties inherent in starting a new business in foreign jurisdictions. There can be no assurance that the business and competitive environment in international markets will be as favorable to the Company as is the U.S. market currently. The Company expects to continue to make investments in new product development. There can be no assurance that the Company will be able to develop and introduce, in a timely manner, new products or enhancements to its existing products which satisfy customer needs or achieve market acceptance. To the extent that the Company makes substantial marketing and research and development investments and such investments do not lead to commercially successful products, the Company's results of operations could be adversely affected. YEAR 2000 ISSUE - The Year 2000 Issue refers to a number of date-related problems that may affect software applications, including codes imbedded in chips and other hardware devices. These problems include software programs that identify a year by its last two digits so that a year identified as "00" would be recognized as the year "1900" rather than the year "2000." STATE OF READINESS The Company has completed the process of identifying and assessing the extent to which its manufacturing equipment, business systems and products could be affected by the Year 2000 Issue. As part of its Year 2000 Issue assessment, 20 the Company has taken into account whether third parties with which the Company has material relationships, including the U.S. Government, are Year 2000 compliant. The Company's formalized plan is comprised of the following phases: (1) development of an inventory and ranking of risks; (2) evaluation of compliance, impact of non-compliance, and development of remediation plans; (3) remediation of material non-compliance items; (4) testing and validation of remediation efforts; (5) implementation of upgrades or replacement of non-compliance items; and (6) establishment of support assistance, as required, during the year 2000. The Company has completed the first two phases and is currently in the process of implementing the third phase. The testing and validation of remediation efforts is scheduled to be completed in the third quarter and the implementation phase is scheduled to be completed by year-end 1999. COSTS The Company's expenses have been limited to internal costs incurred in the Year 2000 Issue assessment process. The Company does not separately track such internal costs which are principally associated with payroll expenses, but estimates that the Year 2000 compliance costs for 1998 were minimal. The Company estimates that the total costs (including those costs already incurred) of the Company's formalized plan, as described above, will be approximately $1.5 million. However, there can be no assurance that the Company will not incur any unanticipated costs in completing its Year 2000 Compliance Project. The estimate of $1.5 million does not include Year 2000 compliance costs related to the Company's IEC subsidiary which it plans to sell in 1999. Such costs, estimated at $0.9 million, will be included in the valuation of the business and be reflected in the purchase price ultimately received for the business. RISKS As a result of completing the first two phases of its formalized plan, the Company has identified, and developed remediation plans, for several significant risks. These risks relate to vendors, suppliers, distributors, customers, and other third parties, as well as to the Company's own internal information and operation systems. Any failure by the Company or third parties to ensure that its computer systems are Year 2000 compliant could have a material adverse effect on the Company's operations, liquidity and financial position. Any failure of the Company's products to perform could result in claims against the Company. CONTINGENCY PLANS The Company will continue to develop contingency strategies, as appropriate, as part of its Year 2000 plan. These contingency strategies may include identifying alternate suppliers, developing procedures to override internal computer systems, increasing inventory levels, and reallocating internal resources as necessary. 21 Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders Scott Technologies, Inc. We have audited the accompanying consolidated balance sheets of Scott Technologies, Inc. (a Delaware corporation) and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Scott Technologies, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Cleveland, Ohio, January 22, 1999 22 SCOTT TECHNOLOGIES, INC. AND SUBSIDIARIES (formerly Figgie International Inc.) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31 (in thousands, except per share data)
1998 1997 1996 --------- --------- --------- Net Sales $ 177,108 $ 158,258 $ 136,684 Cost of Sales 119,853 106,234 93,963 --------- --------- --------- Gross Profit on Sales 57,255 52,024 42,721 Operating Expenses: Selling, General and Administrative 25,813 24,767 26,888 Research and Development 3,113 3,338 2,938 --------- --------- --------- Total Operating Expenses 28,926 28,105 29,826 --------- --------- --------- Operating Income 28,329 23,919 12,895 --------- --------- --------- Other Expense (Income): Refinancing Costs 652 524 993 Interest Expense 12,550 21,811 19,112 Interest Income (3,396) (5,214) (2,079) Other, Net 2,602 (954) (321) --------- --------- --------- Income (Loss) from Continuing Operations before Income (Tax) Benefit and Extraordinary Item 15,921 7,752 (4,810) Income (Tax) Benefit (6,427) (2,672) 27,712 --------- --------- --------- Income from Continuing Operations before Extraordinary Item 9,494 5,080 22,902 Discontinued Operations, net of tax: (Loss) Income from Operations (6,275) 500 28,680 (Loss) on Disposal (10,098) (7,308) (28,282) --------- --------- --------- (16,373) (6,808) 398 (Loss) Income before Extraordinary Item (6,879) (1,728) 23,300 Extraordinary Item - (Loss) on Extinguishment of Debt, net of tax (1,689) (778) -- --------- --------- --------- Net (Loss) Income $ (8,568) $ (2,506) $ 23,300 ========= ========= ========= Weighted Average Shares - Basic 18,321 18,411 18,371 Weighted Average Shares - Diluted 18,390 18,650 18,728 Per Share Data - Basic EPS: Income from Continuing Operations $ 0.52 $ 0.27 $ 1.25 (Loss) Income from Discontinued Operations (0.90) (0.37) 0.02 --------- --------- --------- (Loss) Income before Extraordinary Item (0.38) (0.10) 1.27 Extraordinary (Loss) (0.09) (0.04) -- --------- --------- --------- Net (Loss) Income $ (0.47) $ (0.14) $ 1.27 ========= ========= ========= Per Share Data - Assuming Dilution: Income from Continuing Operations $ 0.52 $ 0.27 $ 1.22 (Loss) Income from Discontinued Operations (0.90) (0.36) 0.02 --------- --------- --------- (Loss) Income before Extraordinary Item (0.38) (0.09) 1.24 Extraordinary (Loss) (0.09) (0.04) -- --------- --------- --------- Net (Loss) Income $ (0.47) $ (0.13) $ 1.24 ========= ========= =========
See Notes to Consolidated Financial Statements. 23 SCOTT TECHNOLOGIES, INC. (formerly FIGGIE INTERNATIONAL INC.) CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (in thousands) ASSETS 1998 1997 --------- --------- CURRENT ASSETS Cash and Cash Equivalents $ 39,344 $ 103,264 Trade Accounts Receivable, less Allowance for Uncollectible Accounts of $257 in 1998 and $194 in 1997 13,978 12,416 Inventories 26,360 23,398 Prepaid Expenses 939 449 Recoverable Income Taxes 974 4,120 Current Deferred Tax Asset 28,000 6,400 Net Assets Related to Discontinued Operations 25,039 33,376 --------- --------- Total Current Assets 134,634 183,423 --------- --------- PROPERTY, PLANT AND EQUIPMENT Land and Land Improvements 37,395 42,758 Buildings and Leasehold Improvements 14,696 12,942 Machinery and Equipment 18,682 14,445 --------- --------- 70,773 70,145 Accumulated Depreciation (17,972) (14,758) --------- --------- Net Property, Plant and Equipment 52,801 55,387 --------- --------- OTHER ASSETS Deferred Divestiture Proceeds and Other, Net 20,803 29,324 Prepaid Pension Costs 15,687 12,723 Intangible Assets 1,866 1,953 Cash Surrender Value of Insurance Policies 4,838 3,596 Prepaid Finance Costs 1,800 759 Deferred Tax Asset 26,936 44,060 Other 3,819 1,589 --------- --------- Total Other Assets 75,749 94,004 --------- --------- Total Assets $ 263,184 $ 332,814 ========= ========= See Notes to Consolidated Financial Statements. 24 SCOTT TECHNOLOGIES, INC. (formerly FIGGIE INTERNATIONAL INC.) CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (in thousands) LIABILITIES 1998 1997 --------- --------- CURRENT LIABILITIES Accounts Payable $ 15,661 $ 15,614 Accrued Insurance Reserves 10,853 11,693 Accrued Compensation 3,964 4,075 Accrued Interest 2,435 3,827 Accrued Liabilities and Expenses 18,135 11,362 Current Portion of Long-Term Debt 24,481 513 --------- --------- Total Current Liabilities 75,529 47,084 --------- --------- Long-Term Debt 75,550 158,920 Non-Current Insurance Reserves 26,172 31,410 Other Non-Current Liabilities 30,667 23,804 --------- --------- Total Liabilities 207,918 261,218 --------- --------- STOCKHOLDERS' EQUITY Series A Junior Participating Preferred Shares, $1.00 Par Value; Authorized, 500 Shares; Issued and Outstanding, None -- -- Preferred Stock, $1.00 Par Value; Authorized, 3,217 Shares; Issued and Outstanding, None -- -- Common Stock, $0.10 Par Value; Authorized, 36,000 Shares; Issued and Outstanding 1998 - 18,855; 1997 - 18,436 1,886 1,844 Capital Surplus 112,409 109,871 Accumulated Deficit (46,575) (38,007) Unearned Compensation -- (24) Accumulated Other Comprehensive (Loss) (3,229) (2,088) Treasury Stock, Common Shares at Cost 1998 - 685 shares; 1997 - 0 shares (9,225) -- --------- --------- Total Stockholders' Equity 55,266 71,596 --------- --------- Total Liabilities and Stockholders' Equity $ 263,184 $ 332,814 ========= ========= See Notes to Consolidated Financial Statements. 25 SCOTT TECHNOLOGIES, INC. AND SUBSIDIARIES (formerly Figgie International Inc.) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY and COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (in thousands)
Accumulated Retained Other Common Capital Earnings Unearned Comprehensive Treasury Comprehensive Stock Surplus (Deficit) Compensation (Loss) Stock Income ----- ------- --------- ------------ ------ ----- ------ BALANCE, DECEMBER 31, 1995 $ 1,837 $109,046 $(58,801) $ (1,340) $ (525) $ -- Net Income 23,300 23,300 Minimum Pension Liability (1,009) (1,009) Foreign Currency Translation Adjustments 291 291 -------- Comprehensive Income $22,582 Restricted Stock Purchase Plan, net 4 492 1,266 ======== -------- -------- -------- -------- ------- ------- BALANCE, DECEMBER 31, 1996 1,841 109,538 (35,501) (74) (1,243) -- Net (Loss) (2,506) $(2,506) Minimum Pension Liability 205 205 Foreign Currency Translation Adjustments (1,050) (1,050) -------- Comprehensive (Loss) $ (3,351) Restricted Stock Purchase Plan, net 3 333 50 ========= -------- -------- -------- -------- ------- ------- BALANCE, DECEMBER 31, 1997 1,844 109,871 (38,007) (24) (2,088) -- Net (Loss) (8,568) $ (8,568) Minimum Pension Liability (1,136) (1,136) Foreign Currency Translation Adjustments (5) (5) -------- Comprehensive (Loss) $ (9,709) Restricted Stock Purchase Plan, net 24 ======== Treasury Stock Repurchased (9,225) Common Stock Issuance 42 2,538 -------- -------- -------- -------- ------- ------- BALANCE, DECEMBER 31, 1998 $ 1,886 $112,409 $(46,575) $ 0 $(3,229) $(9,225) ======== ======== ======== ======== ======= =======
See Notes to Consolidated Financial Statements. 26 SCOTT TECHNOLOGIES, INC. (formerly FIGGIE INTERNATIONAL INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (in thousands)
1998 1997 1996 --------- --------- --------- Operating Activities: Income from Continuing Operations $ 9,494 $ 5,080 $ 22,902 (Loss) Income from Discontinued Operations (16,373) (6,808) 398 (Loss) from Extraordinary Item (1,689) (778) -- Adjustments to Reconcile Income (Loss) to Net Cash Used by Operating Activities Depreciation and Amortization 4,608 6,869 7,153 Other, Net 24 50 973 Gain on Sale of Snorkel -- (23,600) -- Other, Net 1,938 (5,320) (692) Changes in Operating Assets and Liabilities Accounts Receivable 2,184 3,271 (2,183) Inventories (600) (4,452) (15,736) Prepaid Items (3,125) (1,742) (1,138) Other Assets 3,684 3,733 11,549 Accounts Payable (1,882) 4,505 (1,799) Accrued Liabilities and Expenses 3,937 (945) (3,731) Accrued Income Taxes (735) 3,724 (35,246) Other Liabilities 1,564 8,395 12,414 --------- --------- --------- Net Cash Provided (Used) by Operating Activities 3,029 (8,018) (5,136) --------- --------- --------- Investing Activities: Capital Expenditures for Continuing Operations (5,940) (5,707) (4,385) Capital Expenditures for Discontinued Operations (1,317) (2,966) (5,894) Proceeds from Sale of Property, Plant and Equipment 8,079 7,739 13,240 Proceeds from Business Divestitures -- 92,634 48,049 --------- --------- --------- Net Cash Provided by Investing Activities 822 91,700 51,010 --------- --------- --------- Financing Activities: Proceeds from Debt 1,550 -- 200 Principal Payments on Debt (63,553) (24,222) (28,272) Proceeds from Issuing Common Stock 2,580 721 839 Payments to Reacquire Common Stock (9,225) (385) (50) --------- --------- --------- Net Cash (Used) by Financing Activities (68,648) (23,886) (27,283) --------- --------- --------- Net (Decrease) Increase in Cash and Cash Equivalents (64,797) 59,796 18,591 Cash and Cash Equivalents at Beginning of Year 104,243 44,447 25,856 --------- --------- --------- Cash and Cash Equivalents at End of Year $ 39,446 $ 104,243 $ 44,447 ========= ========= ========= Supplemental Disclosures: Cash Paid (Received) during Year for - Net Interest Paid $ 10,546 $ 13,705 $ 18,390 Domestic Federal Income Taxes $ (1,544) $ (1,704) $ (3,732)
Cash and Cash Equivalents Include Cash From Discontinued Operations. See Notes to Consolidated Financial Statements. 27 SCOTT TECHNOLOGIES, INC. AND SUBSIDIARIES (formerly Figgie International Inc.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies: PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Scott Technologies, Inc. (referred to, with all its consolidated subsidiaries and divisions and their predecessor entities, unless the context otherwise requires, as the "Company"). All intercompany account transactions have been eliminated in consolidation. NATURE OF OPERATIONS. The Company is a United States-based multinational corporation operating in one segment: life support respiratory products. The two largest customers of the Company are Aviall, Inc. and the U.S. Government. Aviall, Inc., which is a distributor of Scott Aviation's aviation products, accounted for approximately 13.5%, 10.4% and 10.2% of the Company's 1998, 1997, and 1996 net sales, respectively. The U.S. Government accounted for approximately 7.1%, 10.0% and 9.2% of the Company's total net sales for 1998, 1997 and 1996, respectively. The Company's products are marketed through most normal channels of business, principally in North America. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from the estimates. CASH AND CASH EQUIVALENTS. For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents are stated at cost, which approximates their fair market value. The effect of foreign currency translation on cash held by foreign divisions is immaterial. LONG-TERM CONTRACTS. Government sales are principally under long-term contracts and include cost-reimbursement and fixed-price contracts. Sales under cost-reimbursement contracts are recognized as costs are incurred and include a proportion of the fees expected to be realized equal to the ratio of costs incurred to date to total estimated costs. Sales under fixed price contracts are recognized as the actual cost of work performed relates to the estimate at completion. Cost or performance incentives, which are incorporated in certain contracts, are recognized when realization is assured and amounts can be reasonably estimated. Estimated amounts for contract changes and claims are included in contract sales only when realization is probable. Assumptions used for recording sales and earnings are adjusted in the period of change to reflect revisions in contract value and estimated costs. In the period in which it is determined that a loss will be incurred on a contract, the entire amount of the estimated loss is charged to income. CONCENTRATION OF CREDIT RISK. The Company does not have any concentrations of credit risk by major customer, geographic region or activity. The Company generally does not require collateral. INVENTORIES. Manufacturing inventories are stated at the lower of first-in- first-out cost or market. Costs accumulated under government contracts are stated at actual cost. 28 PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at cost and depreciated over the estimated useful lives of the assets, generally using the straight-line method. The principal rates of depreciation are: buildings, 2 1/2%; machinery and equipment, 8 1/3%; leasehold improvements, life of lease. LAND AND LAND IMPROVEMENTS. Land and land improvements includes $37.1 million and $42.5 million at December 31, 1998 and 1997, respectively, of developed and developable land and improvements. The recorded amounts are net of reserves of $6.5 million and $5.2 million at December 31, 1998 and 1997, respectively. INTANGIBLES. Goodwill of $3.5 million at December 31, 1998 and 1997 represents costs in excess of net assets of purchased businesses, and is generally amortized over a 40-year period. At December 31, 1998 and 1997, accumulated goodwill amortization was $1.8 million and $1.7 million, respectively. The Company has evaluated the realizability of goodwill based upon expectations of undiscounted cash flows of the related business unit and has concluded that no impairment exists. ENVIRONMENTAL COMPLIANCE. At the present time, compliance with federal, state, and local provisions with respect to environmental protection and regulation has not had a material impact on the Company's capital expenditures, earnings, or competitive position. The Company believes compliance with respect to environmental matters will not have a material adverse effect on the Company's financial position, future operations or cash flow. INCOME TAXES. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. SELF-INSURANCE LIABILITIES. The Company is self-insured for certain levels of general liability (including product liability) and workers' compensation coverage. Effective December 31, 1998, the Company capped its exposure to insured liabilities arising prior to December 1, 1998, with the purchase of an aggregate stop loss insurance policy. The aggregate stop loss insurance policy, which excludes coverage for mass tort injuries, provides a $20 million layer of coverage above the Company's $40 million self-insured coverage. The costs and balance sheet accruals for self-insurance programs are based on actuarial calculations prepared by outside actuaries and the terms of the aggregate stop loss policy. Adjustments to recorded accruals of continuing operations are reflected in current operating results. Adjustments to recorded accruals of discontinued operations are reflected in the loss from discontinued operations. EARNINGS PER SHARE. Basic earnings per common share are based upon the weighted average number of shares outstanding during each year. Diluted earnings per common share are based upon the basic earnings per share adjusted for any dilutive effect from the common stock equivalents of stock options. STOCK OPTIONS. The Company accounts for stock options under APB Opinion No. 25, under which no compensation cost has been recognized. (2) Refinancing Costs: In 1998, 1997, and 1996, Refinancing Costs represent the amortization of prepaid financing costs. 29 (3) Discontinued Operations: Interstate Electronics: On October 21, 1998, the Company's Board of Directors announced that it intends to divest its Interstate Electronics subsidiary ("IEC"). As a result, prior years' financial statements have been restated to reflect IEC as a discontinued operation and is summarized as follows (in thousands):
As Previously As Reported IEC Restated --------- --------- --------- 1997: Net Sales $ 248,602 $ (90,344) $ 158,258 ========= ========= ========= (Loss) Income from Continuing Operations Before Extraordinary Item (1,382) 6,462 5,080 (Loss) from Discontinued Operations (346) (6,462) (6,808) Extraordinary Item (778) -- (778) --------- --------- --------- Net (Loss) $ (2,506) $ -- $ (2,506) ========= ========= ========= 1996: Net Sales $ 227,221 $ (90,537) $ 136,684 ========= ========= ========= Income from Continuing Operations Before Extraordinary Item 27,665 (4,763) 22,902 (Loss) Income from Discontinued Operations (4,365) 4,763 398 Extraordinary Item -- -- -- --------- --------- --------- Net Income $ 23,300 $ -- $ 23,300 ========= ========= =========
Income (Loss) from Operations: Income (Loss) from the operation of the discontinued operations, net of tax in 1998, 1997, and 1996, represents the operating results of the Company's Taylor Environmental division from January 1, 1996 through its sale on November 25, 1996; the operating results of the Company's Snorkel division from January 1, 1996 through its sale on November 17, 1997; and the operating results of the Company's IEC subsidiary from January 1, 1996 through December 31, 1998. Loss on Disposal of Discontinued Operations: In 1998, loss on disposal included (1) a third quarter pretax charge of $9.8 million comprised of: a $5.0 million addition to the self-insurance accrual to reflect recent adverse experience, a $3.2 million charge related to underfunded foreign pension plans, and a $1.6 million loss provision for litigation defense costs related to discontinued operations; and (2) a fourth quarter pretax charge of $7.0 million related to a $2.5 million addition to environmental reserves, a $2.5 million addition to litigation reserves, and a $2.0 million addition to insurance reserves as part of the premium to purchase aggregate stop loss coverage. Loss on disposal of discontinued operations in 1997 of $7.3 million, net of tax benefit, represents a $17.0 million provision to increase the Company's self-insurance accrual to reflect the cost of the December 1997 settlement of a specific personal injury lawsuit against a previously discontinued business; the gain from the sale of the Company's Snorkel division of $23.6 million; a $9.2 million addition to the self-insurance accrual for discontinued businesses to reflect general adverse experience on claims per a December 1997 actuarially prepared valuation; a $6.5 million allowance against the carrying value of deferred divestiture proceeds to reflect probable settlements of ongoing disputes underlying prior divestitures; a $1.5 million loss provision for litigation arising from a discontinued unit as a result of a December 1997 lawsuit; and $1.6 million of other adjustments. 30 Loss on disposal of discontinued operations in 1996 represents a loss provision of $28.3 million, which is net of a tax benefit of $15.2 million, recorded by the Company in the fourth quarter of 1996. The provision reflects valuation adjustments to recorded assets arising from and accruals for costs and probable losses on obligations related to previously discontinued businesses. The loss consists of a $20.5 million addition to the self-insurance accrual as a result of a December 1996 actuarially prepared valuation of the liabilities to negotiate the sale of a minority position to a third party; a $14.8 million write-down of carrying value of net assets related to discontinued operations and of deferred proceeds to reflect negotiated resolutions of disputes and events that gave rise to greater risk of realization; a $2.6 million reserve for litigation arising from the businesses of the discontinued units; and a $5.6 million accrual to buy out certain employee benefit legacy obligations. Sale of Snorkel: On November 17, 1997, the Company sold its Snorkel division. The agreement, as amended, provides for $100 million paid to the Company at closing plus a contingent additional amount. The contingent amount will be the amount of sales of the Snorkel business for the twelve-month period commencing on April 1, 1998 and ending on March 31, 1999 (the "Earn-Out Period") in excess of $140 million, such additional payment not to exceed $20 million, plus 70% of the amount of sales of the Snorkel business during the Earn-Out Period in excess of $160 million, such additional amount not to exceed $30 million. In the first half of 1999, the Company expects to recognize $20-$40 million of income as a result of the Earn-Out. The agreement further provides for the assumption by the purchaser of certain liabilities and operating lease commitments of the Snorkel business. The sale generated a $23.6 million gain, which was recognized in the Company's financial statements. The financial statements do not reflect the contingent additional amount as an asset or as income. Prior Divestitures: Prior to 1998, the Company divested a number of its businesses. The contract terms under which businesses were divested include representations and warranties, covenants and indemnification provisions made (a) by the Company to purchasers of the businesses and (b) by purchasers of businesses to the Company. Each transaction has contract terms specific to that transaction. The extent of representations and warranties made range from those qualified by time, knowledge, and dollar materiality to those representations and warranties which are unqualified. Covenants require the Company to act, or prevent the Company from acting, in a variety of ways, such as not competing with the purchasers of a business. Covenants also require the purchasers to act, or prevent them from acting, in a variety of ways. The duration of covenants ranges from those effective for a specified period of time to those which are indefinite. Remedies available for breaches of representations and warranties and covenants range from monetary relief in specific amounts for specific breaches or violations to unlimited amounts. Under the contracts, the Company has generally retained liability for events that occurred prior to sale. The Company believes that it has established appropriate accruals for losses that may arise, such as workers' compensation, product liability, general liability, environmental risks and federal and state tax matters. The Company has indemnified purchasers and has received indemnifications from purchasers for a variety of items. In some transactions, a portion of the purchase price was held back or escrowed at banks to support indemnification provisions. Such amounts are reflected as the assets of the Company within deferred divestiture proceeds. Proceeds and other consideration from divestitures which will be paid to the Company upon fulfillment of contractual provisions, the passage of time, or the occurrence of future events have been recorded as deferred divestiture proceeds classified as non-current assets. At December 31, 1998, deferred divestiture proceeds consisted of cash held in bank escrow accounts from the sale of the Company's Hartman Electrical and Safway Steel Products operations, cash held back 31 by purchasers from the sale of the Company's Figgie Financial Services operations, a note receivable from the purchaser of the Taylor Instruments business, a partnership interest in the entity that acquired Interstate Engineering (a vacuum cleaner manufacturer), cash due to the Company from future tax benefits under a tax sharing agreement with an unaffiliated public company, Rawlings Sporting Goods Company, Inc., the net assets of Willoughby Assurance, Ltd., a dormant reinsurance subsidiary of the Company, installation contracts in process of completion from the "Automatic" Sprinkler business, former facilities of discontinued business units and other items. Deferred divestiture proceeds do not include any contingent additional amount associated with the Snorkel sale. Deferred divestiture proceeds include management's best estimates of the amounts expected to be realized on the collection of deferred proceeds and sale of residual assets related to discontinued operations. The amounts the Company will ultimately realize could differ materially from the amounts recorded. The Company has a reserve of $12.5 million at December 31, 1998 and $28.0 million at December 31, 1997 against these assets, which is presented as a deduction from deferred divestiture proceeds. (4) Income Taxes: Income tax provision (benefit) consists of the following components (in thousands):
1998 1997 1996 -------- -------- -------- Continuing Operations: Currently Payable: Federal $ 5,572 $ 2,713 $ (1,684) State 770 -- -- Effect of Net Operating Loss and Valuation Allowance -- -- 1,684 -------- -------- -------- 6,342 2,713 -- Deferred and other: Federal 221 (13,976) (2,701) Effect of Net Operating Loss and Valuation Allowance (136) 13,935 (25,011) -------- -------- -------- Total from Continuing Operations 6,427 2,672 (27,712) Discontinued Operations: Operations (4,183) 2,185 690 Disposal (6,732) (4,873) (15,228) -------- -------- -------- Total from Discontinued Operations (10,915) (2,688) (14,538) Extraordinary Item (1,126) (519) -- -------- -------- -------- Total Tax(Benefit) $ (5,614) $ (535) $(42,250) ======== ======== ========
A reconciliation of the actual tax provision (benefit) to the U.S. federal income tax rates effective for each year for continuing operations is as follows: 1998 1997 1996 ----- ----- ------- Statutory Federal Tax Rates 35.0% 35.0% (35.0%) Other, net 2.3 (2.3) 4.8 State Income Taxes 3.1 1.8 (7.7) Recognition of Deferred Tax Asset -- -- (538.2) ----- ----- ------- Effective Tax Rate (Benefit) 40.4% 34.5% (576.1%) ===== ===== ======= 32 The components of the net deferred tax asset as of December 31, 1998 and 1997 are as follows (in thousands): 1998 1997 -------- -------- Deferred Tax Assets: Deferred Compensation Plans $ 6,851 $ 2,441 Insurance and Other Reserves 14,681 15,399 Contingency Reserves 5,430 3,436 Inventory Reserves 157 532 Operating & Capital Losses and Tax Credit Carryforwards 66,888 66,069 Discontinued Operations and Other 2,612 2,443 Valuation Allowance (16,712) (16,029) -------- -------- Total Deferred Tax Assets $ 79,907 $ 74,291 -------- -------- Deferred Tax Liabilities: Property, Plant and Equipment $(16,484) $(14,871) Benefit Plans (5,352) (4,590) Discontinued Operations and Other (3,135) (4,370) -------- -------- Total Deferred Tax Liabilities $(24,971) $(23,831) -------- -------- Net Deferred Tax Assets $ 54,936 $ 50,460 ======== ======== As of December 31, 1998, for tax reporting purposes, the Company has tax credit carryforwards of $18.5 million, and operating loss and charitable contribution deduction carryforwards of $98.9 million ($34.6 million tax) that will begin to expire in 2005 through 2008, respectively. The Company recorded these assets in 1996 based on the profitability of the continuing divisions. Management has determined that income will more likely than not be sufficient to recognize fully all deferred tax assets. In addition, the Company has capital loss carryforwards of $39.5 million ($13.8 million tax) which were incurred in 1996. At the present time, the Company has reserved the future tax benefit of these loss carryforwards until a time when it believes they can be realized. Realization of tax carryforwards is dependent on future taxable income and amounts realized are subject to tax regulations which include limitations by year and type of tax attribute being carried forward. The Company has similar carryforward attributes for federal alternative minimum tax purposes and for state income tax purposes. Accumulated unremitted foreign earnings are not material and any liability related to the remittance of foreign earnings would not be material to the financial statements. The remaining receivable balance at December 31, 1997 of $1.4 million, which resulted from the Company's 1991-1993 tax audit, was received in March 1998. 33 (5) Inventories: Inventories are summarized as follows (in thousands): 1998 1997 -------- -------- Raw materials $ 7,323 $ 6,182 Work in process 3,526 3,146 Finished goods 15,944 14,594 Inventory reserves (433) (524) -------- -------- Total Inventories $ 26,360 $ 23,398 ======== ======== (6) Receivables: Receivables consist of the following components (in thousands): 1998 1997 -------- -------- U.S. Government Billed $ 398 $ 1,193 Unbilled - - -------- -------- 398 1,193 Commercial Billed 13,837 11,417 Allowance for Uncollectible Accounts (257) (194) -------- -------- $ 13,978 $ 12,416 ======== ======== U.S. Government receivables include amounts derived from contracts on which the Company performs on a prime contractor or subcontractor basis. Unbilled receivables represent the difference between revenue recognized on a percentage of completion basis for financial accounting and reporting purposes and amounts permitted to be billed to customers under contract terms. These amounts will be billed in subsequent periods based on provisions of the agreements. Costs charged by the Company to the U.S. Government in the performance of U.S. Government contracts are subject to audit. During 1998 and 1997, the U.S. Government concluded its audit with respect to 1991, 1992 and 1993 costs. The year 1994 is currently under audit. (7) Credit Facility: On December 31, 1998, the Company refinanced through General Electric Capital Corporation ("GECC") its $75 million, revolving credit loan and letter of credit sub-facility, which matured on January 1, 1999. The new loan facilities ("Amended Credit Agreement") include a 72-month, $75 million revolving line of credit ("Revolver") as well as a 69-month, $20 million, delayed draw, term loan facility ("Term Loan"). In March 1999, the Company successfully completed syndication of an additional $55 million to increase the Term Loan to $75 million. Within the Revolver is a $30 million letter of credit sub-facility. Borrowings under the Revolver are available up to the lesser of: (1) $75 million, less outstanding letters of credit, or (2) four times the Company's trailing 12 month EBITDA, less: (a) outstanding indebtedness and a 50% letter of credit reserve; plus (b) cash and cash equivalents. At the Company's option, borrowings under the Revolver bear interest at alternate base rates based on (1) the higher of (a) U.S. prime rate, or (b) the Federal Funds rate plus 50 basis points, plus 100 basis points; or (2) LIBOR plus 250 basis points. 34 The Term Loan is available to pay the Company's 9.875% Senior Notes due on October 1, 1999. The Company can draw amounts under the Term Loan from time to time to pay for the purchase of Senior Notes in the open market. At the Company's option, borrowings under the Term Loan bear interest at alternative base rates based on (1) the higher of (a) the U.S. prime rate, or (b) the Federal Funds rate plus 50 basis points, plus 100 basis points; or (2) LIBOR plus 250 basis points. The Company is also permitted to arrange for financial hedges to swap a variable interest rate on the Term Loan for a fixed interest rate. The Amended Credit Agreement is secured by a majority of the Company's non-real estate assets, including certain accounts receivable, inventory, machinery and equipment, and intangibles. The facility contains various affirmative and negative covenants, including restrictions on dividends and financial covenants (maximum leverage ratio, minimum fixed charge coverage ratio and limitations on capital expenditures). As of December 31, 1998, $15.8 million of letters of credit and $1.6 million of borrowings were outstanding under the Revolver ($32.6 million was available pursuant to an agreed borrowing availability during the first 30-day period of the Revolver in the amount of $50 million less outstanding letters of credit), no borrowings were outstanding under the Term Loan and all financial covenants have been satisfied. (8) Long-Term Debt: Long-term debt at December 31, 1998 and 1997 consisted of the following (in thousands):
1998 1997 ---------------------- ---------------------- Carrying Fair Carrying Fair Value Value Value Value --------- --------- --------- --------- 9.875% Senior Notes $ 97,647 $ 99,600 $ 158,270 $ 164,600 Credit Facility 1,550 1,550 -- -- Mortgage Notes 834 834 979 979 Obligations under Capital Lease -- -- 184 184 --------- --------- --------- --------- Total 100,031 $ 101,984 159,433 $ 165,763 ========= ========= Less - Current Maturities (24,481) (513) --------- --------- Long-Term Debt $ 75,550 $ 158,920 ========= =========
The Company intends to extinguish its 9.875% Senior Notes, due October 1, 1999, by using cash and the $75 million Term Loan available under the Company's Amended Credit Agreement. As a result, $75 million of Senior Notes have been classified as long-term debt with the balance classified as current maturities. Interest on the Senior Notes is payable semi-annually on April 1 and October 1. During 1998, the Company purchased in the market $60.6 million of Senior Notes at market prices. These Senior Notes have been returned to the Indenture Trustee for retirement. Mortgage notes are secured by real property, are due at various dates through 2004 and bear interest at rates ranging from 7.5% to 8.5%. The fair value estimates were made as follows: the Senior Notes were based on the market price at which the debt traded near year-end; and the mortgages were based on carrying value given their collateralized nature. The scheduled principal payments for long-term debt are as follows: 1999 - $97.9 million; 2000 - $0.1 million; 2001 - $0.1 million; 2002 - $0.2 million; 2003 and after - $1.7 million. 35 (9) Leases: The Company leases manufacturing equipment under operating leases. Operating lease expense for continuing operations was approximately $3.4 million, $4.3 million, and $3.3 million in 1998, 1997, and 1996, respectively. Rental commitments under non-cancelable operating leases as of December 31, 1998 were as follows (in thousands): Discontinued Continuing Operations Operations Total ---------- ---------- ----- Year Ending December 31, 1999 $1,464 $1,958 $3,422 2000 358 389 747 2001 223 118 341 2002 -- 118 118 2003 & Beyond -- 180 180 ------ ------ ------ Total minimum payments required $2,045 $2,763 $4,808 ====== ====== ====== At the termination of two equipment leases in June 1999, the Company is effectively required to purchase the equipment for a fixed price of approximately 35% of the original lease value. As a result of these provisions and the anticipated need for continued use of the equipment in the Company's operations, the Company currently expects to purchase this equipment. The purchase price would be approximately $4.6 million. (10) Contingent Liabilities: The Company and its subsidiaries are defendants in various lawsuits arising in the ordinary course of business. In the opinion of management, any liability with respect to these matters will not have a material adverse effect on the Company's financial condition, cash flow or results of operations. The Company has been cooperating with the U.S. Government in a civil investigation involving possible improprieties at an Army facility where the Company's Scott Aviation division was a supplier. The Company has furnished documents and other requested information and denies any wrongdoing. See also Note (3) with reference to discontinued businesses. (11) Pension and Retirement Benefits Plans: The Company has pension plans covering the majority of its employees. The plan benefits for salaried employees are based on employees' earnings during their years of participation in the plan. Hourly employees' plan benefits are based on various dollar units multiplied by the number of years of eligible service as defined in each plan. The Company's policy has been to fund amounts as necessary on an actuarial basis to comply with the Employee Retirement Income Security Act of 1974. In addition, the Company has a nonqualified supplemental retirement plan covering certain officers and senior executives. The following table provides a reconciliation of the changes in the plans' benefit obligations and fair value of assets over the two-year period ending on December 31, 1998, and a statement of the funded status as of December 31, 1998 and 1997. In 1998, the two foreign pension plans not previously consolidated were added to the table. The benefit obligation and assets of these plans are reflected on the foreign plans line of the following table. The net benefit obligation of these plans at January 1, 1998 was $1.9 million. 36 1998 1997 ---- ---- Change in Benefit Obligation (in thousands): Benefit Obligation at Beginning of Year $ 84,767 $ 75,494 Service Cost 1,963 1,774 Interest Cost 6,781 5,827 Plan Participants' Contributions 472 556 Amendments 435 465 Actuarial Loss 6,009 5,311 Disbursements (6,291) (4,523) Foreign Currency Exchange Rate 78 -- Foreign Plans 14,127 -- Curtailments (531) (137) --------- --------- Benefit Obligation at End of Year $ 107,810 $ 84,767 ========= ========= Change in Plan Assets (in thousands): Fair Value of Plan Assets at Beginning of Year $ 78,035 $ 66,209 Asset Gain at Beginning of Year 908 -- Actual Return on Plan Assets 8,695 13,173 Employer Contribution 3,123 2,620 Plan Participants' Contributions 472 556 Disbursements (6,291) (4,523) Foreign Currency Exchange Rate 66 -- Foreign Plans 12,239 -- --------- --------- Fair Value of Plan Assets at End of Year $ 97,247 $ 78,035 ========= ========= Funded Status $ (10,564) $ (6,732) Unrecognized Net Actuarial Loss 13,219 9,981 Unrecognized Prior Service Cost 983 673 Unrecognized Initial Net (Asset) (2,621) (3,191) --------- --------- Net Amount Recognized $ 1,017 $ 731 ========= ========= The following table provides the amounts recognized in the statement of financial position as of December 31, of both years. 1998 1997 ---- ---- Amounts Recognized in the Statement of Financial Position Consist of (in thousands): Prepaid Benefit Cost $ 15,688 $ 12,723 Accrued Benefit Liability (19,290) (15,085) Intangible Asset 412 -- Accumulated Other Comprehensive Income 4,207 3,093 -------- -------- Net Amount Recognized $ 1,017 $ 731 ======== ======== The assumptions used in measuring the Company's benefit obligation are as follows: 1998 1997 ---- ---- Weighted-Average Assumptions as of December 31 Discount Rate 6.75% 7.00% Expected Return on Plan Assets 10.00% 10.00% Rate of Compensation Increase - - SEBP 6.00% 6.00% - - All Other Plans 5.00% 5.00% 37 The following table provides the components of net periodic benefit cost for the plan fiscal years 1998 and 1997. 1998 1997 ---- ---- Components of Net Periodic Benefit Cost (in thousands): Service Cost $ 1,963 $ 1,774 Interest Cost 6,781 5,826 Expected Return on Plan Assets (8,925) (6,641) Amortization of Prior Service Cost 89 109 Amortization of Initial Net Obligation (Asset) 1,329 (570) Recognized Net Actuarial Loss 1,563 374 Curtailment Loss 37 127 ------- ------- Net Periodic Benefit Cost $ 2,837 $ 999 ======= ======= The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $34.0 million, $33.5 million, and $14.2 million, respectively, as of December 31, 1998, and $15.3 million, $15.1 million, and $0.0 million, respectively, as of December 31, 1997. (12) Capital Stock: On December 15, 1998, the stockholders of the Company voted to collapse the dual class of common stock into a single new class of common stock designated as "common stock." As of December 16, 1998 the new common stock is traded under the symbol: "SCTT." Each share of Common Stock is entitled to one vote per share. On December 15, 1998, the Company established a series of Preference Stock, Series A Junior Participating Preferred Shares (the "Preferred Shares"), consisting of 500,000 shares. The Preferred Shares may be issued to holders of Common Stock upon the exercise of purchase rights that, on December 15, 1998, were declared as a dividend to holders of Common Stock as of December 28, 1998 upon the Board's adoption of a Stockholder Rights Plan. The Preferred Shares will be senior to the Common Stock with respect to payment of dividends and the distribution of assets, but will rank junior to any other series of Preference Stock unless the terms of such other series of Preference Stock provides otherwise. The Company's Board of Directors has authorized the Company to purchase up to 3 million shares of its common stock. In 1998, the Company repurchased 684,600 shares of common stock at a cost of $9.2 million on the open market. The total cost of purchasing the shares is reflected as treasury stock on the Company's balance sheet. Earnings per share ("EPS") were calculated using the following share data. The following reconciles the numerators and denominators of the basic and diluted EPS calculations (in thousands, except per share data): Income Shares Per Share For the Year Ended December 31, 1998 Numerator Denominator Amount - ------------------------------------ --------- ----------- ------ Basic EPS (Loss) Available to Common Stockholders $(8,568) 18,321 $(0.47) Effect of Dilutive Securities Stock Options 69 Diluted EPS (Loss) Available to Common Stockholders $(8,568) 18,390 $(0.47) 38 Options to purchase shares of common stock that were outstanding as of December 31, 1998 but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares are as follows: Grant Date #of Shares Option Price Expiration Date ---------- ---------- ------------ --------------- September 22, 1997 200 $13.75 September 22, 2004 April 20, 1998 7 $14.75 April 20, 2005 May 20, 1998 4 $14.75 May 20, 2005 July 1, 1998 15 $14.6875 July 1, 2005 July 7, 1998 70 $15.00 July 7, 2005 July 22, 1998 55 $14.875 July 22, 2005 November 5, 1998 186 $14.4375 November 5, 2005 December 15, 1998 150 $14.9375 December 15, 2005 Income Shares Per Share For the Year Ended December 31,1997 Numerator Denominator Amount - ----------------------------------- --------- ----------- ------ Basic EPS (Loss) Available to Common Stockholders $(2,506) 18,411 $( 0.14) Effect of Dilutive Securities Stock Options 239 Diluted EPS (Loss) Available to Common Stockholders $(2,506) 18,650 $( 0.13) Options to purchase shares of common stock that were outstanding as of December 31, 1997 but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares are as follows: Grant Date #of Shares Option Price Expiration Date - ---------- ---------- ------------ --------------- April 16, 1996 1 $13.1875 April 16, 2003 August 27, 1996 9 $13.50 August 27, 2003 September 22, 1997 200 $13.75 September 22, 2004 Income Shares Per Share For the Year Ended December 31,1996 Numerator Denominator Amount - ----------------------------------- --------- ----------- ------ Basic EPS Income Available to Common Stockholders $23,300 18,371 $ 1.27 Effect of Dilutive Securities Stock Options 357 Diluted EPS Income Available to Common Stockholders $23,300 18,728 $ 1.24 Options to purchase shares of common stock that were outstanding as of December 31, 1996 but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares are as follows: Grant Date #of Shares Option Price Expiration Date - ---------- ---------- ------------ --------------- August 27, 1996 9 $13.50 August 27, 2003 39 (13) Stock Options: The Scott Technologies, Inc. Key Employees' Stock Option Plan ("The Stock Option Plan") was amended by stockholders on December 15, 1998. The Company accounts for this plan under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for stock options been determined consistent with FASB Statement No. 123, the Company's operating results would have been calculated as follows (in thousands, except per share data): 1998 1997 1996 ---- ---- ---- Net (Loss) Income: As Reported $ (8,568) $ (2,506) $ 23,300 Pro Forma $ (9,985) $ (3,322) $ 22,600 Primary EPS: As Reported $ (0.47) $ (0.14) $ 1.27 Pro Forma $ (0.55) $ (0.18) $ 1.23 Fully Diluted EPS: As Reported $ (0.47) $ (0.13) $ 1.24 Pro Forma $ (0.54) $ (0.18) $ 1.21 The Company may grant options for up to 3 million shares. The stock option plan allows for grants below the stock's market price; however, option exercise prices typically equal the stock's market price on the date of grant. Options generally vest between three and five years and expire between seven and ten years. A summary of the status of the Stock Option Plan at December 31, 1998, 1997 and 1996 and changes during the years then ended is presented in the table and narrative below:
1998 1997 1996 ---- ---- ---- Shares Wtd. Avg. Shares Wtd. Avg. Shares Wtd. Avg. (000) Ex. Price (000) Ex. Price (000) Ex. Price ----- --------- ----- --------- ----- --------- Outstanding, Beg of Year 1,001.3 $ 10.12 889.4 $ 7.92 769.5 $ 7.12 Granted 594.0 14.44 523.0 12.07 237.5 11.26 Exercised (404.9) 7.19 (81.2) 5.45 (23.8) 7.63 Forfeited (28.9) 12.45 (237.4) 8.86 (93.8) 9.86 Cancelled -- -- (92.5) 7.38 -- -- Expired (15.3) 12.18 -- -- -- -- ------- ------- ------ Outstanding, End of Year 1,146.2 $ 13.31 1,001.3 $ 10.12 889.4 $ 7.92 Exercisable at end of 320.4 $ 11.39 482.6 $ 7.65 292.6 $ 7.06 year Weighted average fair $ 7.21 $ 7.19 $ 5.77 value of options granted
Of the 1,146,234 options outstanding at December 31, 1998, 356,734 have exercise prices between $7.625 and $12.75, with a weighted average exercise price of $11.15 and a weighted average remaining contractual life of 4.5 years. 247,444 of these options are exercisable. The remaining 789,500 options have exercise prices between $13.00 and $15.00, with a weighted average price of $14.28 and a weighted average remaining contractual life of 6.4 years. 73,001 of these options are exercisable. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The following weighted average assumptions were used for the stock option grants in 1998: risk-free interest rate of 5.1%, no expected dividend yield, expected life of 7.0 years, and expected volatility of 38.44%. 40 (14) Restricted Stock Purchase Plans: Under the 1993 Restricted Stock Purchase Plan for Employees ("Employee Plan"), up to 800,000 shares of Common Stock were authorized for issuance. On December 4, 1996, the Board decided to terminate the Employee Plan, effective January 2, 1997, and all restrictions on outstanding shares lapsed. Accordingly, the Company wrote off in 1996 all unearned compensation with respect to this plan. Under the 1993 Restricted Stock Purchase Plan for Directors ("Director Plan"), up to 75,000 shares of Common Stock were authorized for possible issuance and certain directors of the Company were granted the right to purchase shares of Common Stock at prices substantially below market value. The Director Plan was terminated on July 1, 1998, and all restrictions on outstanding shares lapsed. The original excess of the market price over the purchase price at the date of grant under the Director Plan, $0.6 million, was deferred as Unearned Compensation and was amortized as compensation expense over the restricted period. Unamortized amounts (unearned compensation) are shown as a reduction of stockholders' equity. The following amounts were amortized to expense (in thousands): 1998 1997 1996 ---- ---- ---- Employee Plan $ -- $ -- $904 Director Plan 24 50 69 ---- ---- ---- Total $ 24 $ 50 $973 ==== ==== ==== (15) Employee Stock Bonus Plan: Under the Stock Bonus Trust and Plan, shares of the Company's Common Stock were allocated to eligible employee accounts each December 31 based on salary. The Company did not make contributions to this plan in 1998, 1997, or 1996. In February 1998, the plan assets were merged into the Company's 401(k) savings plan for salaried employees. The Stock Plan held 631,577 shares of the Company's Common Stock as of December 31, 1997. (16) Extraordinary Item - Early Extinguishment of Debt: In 1998, the Company paid $64.0 million to extinguish $60.6 million of its 9.875% Senior Notes due October 1, 1999. The payments included a $2.7 million premium for the early retirement of the debt and $0.7 million of accrued interest. Accordingly, the Company recorded an extraordinary after-tax loss of $1.7 million on the premiums to extinguish $60.6 million of Senior Notes. On October 9, 1997, the Company prepaid the mortgage on its Willoughby, Ohio, headquarters. The cash payment of $7.2 million included a $0.6 million yield maintenance premium to retire the debt before its maturity date of February 1, 2005. Also, in December 1997, the Company paid $16.4 million to extinguish $15.7 million of its Senior Notes due October 1, 1999. The payment included a $0.7 million premium for the early retirement of the debt. Accordingly, the Company recorded an extraordinary after-tax loss of $0.8 million on the premiums to pay-off the mortgage on the Company's headquarters and the extinguishment of $15.7 million of senior notes. 41 (17) Industry Segment Data: The Company's operations are conducted through one business segment, described in Part I, Item 1 on page 4 of this Form 10-K. Page 7 contains a summary of certain financial data for the business segment for 1998, 1997 and 1996. Information concerning the content of this financial data is as follows: Intersegment and foreign sales are immaterial. Operating income is total revenue less operating expenses (cost of sales, SG&A expense and R&D expense). Operating income does not include refinancing costs, interest expense, interest income, or federal and state income taxes. Identifiable assets are those assets used in the Company's operation for the segment. Corporate assets are principally cash and cash equivalents, property and other assets. 42 QUARTERLY FINANCIAL DATA (UNAUDITED) This information is required by the Securities and Exchange Commission and is unaudited.
First Second Third Fourth Quarter Quarter Quarter Quarter (in thousands, except for per share data) - -------------------------------------------------------------------------------------------------- 1998: Net Sales $ 46,214 $ 45,964 $ 43,197 $ 41,733 Gross Profit 14,903 15,584 13,729 13,039 Net Income (Loss): Continuing Operations 2,574 3,439 1,983 1,498 Discontinued Operations (1,875) 443 (11,420) (3,521) Extraordinary Loss (80) (1,565) (44) -- ---------- ---------- ---------- ---------- Net Income (Loss) $ 619 $ 2,317 $ (9,481) $ (2,023) ========== ========== ========== ========== Per Share Data - Basic EPS: Continuing Operations $ 0.13 $ 0.19 $ 0.11 $ 0.08 Discontinued Operations (0.10) 0.02 (0.63) (0.19) Extraordinary Loss -- (0.08) -- -- ---------- ---------- ---------- ---------- Net Income (Loss) $ 0.03 $ 0.13 $ (0.52) $ (0.11) ========== ========== ========== ========== Per Share Data - Assuming Dilution: Continuing Operations $ 0.13 $ 0.18 $ 0.11 $ 0.08 Discontinued Operations (0.10) 0.02 (0.62) (0.19) Extraordinary Loss -- (0.08) -- -- ---------- ---------- ---------- ---------- Net Income (Loss) $ 0.03 $ 0.12 $ (0.51) $ (0.11) ========== ========== ========== ========== - -------------------------------------------------------------------------------------------------- 1997: Net Sales $ 39,958 $ 40,709 $ 38,084 $ 39,507 Gross Profit 12,785 13,478 12,033 13,728 Net Income (Loss): Continuing Operations 60 1,336 968 2,716 Discontinued Operations 4,457 (2,741) 1,256 (9,780) Extraordinary Loss -- -- -- (778) ---------- ---------- ---------- ---------- Net Income (Loss) $ 4,517 $ (1,405) $ 2,224 $ (7,842) ========== ========== ========== ========== Per Share Data - Basic EPS: Continuing Operations $ -- $ 0.08 $ 0.05 $ 0.15 Discontinued Operations 0.25 (0.15) 0.07 (0.53) Extraordinary Loss -- -- -- (0.04) ---------- ---------- ---------- ---------- Net Income (Loss) $ 0.25 $ (0.07) $ 0.12 $ (0.42) ========== ========== ========== ========== Per Share Data - Assuming Dilution: Continuing Operations $ -- $ 0.08 $ 0.05 $ 0.14 Discontinued Operations 0.24 (0.15) 0.07 (0.52) Extraordinary Loss -- -- -- (0.04) ---------- ---------- ---------- ---------- Net Income (Loss) $ 0.24 $ (0.07) $ 0.12 $ (0.42) ========== ========== ========== ========== - --------------------------------------------------------------------------------------------------
43 Item 9. Disagreements on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant (a) Identification of Directors Information with respect to the members of the Board of Directors of the Company is set forth under the captions "Nominees for Election as Directors for a Term of Three Years" and "Directors Continuing in Office" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. (b) Identification of Executive Officers Information with respect to the executive officers of the Company is set forth under the caption "Executive Officers of the Company" contained in Part I, Item 1 of this report, which information is incorporated herein by reference. Item 11. Executive Compensation Information required by this Item is set forth under the captions "Executive and Director Compensation" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information required by this Item is set forth under the captions "Principal Stockholders" and "Stock Ownership of Directors, Nominees for Directors, Executive Officers and One Former Executive Officer" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information required by this Item is set forth under the caption "Executive and Director Compensation " in the Company's definitive proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. 44 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K Page No. --- (a) Financial Statements, Schedules and Exhibits: 1. Financial Statements Included in Part II of this report: Report of Independent Public Accountants 22 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997, and 1996 23 Consolidated Balance Sheets at December 31, 1998 and 1997 24-25 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the Years Ended December 31, 1998, 1997, and 1996 26 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997, and 1996 27 Notes to Consolidated Financial Statements 28-42 Quarterly Financial Data (Unaudited) 43 2. Schedules Included in Part IV of this report: Schedule II - Valuation and Qualifying Accounts for the Years Ended December 31, 1998, 1997 and 1996 51 Report of Independent Public Accountants 52 3. Exhibits: (3) Articles of incorporation and by-laws: (i) The Restated Certificate of Incorporation of the Company, as amended, included as Exhibit 3.1 to the Company's Current Report on Form 8-K dated December 15, 1998, File No. 1-8591, is hereby incorporated herein by reference. (ii) The Bylaws of the Company, as amended and restated effective December 15, 1998, included as Exhibit 3.2 to the Company's Current Report on Form 8-K dated December 15, 1998, File No 1-8591, is hereby incorporated herein by reference. (iii) The Certificate of Designations, Preferences, Related Rights, Qualifications, Limitations and Restrictions of Series A Junior Participating Preferred Shares of the Company, included as Exhibit 3.1.1 to the Company's Current Report on Form 8-K dated December 15, 1998, File No 1-8591, is hereby incorporated herein by reference. 45 (4) Instruments defining rights of security holders, including indentures, for the following classes of securities: (i) Common Stock, par value $.10 per share, are contained in the Restated Certificate of Incorporation, as amended, incorporated by reference in Exhibit (3)(i) above and are incorporated herein by reference. (ii) Indenture, dated as of October 1, 1989, between Figgie International Inc. and Continental Bank, National Association, as Trustee, with respect to the 9.875% Senior Notes due October 1, 1999, included as Exhibit (4) (c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1989, is hereby incorporated herein by reference. State Street Trust succeeded Continental Bank as Trustee pursuant to an agreement dated as of February 7, 1994, which was included as Exhibit (4)(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, and is hereby incorporated herein by reference. (iii) Rights Agreement, dated as of December 15, 1998, between Scott Technologies, Inc. and National City Bank, as Rights Agent, included as exhibit 4 to the Company's Current Report on Form 8-K dated December 15, 1998, File No 1-8591, is hereby incorporated herein by reference. (10) Material contracts: (i)* The Company's Compensation Plan for Executives, included as Exhibit (3)(10)(b) to the Company's Form 8-B filed October 19, 1983 with the Commission, is hereby incorporated herein by reference. (ii)* The Company's Senior Executive Benefits Program, as amended, included as Exhibit (19) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1988, is hereby incorporated herein by reference. (iii)* The Company's 1983 Deferred Compensation Agreement, included as Exhibit (3)(10)(f) to the Company's Form 8-B filed on October 19, 1983 with the Commission, is hereby incorporated herein by reference. (iv)* The Company's 1982 Deferred Compensation Agreement, included as Exhibit 10(g) to the Company's Annual Report on Form 10-K for the year ended December 31, 1984, File No. 1-8591, is hereby incorporated herein by reference. (v)* The Company's Split Dollar Life Insurance Plan, included as Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year ended December 31, 1985, File No. 1-8591, is hereby incorporated herein by reference. (vi)* The Company's 1993 Restricted Stock Purchase Plan for Employees, included as Exhibit A to the Company's definitive Proxy Statement dated May 25, 1993, is hereby incorporated herein by reference. 46 (vii)* The Company's 1993 Restricted Stock Purchase Plan for Directors, included as Exhibit B to the Company's definitive Proxy Statement dated May 25, 1993, is hereby incorporated herein by reference. (viii)* The Company's Key Employees' Stock Option Plan, included as Exhibit A to the Company's definitive Proxy Statement dated September 22, 1994, is hereby incorporated herein by reference. (ix)* Employment agreement dated July 1, 1994, by and between the Company and Steven L. Siemborski, included as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, is hereby incorporated herein by reference. (x)* Employment Agreement, dated as of January 1, 1995, by and between John P. Reilly and the Company, included as Exhibit 10(p) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, is hereby incorporated herein by reference. (xi) Credit Agreement between the Company and General Electric Capital Corporation, dated as of December 19, 1995; Waiver and Amendment No. 1 dated as of January 30, 1996; Amendment No. 2 dated as of February 19, 1996, included as Exhibit 10(xiv) on Form 10-K for the year ended December 31, 1995, is hereby incorporated herein by reference. (xii)* Management Agreement, dated February 1, 1996, by and between Robert D. Vilsack and the Company, included as Exhibit 10(xii) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, is hereby incorporated by reference. (xiii)* Retention Agreement, dated March 20, 1996, by and between Robert D. Vilsack and the Company, included as Exhibit 10 (xiii) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, is hereby incorporated by reference. (xiv)* Management Agreement, dated December 9, 1994, by and between Glen W. Lindemann and the Company, included as Exhibit 10 (xv) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, is hereby incorporated by reference. (xv)* Retention Agreement, dated July 17, 1996, by and between Glen W. Lindemann and the Company, included as Exhibit 10 (xvi) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, is hereby incorporated by reference. (xvi) Amendment No. 3, dated June 6, 1996, to the Credit Agreement between the Company and General Electric Capital Corporation, included as Exhibit 10 (xvii) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, is hereby incorporated by reference. 47 (xvii)* Executive Arrangement, approved by the Management Development, Compensation and Nominating Committee of the Board of Directors on February 18, 1997, included as Exhibit 10 (a) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, is hereby incorporated by reference. (xviii)* Amended and Restated Management Agreement, dated June 9, 1997, by and between Glen W. Lindemann and the Company, included as Exhibit 10 (b) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, is hereby incorporated by reference. (xix)* Amended and Restated Management Agreement, Dated June 11, 1997, by and between William J. Sickman and the Company, included as Exhibit 10 (c) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, is hereby incorporated by reference. (xx)* Amended and Restated Management Agreement, dated June 11, 1997, by and between Robert D. Vilsack and the Company, included as Exhibit 10 (d) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, is hereby incorporated by reference. (xxi)* Letter Agreement, dated October 15, 1997, by and between Glen W. Lindemann and the Company, included as Exhibit 10 (e) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, is hereby incorporated by reference. (xxii) Amendment No. 4, dated February 9, 1998 and effective December 31, 1997, to the Credit Agreement between the Company and General Electric Capital Corporation, included as Exhibit 10 (xxii) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, is hereby incorporated by reference. (xxiii)* Arrangement dated March 31, 1998, by and between Steven L. Siemborski and the Company, included as Exhibit 10 (a) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, is hereby incorporated herein by reference. (xxiv)* The Company's Directors' Stock Option Plan, included as Exhibit B to the Company's definitive Proxy Statement dated April 17, 1998, is hereby incorporated herein by reference. (xxv)* Management agreement, addendum to June 11, 1997 management agreement, dated as of August 13, 1998, by and between William J. Sickman and the Company, included as Exhibit 10 (i) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is hereby incorporated herein by reference. (xxvi)* Management agreement, amended and restated management agreement, dated as of August 13, 1998, by and between William J. Sickman and the Company, included as Exhibit 10 (ii) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is hereby incorporated herein by reference. 48 (xxvii)* Management agreement, second addendum to June 11, 1997 management agreement and first addendum to August 13, 1998 management agreement and amendment to non-qualified stock option agreement dated August 13, 1998, dated as of October 30, 1998, by and between William J. Sickman and the Company, included as Exhibit 10 (iii) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is hereby incorporated herein by reference. (xxviii)* Management agreement, dated as of September 10, 1998, by and between Debra L. Kackley and the Company, included as Exhibit 10 (iv) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is hereby incorporated herein by reference. (xxix)* Management agreement, amended and restated management agreement, dated as of August 17, 1998, by and between Glen W. Lindemann and the Company, included as Exhibit 10 (v) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is hereby incorporated herein by reference. (xxx)* Management agreement, dated as of August 25, 1998, by and between Mark A. Kirk and the Company, included as Exhibit 10 (vi) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is hereby incorporated herein by reference. (xxxi) Amendment No. 5, dated October 8, 1998 and effective August 14, 1998, to the Credit Agreement between the Company and General Electric Capital Corporation, included as Exhibit 10 (vii) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is hereby incorporated herein by reference. (xxxii) Amendment No. 6 and Exhibit A, dated October 21, 1998 and effective September 30, 1998, to the Credit Agreement between the Company and General Electric Capital Corporation, included as Exhibit 10 (vii) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is hereby incorporated herein by reference. (xxxiii)* The Company's Key Employees' Stock Option Plan, amended as of December 15, 1998, included as Exhibit 10 to the Company's Current Report on Form 8-K dated December 15, 1998, is hereby incorporated herein by reference. (xxxiv)* Management agreement, dated as of December 18, 1998, by and between the Company and Robert P. Collins, effective November 3, 1998. (xxxv) Amendment and Restated Credit Agreement, dated as of December 31, 1998, Amendment No. 1, dated as of February 26, 1999, Amendment No. 2, dated as of March 1, 1999, and Amendment No. 3, dated as of March 2, 1999, by and between the Company and the Lenders Party hereto and General Electric Capital Corporation, as agent. 49 (xxxvi) Aggregate Stop Loss Insurance Policy, dated December 31, 1998, by and between the Company and Princeton Eagle West Insurance Company Limited. (xxxvii) Stockholders Agreement, dated as of December 15, 1998, by and between the Company and RCBA Strategic Partners, L.P. (xxxviii) The Registration Rights Agreement, dated December 16, 1998, by and between the Company and Richard C. Blum & Associates, L.P. (xxxix) Agreement, dated November 16, 1998 among the Company and Richard C. Blum & Associates, L.P., Richard C. Blum & Associates, Inc., and Richard C. Blum. (xl) Agreement, dated November 23, 1998 among the Company and Reich and Tang Asset Management, L.P. * Management contracts or compensatory plans filed pursuant to Item 14(c) of the Form 10-K. (21) Subsidiaries of the Company (23) Consents of Independent Public Accountants (27) Financial Data Schedule (b) Reports on Form 8-K: Form 8-K dated December 31, 1997 and filed on January 6, 1998. Form 8-K dated May 22, 1998 and filed on May 29, 1998. Form 8-K dated December 15, 1998, filed on December 22, 1998. (c) See Exhibits to this report. 50 (d) SCHEDULE II SCOTT TECHNOLOGIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Balance, Charged Amounts Balance, Beginning to Costs Charged End of Description of Year & Expenses Off Year - ----------------------------------------------------------------------------------------- ALLOWANCE FOR UNCOLLECTIBLE TRADE ACCOUNTS RECEIVABLES Year ended December 31, 1998 $ 194 $ 60 $ 3 $ 257 ======== ======== ======== ======== Year ended December 31, 1997 $ 151 $ 60 $ (17) $ 194 ======== ======== ======== ======== Year ended December 31, 1996 $ 104 $ 74 $ (27) $ 151 ======== ======== ======== ======== ALLOWANCE FOR PROPERTIES HELD FOR SALE Land and Land Improvements $ 5,177 $ 3,047 $ (1,738) $ 6,486 Building and Leasehold Improvements -- -- -- -- -------- -------- -------- -------- Year ended December 31, 1998 $ 5,177 $ 3,047 $ (1,738) $ 6,486 ======== ======== ======== ======== Land and Land Improvements $ 5,344 $ -- $ (167) $ 5,177 Building and Leasehold Improvements -- -- -- -- -------- -------- -------- -------- Year ended December 31, 1997 $ 5,344 $ 0 $ (167) $ 5,177 ======== ======== ======== ======== Land and Land Improvements $ 7,694 $ -- $ (2,350) $ 5,344 Building and Leasehold Improvements 3,490 -- (3,490) -- -------- -------- -------- -------- Year ended December 31, 1996 $ 11,184 $ 0 $ (5,840) $ 5,344 ======== ======== ======== ======== ALLOWANCE FOR DEFERRED DIVESTITURE PROCEEDS Year ended December 31, 1998 $ 27,962 $ -- $(15,428) $ 12,534 ======== ======== ======== ======== Year ended December 31, 1997 $ 21,743 $ 6,479 $ (260) $ 27,962 ======== ======== ======== ======== Year ended December 31, 1996 $ 20,825 $ 8,519 $ (7,601) $ 21,743 ======== ======== ======== ========
51 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders, Scott Technologies, Inc. We have audited in accordance with generally accepted auditing standards, the financial statements of Scott Technologies, Inc. and Subsidiaries included in this Form 10K, and have issued our report thereon dated January 22, 1999. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP /s/ Cleveland, Ohio, January 22, 1999 52 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Scott Technologies, Inc. (Company) By /s/ ------------------------------ Date: March 25, 1999 Mark A. Kirk Senior Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed as of March 25, 1999 by the following persons on behalf of the Company and in the capacities indicated. By /s/ By /s/ ------------------------------- ------------------------------ G. W. Lindemann, Principal H. Nesbit, II, Director Executive Officer & Director By /s/ By /s/ ------------------------------- ------------------------------ F. N. Linsalata, Director R.P. Collins, Director By /s/ By /s/ ------------------------------- ------------------------------ J.P. Reilly, Director N. C. Lind, Director By /s/ ------------------------------- F. R. McKnight, Director 53 EXHIBIT INDEX (3) Articles of incorporation and by-laws: (i) The Restated Certificate of Incorporation of the Company, as amended, included as Exhibit 3.1 to the Company's Current Report on Form 8-K dated December 15, 1998, File No. 1-8591, is hereby incorporated herein by reference. (ii) The Bylaws of the Company, as amended and restated effective December 15, 1998, included as Exhibit 3.2 to the Company's Current Report on Form 8-K dated December 15, 1998, File No 1-8591, is hereby incorporated herein by reference. (iii) The Certificate of Designations, Preferences, Related Rights, Qualifications, Limitations and Restrictions of Series A Junior Participating Preferred Shares of the Company, included as Exhibit 3.1.1 to the Company's Current Report on Form 8-K dated December 15, 1998, File No 1-8591, is hereby incorporated herein by reference. (4) Instruments defining rights of security holders, including indentures, for the following classes of securities: (i) Common Stock, par value $.10 per share, are contained in the Restated Certificate of Incorporation, as amended, incorporated by reference in Exhibit (3)(i) above and are incorporated herein by reference. (ii) Indenture, dated as of October 1, 1989, between Figgie International Inc. and Continental Bank, National Association, as Trustee, with respect to the 9.875% Senior Notes due October 1, 1999, included as Exhibit (4) (c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1989, is hereby incorporated herein by reference. State Street Trust succeeded Continental Bank as Trustee pursuant to an agreement dated as of February 7, 1994, which was included as Exhibit (4)(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, and is hereby incorporated herein by reference. (iii) Rights Agreement, dated as of December 15, 1998, between Scott Technologies, Inc. and National City Bank, as Rights Agent, included as exhibit 4 to the Company's Current Report on Form 8-K dated December 15, 1998, File No 1-8591, is hereby incorporated herein by reference. (10) Material contracts: (i)* The Company's Compensation Plan for Executives, included as Exhibit (3)(10)(b) to the Company's Form 8-B filed October 19, 1983 with the Commission, is hereby incorporated herein by reference. (ii)* The Company's Senior Executive Benefits Program, as amended, included as Exhibit (19) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1988, is hereby incorporated herein by reference. (iii)* The Company's 1983 Deferred Compensation Agreement, included as Exhibit (3)(10)(f) to the Company's Form 8-B filed on October 19, 1983 with the Commission, is hereby incorporated herein by reference. 54 (iv)* The Company's 1982 Deferred Compensation Agreement, included as Exhibit 10(g) to the Company's Annual Report on Form 10-K for the year ended December 31, 1984, File No. 1- 8591, is hereby incorporated herein by reference. (v)* The Company's Split Dollar Life Insurance Plan, included as Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year ended December 31, 1985, File No. 1-8591, is hereby incorporated herein by reference. (vi)* The Company's 1993 Restricted Stock Purchase Plan for Employees, included as Exhibit A to the Company's definitive Proxy Statement dated May 25, 1993, is hereby incorporated herein by reference. (vii)* The Company's 1993 Restricted Stock Purchase Plan for Directors, included as Exhibit B to the Company's definitive Proxy Statement dated May 25, 1993, is hereby incorporated herein by reference. (viii)* The Company's Key Employees' Stock Option Plan, included as Exhibit A to the Company's definitive Proxy Statement dated September 22, 1994, is hereby incorporated herein by reference. (ix)* Employment agreement dated July 1, 1994, by and between the Company and Steven L. Siemborski, included as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, is hereby incorporated herein by reference. (x)* Employment Agreement, dated as of January 1, 1995, by and between John P. Reilly and the Company, included as Exhibit 10(p) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, is hereby incorporated herein by reference. (xi) Credit Agreement between the Company and General Electric Capital Corporation, dated as of December 19, 1995; Waiver and Amendment No. 1 dated as of January 30, 1996; Amendment No. 2 dated as of February 19, 1996, included as Exhibit 10(xiv) on Form 10-K for the year ended December 31, 1995, is hereby incorporated herein by reference. (xii)* Management Agreement, dated February 1, 1996, by and between Robert D. Vilsack and the Company, included as Exhibit 10(xii) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, is hereby incorporated by reference. (xiii)* Retention Agreement, dated March 20, 1996, by and between Robert D. Vilsack and the Company, included as Exhibit 10 (xiii) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, is hereby incorporated by reference. (xiv)* Management Agreement, dated December 9, 1994, by and between Glen W. Lindemann and the Company, included as Exhibit 10 (xv) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, is hereby incorporated by reference. (xv)* Retention Agreement, dated July 17, 1996, by and between Glen W. Lindemann and the Company, included as Exhibit 10 (xvi) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, is hereby incorporated by reference. 55 (xvi) Amendment No. 3, dated June 6, 1996, to the Credit Agreement between the Company and General Electric Capital Corporation, included as Exhibit 10 (xvii) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, is hereby incorporated by reference. (xvii)* Executive Arrangement, approved by the Management Development, Compensation and Nominating Committee of the Board of Directors on February 18, 1997, included as Exhibit 10 (a) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, is hereby incorporated by reference. (xviii)* Amended and Restated Management Agreement, dated June 9, 1997, by and between Glen W. Lindemann and the Company, included as Exhibit 10 (b) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, is hereby incorporated by reference. (xix)* Amended and Restated Management Agreement, Dated June 11, 1997, by and between William J. Sickman and the Company, included as Exhibit 10 (c) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, is hereby incorporated by reference. (xx)* Amended and Restated Management Agreement, dated June 11, 1997, by and between Robert D. Vilsack and the Company, included as Exhibit 10 (d) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, is hereby incorporated by reference. (xxi)* Letter Agreement, dated October 15, 1997, by and between Glen W. Lindemann and the Company, included as Exhibit 10 (e) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, is hereby incorporated by reference. (xxii) Amendment No. 4, dated February 9, 1998 and effective December 31, 1997, to the Credit Agreement between the Company and General Electric Capital Corporation, included as Exhibit 10 (xxii) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, is hereby incorporated by reference. (xxiii)* Arrangement dated March 31, 1998, by and between Steven L. Siemborski and the Company, included as Exhibit 10 (a) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, is hereby incorporated herein by reference. (xxiv)* The Company's Directors' Stock Option Plan, included as Exhibit B to the Company's definitive Proxy Statement dated April 17, 1998, is hereby incorporated herein by reference. (xxv)* Management agreement, addendum to June 11, 1997 management agreement, dated as of August 13, 1998, by and between William J. Sickman and the Company, included as Exhibit 10 (i) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is hereby incorporated herein by reference. (xxvi)* Management agreement, amended and restated management agreement, dated as of August 13, 1998, by and between William J. Sickman and the Company, included as Exhibit 10 (ii) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is hereby incorporated herein by reference. 56 (xxvii)* Management agreement, second addendum to June 11, 1997 management agreement and first addendum to August 13, 1998 management agreement and amendment to non-qualified stock option agreement dated August 13, 1998, dated as of October 30, 1998, by and between William J. Sickman and the Company, included as Exhibit 10 (iii) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is hereby incorporated herein by reference. (xxviii)* Management agreement, dated as of September 10, 1998, by and between Debra L. Kackley and the Company, included as Exhibit 10 (iv) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is hereby incorporated herein by reference. (xxix)* Management agreement, amended and restated management agreement, dated as of August 17, 1998, by and between Glen W. Lindemann and the Company, included as Exhibit 10 (v) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is hereby incorporated herein by reference. (xxx)* Management agreement, dated as of August 25, 1998, by and between Mark A. Kirk and the Company, included as Exhibit 10 (vi) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is hereby incorporated herein by reference. (xxxi) Amendment No. 5, dated October 8, 1998 and effective August 14, 1998, to the Credit Agreement between the Company and General Electric Capital Corporation, included as Exhibit 10 (vii) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is hereby incorporated herein by reference. (xxxii) Amendment No. 6 and Exhibit A, dated October 21, 1998 and effective September 30, 1998, to the Credit Agreement between the Company and General Electric Capital Corporation, included as Exhibit 10 (vii) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is hereby incorporated herein by reference. (xxxiii)* The Company's Key Employees' Stock Option Plan, amended as of December 15, 1998, included as Exhibit 10 to the Company's Current Report on Form 8-K dated December 15, 1998, is hereby incorporated herein by reference. (xxxiv)* Management agreement, dated as of December 18, 1998, by and between the Company and Robert P. Collins, effective November 3, 1998. (xxxv) Amendment and Restated Credit Agreement, dated as of December 31, 1998, Amendment No. 1, dated as of February 26, 1999, Amendment No. 2, dated as of March 1, 1999, and Amendment No. 3, dated as of March 2, 1999, by and between the Company and the Lenders Party hereto and General Electric Capital Corporation, as agent. (xxxvi) Aggregate Stop Loss Insurance Policy, dated December 31, 1998, by and between the Company and Princeton Eagle West Insurance Company Limited. (xxxvii) Stockholders Agreement, dated as of December 15, 1998, by and between the Company and RCBA Strategic Partners, L.P. 57 (xxxviii) The Registration Rights Agreement, dated December 16, 1998, by and between the Company and Richard C. Blum & Associates, L.P. (xxxix) Agreement, dated November 16, 1998 among the Company and Richard C. Blum & Associates, L.P., Richard C. Blum & Associates, Inc., and Richard C. Blum. (xl) Agreement, dated November 23, 1998 among the Company and Reich and Tang Asset Management, L.P. * Management contracts or compensatory plans filed pursuant to Item 14(c) of the Form 10-K. (21) Subsidiaries of the Company (23) Consents of Independent Public Accountants (27) Financial Data Schedule 58 EX-10.(XXXIV) 2 EXHIBIT 10 (XXXIV) Exhibit 10 (xxxiv) MANAGEMENT AGREEMENT This MANAGEMENT AGREEMENT ("Agreement") is entered into as of this 18th day of December, 1998, by and between Scott Technologies, Inc. (hereinafter called the "Company") and Robert P. Collins (the "Executive"). WHEREAS, the Executive is presently a member of the Company's Board of Directors; and WHEREAS, the Company desires to employ the Executive as Chairman of the Board of Directors; and WHEREAS, the Executive desires to serve the Company in such capacity; and WHEREAS, the Company and the Executive desire to set forth in a written agreement the terms and provisions of such employment and of certain payments to be made to the Executive under certain circumstances; NOW THEREFORE, in consideration of the foregoing, the mutual covenants and agreements set forth in this Agreement and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree as follows: Section 1. Term of Employment and Compensation The Company will employ the Executive in accordance with the terms and conditions set forth herein as of November 3, 1998 and extending for an initial period ending December 16, 1999 (the "initial period"), subject, however, to earlier termination as expressly provided herein. The Executive will serve the Company as Chairman of the Board of Directors or in such other future capacity as he and the Company might mutually agree and will devote a minimum of 25% of full business time and best efforts to the satisfactory discharge of the responsibilities of his office, performing such other duties as might reasonably be requested by the Company's Board of Directors. During the initial period the Executive will be paid a base salary at an annual rate of Two Hundred Thousand Dollars ($200,000.00) in installments which are no less frequently 61 than monthly, together with such increases as the Compensation Committee of the Board of Directors shall from time to time approve. The initial period will be automatically extended for one (1) year at the end of the initial period, and then again after each successive year thereafter. However, either party may terminate this Agreement at the end of the initial period, or at the end of any successive one (1) year term thereafter, by giving the other party written notice of intent not to renew, delivered at least three (3) months prior to the end of such initial period or successive term. In the event such notice of intent not to renew is properly delivered, the term of the employment of the Executive shall then become indefinite and can be terminated by the Company without notice. Similarly, subject to the provisions of this Agreement relating to nondisclosure of confidential information and non-interference with employees, customers and suppliers, the Executive can quit, at any time thereafter, without notice to the Company. Section 2. Benefit Plans and Insurance Except as otherwise provided in this Agreement or mutually agreed to in writing by the Company and the Executive, during his employment the Executive shall not be entitled to participate in any employee benefit plans or perquisites which are maintained or established by the Company from time to time. The Executive agrees to execute such additional waivers or other documents as may be necessary to accomplish such exclusion. The Executive further acknowledges that the Company may wish to maintain insurance on his life for its benefit and agrees to submit to any physical examination which may be required in order to obtain such insurance. Section 3. Expenses The Executive will be reimbursed for all reasonable expenses incurred by him in performing his duties hereunder provided that such expenses are incurred and accounted for 62 in accordance with the policies and procedures established by the Company. Section 4. Employment Terminations 4.1 Termination Due to Retirement or Death. In the event the Executive's employment is terminated by reason of retirement or death during the term of this Agreement, the Executive's employment with the Company shall be deemed terminated as of the effective date of retirement or at the end of the month in which such death occurs. In the event of retirement, the Executive shall comply with the provisions of Sections 5.1 and 5.2 hereof. For purposes of this Section 4.1, the determination of whether a termination qualifies as a retirement will be made in accordance with the then established rules and definitions of the Company's Retirement Income Plan II which are applicable to salaried employees of the Company regardless of whether the Executive is then a participant in such plan. 4.2 Termination Due to Disability. In the event the Executive during the term of this Agreement becomes, in the opinion of the Company and based upon reasonable medical opinion, so disabled as to be unable to satisfactorily perform his duties hereunder, the Company will have the right upon thirty (30) days written notice to the Executive to terminate the continued active service of the Chairman of the Board of Directors and the payment of compensation under this Agreement. In the event of disability, the Executive shall comply with the provisions of Sections 5.1 and 5.2 hereof. 4.3 Voluntary Termination by the Executive Other Than For Good Reason. The Executive may terminate his employment other than for Good Reason as such term is defined in Section 4.4 hereof at any time by giving the Company written notice of intent to terminate, delivered at least sixty (60) calendar days prior to the effective date of such termination. The Company will pay the Executive his full base salary, at the rate then in effect, through the effective date of such termination. The Executive shall comply with the provisions of Sections 63 5.1 and 5.2 hereof. 4.4 Voluntary Termination by the Executive With Good Reason. For purposes of this Agreement, an Executive shall be deemed to have terminated his employment for "Good Reason" if his termination of employment occurs: a. within four (4) months after a Change in Control; b. within four (4) months after: i. the Board of Directors of the Company shall fail to elect or re-elect or shall remove the Executive from the office of Chairman of the Board of Directors; ii. the Board of Directors of the Company shall make a significant negative change in the nature or scope of the authorities, powers, functions or duties of the Executive hereunder; iii. the Company shall fail to pay when due any compensation due and owing to the Executive or shall make a reduction in the Executive's then current base salary and such failure is not corrected within ten (10) days after notice thereof to the Company by the Executive; iv. any pattern of harassment which occurs within the first twelve (12) months after the execution of this Agreement, which is done with the approval of the Board of Directors of the Company and which impedes the Executive in the exercise of his authorities, powers, functions or duties hereunder in the manner in which they would normally be exercised by a Chairman of the Board of Directors; or v. the Board of Directors of the Company has given the Executive written notice of its intention not to renew this Agreement. 64 In the event that the Executive shall terminate his employment with Good Reason, he shall provide the Company with sixty (60) days advance notice of his date of termination of employment. 4.5 Termination by the Company Other Than For Cause. The Executive acknowledges that he is, has been and will continue at all times to be an at-will employee of the Company and as such his employment has been and continues to be terminable, subject to the terms and conditions of this Agreement, by either the Executive or the Company at any time upon notice to the other as provided for herein and for any reason not prohibited by law. 4.6 Termination by the Company For Cause. Nothing in this Agreement will be construed to prevent the Company from terminating the Executive's employment for Cause. As used herein, "Cause" will be determined by the Board of Directors of the Company in the exercise of good faith and reasonable judgment and will include (i) Executive's willful failure to perform his duties under this Agreement within a reasonable period of time after receipt of written notice from the Board of Directors of the Company setting forth in reasonable detail the duties which the Executive has failed to perform and the corrective actions expected of him; (ii) a breach of Executive's obligations under Section 5 below; (iii) indictment for, conviction of, or written confession to a crime against the Company or a felony; or (iv) Executive shall have been found by the Board of Directors of the Company to have been repeatedly and excessively abusing alcohol, drugs and/or any other intoxicating or controlled substance. Upon any such termination all rights, obligations and duties of the parties hereunder shall immediately cease, except Executive's obligations under Section 5 hereof. 4.7 Vesting of Stock Options. In the event of a Change in Control the Committee under the Option Plan will cause all stock options granted to the Executive pursuant to the Option Plan to become immediately exercisable as follows: 65 a. Service Based Options. Options which would otherwise become exercisable upon the passage of time regardless of the price of a Share of Common Stock of the Company shall become exercisable in full upon the Change in Control. b. Performance Based Options. Options which would otherwise become exercisable upon the attainment of a specified price of a Share of Common Stock of the Company shall become exercisable to the extent that the sales price in the Change in Control transaction satisfies the price targets set forth in the Option Agreement, without regard to the 20 consecutive day price maintenance requirement of the Option Agreement. In addition, to the extent that the sales price in the Change of Control is above $14.4375 per share of Class A Common Stock of the Company, is below $30 per share and is not equal to $18 or $24 per share ($14.4375, $18, $24 and $30 are hereinafter referred to as "price targets"), a part of the Option shall become exercisable equal to the number of Shares which would have become exercisable had the sales price been at the next highest price target multiplied by a fraction the numerator of which shall equal the amount by which the sales price in the Change of Control exceeds the next lower price target and the denominator of which shall equal the amount by which the next highest price target exceeds the next lower price target. In addition to the above provisions for with respect to the exercisability of the stock option shares in the event of a Change of Control, the Stock Option Committee may in its sole discretion, waive any or all remaining higher stock option price targets and determine to make any or all of such remaining shares exercisable. 66 Such stock options as become exercisable in accordance with the preceding provisions shall remain so exercisable until their expiration. The "price targets" referred to in the preceding paragraph will be adjusted for any stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization, spin-off, split-off, split-up or other such change in accordance with the provisions of Section 8 of the Stock Option Agreement between the Executive and the Company. Section 5. Covenants 5.1 Disclosure or Use of Information. The Executive will at all times during and after the term of his employment by the Company keep and maintain the confidentiality of all Confidential Information and will not at any time either directly or indirectly use such information for his own benefit or otherwise divulge, disclose or communicate such information to any person or entity in any manner whatsoever other than employees or agents of the Company or its Affiliates who have a need to know such information and then only to the extent necessary to perform their responsibilities on behalf of the Company or its Affiliates. As used herein, "Confidential Information" will mean any and all information (excluding information in the public domain) which relates to the business of the Company and its Affiliates including without limitation all patents and patent applications, copyrights applied for, issued to or owned by the Company or any of its Affiliates, inventions, trade secrets, computer programs, engineering and technical data, drawings or designs, manufacturing techniques, information concerning pricing and pricing policies, marketing techniques, suppliers, methods and manner of operations, and information relating to the identity and/or location of all past, present and prospective customers of the Company and its Affiliates. 5.2 Co-operation. During the term of this Agreement and for a period of twenty-four (24) 67 months following its termination, the Executive will not attempt to induce any employee of the Company or an Affiliate to terminate his or her employment with the Company or an Affiliate nor will he take any action with respect to any of the suppliers or customers of the Company and its Affiliates which would have or might be likely to have an adverse effect upon the business of the Company and its Affiliates. Executive hereby agrees not to make any statement or take any action, directly or indirectly, that will disparage or discredit the Company and its Affiliates, their Officers, Directors of the Company, their employees or any of their products, or in any way damage their reputation or ability to do business or conduct their affairs. Executive agrees that subsequent to his termination of employment he will, in conjunction with a Company request, reasonably co-operate with the Company in connection with transition matters, disputes and litigation matters upon reasonable notice, at reasonable times, and will be paid or reimbursed for reasonable expenses incurred by the Executive relating to such matters. 5.3 Injunctive Relief. In the event of a breach or threatened breach of any of the provisions of this Section 5 by the Executive, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions thereof and the Company will be entitled to pursue such other remedies at law or in equity as it deems appropriate. Section 6. Miscellaneous 6.1 Successors. This Agreement is personal to the Executive and will not be assignable by him without the prior written consent of the Company. This Agreement may be assigned or transferred to and will be binding upon and inure to the benefit of any Successor of the Company. As used herein, the term "Successor" will include any person, firm, corporation or business entity which acquires all or substantially all of the assets or succeeds to the business of the Company. 68 6.2 Entire Agreement. This Agreement supersedes any prior agreements or understandings, oral or written, between the Executive and the Company with respect to the subject matter hereof and constitutes the entire agreement of the parties with respect thereto. 6.3 Modification. This Agreement will not be varied, altered, modified, canceled, changed, or in any way amended except by mutual agreement in a written instrument executed by the Company and the Executive or their legal representatives. 6.4 Tax Withholding. The Company may withhold from any benefits payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 6.5 Governing Law. To the extent not preempted by federal law, the provisions of this Agreement will be construed and enforced in accordance with the laws of the State of Ohio. 6.6 Indemnification. The Company has obtained an opinion of Arthur Andersen LLP that the payments and benefits under this Agreement do not exceed the maximum amount which can be paid to the Executive without incurring an excise tax under Section 4999 of the Internal Revenue Code. If the Internal Revenue Service asserts that the amounts payable to the Executive under this Agreement nonetheless give rise to an excise tax under Section 4999 of the Internal Revenue Code and the Executive co-operates with the Company in appealing the determination of the Internal Revenue Service through whatever level of administrative or judicial appeals is deemed appropriate by the Company, the Company shall indemnify the Executive for the amount of such excise tax, for any interest and penalties applicable thereto, and for any income or excise taxes payable on such indemnification. The Company shall pay all costs of challenging the determination that the excise tax applies to payments hereunder including any administrative costs, court costs, attorney fees, and accounting fees, whether incurred by the 69 Company or incurred by the Executive. 6.7 Definitions. a. The term "Affiliate" shall mean any entity controlling, controlled by or under common control with the Company, including, but not limited to, divisions and subsidiaries of the Company. b. The term "Change in Control" shall include: i. the receipt by the Company of a Schedule 13D or other advice after the date of execution of this Agreement indicating that a person is the "beneficial owner" (as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934) of fifty percent (50%) or more of the Company's common stock of any class or any securities convertible in such common stock calculated as provided in paragraph (d) of said Rule 13d-3; iii. the date of approval by stockholders of the Company of an agreement providing for any consolidation or merger of the Company in which the Company will not be the continuing or surviving corporation or pursuant to which shares of capital stock, of any class or any securities convertible into such capital stock, of the Company would be converted into cash, securities, or other property, other than a merger of the Company in which the holders of common stock of all classes of the Company immediately prior to the merger would have the same proportion of ownership of common stock of the surviving corporation immediately after the merger; 70 iv. the date of the approval by stockholders of the Company of any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company; v. the adoption of any plan or proposal for the liquidation (but not a partial liquidation) or dissolution of the Company; or vi. such other event as the Compensation Committee of the Board of Directors shall, in its sole and absolute discretion, deem to be a "Change in Control." IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement as of the day and year first above written. Scott Technologies, Inc. By: /s/ ------------------------- Glen Lindemann And: /s/ ------------------------- Debra L. Kackley /s/ ------------------------- Robert P. Collins 71 EX-10.(XXXV) 3 EXHIBIT 10 (XXXV) Exhibit 10 (xxxv) U.S. $150,000,000 AMENDED AND RESTATED CREDIT AGREEMENT Dated as of December 31, 1998 between SCOTT TECHNOLOGIES, INC. (formerly Figgie International Inc.) as Borrower and THE LENDERS PARTY HERETO and GENERAL ELECTRIC CAPITAL CORPORATION as Agent 72 TABLE OF CONTENTS Page 1. AMOUNT AND TERMS OF CREDIT 7 1.1. Credit Facilities 7 1.2. Prepayments 11 1.3. Use of Proceeds 13 1.4. Interest and Applicable Margins 13 1.5. [Reserved.] 17 1.6. Fees 17 1.7. Cash Management System 18 1.8. Receipt of Payments 18 1.9. [Reserved.] 18 1.10. Application and Allocation of Payments 18 1.11. Non-Receipt of Funds by Agent 19 1.12. Sharing of Payments, Etc. 20 1.13. [Reserved.] 21 1.14. Accounting 21 1.15. Indemnity 21 1.16. Access; Confidentiality 22 1.17. Taxes 24 1.18. Capital Adequacy; Increased Costs; Illegality 26 1.19. Letters of Credit 27 1.20. Single Loan 27 2. CONDITIONS PRECEDENT 27 2.1. Conditions to Effectiveness of this Agreement 27 2.2. Further Conditions to Initial and Each Subsequent Loan and Incurrence of a Letter of Credit Obligation 28 3. REPRESENTATIONS AND WARRANTIES 29 3.1. Corporate Existence; Compliance with Law 29 3.2. Executive Offices; Corporate or Other Names 29 3.3. Corporate Power; Authorization; Enforceable Obligations 30 3.4. Financial Statements and Projections 30 3.5. Material Adverse Change; Solvency 31 3.6. Ownership of Real Property; Liens 32 3.7. Restrictions; No Default; Material Contracts 32 3.8. Labor Matters 33 3.9. Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness; Unrestricted Subsidiaries 33 3.10. Government Regulation 34 3.11. Margin Regulations 34 3.12. Taxes 34 3.13. ERISA 35 3.14. No Litigation 36 3.15. Brokers 36 3.16. Patents, Trademarks, Copyrights and Licenses 36 73 3.17. Hazardous Materials 37 3.18. Insurance Policies 37 3.19. Blocked Accounts and Lock Boxes 37 3.20. Year 2000 Representations 37 3.21. Continuance of Collateral Documents; Substitution 37 4. FINANCIAL STATEMENTS AND INFORMATION 38 4.1. Reports and Notices 38 4.2. Communication with Accountants 38 5. AFFIRMATIVE COVENANTS 38 5.1. Maintenance of Existence and Conduct of Business 38 5.2. Payment of Charges and Claims 39 5.3. Books and Records 39 5.4. Litigation 39 5.5. Insurance; Casualty and Condemnation 39 5.6. Compliance with Laws 41 5.7. Agreements 41 5.8. Supplemental Disclosure 42 5.9. Environmental Matters 42 5.10. Landlord's and Bailee's/Warehousemen's Agreements 42 5.11. Certain Obligations Respecting Subsidiaries 43 5.12. Application of Proceeds 43 5.13. Fiscal Year 43 5.14. Employee Plans 43 5.15. Intellectual Property 43 5.16. Year 2000 Problems 44 6. NEGATIVE COVENANTS 44 6.1. Mergers, Subsidiaries, Etc 44 6.2. Investments 46 6.3. Indebtedness 46 6.4. Affiliate and Employee Loans and Transactions; Employment Agreements 47 6.5. Capital Structure and Business 48 6.6. Guaranteed Indebtedness 49 6.7. Liens 49 6.8. Sale of Assets 50 6.9. ERISA 50 6.10. Financial Covenants 50 6.11. Hazardous Materials 51 6.12. Sale-Leasebacks 51 6.13. Cancellation of Indebtedness; Amendments 51 6.14. Restricted Payments 51 6.15. [Reserved.] 52 6.16. Blocked Accounts 52 6.17. No Speculative Transactions 52 6.18. Margin Regulations 52 6.19. Limitation on Negative Pledge Clauses 52 6.20. Accounting Changes; Fiscal Year 52 74 7. TERM 53 7.1. Duration 53 7.2. Survival of Obligations 53 8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES 53 8.1. Events of Default 53 8.2. Remedies 55 8.3. Waivers by Borrower 56 9.AGENT 56 9.1. Appointment, Powers and Immunities 56 9.2. Reliance by Agent 57 9.3. Defaults 57 9.4. Rights as a Lender 57 9.5. Indemnification 57 9.6. Non-Reliance on Agent and Other Lenders 58 9.7. Failure to Act 58 9.8. Resignation of Agent 58 9.9. Consents under Loan Documents 59 9.10. Collateral Matters 59 9.11. Advances; Payments; Non-Funding Lenders; Information; Actions in Concert 60 10.SUCCESSORS AND ASSIGNS 62 10.1. Successors and Assigns 62 10.2. Assignments and Participations 62 11. MISCELLANEOUS 64 11.1. Complete Agreement; Modification of Agreement 64 11.2. Fees and Expenses 65 11.3. No Waiver 66 11.4. Remedies 66 11.5. Severability 66 11.6. Conflict of Terms 66 11.7. Right of Set-off 66 11.8. Authorized Signature 67 11.9. GOVERNING LAW 67 11.10. Notices 68 11.11. Section Titles 69 11.12. Counterparts 69 11.13. Time of the Essence 69 11.14. WAIVER OF JURY TRIAL 69 11.15. Press Releases; Publicity 70 11.16. Reinstatement 70 11.17. Advice of Counsel 70 11.18. No Strict Construction 70 75 INDEX OF APPENDICES Annex A - Definitions Annex B - Cash Management System Annex C - Schedule of Closing Documents Annex D - Financial Statements, Projections and Notices Annex E - Insurance Requirements Annex F - Letters of Credit Annex G - Lenders' Wire Transfer Information Schedule 3.2 - Executive Offices; Trade Names Schedule 3.5 - Material Adverse Change; Solvency Schedule 3.6 - Real Estate and Leases Schedule 3.7 - Material Contracts Schedule 3.8 - Labor Matters Schedule 3.9 - Ventures, Subsidiaries and Affiliates; Outstanding Stock Schedule 3.12 - Tax Matters Schedule 3.13 - ERISA Plans Schedule 3.14 - Litigation Schedule 3.16 - Patents, Trademarks, Copyrights and Licenses Schedule 3.17 - Hazardous Materials Schedule 3.18 - Insurance Policies Schedule 3.19 - Disbursement and Deposit Accounts Schedule 6.2 - Investments Schedule 6.3 - Indebtedness Schedule 6.4 - Loans to and Transactions with Employees Schedule 6.6 - Guarantees Schedule 6.7 - Liens Schedule 6.8 - Asset Dispositions Schedule 6.12 - Sale-Leaseback Transactions Schedule 6.19 - Negative Pledge Clauses Schedule 11.8 - Authorized Signatures Exhibit A-1 - Form of Notice of Revolving Credit Advance Exhibit A-2 - Form of Notice of Term Loan Advance Exhibit A-3 - Form of Notice of Conversion/Continuation Exhibit B - Form of Borrowing Base Certificate Exhibit C-1 - Form of Revolving Credit Note Exhibit C-2 - Form of Term Note Exhibit C-3 - Form of Swing Line Note Exhibit D - Form of Borrower Security Agreement Exhibit E - Form of Borrower Pledge Agreement Exhibit F - Form of Assignment Agreement Note: Appendices other than Annex-A "Definitions" have not been included in the Company's filing but will be made available to the S.E.C. upon request. 76 AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 31, 1998, among SCOTT TECHNOLOGIES, INC. (formerly Figgie International Inc.), a Delaware corporation ("Borrower"), the lenders listed on the signature pages hereof or which pursuant to Section 10.2 shall become a "Lender" hereunder (each individually, a "Lender" and collectively, "Lenders"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (in its individual capacity, "GE Capital"), as agent hereunder for Lenders (in such capacity, together with its successors in such capacity, "Agent"). RECITALS WHEREAS, Borrower has entered into the Credit Agreement, dated as of December 19, 1995 (as amended, the "Original Credit Agreement"), with GE Capital as agent and sole lender; WHEREAS, Borrower and GE Capital, as agent and sole lender under the Original Credit Agreement, desire to amend and restate such Original Credit Agreement; WHEREAS, capitalized terms used herein shall have the meanings ascribed to them on Annex A. All Schedules, Annexes, Attachments, Exhibits and other attachments hereto (collectively, "Appendices"), or expressly identified to this Agreement, are incorporated herein by reference, and taken together, shall constitute but a single agreement. Unless otherwise expressly set forth herein, or in a written amendment referring to such Appendices, all Appendices referred to herein shall mean the Appendices as in effect at the Closing Date. As used herein, the plural shall include the singular, the singular includes the plural, and pronouns in any gender (masculine, feminine or neuter) all apply to all genders. These Recitals shall be construed as part of this Agreement. WHEREAS, Borrower, Agent and Lenders hereby agree that upon the effectiveness of this Agreement, the terms and provisions of the Original Credit Agreement shall be and hereby are amended and restated in their entirety by the terms and conditions of this Agreement and the terms and provisions of the Original Credit Agreement shall be superseded by this Agreement; WHEREAS, notwithstanding the amendment and restatement of the Original Credit Agreement by this Agreement, Borrower shall continue to be liable to Lenders with respect to agreements and obligations on the part of Borrower under the Original Credit Agreement to indemnify and hold harmless Lenders from and against all claims, demands, liabilities, damages, losses, costs, charges and expenses to which any Lender may be subject arising in connection with the Original Credit Agreement; WHEREAS, notwithstanding the amendment and restatement of the Original Credit Agreement by this Agreement, all of the indebtedness, liabilities and obligations owing by Borrower under the Original Credit Agreement shall continue to be secured by the "Collateral" (as defined in the Original Credit Agreement) and Borrower acknowledges and agrees that such "Collateral" remains subject to a security interest in favor of Agent for the benefit of Lenders and to secure the obligations of Borrower re-evidenced by this 77 Agreement; and NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree that the Original Credit Agreement is hereby amended and restated in its entirety to read as set forth above and as follows: 1. AMOUNT AND TERMS OF CREDIT 1.1. Credit Facilities. (a) Revolving Credit Facility. (i) Subject to the terms and conditions hereof, each Revolving Lender agrees to make available, from time to time, from the Closing Date until the Commitment Termination Date, for Borrower's use and upon the request of Borrower therefor to Agent, advances (each, together with any payments made in respect of any Letter of Credit Obligations which are automatically deemed to constitute Advances pursuant to paragraph (b) of Annex F, a "Revolving Credit Advance"). The Pro Rata Share of the Revolving Credit Loan of any Revolving Lender shall not exceed its separate Revolving Credit Commitment. The aggregate principal amount of Revolving Credit Advances outstanding shall not exceed at any time the lesser of (x) the Borrowing Availability and (y) the Revolving Credit Commitment less such Reserves as Agent determines in its reasonable credit judgment. Until the Commitment Termination Date, Borrower may from time to time borrow, repay and reborrow Revolving Credit Advances under this Section 1.1(a). (ii) Borrower shall give Agent (which shall promptly notify Revolving Lenders) notice of each borrowing hereunder as provided in Section 1.1(a)(iii) and, subject to Section 9.11, on the date specified for such borrowing each Revolving Lender shall make available the amount of the Revolving Credit Advance or Advances to be made by it on such date to Agent to such account of Agent as Agent may designate, in immediately available funds, for the account of Borrower. (iii) Each notice of a borrowing of a Revolving Credit Advance shall be given in writing (by telecopy, hand delivery, or U.S. mail) by Borrower to Agent at its address at 201 High Ridge Road, Stamford, Connecticut 06927-5100, Attention: Portfolio Analyst, Telephone No. (203) 708-1036, Telecopy No. (203) 316-7817, given no later than 11:00 a.m. (New York City time) on the Business Day of the proposed Revolving Credit Advance. Each such notice of borrowing (a "Notice of Revolving Credit Advance") shall be substantially in the form of Exhibit A-1, specifying therein the requested date, the amount of such Revolving Credit Advance, the Type or Types of advance comprising such Revolving Credit Advance and the amount of each such Type, and the LIBO Rate Period for each such Revolving Credit Advance which is a LIBO Rate Loan. Each Revolving Credit Advance shall be deemed to be an Index Rate Loan unless otherwise specified by Borrower in the Notice of Revolving Credit Advance delivered to Agent in relation to such Revolving Credit Advance in accordance with the procedures and time set forth in this 78 Section 1.1(a)(iii). Agent and Lenders shall be entitled to rely upon and shall be fully protected under this Agreement in relying upon any Notice of Revolving Credit Advance believed by Agent to be genuine and to assume that the persons executing and delivering the same were duly authorized unless the responsible individual acting thereon for Agent shall have actual knowledge to the contrary. Each LIBO Rate Loan shall be in a minimum amount of at least $5,000,000 or an integral multiple of $1,000,000 in excess thereof. (iv) The Revolving Credit Advances made by each Lender shall be evidenced by a single promissory note of Borrower for each Lender substantially in the form of Exhibit C-1, dated the date hereof, payable to such Lender in a principal amount equal to the amount of its Revolving Credit Commitment as originally in effect and otherwise duly completed. The date, amount, Type and interest rate of each Revolving Credit Advance of each Type made by each Lender and each payment of principal with respect thereto shall be recorded on the books and records of such Lender which books and records shall constitute prima facie evidence of the accuracy of the information therein recorded. The entire unpaid balance of the Revolving Credit Loan shall be immediately due and payable on the Commitment Termination Date. (v) Borrower shall furnish to Agent and each Lender a Borrowing Base Certificate, substantially in the form of Exhibit B, completed and signed by a Responsible Officer, which sets forth a calculation of the Borrowing Base at the times and for the periods set forth in Annex D. Borrower may furnish to Agent and each Lender more frequent Borrowing Base Certificates. (b) Term Loan Facility. (i) Subject to the terms and conditions hereof, each Term Lender agrees to make available, from time to time, from the Closing Date until October 15, 1999 (the "Commencement Date"), for Borrower's use and upon the request of Borrower therefor to Agent, term loans in minimum $10,000,000 increments (each a "Term Loan Advance"; collectively, the "Term Loan"). The Pro Rata Share of the Term Loan of any Term Lender shall not exceed its separate Term Loan Commitment. The aggregate principal amount of the Term Loan outstanding shall not exceed at any time the Term Loan Commitment. (ii) Borrower shall give Agent (which shall promptly notify Term Lenders) notice of each borrowing hereunder as provided in Section 1.1(b)(iii) and, subject to Section 9.11, on the date specified for such borrowing each Term Lender shall make available the amount of the Term Loan Advance to be made by it on such date to Agent to such account of Agent as Agent may designate, in immediately available funds, for the account of Borrower. (iii) Each notice of a borrowing of a Term Loan Advance shall be given in writing (by telecopy, hand delivery, or U.S. mail) by Borrower to Agent at its address at 201 High Ridge Road, Stamford, Connecticut 06927-5100, Attention: Portfolio Analyst, Telephone No. (203) 708-1036, Telecopy No. (203) 316-7817, given no later than 79 11:00 a.m. (New York City time) on the Business Day of the proposed Term Loan Advance. Each such notice of borrowing (a "Notice of Term Loan Advance") shall be substantially in the form of Exhibit A-2, specifying therein the requested date, the amount of such Term Loan, the Type or Types of advance comprising such Term Loan Advance and the amount of each such Type, and the LIBO Rate Period for each such Term Loan Advance which is a LIBO Rate Loan. Each Term Loan Advance shall be deemed to be an Index Rate Loan unless otherwise specified by Borrower in the Notice of Term Loan Advance delivered to Agent in relation to such Revolving Advance in accordance with the procedures and time set forth in this Section 1.1(b)(iii). Agent and Lenders shall be entitled to rely upon and shall be fully protected under this Agreement in relying upon any Notice of Term Loan Advance believed by Agent to be genuine and to assume that the persons executing and delivering the same were duly authorized unless the responsible individual acting thereon for Agent shall have actual knowledge to the contrary. Each LIBO Rate Loan shall be in a minimum amount of at least $5,000,000 or an integral multiple of $1,000,000 in excess thereof. (iv) The Term Loan shall be evidenced by promissory notes substantially in the form of Exhibit C-2, and Borrower shall execute and deliver a Term Note to each Term Lender. Each Term Note shall represent the obligation of Borrower to pay the amount of the applicable Term Lender's Term Loan Commitment, together with interest thereon as prescribed in Section 1.4. (v) Borrower shall pay the principal amount of the Term Loan in twenty (20) consecutive quarterly installments on the first Business Day of January, April, July and October of each year, commencing January 2, 2000, and in the percentage amounts of the aggregate principal amount of the Term Loan outstanding on the Commencement Date (such aggregate being the "Aggregate Term Amount"), as follows: Installment Amount (Percentage of Aggregate Term Amount Payment Date on Commencement Date) ------------ --------------------- January 2, 2000 1.67% April 1, 2000 1.67% July 1, 2000 1.67% October 1, 2000 1.67% January 2, 2001 3.33% April 1, 2001 3.33% July 1, 2001 3.33% October 1, 2001 3.33% January 2, 2002 5.00% April 1, 2002 5.00% July 1, 2002 5.00% 80 October 1, 2002 5.00% January 2, 2003 6.67% April 1, 2003 6.67% July 1, 2003 6.67% October 1, 2003 6.67% January 2, 2004 8.33% April 1, 2004 8.33% July 1, 2004 8.33% October 1, 2004 Balance Notwithstanding the foregoing, the aggregate outstanding principal balance of the Term Loan shall be due and payable in full in immediately available funds on the Commitment Termination Date, if not sooner paid in full. (vi) Each scheduled payment and each prepayment of principal with respect to the Term Loan shall be paid to Agent for the ratable benefit of each Term Lender, ratably in proportion to and in reduction of each such Term Lender's respective Term Loan Commitment. (vii) Additional Term Lenders may become parties hereto and existing Term Lenders may increase their Term Loan Commitments in each case with the consent of the Agent and, so long as no Event of Default has occurred and is continuing, Borrower, which consent of Borrower shall not be unreasonably withheld, denied or delayed, from time to time until the first to occur of: (x) November 1, 1999 or (y) until the aggregate Term Loan Commitments of all Term Lenders equals $75,000,000. Each Term Lender shall have and maintain a Term Loan Commitment of at least $5,000,000. (c) Swing Line Facility. (i) Agent shall notify the Swing Line Lender upon Agent's receipt of any Notice of Revolving Credit Advance. Subject to the terms and conditions hereof, the Swing Line Lender may, in its discretion, make available from time to time until the Commitment Termination Date advances (each, a "Swing Line Advance") in accordance with any such notice. The aggregate amount of Swing Line Advances outstanding shall not exceed the lesser of (A) the Swing Line Commitment and (B) the lesser of the Maximum Amount and the Borrowing Base, in each case, less the outstanding balance of the Revolving Credit Loan at such time ("Swing Line Availability"). Until the Commitment Termination Date, Borrower may from time to time borrow, repay (including repayment from proceeds from any Revolving Credit Loan which is a LIBO Rate Loan) and reborrow under this Section 1.1(c). Each Swing Line Advance shall be made pursuant to a Notice of Revolving Credit Advance delivered by Borrower to Agent in accordance with Section 1.1(a)(iii). Those notices must be given no later than 11:00 a.m. (New York time) on the Business Day of the proposed Swing Line Advance. Notwithstanding any other provision of this Agreement or the other Loan Documents, the Swing Line Loan shall constitute an Index Rate Loan. Borrower shall repay the aggregate outstanding principal 81 amount of the Swing Line Loan upon demand therefor by Agent. (ii) Borrower shall execute and deliver to the Swing Line Lender a promissory note to evidence the Swing Line Commitment. Such note shall be in the principal amount of the Swing Line Commitment of the Swing Line Lender, dated the Closing Date and substantially in the form of Exhibit C-3 (the "Swing Line Note"). The Swing Line Note shall represent the obligation of Borrower to pay the amount of the Swing Line Commitment or, if less, the aggregate unpaid principal amount of all Swing Line Advances made to Borrower together with interest thereon as prescribed in Section 1.4. The entire unpaid balance of the Swing Line Loan and all other non-contingent Obligations shall be immediately due and payable in full in immediately available funds on the Commitment Termination Date if not sooner paid in full. (iii) The Swing Line Lender, at any time and from time to time in its sole and absolute discretion may on behalf of Borrower (and Borrower hereby irrevocably authorizes the Swing Line Lender to so act on its behalf) request each Revolving Lender (including the Swing Line Lender) to make a Revolving Credit Advance to Borrower (which shall be an Index Rate Loan) in an amount equal to such Revolving Lender's Pro Rata Share of the principal amount of the Swing Line Loan (the "Refunded Swing Line Loan") outstanding on the date such notice is given. Unless any of the events described in Sections 8.1(g) or 8.1(h) shall have occurred (in which event the procedures of Section 1.1(c)(iv) shall apply) and regardless of whether the conditions precedent set forth in this Agreement to the making of a Revolving Credit Advance are then satisfied, each Revolving Lender shall disburse directly to Agent, its Pro Rata Share of a Revolving Credit Advance on behalf of the Swing Line Lender, prior to 3:00 p.m. (New York time), in immediately available funds on the Business Day next succeeding the date such notice is given. The proceeds of such Revolving Credit Advances shall be immediately paid to the Swing Line Lender and applied to repay the Refunded Swing Line Loan. (iv) If, prior to refunding a Swing Line Loan with a Revolving Credit Advance pursuant to Section 1.1(c)(iii), one of the events described in Sections 8.1(g) or 8.1(h) shall have occurred, then, subject to the provisions of Section 1.1(c)(v) below, each Revolving Lender will, on the date such Revolving Credit Advance was to have been made for the benefit of Borrower, purchase from the Swing Line Lender an undivided participation interest in the Swing Line Loan in an amount equal to its Pro Rata Share of such Swing Line Loan. Upon request, each Revolving Lender will promptly transfer to the Swing Line Lender, in immediately available funds, the amount of its participation. (v) Each Revolving Lender's obligation to make Revolving Credit Advances in accordance with Section 1.1(c)(iii) and to purchase participating interests in accordance with Section 1.1(c)(iv) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Revolving Lender may have against the Swing Line Lender, Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of any Default or Event of Default; (C) any inability of Borrower to satisfy the 82 conditions precedent to borrowing set forth in this Agreement on the date upon which such participating interest is to be purchased or (D) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If any Revolving Lender does not make available to Agent or the Swing Line Lender, as applicable, the amount required pursuant to Section 1.1(c)(iii) or 1.1(c)(iv), as the case may be, the Swing Line Lender shall be entitled to recover such amount on demand from such Revolving Lender, together with interest thereon for each day from the date of non-payment until such amount is paid in full at the Federal Funds Rate for the first two Business Days and at the Index Rate thereafter. (d) Reliance on Notices. Agent shall be entitled to rely upon, and shall be fully protected in relying upon, any Notice of Revolving Credit Advance, Notice of Conversion/Continuation or similar notice believed by Agent to be genuine. Agent may assume that each Person executing and delivering such a notice was duly authorized, unless the responsible individual acting thereon for Agent has actual knowledge to the contrary. 1.2. Prepayments. (a) Voluntary Prepayments. Borrower may at any time on at least five (5) days' prior written notice to Agent voluntarily prepay all or part of the Term Loan; provided that any such prepayments shall be in a minimum amount of $5,000,000. The amount of any prepayment of the Term Loan may not be reborrowed by Borrower. In addition, Borrower may at any time on at least ten (10) days' prior written notice to Agent terminate the Revolving Credit Loan Commitment; provided that upon such termination, all Loans and other Obligations shall be immediately due and payable in full. Any such voluntary prepayment and any such termination of the Revolving Credit Loan Commitment must be accompanied by the payment of any LIBO Rate funding breakage costs in accordance with Section 1.15(c) and all due but unpaid interest and Fees. Upon any such prepayment and termination of the Revolving Credit Loan Commitment, Borrower's right to request Revolving Credit Advances, or request that Letter of Credit Obligations be incurred on its behalf, or request Swing Line Advances, shall simultaneously be terminated. Any partial prepayments of the Term Loan made by Borrower shall be applied to ratably prepay the scheduled installments of the Term Loan. (b) Mandatory Prepayments. (i) If at any time the outstanding balance of the Revolving Credit Loan exceeds the lesser of (A) the Maximum Amount and (B) the Borrowing Base, less, in each case, the outstanding Swing Line Loan at such time, Borrower shall immediately repay the aggregate outstanding Revolving Credit Advances to the extent required to eliminate such excess. If any such excess remains after repayment in full of the aggregate outstanding Revolving Credit Advances, Borrower shall provide cash collateral for the Letter of Credit Obligations in the manner set forth in Annex F to the extent required to eliminate such excess. (ii) Immediately upon receipt by any Loan Party of any Net Proceeds, Borrower shall prepay the Loans in an amount equal to all such Net Proceeds in 83 excess of $10,000,000 in the aggregate. Net Proceeds, for purposes of this Section 1.2(b)(ii) shall include condemnation proceeds, but shall exclude (a) Net Proceeds of asset dispositions permitted by Section 6.8(i) and (b) in the absence of an Event of Default, Net Proceeds of (x) the Snorkel Sale and (y) the Dispositions; provided, however, that in the case of the Dispositions occurring prior to the repayment in full of the Senior Notes, if Net Borrowing Availability (prior to taking into effect the repayment in full of the Senior Notes) does not exceed $40,000,000 at such time, Borrower shall deposit such Net Proceeds thereof in an escrow account on terms acceptable to the Agent for the purposes of satisfying its payment obligations under the Senior Notes (with any excess Net Proceeds being released to Borrower after repayment in full of the Senior Notes). Any such prepayment shall be applied in accordance with clause (c) below. (iii) Upon the occurrence and during the continuance of an Event of Default or if the Net Borrowing Availability (prior to taking into effect the repayment in full of the Senior Notes) does not exceed $40,000,000, Borrower shall prepay the Loans in an amount equal to all proceeds from the sale or issuance of equity or debt securities no later than the Business Day following the date of receipt of such proceeds, net of underwriting discounts and commissions and other reasonable costs paid to non-Affiliates in connection therewith. Any such prepayment shall be applied in accordance with clause (c) below. (iv) From January 1, 2001 until the Termination Date, Borrower shall prepay the Obligations on the earlier of the date which is ten (10) days after (A) the date on which Borrower's annual audited Financials for the immediately preceding Fiscal Year are delivered pursuant to Annex D or (B) the date on which such annual audited Financials were required to be delivered pursuant to Annex D, in an amount equal to twenty-five percent (25%) of Excess Cash Flow for the immediately preceding Fiscal Year. Any prepayments from Excess Cash Flow paid pursuant to this clause (iv) shall be applied in accordance with clause (c) below. Each such prepayment shall be accompanied by a certificate signed by a Responsible Officer of Borrower certifying the manner in which Excess Cash Flow and the resulting prepayment were calculated, which certificate shall be in form and substance satisfactory to Agent. (c) Application of Certain Mandatory Prepayments. Any prepayments made by Borrower pursuant to clauses (b)(ii), (b)(iii), or (b)(iv) above shall be applied as follows: first, to Fees and reimbursable expenses of Agent then due and payable pursuant to any of the Loan Documents; second, to interest then due and payable on the Term Loan; third, to ratably prepay the scheduled installments of the Term Loan, until such Loan shall have been prepaid in full; fourth, to interest then due and payable on the Swing Line Loan; fifth, to the principal balance of the Swing Line Loan until the same shall have been repaid in full; sixth, to interest then due and payable on the Revolving Credit Advances; seventh, to the outstanding principal balance of Revolving Credit Advances until the same shall have been paid in full; and eighth, to any Letter of Credit Obligations, to provide cash collateral therefor to the extent required in Annex F, until all such Letter of Credit Obligations have been fully cash collateralized in the manner set forth in Annex F. Neither the Revolving Credit Commitment nor the Swing Line Commitment shall be permanently reduced by the 84 amount of any such prepayments. (d) Application of Prepayments from Insurance Proceeds. Prepayments from insurance proceeds in accordance with Section 5.5(d) shall be applied ratably among the Swing Line Loans, the Revolving Credit Advances and the scheduled installments of the Term Loan. Neither the Revolving Credit Commitment nor the Swing Line Commitment shall be permanently reduced by the amount of any such prepayments. (e) Nothing in this Section 1.2 shall be construed to constitute Agent's or any Lender's consent to any transaction referred to in clauses (b)(ii) and (b)(iii) above which is not permitted by other provisions of this Agreement or the other Loan Documents. 1.3. Use of Proceeds. (a) Borrower shall use the proceeds of the Revolving Credit Advances to provide for (i) Permitted Acquisitions, (ii) Permitted Senior Note Purchases, (iii) Permitted Stock Buy Backs, (iv) Capital Expenditures, (v) Letter of Credit Obligations and (vi) general corporate purposes, and to pay any losses, costs or expenses payable by Borrower pursuant to Section 1.15(c). (b) Borrower shall use the proceeds of the Term Loan to provide for (i) Permitted Senior Note Purchases (either directly or indirectly in replacement of any Revolving Credit Advances made for such purposes) and (ii) the refinancing of the Senior Notes at their maturity. 1.4. Interest and Applicable Margins. (a) Borrower shall pay interest to Agent, for the ratable benefit of Lenders in accordance with the various Loans being made by each Lender, in arrears on each applicable Interest Payment Date, at the following rates: (i) with respect to the Revolving Credit Advances, the Index Rate plus the Applicable Revolver Index Margin per annum or, at the election of Borrower, the applicable LIBO Rate plus the Applicable Revolver LIBO Rate Margin per annum, based on the aggregate Revolving Credit Advances outstanding from time to time; (ii) with respect to the Term Loan, the Index Rate plus the Applicable Term Loan Index Margin per annum or, at the election of Borrower, the applicable LIBO Rate plus the Applicable Term Loan LIBO Rate Margin per annum; and (iii) with respect to the Swing Line Loan, the Index Rate plus the Applicable Revolver Index Margin per annum. The Applicable Revolver Index Margin, Applicable Term Loan Index Margin, Applicable Revolver LIBO Rate Margin, Applicable Term Loan LIBO Rate Margin, Applicable L/C Margin and Applicable Unused Line Fee Margin will be 1.00%, 1.00%, 2.50%, 2.50%, 1.75%, and 0.50% per annum, respectively, as of the Closing Date. The Applicable Margins will be adjusted (up or down) prospectively on a quarterly basis as determined by Borrower's consolidated financial performance, commencing with the first day of the first calendar month that occurs more than five (5) days after delivery of 85 Borrower's quarterly Financials to Lenders for the Fiscal Quarter ending December 31, 1999. Adjustments in Applicable Margins will be determined by reference to the following grids: Applicable Margins Level of If Leverage Ratio is: Applicable Margins: --------------------- ------------------- >4.00 Level I >3.50, but a 4.00 Level II >3.00, but a 3.50 Level III >2.50, but a 3.00 Level IV < = 2.50 Level V Applicable Margins Level I Level II Level III Level IV Level V Applicable Revolver 1.50% 1.25% 1.00% 0.75% 0.25% Index Margin Applicable Revolver 3.00% 2.75% 2.50% 2.25% 1.75% LIBO Rate Margin Applicable Term Loan 1.50% 1.25% 1.00% 0.75% 0.25% Index Margin Applicable Term Loan 3.00% 2.75% 2.50% 2.25% 1.75% LIBO Rate Margin Applicable L/C Margin 2.25% 2.00% 1.75% 1.50% 1.00% Applicable Unused Line Fee Margins Level of Applicable If Leverage Ratio is: Unused Line Fee Margins: --------------------- ------------------------ >3.50 Level I >=3.50 Level II Applicable Unused Line Fee Margins Level I Level II ------- -------- Applicable Unused Line Fee 0.50% 0.375% Margins 86 All adjustments in the Applicable Margins after December 31, 1999 will be implemented quarterly on a prospective basis, for each calendar month commencing at least five (5) days after the date of delivery to Lenders of the quarterly unaudited or annual audited (as applicable) Financials of Borrower evidencing the need for an adjustment. Concurrently with the delivery of those Financials, Borrower shall deliver to Agent and Lenders a certificate, signed by a Responsible Officer of Borrower, setting forth in reasonable detail the basis for the continuance of, or any change in, the Applicable Margins. If a Default or an Event of Default shall have occurred or be continuing at the time any reduction in the Applicable Margins is to be implemented, that reduction shall be deferred until the first day of the first calendar month following the date on which such Default or Event of Default is waived or cured. (b) If any interest or other payment under this Agreement becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day (except as set forth in the definition of LIBO Rate Period) and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. (c) All computations of Fees calculated on a per annum basis and interest shall be made by Agent and on the basis of a three hundred and sixty (360) day year, in each case for the actual number of days occurring in the period for which such interest and Fees are payable. Each determination by Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error or bad faith. In the event Borrower fails to select an interest rate, the applicable Loans shall bear interest at a rate based upon the Index Rate. All outstanding Obligations other than the principal amount of the LIBO Rate Loans shall bear interest at the Index Rate. (d) Upon the occurrence and during the continuance of any Default or upon the occurrence of an Event of Default under Section 8.1(a), the interest rate applicable to all of the Obligations, including, without limitation, the Revolving Credit Loan, may in the sole discretion of Required Lenders be increased, effective upon notice to Borrower of such increase from Agent on behalf of Required Lenders, to the Default Rate, and shall be payable on demand; provided, however, that upon the occurrence of an Event of Default specified in Section 8.1(f), (g) or (h), the interest rate applicable to all of the Obligations shall be increased automatically to the Default Rate without the necessity of any action on the part of Required Lenders and shall be payable on demand. Upon the occurrence and during the continuance of a Default or an Event of Default, Borrower shall not be permitted to select an interest rate based on the LIBO Rate or convert an Index Rate Loan to a LIBO Rate Loan. (e) So long as no Default or Event of Default shall have occurred and be continuing and subject to the additional conditions precedent set forth in Section 2.2, Borrower shall have the option to (i) request that any Revolving Credit Advances be made as a LIBO Rate Loan, (ii) convert at any time all or any part of outstanding Loans (other than the Swing Line Loan) from Index Rate Loans to LIBO Rate Loans, (iii) convert any LIBO Rate Loan to an Index Rate Loan, subject to payment of LIBO Rate breakage costs 87 in accordance with Section 1.15(c) if such conversion is made prior to the expiration of the LIBO Rate Period applicable thereto, or (iv) continue all or any portion of any Loan (other than the Swing Line Loan) as a LIBO Rate Loan upon the expiration of the applicable LIBO Rate Period and the succeeding LIBO Rate Period of that continued Loan shall commence on the last day of the LIBO Rate Period of the Loan to be continued. Any Loan to be made or continued as, or converted into, a LIBO Rate Loan must be in a minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of such amount. Any such election must be made by 11:00 a.m. (New York time) on the third (3rd) Business Day prior to (1) the date of any proposed Advance which is to bear interest at the LIBO Rate, (2) the end of each LIBO Rate Period with respect to any LIBO Rate Loans to be continued as such, or (3) the date on which Borrower wishes to convert any Index Rate Loan to a LIBO Rate Loan for a LIBO Rate Period designated by Borrower in such election. If no election is received with respect to a LIBO Rate Loan by 11:00 a.m. (New York time) on the third (3rd) Business Day prior to the end of the LIBO Rate Period with respect thereto (or if a Default or an Event of Default shall have occurred and be continuing or the additional conditions precedent set forth in Section 2.2 shall not have been satisfied), that LIBO Rate Loan shall be converted to an Index Rate Loan at the end of its LIBO Rate Period. Borrower must make such election by notice to Agent in writing, by telecopy or overnight courier. In the case of any conversion or continuation, such election must be made pursuant to a written notice (a "Notice of Conversion/Continuation") in the form of Exhibit A-3. (f) Notwithstanding anything to the contrary set forth in this Section 1.4, if, at any time until payment in full of all of the Obligations, the rate of interest payable hereunder exceeds the highest rate of interest permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto (the "Maximum Lawful Rate"), then in such event and so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate; provided, however, that if at any time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, Borrower shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by each Lender from the making of Revolving Credit Advances hereunder is equal to the total interest which such Lender would have received had the interest rate payable hereunder been (but for the operation of this paragraph) the interest rate payable since the Closing Date as otherwise provided in this Agreement. Thereafter, the interest rate payable hereunder shall be the rate of interest provided in Sections 1.4(a) and (c) of this Agreement, unless and until the rate of interest again exceeds the Maximum Lawful Rate, in which event this paragraph shall again apply. In no event shall the total interest received by any Lender pursuant to the terms hereof exceed the amount which such Lender could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. In the event the Maximum Lawful Rate is calculated pursuant to this paragraph, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. In the event that a court of competent jurisdiction, notwithstanding the provisions of this Section 1.4(d), shall make a final determination that a Lender has received interest hereunder or under any of the Loan Documents in excess of the Maximum Lawful Rate, 88 such Lender shall, to the extent permitted by applicable law, promptly apply such excess first to any lawful interest due and not yet paid hereunder, then to the outstanding principal of the Obligations, then to Fees and any other unpaid Obligations and thereafter shall refund any excess to Borrower or as a court of competent jurisdiction may otherwise order. (g) Notwithstanding any other provision of this Agreement, there shall not at any time be in effect (and Borrower shall not be entitled to select) more than five LIBO Rate Periods with respect to all outstanding Revolving Credit Advances which are LIBO Rate Loans nor more than five LIBO Rate Periods with respect to all outstanding Term Loan Advances which are LIBO Rate Loans. 1.5. [Reserved.] 1.6. Fees. As compensation for Agent's and Lender's costs, skills, services and efforts incurred and expended in making the Revolving Credit Loan and the Letters of Credit available to Borrower, Borrower agrees to pay to Agent for its own account or the account of Lenders, as the case may be, the following fees and expenses and to Agent for its own account and such other fees as are set forth in a separate fee letter, dated December 14, 1998, between Borrower and Agent: (a) an unused facility fee (the "Non-use Fee") payable to Agent for the ratable benefit of Lenders, subject to the provisions of Section 1.4(a), in arrears, on the first Business Day of each month prior to the Commitment Termination Date and on the Commitment Termination Date, equal to the Applicable Unused Line Fee Margin per annum (calculated on the basis of a 360-day year and actual days elapsed) of the sum of (i) the difference between (x) the Maximum Amount (as it may be reduced from time to time) and (y) the average for the period of the daily closing balances each of the Revolving Credit Loan and the Swing Line Loan outstanding during the period for which such fee is due and (ii) prior to the Commencement Date the difference between (x) the aggregate Term Loan Commitment and (y) the average for the period of the daily closing balances of the Term Loan outstanding during the period for which such fee is due; (b) a termination fee (the "Termination Fee") payable to Agent for the ratable benefit of Lenders (on the basis of each Lender's respective Revolving Loan Commitment and Term Loan Commitment prior to the Commencement Date), in an amount equal to (i) $750,000 plus (ii) amounts being prepaid under the Term Loan multiplied by one percent (1.0%), payable on the date of any termination of the Revolving Credit Commitment prior to the second anniversary of the Closing Date. The Termination Fee shall also be payable upon any acceleration of the Revolving Credit Loan following an Intentional Default. "Intentional Default" shall mean any action taken by any Loan Party or omission by any of them to take any action with the intent to create, and which shall have resulted in, an Event of Default; and (c) (i) to Agent, or the Issuing Bank, as the case may be, as compensation for any Letter of Credit Obligations incurred by it, all reasonable or customary costs and expenses incurred by Agent or the Issuing Bank, as the case may be, 89 on account of such Letter of Credit Obligations and (ii) to Agent for the account of Lenders, as compensation for any Letter of Credit Obligations incurred by Lenders, a letter of credit fee (the "Letter of Credit Fee") in an amount equal to the Applicable L/C Margin per annum (calculated on the basis of a 360-day year and actual days elapsed) on the face amount of all Letter of Credit Obligations incurred by them, payable in arrears (x) for the preceding calendar month, on the first Business Day of the succeeding month, and (y) on the Commitment Termination Date. Upon the occurrence and during the continuance of a Default or upon the occurrence of an Event of Default under Section 8.1(a), the Letter of Credit Fee may in the sole discretion of Required Lenders be increased, effective upon notice to Borrower of each increase from Agent on behalf of Required Lenders, to a per annum rate which is two percent (2.0%) per annum in excess of the rate that would otherwise be applicable, and shall be payable upon demand by Agent; provided, however, that upon the occurrence of an Event of Default specified in Sections 8.1(f), (g) or (h), the Letter of Credit Fee shall be increased automatically to the rate which is two percent (2.0%) per annum in excess of the otherwise applicable rate without the necessity of any action on the part of Required Lenders and shall be payable on demand. The fees, costs and expenses provided for in this paragraph (c) are in addition to any fees, costs and expenses payable to the issuers of the Letters of Credit, all of which will be paid by Borrower and, if not otherwise paid by Borrower, will be charged to any accounts of Borrower maintained by Agent as Revolving Credit Advances. 1.7. Cash Management System. On or prior to the Closing Date, Borrower will establish and maintain until the Termination Date, the cash management system described in Annex B. 1.8. Receipt of Payments. Borrower shall make each payment under this Agreement not later than 2:00 p.m. (New York City time) on the day when due in lawful money of the United States of America in immediately available funds to the Collection Account. For purposes of computing interest and Fees and determining Borrowing Availability or Net Borrowing Availability as of any date, (a) all payments (including cash sweeps) consisting of cash, wire, or electronic transfers in immediately available funds shall be deemed received by Agent upon deposit in the Collection Account and notice to Agent of such deposit and (b) all payments consisting of checks, drafts, or similar non-cash items shall be deemed received upon receipt of good funds following deposit in the Collection Account (together with notice to Agent of such deposit). Subject to Section 9.11, each payment received by Agent under this Agreement, any Revolving Credit Note or any Term Note for the account of any Lender shall be paid by Agent promptly to such Lender, in the same funds received, for application to the Revolving Credit Advances, Term Loans or other obligation in respect of which such payment is made. 1.9. [Reserved.] 1.10. Application and Allocation of Payments. So long as no Default or Event of Default shall have occurred and be continuing, (i) voluntary prepayments shall be applied as determined by Borrower, subject to the provisions of Section 1.2(a); and (ii) 90 mandatory prepayments shall be applied as set forth in Sections 1.2(c) and 1.2(d). All payments and prepayments applied to a particular Loan shall be applied ratably to the portion thereof held by each Lender as determined by its Pro Rata Share. As to each other payment, and as to all payments made when a Default or Event of Default shall have occurred and be continuing or following the Commitment Termination Date, Borrower irrevocably waives the right to direct the application of any and all payments at any time or times hereafter received from or on behalf of Borrower, and Borrower irrevocably agrees that Agent and Lenders shall have the continuing exclusive right to apply any and all such payments against the Obligations as Agent may deem advisable notwithstanding any previous entry by Agent in the Loan Account or any other books and records. In the absence of a specific determination by all Lenders with respect thereto, the same shall be applied in the following order: (i) then due and payable Fees, expenses and other Obligations (including Loans made by Agent in its capacity as Agent) owing to Agent; (ii) then due and payable Fees and expenses of Lenders; (iii) then due and payable interest on the Swing Line Loan; (iv) then due and payable principal payments on the Swing Line Loan; (v) then due and payable interest payments on the other Loans, ratably in proportion to the interest accrued as to each Loan; (vi) then due and payable Obligations to Agent or a Lender in respect of an interest rate hedging arrangement; (vii) then due and payable Obligations to Lenders other than Fees, expenses and interest and principal payments; (viii) then due and payable principal payments on the other Loans; and (ix) to the extent there are no other Obligations then due and payable, to Borrower or its successors or assigns or as a court of competent jurisdiction may direct, it being understood, subject to Sections 1.2(b) and 8.2, that the foregoing clauses (i) through (ix) shall not require Borrower to cash collateralize the Letter of Credit Obligations. Notwithstanding any other provision of this Agreement, Agent on behalf of Lenders is authorized to, and at its option may, make or cause to be made Revolving Credit Advances by Lenders on behalf of Borrower for payment of all Fees, expenses, charges, costs, principal, interest, or other Obligations then due and payable by Borrower under this Agreement or any of the Loan Documents, even if the making of such Revolving Credit Advance causes the outstanding balance of the Revolving Credit Loan to exceed the Borrowing Availability, and Borrower agrees that the making of any such Advance in excess of the Borrowing Availability shall constitute an automatic Event of Default unless Borrower repays such Advance within one (1) Business Day after demand by Agent. Any such Revolving Credit Advance shall be deemed to be a Revolving Credit Advance for purposes of this Agreement notwithstanding the fact that the conditions contained in Section 2.2 have not been satisfied with respect to such Revolving Credit Advance. 1.11. Non-Receipt of Funds by Agent. Unless Agent shall have been notified by a Lender or Borrower ("Payor") prior to the date on which Payor is to make payment to Agent of (in the case of a Lender) the proceeds of a Revolving Credit Advance to be made by such Lender hereunder or (in the case of Borrower) a payment to Agent for account of one or more of Lenders hereunder (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that Payor does not intend to make the Required Payment to Agent, Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date; 91 and, if Payor has not in fact made the Required Payment to Agent, the recipient(s) of such payment shall, on demand, repay to Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date (the "Advance Date") such amount was so made available by Agent until the date Agent recovers such amount at a rate per annum equal to the Index Rate in the case of Borrower and the Federal Funds Rate in the case of a Lender for such day and, if such recipient(s) shall fail promptly to make such payment, Agent shall be entitled to recover such amount, on demand, from Payor, together with interest as aforesaid; provided, however, that if neither the recipient(s) nor Payor shall return the Required Payment to Agent within three (3) Business Days after notice from Agent of such Advance, then, retroactively to the Advance Date, Payor and the recipient(s) shall each be obligated to pay interest on the Required Payment as follows: (i) if the Required Payment shall represent a payment to be made by Borrower to Lenders, Borrower and the recipient(s) shall each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the Default Rate (and, in case the recipient(s) shall return the Required Payment to Agent, without limiting the obligation of Borrower hereunder to pay interest to such recipient(s) at the Default Rate in respect of the Required Payment); and (ii) if the Required Payment shall represent proceeds of a Revolving Credit Advance to be made by Lenders to Borrower, Payor and Borrower shall (without duplication) each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the rate of interest provided for such Required Payment pursuant hereto (and, in case Borrower shall return the Required Payment to Agent, without limiting any claim Agent or Borrower may have against Payor in respect of the Required Payment). Nothing in this Section 1.11 or elsewhere in this Agreement or the other Loan Documents shall be deemed to require Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its Revolving Credit Commitment hereunder or to prejudice any rights that Agent or Borrower may have against any Lender as a result of any default by such Lender hereunder. 1.12. Sharing of Payments, Etc. (a) Borrower agrees that, in addition to (and without limitation of) any right of set-off, banker's lien or counterclaim a Lender may otherwise have, each Lender shall be entitled, at its option (but subject, as between Lenders, to the provisions of the last sentence of Section 1.1(f)), to offset balances held by it for the account of Borrower at any of its offices, in Dollars or in any other currency, against any principal of or interest on any Loans made by such Lender or any other amount payable to such Lender hereunder, that in each of the foregoing events is not paid when due beyond any applicable grace period (regardless of whether such balances are then due to Borrower), in which case it shall promptly notify Borrower and Agent thereof; provided, however, that such Lender's failure to give such notice shall not affect the validity thereof. 92 (b) If any Lender shall obtain from Borrower payment of any principal of or interest on any Loan owing to it or payment of any other amount under this Agreement or any Note held by it or any other Loan Document through the exercise of any right of set-off, banker's lien or counterclaim or similar right or otherwise (other than from Agent as provided herein), and, as a result of such payment, such Lender shall have received a greater percentage of the principal of or interest on the Loans or such other amounts then due hereunder or thereunder by Borrower to such Lender than the percentage received by any other Lender, it shall promptly pay to Agent, for the benefit of Lenders, the amount of such excess and simultaneously purchase from such other Lenders a participation in (or, if and to the extent specified by such Lender, direct interests in) the Loans or such other amounts, respectively, owing to such other Lenders (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all Lenders shall share the benefit of such excess payment (net of any expenses that may be incurred by such Lender in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal of and/or interest on the Loans or such other amounts, respectively, owing to each Lender. Amounts received by Agent under this paragraph shall be treated as a payment received from Borrower under Section 1.10. To such end all Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. (c) Borrower agrees that any Lender so purchasing such a participation (or direct interest) pursuant to Section 1.12(b) may exercise, in a manner consistent with Section 1.12(a), all rights of set-off, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of the Notes or other amounts (as the case may be) owing to such Lender in the amount of such participation. (d) Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of Borrower. If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a set-off to which this Section 1.12 applies, such Lender shall, to the extent practicable, assign such rights to Agent for the benefit of Lenders and, in any event, exercise its rights in respect of such secured claim in a manner consistent with the rights of Lenders entitled under this Section 1.12 to share in the benefits of any recovery on such secured claim. 1.13. [Reserved.] 1.14. Accounting. Agent shall maintain a loan account (the "Loan Account") on its books to record: all Advances and the Term Loan, all payments made by Borrower, and all other debits and credits as provided in this Agreement with respect to the Loans or any other Obligations. All entries in the Loan Account shall be made in accordance with Agent's customary accounting practices as in effect from time to time. The balance in the Loan Account, as recorded on Agent's most recent printout or other written 93 statement, shall, absent manifest error, be presumptive evidence of the amounts due and owing to Agent and Lenders by Borrower; provided that any failure to so record or any error in so recording shall not limit or otherwise affect Borrower's duty to pay the Obligations. Agent shall render to Borrower a monthly accounting of transactions with respect to the Loans setting forth the balance of the Loan Account. Unless Borrower notifies Agent in writing of any objection to any such accounting (specifically describing the basis for such objection), within thirty (30) days after the date thereof, each and every such accounting shall, absent manifest error, be deemed final, binding and conclusive upon Borrower in all respects as to all matters reflected therein. Only those items expressly objected to in such notice shall be deemed to be disputed by Borrower. Notwithstanding any provision herein contained to the contrary, any Lender may elect (which election may be revoked) to dispense with the issuance of Notes to that Lender and may rely on the Loan Account as evidence of the amount of Obligations from time to time owing to it. 1.15. Indemnity. (a) Borrower shall indemnify and hold Agent, each Lender and their respective Affiliates and their respective officers, directors, employees, attorneys and agents (each, an "Indemnified Person"), harmless from and against any and all suits, actions, costs, fines, deficiencies, penalties, proceedings, claims, damages, losses, liabilities and expenses (including reasonable attorneys' fees and disbursements and other costs of investigations or defense, including those incurred upon any appeal) (each, a "Claim") which may be instituted or asserted against or incurred by such Indemnified Person as the result of credit having been extended under this Agreement or any other Loan Document or in connection with or arising out of the transactions contemplated hereunder and thereunder, including any and all Environmental Liabilities and Costs; provided, however, that Borrower shall not be responsible to any such Indemnified Person (i) to the extent that any such losses, damages, liabilities or expenses are determined by a final non-appealable judgment of a court of competent jurisdiction to be attributable solely to the gross negligence or willful misconduct of such Indemnified Person or (ii) to the extent that such losses, damages, liabilities or expenses are determined by a final non-appealable judgment of a court of competent jurisdiction to have arisen solely as the result of an action, suit or proceeding initiated by Borrower against such Indemnified Person which is resolved in a final non-appealable judgment by a court of competent jurisdiction unfavorably to such Indemnified Person. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY HERETO, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY, INCIDENTAL OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED UNDER THE LOAN DOCUMENTS. In any suit, proceeding or action brought by Agent or Lenders relating to any Account, Chattel Paper, Contract, General Intangible, Instrument, Equipment or Document for any sum owing thereunder, or to enforce any provision of any Account, Chattel Paper, Contract, General Intangible, Instrument or Document, Borrower shall save, indemnify and keep 94 Agent and Lenders harmless from and against all expense, loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the obligor thereunder arising out of a breach by Borrower of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to, or in favor of, such obligor or its successors from Borrower, all such obligations of Borrower shall be and remain enforceable against, and only against, Borrower and shall not be enforceable against Agent or Lenders. (b) Borrower hereby acknowledges and agrees that neither Agent nor any Lender (as of the date hereof) (i) is now or has ever been in control of any of the Subject Property or the affairs of any Loan Party, and (ii) has the capacity through the provisions of the Loan Documents to influence conduct with respect to the ownership, operation or management of any of the Subject Property. (c) To induce Lenders to provide the LIBO Rate option on the terms provided herein, if (i) any LIBO Rate Loans are repaid in whole or in part prior to the last day of any applicable LIBO Rate Period (whether that repayment is made pursuant to any provision of this Agreement or any other Loan Document or is the result of acceleration, by operation of law or otherwise); (ii) Borrower shall default in payment when due of the principal amount of or interest on any LIBO Rate Loan; (iii) Borrower shall default in making any borrowing of, conversion into or continuation of LIBO Rate Loans after Borrower has given notice requesting the same in accordance herewith; or (iv) Borrower shall fail to make any prepayment of a LIBO Rate Loan after Borrower has given a notice thereof in accordance herewith, Borrower shall indemnify and hold harmless each Lender from and against all losses, costs and expenses resulting from or arising from any of the foregoing. Such indemnification shall include any loss (including loss of margin) or expense arising from the reemployment of funds obtained by it or from fees payable to terminate deposits from which such funds were obtained. For the purpose of calculating amounts payable to a Lender under this subsection, each Lender shall be deemed to have actually funded its relevant LIBO Rate Loan through the purchase of a deposit bearing interest at the LIBO Rate in an amount equal to the amount of that LIBO Rate Loan and having a maturity comparable to the relevant LIBO Rate Period; provided, however, that each Lender may fund each of its LIBO Rate Loans in any manner it sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this subsection. As promptly as practicable under the circumstances, each Lender shall provide Borrower with its written calculation of all amounts payable pursuant to this Section 1.15(c) and such calculation shall be binding on the parties hereto unless Borrower shall object in writing within ten (10) Business Days of receipt thereof, specifying the basis for such objection in detail. 1.16. Access; Confidentiality. (a) Borrower shall: (i) provide access during normal business hours to Agent and any of its officers, employees and agents, as frequently as Agent determines to be appropriate, upon reasonable advance notice (unless a Default shall have occurred and be continuing, in which event no notice shall be required and Agent and its officers, 95 employees and agents shall have access at any and all times), to the properties and facilities of Borrower or any of its Subsidiaries; (ii) permit Agent and any of its officers, employees and agents to inspect, audit and make extracts from all of Borrower's and its Subsidiaries' records, files and books of account; and (iii) subject to the terms of the Fee Letter, permit Agent and any of its officers, employees and agents on behalf of Lenders, upon prior notice to Borrower (unless a Default shall have occurred and be continuing, in which event no notice shall be required and Agent and its officers, employees and agents shall be permitted to inspect, audit and make such extracts at any and all times) to conduct audits to inspect, review and evaluate the Collateral, and Borrower agrees to render to Agent at Borrower's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto; provided, however, that Borrower shall be permitted to have a representative of Borrower present during any such visit, inspection or audit by Agent or Agent's officers, employees or agents, it being understood that Borrower's right to have a representative present shall not result in a delay of any such visit, inspection or audit. Borrower shall, and shall cause each of its Subsidiaries to, make available to Agent and its counsel, as quickly as practicable under the circumstances, originals or copies of all books, records, board minutes, contracts, insurance policies, environmental audits, business plans, files, financial statements (actual and pro forma), filings with federal, state and local regulatory agencies, and other instruments and documents which Agent may reasonably request. Borrower shall deliver any document or instrument reasonably necessary for Agent, as it may from time to time reasonably request, to obtain records from any service bureau or other Person which maintains records for Borrower, and shall maintain duplicate records or supporting documentation on media, including, without limitation, computer tapes and discs owned by Borrower. Upon notice from Agent, Borrower shall instruct its certified public accountants and its banking and other financial institutions to make available to Agent such information and records as Agent may reasonably request. (b) Agent and each Lender shall use reasonable, good faith efforts to maintain as confidential any information (other than any public information) supplied to them hereunder or under any other Loan Document (the "Confidential Information") on the following terms and conditions: (i) Agent and each Lender may disclose any Confidential Information (w) only on a confidential and "need-to-know" basis to Agent's or such Lender's outside agents and consultants (including attorneys and accountants), (x) to directors, officers and employees of Agent or such Lender, (y) to other employees of other Affiliates or Subsidiaries of Agent or such Lender, but only on a confidential and "need-to-know" basis, and (z) to examiners, auditors and investigators having regulatory authority over Agent or such Lender; (ii) Agent or any Lender may release or disclose without liability of any kind any Confidential Information in its possession if such release or disclosure is (w) reasonably believed by it to be compelled by any court decree, subpoena, or other legal or administrative order or process, provided that Borrower shall be given prior notice of any such release or disclosure, (x) on the advice of its counsel, otherwise required by law, (y) on the advice of its counsel, necessary or appropriate in connection with any litigation or other proceeding having its or any of its Affiliates as a party thereto or (z) to assignees or participants or potential assignees or participants who agree to be bound by the provisions of this Section 1.16(b). In no event shall Agent or any Lender or any of their respective Affiliates be liable for any indirect, punitive, exemplary, or 96 consequential damages resulting from any release or disclosure of Confidential Information; and (iii) this Section 1.16(b) relates only to Confidential Information disclosed by Borrower or any of its Subsidiaries to Agent or any Lender. Any disclosure made by Borrower or its Subsidiaries to any Affiliate of Agent or any Lender, or any of their respective divisions or other Subsidiaries shall be outside the scope of this Section 1.16(b) and shall be confidential or not as the party by whom and the Person to whom such disclosures are made may agree. Neither Agent nor any Lender shall be precluded from disclosing or making use of any information (w) which is not Confidential Information, (x) of which it was aware or which was in its possession prior to any disclosure to it by Borrower, (y) which subsequently comes into its possession from sources independent of Borrower or Agent and is not subject to an obligation of confidentiality of which Agent or such Lender is aware, or (z) which was or is independently developed by Agent or such Lender. Agent and each Lender shall use the same standard of care in safeguarding Confidential Information as it employs in protecting its own proprietary information which it desires not to disseminate or publish. Agent and each Lender shall advise any outside agent or consultant receiving any Confidential Information of the confidential nature of the material disclosed and the purpose for which it is disclosed, but neither Agent nor any Lender shall be liable for any misappropriation or misuse of such information by such Person other than that occasioned by its own gross negligence or wilful misconduct as determined by a final nonappealable judgment of a court of competent jurisdiction. Any Confidential Information given to Agent or any Lender shall cease to be restricted or covered by this Section 1.16(b), (i) the date two years after the Termination Date, or (ii) once it has or is deemed to have entered into the public domain or become known to the public or third Persons from a source other than through or under Agent or any Lender. 1.17. Taxes. (a) Any and all payments by or on behalf of Borrower hereunder or under the Notes, or any other Loan Document, shall be made, in accordance with this Section 1.17, free and clear of and without deduction for any and all present or future Taxes. If Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under the Notes or any other Loan Document to Agent or any Lender, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 1.17) Agent or such Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions, and (iii) Borrower shall pay the full amount deducted to the relevant taxing or other authority in accordance with applicable law. (b) In addition, Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement (hereinafter referred to as "Other Taxes"). (c) Borrower shall indemnify and pay, within ten days of demand therefor, Agent and each Lender for the full amount of Taxes or Other Taxes (including 97 without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 1.17) paid by Agent or such Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. (d) Within 30 days after the date of any such payment of Taxes or Other Taxes, Borrower shall furnish to Agent or such Lender, at its address referred to in Section 11.10, the original or a certified copy of a receipt evidencing payment thereof. (e) If any Lender subsequently receives from a taxing authority a refund of any Tax or Other Tax previously paid by Borrower and for which Borrower has indemnified Lender pursuant to this Section 1.17, such Lender shall within 30 days after receipt of such refund, and to the extent permitted by applicable law, pay to Borrower the net amount of any such refund after deducting taxes and expenses attributable thereto. (f) Each Lender (or assignee) which is organized outside the United States shall so notify Borrower thereof and shall also promptly notify Borrower of any change in its funding office and shall in each case deliver to Borrower such certificates, documents or other evidence, as required by the IRC or Treasury Regulations issued pursuant thereto, including IRS Form 1001 or Form 4224 or any other certificate or statement of exemption required by Treasury Regulation Section 1.1441-1(a) or Section 1.1441-6(c) or any subsequent version thereof, properly completed and duly executed by such Lender (or assignee) establishing that such payment is (i) not subject to withholding under the IRC because such payment is effectively connected with the conduct by such Lender (or assignee) of a trade or business in the United States or (ii) totally exempt from United States tax under a provision of an applicable tax treaty. Unless Borrower and Agent have received forms or other documents reasonably satisfactory to them indicating that payments hereunder or under the Notes are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, Borrower or Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Lender (or assignee) organized under the laws of a jurisdiction outside the United States. (g) Borrower shall not be required to pay any additional amounts to any Lender (or assignee) in respect of United States withholding tax pursuant to paragraph (a) above if the obligation to pay such additional amounts would not have arisen but for a failure by such Lender (or assignee) to comply with the provisions of paragraph (f) above other than by reason of (i) a change in applicable law, regulation or official interpretation thereof or (ii) an amendment, modification or revocation of any applicable tax treaty or a change in official position regarding the application or interpretation thereof, in each case after the Closing Date (and in the case of an assignee, after the date of assignment or transfer). (h) If, as a result of an event described in subparagraph (i) or (ii) of paragraph (g) after the Closing Date (or, in the case of an assignee, after the date of assignment or transfer), a Lender (or assignee) (i) is unable to provide to Borrower a form 98 otherwise required to be delivered by it pursuant to paragraph (f) above, or (ii) makes any payment or becomes liable to make any payment on account of any Taxes with respect to payments by Borrower hereunder, Borrower may, at its option, continue to make payments to such Lender (or assignee) under the terms of this Agreement and the applicable Note, which payments shall be made in accordance with paragraph (a) above. If Borrower exercises its option under subparagraph (B) of this paragraph (h), any such Lender (or assignee) agrees to take such steps as reasonably may be available to it under applicable tax laws and any applicable tax treaty or convention (including, if legally available, furnishing such certificate) to obtain an exemption from, or reduction (to the lowest applicable rate) of, such Taxes, except to the extent that taking such a step would be disadvantageous to such Lender (or assignee). 1.18. Capital Adequacy; Increased Costs; Illegality. (a) If any Lender shall have determined that any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy, reserve requirements or similar requirements or compliance by any Lender with any request or directive regarding capital adequacy, reserve requirements or similar requirements (whether or not having the force of law), in each case, adopted after the Closing Date, from any central bank or other Governmental Authority increases or would have the effect of increasing the amount of capital, reserves or other funds required to be maintained by such Lender and thereby reducing the rate of return on such Lender's capital as a consequence of its obligations hereunder, then Borrower shall from time to time upon demand by such Lender (with a copy of such demand to Agent) pay to Agent, for the account of such Lender, additional amounts sufficient to compensate such Lender for such reduction. A certificate as to the amount of that reduction and showing the basis of the computation thereof submitted by such Lender to Borrower and to Agent shall, absent manifest error, be final, conclusive and binding for all purposes. (b) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining any Loan or portion thereof, then Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to Agent), pay to Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to Borrower and to Agent by such Lender, shall be conclusive and binding on Borrower for all purposes, absent manifest error. Each Lender agrees that, as promptly as practicable after it becomes aware of any circumstances referred to in clause (i) or (ii) above which would result in any such increased cost, the affected Lender shall, to the extent not inconsistent with such Lender's internal policies of general application, use reasonable commercial efforts to minimize costs and expenses incurred by it and payable to it by Borrower pursuant to this Section 1.18(b). (c) Notwithstanding anything to the contrary contained herein, if the 99 introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for any Lender to agree to make or to make or to continue to fund or maintain any LIBO Rate Loan, then, unless such Lender is able to agree to make or to continue to fund or to maintain such LIBO Rate Loan at another branch or office of such Lender without, in such Lender's opinion, adversely affecting it or its Loans or the income obtained therefrom, on notice thereof and demand therefor by such Lender to Borrower through Agent, (i) the obligation of such Lender to agree to make or to make or to continue to fund or maintain LIBO Rate Loans shall terminate and (ii) Borrower shall forthwith prepay in full all outstanding LIBO Rate Loans, together with interest accrued thereon; unless Borrower, within five Business Days after the delivery of such notice and demand, converts all such Loans into a Loan bearing interest based on the Index Rate. (d) Within fifteen (15) days after receipt by Borrower of written notice and demand from any Lender (an "Affected Lender") for payment of additional amounts or increased costs as provided in Section 1.17(a), 1.18(a) or 1.18(b), Borrower may, at its option, notify Agent and such Affected Lender of its intention to replace the Affected Lender. So long as no Default or Event of Default shall have occurred and be continuing, Borrower, with the consent of Agent, may obtain, at Borrower' expense, a replacement Lender ("Replacement Lender") for the Affected Lender, which Replacement Lender must be satisfactory to Agent in its reasonable judgment. If Borrower obtains a Replacement Lender within ninety (90) days following notice of its intention to do so, the Affected Lender must sell and assign its Loans and Commitments to such Replacement Lender for an amount equal to the principal balance of all Loans held by the Affected Lender and all accrued interest and Fees with respect thereto through the date of such sale, provided that Borrower shall have reimbursed such Affected Lender for the additional amounts or increased costs that it is entitled to receive under this Agreement through the date of such sale and assignment. Notwithstanding the foregoing, Borrower shall not have the right to obtain a Replacement Lender if the Affected Lender rescinds its demand for increased costs or additional amounts within fifteen (15) days following its receipt of Borrower's notice of intention to replace such Affected Lender. Furthermore, if Borrower gives a notice of intention to replace and does not so replace such Affected Lender within ninety (90) days thereafter, Borrower's rights under this Section 1.16(d) shall terminate and Borrower shall promptly pay all increased costs or additional amounts demanded by such Affected Lender pursuant to Sections 1.15(a), 1.16(a) and 1.16(b). 1.19. Letters of Credit. Subject to and in accordance with the terms and conditions contained herein and in Annex F, Borrower shall have the right to request, and Revolving Lenders agree to incur, or purchase participations in, the Letter of Credit Obligations in respect of Borrower or Borrower on behalf of its Subsidiaries. 1.20. Single Loan. All Loans and all of the other Obligations of Borrower arising under this Agreement and the other Loan Documents shall constitute one general obligation of Borrower secured, until the Termination Date, by all of the Collateral. 100 2. CONDITIONS PRECEDENT 2.1. Conditions to Effectiveness of this Agreement. Notwithstanding any other provision of this Agreement and without affecting in any manner the rights of Agent or any Lender hereunder, this Agreement shall not become effective until the following conditions have been fulfilled to the reasonable satisfaction of Agent, or waived in writing by Agent and Lenders: (a) This Agreement or counterparts thereof shall have been duly executed by, and delivered to, Borrower, Agent and each Lender. (b) Agent and Lenders shall have received such documents, instruments, certificates, opinions and agreements as Agent shall reasonably request in connection with the transactions contemplated by this Agreement, including all documents, instruments, agreements and other materials listed in the Schedule of Closing Documents attached hereto as Annex C, each in form and substance satisfactory to Agent; provided that the Revolving Credit Notes hereunder shall be in substitution for all of the Revolving Credit Notes existing under the Original Credit Agreement and as in effect before giving effect to this Agreement. (c) Agent shall have received evidence satisfactory to Agent that Borrower has obtained consents and acknowledgments of all Persons whose consents and acknowledgments may be required, including, but not limited to, all requisite Governmental Authorities, to the terms and to the execution and delivery, of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby. (d) Agent shall have received evidence satisfactory to Agent that the insurance policies provided for in Section 3.18 and Annex E are in full force and effect, together with appropriate evidence showing a loss payable and/or additional insured clauses or endorsements, as appropriate, in favor of Agent and Lenders in form and substance satisfactory to Agent. (e) Payment by Borrower to Agent for its account and the account of Lenders, as the case may be, of all Fees, costs, and expenses of closing (including fees and expenses of consultants and counsel to Agent presented as of the Closing Date). (f) No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of this Agreement or any of the other Loan Documents or the consummation of the transactions contemplated hereby and thereby and which, in Agent's sole judgment, would make it inadvisable to consummate the transactions contemplated by this Agreement or any of the other Loan Documents. (g) Agent shall be satisfied, in its sole judgment reasonably exercised, 101 with the corporate, capital, tax, legal and management structure of each Loan Party, and shall be satisfied, in its sole judgment exercised reasonably, with the nature and status of all contractual obligations, securities, labor, tax, ERISA, employee benefit, environmental, health and safety matters, in each case, involving or affecting any Loan Party. (h) Since September 30, 1998, there has been (i) no Material Adverse Effect, (ii) no litigation which could reasonably be expected to have a Material Adverse Effect, (iii) no information or analyses which result in a material change in Agent's understanding of Borrower or the proposed transaction, (iv) no material increase in liabilities, liquidated or contingent, and no material decrease in assets of Borrower, and (v) no material adverse change in the leveraged finance bank market. 2.2. Further Conditions to Initial and Each Subsequent Loan and Incurrence of a Letter of Credit Obligation. Except as otherwise expressly provided herein, it shall be a further condition to the funding of the initial and each subsequent Loan and the incurrence by GE Capital or the Issuing Bank, as the case may be, of the initial and each subsequent Letter of Credit Obligation, if any, that the following statements shall be true on the date of each such funding, advance or incurrence, as the case may be: (a) Each Loan Party's representations and warranties contained herein or in any of the Loan Documents shall be true and correct on and as of the Closing Date and the date on which each such Loan is made or any Letter of Credit Obligation, if any, is incurred, as though made on or incurred on and as of such date, except to the extent that any such representation or warranty expressly relates to an earlier date (provided that any such representation or warranty given as of the date hereof shall also be true and correct on and as of the Closing Date) and except for changes therein permitted or contemplated by this Agreement. (b) No event shall have occurred and be continuing, or would result from the making of any Loan or the incurrence of any Letter of Credit Obligation, as the case may be, which constitutes a Default or Event of Default. (c) After giving effect to any Advance or the incurrence of such Letter of Credit Obligation, as the case may be, the outstanding principal amount of the Revolving Credit Loan shall not exceed the lesser of the Borrowing Base and the Maximum Amount, less, in each case, the then outstanding principal of the Swing Line Loan. (d) After giving effect to any Swing Line Advance, the outstanding principal amount of the Swing Line Loan shall not exceed the Swing Line Availability. The request and acceptance by Borrower of the proceeds of any Loan, the incurrence of any Letter of Credit Obligations or the conversion or continuation of any Loan into, or as, a LIBO Rate Loan, as the case may be, shall be deemed to constitute, as of the date of such request or acceptance, (i) a representation and warranty by Borrower that the conditions in this Section 2.2 (and, in the case of the initial Loan and/or Letter of Credit Obligation made or incurred on the Closing Date, Section 2.1) have been satisfied and (ii) a confirmation by Borrower of the granting and continuance of Agent's Liens, on behalf of itself and the 102 Lenders, pursuant to the Collateral Documents. 3. REPRESENTATIONS AND WARRANTIES To induce Agent and Lenders to enter into this Agreement and incur any obligations hereunder, Borrower represents and warrants to Agent and Lenders that: 3.1. Corporate Existence; Compliance with Law. (i) Borrower and each Material Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly qualified to do business and is in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification and where any failure to so qualify, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; (ii) Borrower and each Material Subsidiary has the requisite corporate power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore and proposed to be conducted; (iii) each Loan Party has all licenses, permits, consents or approvals from or by, and has made all filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct other than those licenses, permits, consents, approvals, filings or notices which the failure to obtain, make or give, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; (iv) Borrower and each Material Subsidiary is in compliance with its certificate or articles of incorporation and by-laws; and (v) each Loan Party is in compliance in all respects with all applicable provisions of law other than those provisions of law any failure to comply with, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 3.2. Executive Offices; Corporate or Other Names. The current locations of Borrower's and each Material Subsidiary's executive offices and principal place of business is set forth in Schedule 3.2, and, as of the date hereof, except as set forth on Schedule 3.2, such location has not changed during the preceding twelve months. During the five years prior to the date hereof, except as set forth on Schedule 3.2, neither Borrower nor any Material Subsidiary has been known as or used any corporate, fictitious or trade name, other than its current corporate name. In addition, Schedule 3.2 lists the federal employer identification number of Borrower and each Material Subsidiary. 3.3. Corporate Power; Authorization; Enforceable Obligations. The execution, delivery and performance by Borrower and each Material Subsidiary of the Loan Documents and all other instruments and documents to be delivered by Borrower or such Material Subsidiary hereunder and thereunder to the extent it is a party thereto and the creation of all Liens provided for herein and therein: (i) are within Borrower's or such Material Subsidiary's corporate power; (ii) have been duly authorized by all necessary corporate and shareholder action; (iii) are not in contravention of any provision of Borrower's or such Material Subsidiary's certificate or articles of incorporation or by-laws 103 or other organizational documents; (iv) will not violate any law or regulation, or any order or decree of any court or governmental instrumentality; (v) will not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, the Senior Note Indenture, the Subordinated Indenture, any Material Contract or any other indenture, mortgage, deed of trust, lease, agreement or other instrument to which Borrower or any Material Subsidiary is a party or by which any Loan Party or any of its property is bound other than any such conflicts, breaches, defaults, accelerations or terminations which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; (vi) will not result in the creation or imposition of any Lien upon any of the property of Borrower or any Material Subsidiary other than those in favor of Agent or Lenders, all pursuant to the Loan Documents; and (vii) do not require the consent or approval of any Governmental Authority or any other Person, except those referred to in Section 2.1(d), all of which will have been duly obtained, made or complied with prior to the Closing Date and which are in full force and effect, other than any such consents or approvals which the failure to obtain, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. At or prior to the Closing Date, each of the Loan Documents shall have been duly executed and delivered for the benefit of or on behalf of Borrower and each shall then constitute a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally. 3.4. Financial Statements and Projections. (a) All of the following consolidated balance sheets and statements of income, retained earnings and cash flows of Borrower and its Subsidiaries, copies of which have been furnished to Agent and Lenders prior to the date of this Agreement, have been, except as noted therein, prepared in conformity with GAAP consistently applied throughout the periods involved and as of the date hereof present fairly in all material respects the consolidated financial position, results of operations and cash flows of Borrower and its Subsidiaries at the dates thereof and for the periods then ended (as to the unaudited interim financial statements, subject to normal year-end audit adjustments): (i) the unaudited consolidated balance sheet of Borrower and its Subsidiaries as at September 30, 1998, and the related consolidated statements of income, retained earnings and cash flows for the nine-month period ended on such date; and (ii) the audited consolidated balance sheet of Borrower and its Subsidiaries as at December 31, 1997, and the related consolidated statements of income, retained earnings and cash flows for the year then ended, with the opinion thereon of Arthur Andersen LLC. (b) Borrower, as of September 30, 1998, had no obligations, contingent liabilities or liabilities for Charges, long-term leases or unusual forward or long-term commitments which are not reflected in the Quarterly Report on Form 10-Q of Borrower for the Fiscal Quarter ended September 30, 1998 and which could reasonably be expected to have a Material Adverse Effect and are not otherwise disclosed in this Agreement or in 104 writing to Agent and Lenders. (c) The projections of Borrower's (i) monthly operating budgets on a consolidated basis for the year ending December 31, 1999 and (ii) annual operating budgets on a consolidated basis, consolidated results of operations and cash flows for the fiscal years ending on December 31, 1999 through December 31, 2004 (the "Projections"), copies of which have been delivered to Agent and Lenders, disclose all material assumptions made with respect to general economic, financial and market conditions in formulating such Projections. As of the date hereof, to the knowledge of Borrower no facts exist which would likely result in any material change in any of such Projections. To the best of Borrower's knowledge, as of the date hereof the Projections are based upon reasonable estimates and assumptions, all of which are fair in light of known current conditions, have been prepared on the basis of the assumptions stated therein, and reflect the reasonable estimate of Borrower of the results of operations and other information projected therein. (d) As of the date hereof, no information contained in this Agreement, the other Loan Documents, the Annual Report on Form 10-K of Borrower for the Fiscal Year ended December 31, 1997, the Quarterly Reports on Form 10-Q of Borrower for the Fiscal Quarters ended March 31, June 30 and September 30, 1998 or any written statement furnished by or on behalf of any Loan Party or any Affiliate thereof pursuant to the terms of this Agreement or any other Loan Document, which has previously been delivered to Agent or any Lender, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. 3.5. Material Adverse Change; Solvency. As of the date hereof, neither Borrower nor any Subsidiary thereof has any obligations, contingent liabilities (to the best of the knowledge of Borrower and its Subsidiaries), or liabilities for Charges, long-term leases or unusual forward or long-term commitments which are not reflected in the Quarterly Report on Form 10-Q of Borrower for the Fiscal Quarter ended September 30, 1998 and which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and which are not otherwise disclosed in this Agreement or in writing to Agent. As of the date hereof, except as otherwise permitted hereunder or as set forth on Schedule 3.5, from September 30, 1998 to the date hereof no dividends, advances or other distributions have been declared, paid or made upon any Stock of Borrower and, since September 30, 1998, no shares of Stock of Borrower have been, or are now required to be, redeemed, retired, purchased or otherwise acquired for value by Borrower. Since September 30, 1998, no event or events have occurred to the best of Borrower's knowledge which, individually or in the aggregate, have or could reasonably be expected to result in a Material Adverse Effect. After giving effect to (i) any Loan to be made on the Closing Date and/or Letter of Credit Obligations to be incurred on the Closing Date, (ii) the disbursement of the proceeds of any such Loan and/or Letter of Credit Obligations pursuant to Borrower's instructions, and (iii) the payment and accrual of all transaction costs in connection with the foregoing, to the best of Borrower's knowledge, Borrower is Solvent and Borrower and its Subsidiaries taken as a whole are Solvent. 105 3.6. Ownership of Real Property; Liens. (a) Except as described on Schedule 3.6, as of the date hereof the real estate listed on Schedule 3.6 constitutes all of the real property owned, leased, or used in its business by Borrower and its Material Subsidiaries. Except as set forth on Schedule 3.6, each of Borrower and its Material Subsidiaries holds as of the date hereof (i) good and marketable fee simple title to all of its real estate described as "owned" in fee on Schedule 3.6, and (ii) valid leasehold interests in all of the Leases of Borrower and its Material Subsidiaries (both as lessor and lessee, sublessee or assignee) described as "leased" on Schedule 3.6. Except as described on Schedule 3.6, as of the date hereof (i) neither Borrower nor any of its Material Subsidiaries or, to Borrower's knowledge, any other party to any such material Lease described on Schedule 3.6 is in default of its material obligations thereunder or has delivered or received any notice of default under any such material Lease, and no event has occurred which, with the giving of notice, the passage of time, or both, would constitute a default under any such Lease, other than any such defaults which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; (ii) neither Borrower nor any of its Material Subsidiaries owns or holds, or is obligated under or a party to, any option, right of first refusal or any other contractual right to purchase, acquire, sell, assign or dispose of any material real property owned or leased by Borrower or any of its Material Subsidiaries except as set forth on Schedule 3.6; and (iii) no portion of any material real property owned or leased by Borrower or any of its Material Subsidiaries has suffered any material, uninsured damage by fire or other casualty loss which has not heretofore been repaired and substantially restored to its original condition. All permits required to have been issued or appropriate to enable the real property owned or leased by Borrower or any of its Material Subsidiaries to be lawfully occupied and used for all of the purposes for which they are currently occupied and used, have been lawfully issued and are, as of the date hereof, in full force and effect except any such permits which the failure to obtain, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (b) From and after the Closing Date, none of the properties and assets of Borrower or any of its Material Subsidiaries are subject to any Liens, except (i) Permitted Encumbrances and Liens otherwise permitted under Section 6.7 and (ii) the Lien in favor of Agent for the ratable benefit of Lenders pursuant to the Collateral Documents. 3.7. Restrictions; No Default; Material Contracts. No contract, lease, agreement or other instrument to which any Loan Party is a party or by which it or any of its properties or assets is bound or affected and no provision of any charter, corporate restriction, applicable law or governmental regulation has resulted in or could reasonably be expected to result in a Material Adverse Effect. No Loan Party is in default and, to Borrower's knowledge, no third party is in default, under or with respect to any Material Contract other than any such defaults which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. Schedule 3.7, as supplemented from time to time by written disclosures to Agent, sets forth a complete and accurate list of all Material Contracts of Borrower and 106 each of the Material Subsidiaries. 3.8. Labor Matters. Except as set forth on Schedule 3.8, as of the date hereof, there are no strikes or other labor disputes against any Loan Party that are pending or, to Borrower's knowledge, threatened which could reasonably be expected to cause a Material Adverse Effect. Hours worked by and payment made to employees of each Loan Party have not been in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters which could reasonably be expected to have a Material Adverse Effect. All material payments due from any Loan Party on account of employee health and welfare insurance have been paid or accrued as a liability on the books of such Loan Party. Except as set forth on Schedule 3.8, as of the date hereof, no Loan Party has any obligation under any collective bargaining agreement, management agreement, or any employment agreement, and a correct and complete copy of each material agreement listed on Schedule 3.8 will be provided to Agent upon Agent's request. As of the date hereof, there are no organizing activities involving any Loan Party pending or, to Borrower's knowledge, threatened by any labor union or group of employees which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. Except as set forth on Schedule 3.14, as of the date hereof, there are no representation proceedings pending or, to Borrower's knowledge, threatened with the National Labor Relations Board, and no labor organization or group of employees of any Loan Party has made a pending demand for recognition, and, there are no complaints or charges against any Loan Party pending or threatened to be filed with any federal, state, local or foreign court, governmental agency or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by any Loan Party of any individual, other than any such proceedings, demands for recognition, complaints or charges which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Except as set forth on Schedule 3.8, as of the date hereof, there are no consent decrees, judgments, orders, injunctions, arbitral awards or other decisions which have a continuing effect on Borrower or any Loan Party as of the date hereof, before any Governmental Authority or any other tribunal (including any arbitral tribunal) which could individually or in the aggregate reasonably be expected to have a Material Adverse Effect. 3.9. Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness; Unrestricted Subsidiaries. Except as set forth on Schedule 3.9, as supplemented from time to time in written disclosures to Agent, as of the date hereof Borrower has no Subsidiaries, is not engaged in any joint venture or partnership with any other Person, is not an Affiliate of any other Person and does not have any Unrestricted Subsidiaries (as defined in the Senior Note Indenture). Except as set forth on Schedule 3.9, as of the date hereof each of Borrower's Subsidiaries conducts no material business operations and owns no material property or assets. The Stock of each Loan Party (other than Borrower) owned by each of the stockholders thereof named on Schedule 3.9 constitutes as of the date hereof all of the issued and outstanding Stock of such Loan Party. Except as set forth on Schedule 3.9, as of the date hereof there are no outstanding rights to purchase options, warrants or similar rights or agreements pursuant to which any Material Subsidiary may be required to issue, sell or purchase any Stock or other equity security. 107 Schedule 3.9 lists all outstanding Stock of each Loan Party (other than Borrower) as of the Closing Date. Schedule 6.3 lists all Indebtedness of Borrower and each Material Subsidiary and all Indebtedness in excess of $1,000,000 of each other Subsidiary of Borrower as of the Closing Date. As of the date hereof, the aggregate Fair Market Value of the assets of the Unrestricted Subsidiaries, less the outstanding principal amount of all Indebtedness for borrowed money secured by the assets of the Unrestricted Subsidiaries, is not more than $60,000,000 of which approximately $25,000,000 is represented by the Chagrin Highlands development described in Schedule 3.14. Borrower shall update Schedule 3.9 to include all new Subsidiaries of Borrower created or acquired in connection with any Permitted Acquisition. 3.10. Government Regulation. Neither Borrower nor any Material Subsidiary is (i) an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended; or (ii) is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or any other federal or state statute that restricts or limits such Loan Party's ability to incur Indebtedness, pledge its assets, or to perform its obligations hereunder, or under any other Loan Document, and the making of the Revolving Credit Advances, and the incurrence of the Letter of Credit Obligations, in each case by Lenders, the application of the proceeds and repayment thereof by each Loan Party, and the consummation of the transactions contemplated by this Agreement and the other Loan Documents, will not violate any provision of any such statute or any rule, regulation or order issued by the Securities and Exchange Commission, other than any such violations which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 3.11. Margin Regulations. No Loan Party is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock and no proceeds of any Loan will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. Following application of the proceeds of each Loan and Letter of Credit Obligation, not more than 25 percent of the value of the assets either of Borrower only or of Borrower and its Subsidiaries on a consolidated basis will be Margin Stock. Borrower will not take or permit to be taken any action which might cause any Loan Document or any document or instrument delivered pursuant hereto or thereto to violate any regulation of the Board of Governors of the Federal Reserve Board. 3.12. Taxes. Except as set forth on Schedule 3.12, all federal, state, local and foreign income tax returns (other than any income tax return required to be filed with any Australian Governmental Authority which the failure to file could not reasonably be expected to have a Material Adverse Effect) and all other material tax returns, reports and statements, including, but not limited to, information returns (Form 1120-S) required to be filed by each Loan Party, have been filed with the appropriate Governmental Authority and, except to the extent permitted under Section 5.2(b), all Charges and other impositions shown thereon to be due and payable have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof, or any such 108 fine, penalty, interest, late charge or loss has been paid. Except to the extent permitted under Section 5.2(b), each Loan Party has paid when due and payable all material Charges required to be paid by it. Proper and accurate amounts have been withheld by each Loan Party from their respective employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective Governmental Authorities other than any such withholdings which the failure to pay could not reasonably be expected to result in a Material Adverse Effect. Schedule 3.12 sets forth those taxable years for which any of the tax returns of each Loan Party are as of the date hereof being audited by the IRS or any other applicable Governmental Authority; and any assessments or threatened assessments in connection with such audit or otherwise currently outstanding. Except as described in Schedule 3.12, as of the date hereof no Loan Party has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any Charges. No Loan Party has filed a consent pursuant to IRC Section 341(f) or agreed to have IRC Section 341(f)(2) apply to any dispositions of subsection (f) assets (as such term is defined in IRC Section 341(f)(4)). None of the property owned by any Loan Party is property which is required to treat as being owned by any other Person pursuant to the provisions of IRC Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, and in effect immediately prior to the enactment of the Tax Reform Act of 1986 or is "tax-exempt use property" within the meaning of IRC Section 168(h). No Loan Party has agreed or been requested to make any adjustment under IRC Section 481(a) by reason of a change in accounting method or otherwise, other than any such adjustments which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Loan Party has any obligation under any written tax sharing agreement except as described on Schedule 3.12. 3.13. ERISA. (a) Schedule 3.13 lists all Plans maintained or contributed to as of the date hereof by any Loan Party and all Qualified Plans maintained or contributed to by any ERISA Affiliate, and separately identifies the Title IV Plans, Multiemployer Plans, any multiple employer plans subject to Section 4064 of ERISA, unfunded Pension Plans, Welfare Plans and Retiree Welfare Plans. IRS determination letters regarding the qualified status under Section 401 of the IRC of four of the Qualified Plans have been received with respect to such Plan as of the dates listed on Schedule 3.13. Except as set forth on Schedule 3.13, the Qualified Plans as amended continue to qualify under Section 401 of the IRC, the trusts created thereunder continue to be exempt from tax under the provisions of Section 501(a) of the IRC, and nothing has occurred which would cause the loss of such qualification or tax-exempt status. Except as set forth on Schedule 3.13, each Plan is in compliance in all material respects with the applicable provisions of ERISA and the IRC, including the filing of all reports required under the IRC or ERISA which are true and correct as of the date filed, and all required contributions and benefits have been paid in accordance with the provisions of each such Plan except to the extent where a failure to make such contribution or pay such benefit would be immaterial to the Plan. No Loan Party or other ERISA Affiliate, with respect to any Qualified Plan, has failed to make any 109 contribution or pay any amount due as required by Section 412 of the IRC or Section 302 of ERISA. With respect to all Retiree Welfare Plans, the present value of future anticipated expenses pursuant to the latest actuarial projections of liabilities is less than $1,000,000, and copies of such latest projections have been provided to Agent; with respect to Pension Plans, other than Qualified Plans and the unfunded Pension Plans listed in Schedule 3.13, the present value of the unfunded liabilities for current participants thereunder using interest assumptions described in IRC 411(a)(ii) is less than $1,000,000. Except as set forth on Schedule 3.13, no Loan Party has engaged in a prohibited transaction, as defined in Section 4975 of the IRC or Section 406 of ERISA, in connection with any Plan which would subject any such Person (after giving effect to any exemption) to a material tax on prohibited transactions imposed by Section 4975 of the IRC or any other material liability. (b) Except as set forth on Schedule 3.13: as of the date hereof (i) no Title IV Plan has any Unfunded Pension Liability; (ii) since December 11, 1989, no ERISA Event or event described in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is reasonably expected to occur; (iii) there are no pending, or to the knowledge of Borrower, threatened claims, actions or lawsuits (other than claims for benefits in the normal course), asserted or instituted against (x) any Plan or its assets, (y) any fiduciary with respect to any Plan or (z) any Loan Party or any ERISA Affiliate with respect to any Plan; (iv) no Loan Party or any ERISA Affiliate has incurred or reasonably expects to incur any Withdrawal Liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 of ERISA as a result of a complete or partial withdrawal from a Multiemployer Plan; (v) within the last five years no Loan Party or other ERISA Affiliate has engaged in a transaction which resulted in a Title IV Plan with Unfunded Pension Liabilities being transferred outside of the "controlled group" (within the meaning of Section 4001(a)(14) of ERISA) of any such entity; (vi) no Plan provides for continuing benefits or coverage for any participant or any beneficiary of a participant after such participant's termination of employment (except as may be required by Section 4980B of the IRC and at the sole expense of the participant or the beneficiary of the participant); (vii) since December 31, 1990, each Loan Party or other ERISA Affiliate have complied with the notice and continuation coverage requirements of Section 4980B of the IRC and the proposed or final regulations thereunder; and (viii) since December 11, 1989, no liability under any Plan has been funded, nor has such obligation been satisfied with, the purchase of a contract from an insurance company that is not rated AAA by Standard & Poor's Corporation and the equivalent by each other nationally recognized rating agency; such that the liability under any of (i) through (viii) above, or any combination thereof, would equal or exceed $1,000,000. 3.14. No Litigation. Except as set forth on Schedule 3.14, no action, claim, investigation or other proceeding is now pending or, to the knowledge of Borrower, threatened against any Loan Party, at law, in equity or otherwise, before any court, board, commission, agency or instrumentality of any federal, state, or local government or of any agency or subdivision thereof, or before any arbitrator or panel of arbitrators, (i) which challenges any such Person's right, power, or competence to enter into or perform any of its obligations under the Loan Documents, or the validity or enforceability of any Loan Document or any action taken thereunder or (ii) which could reasonably be expected to 110 result in a Material Adverse Effect. To the knowledge of Borrower, there does not exist a state of facts which is reasonably likely to give rise to such proceedings. 3.15. Brokers. No broker or finder acting on behalf of any Loan Party brought about the obtaining, making or closing of the credit extended pursuant to this Agreement or the transactions contemplated by the Loan Documents and no Loan Party has any obligation to any Person in respect of any finder's or brokerage fees in connection therewith. 3.16. Patents, Trademarks, Copyrights and Licenses. Except as otherwise set forth on Schedule 3.16, Borrower and each Material Subsidiary owns, licenses or otherwise has the right to use all licenses, patents, patent applications, copyrights, service marks, trademarks, trademark applications and trade names which are necessary to continue to conduct its business as heretofore conducted by it, now conducted by it and currently proposed to be conducted by it, each of which is listed, together with Patent and Trademark Office application or registration numbers, where applicable, on Schedule 3.16. To the best of Borrower's knowledge, Borrower and each Material Subsidiary conducts business without infringement or claim of infringement of any license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of others, except where such infringement or claim of infringement could not reasonably be expected to result in a Material Adverse Effect. Except as set forth on Schedule 3.16, to Borrower's knowledge, there is no infringement or claim of infringement by others of any license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of Borrower or any Material Subsidiary, other than any such infringements or claims of infringement which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Schedule 3.16 contains as of the date hereof a complete and accurate list of the License Agreements. 3.17. Hazardous Materials. Except as set forth on Schedule 3.17, (i) Borrower and each Material Subsidiary is in material compliance with all Environmental Laws, and (ii) the Subject Property to the best of Borrower's knowledge is free of any Hazardous Material. In addition, Schedule 3.17 discloses all existing or potential environmental liabilities of Borrower and each Material Subsidiary of which Borrower, after diligent inquiry, has knowledge as of the date hereof, which individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. Except as set forth on Schedule 3.17, neither Borrower nor any Material Subsidiary has caused or suffered to occur any Releases which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. Neither Borrower nor any Material Subsidiary is involved in operations which could lead to any imposition of any Environmental Liabilities and Costs under the Environmental Laws on the Subject Property which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect, or any Lien on the Subject Property under the Environmental Laws, and neither Borrower nor any Material Subsidiary knowingly has permitted any tenant or occupant of such premises to engage in any such activity or activities which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. 111 3.18. Insurance Policies. Schedule 3.18 lists all insurance of any nature maintained as of the date hereof for current occurrences by Borrower or any Material Subsidiary. Borrower covenants that such insurance complies with and shall at all times comply with the standards set forth on Annex E. 3.19. Blocked Accounts and Lock Boxes. Schedule 3.19 lists all banks and other financial institutions at which Borrower maintains the Blocked Accounts and each Lock Box and such Schedule correctly identifies as of the date hereof the name, address and telephone number of each depository, the name in which each such account is held, a description of the purpose of each such account, and the complete account number. All cash receipts of Scott Aviation are deposited in the Blocked Accounts. 3.20. Year 2000 Representations. Borrower and each of its Material Subsidiaries has completed a preliminary Year 2000 Assessment, a copy of which has been delivered to Agent. The Year 2000 Assessment shall be provided to Agent by Borrower and its Material Subsidiaries by February 28, 1999. 3.21. Continuance of Collateral Documents; Substitution. The Collateral Documents and the security interests described therein remain in full force and effect on and after the Closing Date. This Agreement is given as a substitution, and not as payment, of the obligations of Borrower under the Original Credit Agreement and is not intended to constitute a novation of the Original Credit Agreement. The "Revolving Credit Loan" (as defined in the Original Credit Agreement) which is outstanding and owing by Borrower under the Original Credit Agreement as of the Closing Date, as determined by Agent, shall constitute the Revolving Credit Loan hereunder and all "Letter of Credit Obligations" (as defined in the Original Credit Agreement) which are outstanding and owing by Closing Date, as determined by Agent, shall constitute Letter of Credit Obligations hereunder. The representations and warranties contained in this Section 3 shall survive the execution and delivery of this Agreement. 4. FINANCIAL STATEMENTS AND INFORMATION 4.1. Reports and Notices. Borrower covenants and agrees that from and after the Closing Date and until the Termination Date, it shall deliver to each Lender the Financials, Projections and notices at the times and in the manner set forth on Annex D, other than the items referred to in paragraphs (b), (i), (l) and (m) of Annex D, as to which Borrower shall only be required to deliver copies thereof to Agent unless Agent requests copies thereof for each Lender. 4.2. Communication with Accountants. Borrower (for itself and each Subsidiary thereof) authorizes Agent and, so long as a Default or Event of Default shall have occurred and be continuing, each Lender, to communicate directly with its and its Subsidiaries' independent certified public accountants and tax advisors and authorizes those accountants to disclose to Agent and each Lender any and all financial statements and other supporting financial documents and schedules including copies of any management letter 112 with respect to the business, financial condition and other affairs of Borrower and each Subsidiary thereof; provided, however, that Borrower shall be given advance notice by Agent of any meeting or conference between Agent and/or Lenders and such accountants and Borrower shall be permitted to attend any such meeting, it being understood that Borrower's right to have a representative of Borrower attend any such meeting or conference shall not result in a delay of any such meeting or conference. At or before the Closing Date, Borrower shall deliver a letter addressed to such accountants and tax advisors instructing them to comply with the provisions of this Section 4. 5. AFFIRMATIVE COVENANTS Borrower covenants and agrees (for itself and its Subsidiaries) that, unless Required Lenders shall otherwise consent in writing, from and after the date hereof and until the Termination Date: 5.1. Maintenance of Existence and Conduct of Business. Subject to Section 6.1, Borrower shall (and shall cause each of the Material Subsidiaries to) (a) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and its rights and franchises; (b) continue to conduct its business substantially as now conducted or as otherwise permitted hereunder; (c) at all times maintain, preserve and protect all of its Intellectual Property, and to the extent economically reasonable preserve all the remainder of its property, in use or useful in the conduct of its business and keep the same in good repair, working order and condition (taking into consideration ordinary wear and tear and casualties) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto as determined by Borrower in its reasonable judgment and consistent with industry practices, so that the business carried on in connection therewith may be properly and advantageously conducted at all times; and (d) transact business only under its current corporate name, the names set forth on Schedule 3.2 or such other names to the extent that Borrower has given 30 days' prior written notice thereof to Agent and Agent shall have taken all actions that Agent deems necessary or appropriate to continuously protect and perfect the Lien upon the Collateral in favor of Agent for the ratable benefit of Lenders. 5.2. Payment of Charges and Claims. Borrower shall pay and discharge, or cause to be paid and discharged in accordance with the terms thereof, (a) all Charges imposed upon it or any Subsidiary or its or their income and profits, or any of its property (real, personal or mixed), and (b) lawful claims for labor, materials, supplies and services or otherwise, which if unpaid might by law become a Lien on its property; provided, however, that Borrower or any Subsidiary shall not be required to pay any such Charge or claim which is being contested in good faith by proper legal actions or proceedings and for which adequate reserves with respect thereto are established and are maintained in accordance with GAAP to the extent that such Charges or claims if adversely determined, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 113 5.3. Books and Records. Borrower shall (and shall cause each Subsidiary to) keep adequate records and books of account with respect to its business activities, in which proper entries, reflecting all of its consolidated and consolidating financial transactions, are made in accordance with GAAP and on a basis consistent with the Financials. 5.4. Litigation. Borrower shall notify Agent and each Lender in writing, promptly upon learning thereof, of any litigation, investigation, Claim or other action commenced or threatened against Borrower or any Material Subsidiary, and of the institution against any such Person after the date hereof of any suit or administrative proceeding which (i) could reasonably be expected to involve an amount in excess of $1,000,000, individually or in the aggregate and (ii) could reasonably be expected to result in a Material Adverse Effect if adversely determined. 5.5. Insurance; Casualty and Condemnation. (a) Borrower shall, at its (or its Subsidiary's) sole cost and expense maintain or cause to be maintained, the policies of insurance in such amounts and as otherwise described in Annex E. Borrower shall notify Agent promptly of any occurrence causing a material loss or decline in value of any real or personal property and the estimated (or actual, if available) amount of such loss or decline, except as specified otherwise on Annex E. Borrower irrevocably makes, constitutes and appoints Agent (and all officers, employees or agents designated by Agent) as Borrower's true and lawful agent and attorney-in-fact for the purpose during the continuation of any Event of Default of (i) making, settling and adjusting claims relating to the Collateral under the "All Risk" policies of insurance, (ii) endorsing the name of Borrower on any check, draft, instrument or other item of payment for the proceeds of such "All Risk" policies of insurance relating to the Collateral, and (iii) making all determinations with respect to any settlements or adjustments referred to in clause (i) above. In the event Borrower at any time or times hereafter shall fail to obtain or maintain (or fail to cause to be obtained or maintained) any of the policies of insurance required above or to pay any premium in whole or in part relating thereto, Agent or Lenders, without waiving or releasing any Obligations or Default hereunder, and after notice from Agent to Borrower, may at any time or times thereafter (but shall not be obligated to) obtain and maintain such policies of insurance and pay such premium and take any other action with respect thereto which Agent or Lenders deem advisable. All sums so disbursed, including attorneys' fees, court costs and other charges related thereto, shall be payable, on demand, by Borrower to Agent on behalf of Lenders and shall be additional Obligations hereunder secured by the Collateral; provided, however, that if and to the extent Borrower fails to promptly pay any of such sums upon Agent's demand therefor, Agent is authorized to, and at its option may, make or cause to be made Revolving Credit Advances on behalf of Borrower for payment thereof, even if the making of any such Revolving Credit Advance causes the outstanding balance of the Revolving Credit Loan to exceed the Borrowing Availability, and Borrower agrees that the making of any such Advance in excess of the Borrowing Availability shall constitute an automatic Event of Default, unless Borrower repays such Advance within one (1) Business Day after demand by Agent. Any such Revolving Credit Advance shall be deemed to be a Revolving 114 Credit Advance for purposes of this Agreement notwithstanding the fact that the conditions contained in Section 2.2 have not been satisfied with respect to such Revolving Credit Advance. (b) Upon the occurrence and during the continuance of an Event of Default, Agent and Required Lenders shall have the right, upon review of Borrower's risk profile, to require additional forms and limits of insurance to, in Agent's or Required Lenders' sole opinion, adequately protect the interests of Agent and Lenders. Borrower shall, if so requested by Agent, deliver to Agent, as often as Agent may request, a report of a reputable insurance broker satisfactory to Agent with respect to its insurance policies. (c) Borrower shall deliver to Agent its endorsements and those of the Material Subsidiaries constituting Unrestricted Subsidiaries to (i) "All Risk" and business interruption insurance naming Agent on behalf of Lenders as loss payee, and (ii) general liability and other liability policies naming Agent and each Lender as additional insureds as their interests may appear. (d) (i) Subject to clause (ii) below, Borrower hereby directs all present and future insurers under its "All Risk" policies of insurance relating to any Collateral or any real property owned by Borrower whether or not constituting Collateral (collectively, "Property") to pay all proceeds payable thereunder directly to Agent on behalf of Lenders, and all condemnation and casualty proceeds and proceeds of any taking relating to the Property shall be applied, as follows: (x) in the event that such proceeds arise from assets of Borrower which do not constitute Collateral and as to which no Liens have been granted to another holder of Borrower's Indebtedness, such proceeds resulting from one or a series of related events up to $1,000,000 may be retained by Borrower and such proceeds resulting from one or a series of related events in excess of $1,000,000 shall be applied to the repayment of the Obligations; (y) in the event that such proceeds arise from the Collateral, such proceeds shall be applied to the repayment of the Obligations; and (z) in the event that such proceeds arise from assets of Borrower which do not constitute Collateral but constitute collateral as to which a Lien has been granted to another holder of Borrower's Indebtedness to the extent such Lien and the Indebtedness secured thereby are permitted under this Agreement, such proceeds may be paid by Borrower to such holder as its interests may appear and any excess proceeds shall be applied as described in clause (x) above. (ii) So long as there exists no Event of Default, Borrower may collect any and all awards, payments or other proceeds of any loss, damage or destruction to any of its Property or condemnation or taking of any of its Property and use such proceeds, or any part thereof, within one (1) year of receipt thereof, to replace, repair or restore such Property as provided in paragraph (f) below. Upon the occurrence and during the continuance of an Event of Default, Agent on behalf of Lenders is hereby authorized to adjust losses and collect all insurance proceeds directly. If, notwithstanding the provisions hereof which require that Agent be a loss payee, a check or other instrument from an insurer is made payable to Borrower or Borrower and Agent jointly, Agent upon the occurrence and during the continuance of an Event of Default may endorse Borrower's name thereon and take such other action as Agent may elect to obtain the proceeds thereof. 115 (e) Borrower shall promptly notify Agent of (i) any loss, damage, or destruction in excess of $1,000,000 to any Collateral and (ii) any loss, damage, or destruction in excess of $2,500,000 to any other Property or arising from its use, whether or not covered by insurance. Borrower shall promptly upon learning of the institution of any proceeding for the condemnation or other taking of any of its Property, notify Agent of the pendency of such proceeding, and agrees that Agent may participate in any such proceeding and Borrower from time to time will deliver to Agent all instruments reasonably requested by Agent to permit such participation. (f) Any Property which is to be replaced, repaired or restored pursuant to paragraph (d) above shall be replaced, repaired or restored with materials and workmanship of substantially as good a quality as existed before such loss or taking, and Borrower shall commence such replacement, repair or restoration as soon as practicable and proceed diligently with it until completion to Agent's reasonable satisfaction; provided, however, that if any such replaced Property constitutes Collateral, Agent shall receive a perfected first priority security interest in the related replacement Property. Upon request by Agent, Borrower shall provide to Agent written progress reports, other information and evidence of its compliance with the foregoing. 5.6. Compliance with Laws. Borrower shall (and shall cause each of its Subsidiaries to) comply with all federal, state and local laws, permits and regulations applicable to it, including, without limitation, those relating to licensing, environmental, ERISA and labor matters to the extent that failure to comply with such laws, permits or regulations, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. 5.7. Agreements. Borrower shall (and shall cause each of the Material Subsidiaries to) perform, within all required time periods (after giving effect to any applicable grace periods), all of its obligations and enforce all of its rights under each agreement, contract, instrument or other document to which it is a party, including, without limitation, any leases and customer contracts to which it is a party where the failure to so perform and enforce could reasonably be expected to result in a Material Adverse Effect. Borrower shall not (and shall not permit any of the Material Subsidiaries to) terminate or modify any provision of any agreement, contract, instrument or other document to which it is a party which termination or modification could reasonably be expected to result in a Material Adverse Effect. Borrower shall (and shall cause each of the Material Subsidiaries to) perform and comply with all obligations in respect of Accounts, Chattel Paper, Contracts, Licenses, Instruments, Documents and all other agreements constituting or giving rise to Collateral to the extent that the failure to so perform or comply, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. Borrower shall not, without Agent's prior written consent, with respect to any of the Accounts, Chattel Paper, Instruments or amounts due under any Contract (i) grant any extension of the time of payment of any thereof; (ii) compromise or settle the same for less than the full amount thereof; (iii) release, in whole or in part, any Person liable for the payment thereof; or (iv) allow any credit or discount whatsoever thereon other than trade discounts granted in the ordinary course of business of Borrower, except to the 116 extent that any such extensions, compromises, settlements, releases, credits or discounts, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 5.8. Supplemental Disclosure. Upon Agent's reasonable request, Borrower will supplement (or cause to be supplemented) each Schedule hereto, or representation herein or in any other Loan Document with respect to any matter hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in such Schedule or as an exception to such representation or which is necessary to correct any information in such Schedule or representation which has been rendered inaccurate thereby; provided, however, that such supplement to such Schedule or representation shall not be deemed an amendment thereof unless expressly consented to in writing by Agent and Required Lenders, and no such amendments, except as the same may be consented to in a writing which expressly includes a waiver, shall be or be deemed a waiver by Lenders of any Default disclosed therein. Borrower shall, if so requested by Agent or Required Lenders, furnish to Agent and Lenders as often as it reasonably requests, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Agent or Required Lenders may reasonably request, all in reasonable detail, and, Borrower shall advise Agent and Lenders promptly, in reasonable detail, of (i) any Lien, other than as permitted pursuant to Section 6.7, attaching to or asserted against any of the Collateral, (ii) any material change in the composition of the Collateral and (iii) the occurrence of any other event which could reasonably be expected to have a Material Adverse Effect upon the Collateral and/or Agent's Lien thereon. 5.9. Environmental Matters. Borrower shall, and shall cause its Subsidiaries to, (i) comply in all material respects with the Environmental Laws and permits applicable to it, (ii) notify Agent promptly after Borrower becomes aware of any Release which could reasonably be expected to result in Environmental Liabilities and Costs in excess of $500,000 upon any Subject Property, and (iii) promptly forward to Agent a copy of any order, notice, permit, application, or any communication or report (including, but not limited to, any environmental assessment report) received by any Loan Party in connection with any Release identified in clause (ii) above or any other matter relating to the Environmental Laws that may affect any Subject Property or any Loan Party in any respect which could reasonably be expected to result in Environmental Liabilities and Costs in excess of $500,000. The provisions of this Section 5.9 shall apply whether or not the Environmental Protection Agency, any other federal agency or any state or local environmental agency has taken or threatened any action in connection with any Release or the presence of any Hazardous Materials. 5.10. Landlord's and Bailee's/Warehousemen's Agreements. Borrower shall use its best efforts to obtain and maintain in full force and effect a landlord's, bailee's and/or warehousemen's agreement, as applicable, in form and substance acceptable to Agent from the lessor of, or bailee and/or warehousemen with respect to Collateral located on, any present or future leased premises of Borrower or in the possession of a bailee or warehouseman (or in a warehouseman's warehouse), as the case may be. 117 5.11. Certain Obligations Respecting Subsidiaries. (a) Borrower will, and will cause each of its Material Subsidiaries to, take such action from time to time as shall be necessary to ensure that each of its Material Subsidiaries, except as set forth on Schedule 3.9, is a wholly owned Subsidiary. Borrower will not permit any of its Subsidiaries to enter into, after the date of this Agreement, any indenture, agreement, instrument or other arrangement, other than any Collateral Documents, that, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the incurrence or payment of Indebtedness, the granting of Liens, the declaration or payment of dividends or other Restricted Payments, the making of loans, advances or Investments or the sale, assignment, transfer or other disposition of any property or assets. (b) Borrower shall (i) cause any Subsidiary of Borrower designated after the date hereof as an Unrestricted Subsidiary, and upon the repayment in full of the Senior Notes all Subsidiaries, to guaranty the Obligations pursuant to a Subsidiary Guaranty and grant Liens on its assets to Agent for the ratable benefit of Lenders as security for the repayment of the Obligations pursuant to a Subsidiary Security Agreement and, if applicable, a Mortgage, and (ii) pledge the Stock of each such Unrestricted Subsidiary, and upon the repayment in full of the Senior Notes all Subsidiaries, to Agent for the ratable benefit of Lenders as security for the repayment of the Obligations pursuant to the Borrower Pledge Agreement; provided, however, that this paragraph (b) shall not apply to the Unrestricted Subsidiaries in existence on the date hereof, except as provided in the Borrower Pledge Agreement. 5.12. Application of Proceeds. Borrower shall use the proceeds of Revolving Credit Advances as provided in Section 1.3. 5.13. Fiscal Year. Borrower shall, and shall cause each Subsidiary to, maintain as its Fiscal Year the twelve month period ending on December 31 of each year. 5.14. Employee Plans. (a) With respect to each Qualified Plan hereafter adopted or maintained by any Loan Party or any ERISA Affiliate, other than a Multiemployer Plan, Borrower shall (i) seek, or cause each of its ERISA Affiliate to seek, and receive determination letters from the IRS to the effect that such Qualified Plan is qualified within the meaning of Section 401(a) of the IRC; and (ii) from and after the adoption of any such Qualified Plan, cause such plan to be qualified within the meaning of Section 401(a) of the IRC and to be administered in all material respects in accordance with the requirements of ERISA and Section 401(a) of the IRC. (b) With respect to each welfare benefit plan, as defined in Section 3(1) of ERISA, hereafter adopted or maintained by any Loan Party or any ERISA Affiliate, Borrower shall comply, or cause each of its ERISA Affiliates to comply, with the notice and continuation coverage requirements of Section 4980B of the IRC and the regulations thereunder in all material respects. 118 5.15. Intellectual Property. Borrower and its Subsidiaries shall conduct its business and affairs without infringement of or interference with any Intellectual Property of any other Person in any material respect. 5.16. Year 2000 Problems. On or prior to February 28, 1999, Borrower and each of its Material Subsidiaries shall complete and deliver to Agent a Year 2000 Corrective Plan. On or prior to March 31, 1999, each Loan Party shall begin implementation of Year 2000 Corrective Actions. On or before September 30, 1999, Borrower and each of its Material Subsidiaries shall use commercially reasonable efforts to address all Year 2000 Problems identified in the Year 2000 Assessment, except where the failure to address such Year 2000 Problems could not reasonably be expected to have a Material Adverse Effect, individually or in the aggregate. 6. NEGATIVE COVENANTS Borrower covenants and agrees (for itself and each Subsidiary of Borrower) that, without Required Lenders' prior written consent, from and after the date hereof and until the Termination Date: 6.1. Mergers, Subsidiaries, Etc. On and after the Closing Date, Borrower shall not directly or indirectly, by operation of law or otherwise, (a) form or acquire any Subsidiary, or (b) merge with, consolidate with, acquire all or substantially all of the assets or capital stock of, or otherwise combine with or acquire, any Person. Notwithstanding the foregoing, following the Closing Date, Borrower may acquire all or substantially all of the assets or capital stock of any Person (the "Target") (in each case, a "Permitted Acquisition") subject to the satisfaction of each of the following conditions; provided, however, that (a) after giving effect to any such Permitted Acquisition, (i) the Aggregate Purchase Price for any single Permitted Acquisition does not exceed $30,000,000, (ii) the Aggregate Purchase Price for all such acquisitions made during the term of this Agreement pursuant to this Section 6.1 does not exceed $40,000,000, provided that such maximum Aggregate Purchase Price shall be increased by the amount of Net Proceeds of the Snorkel Sale in excess of $30,000,000, but in no event shall such maximum Aggregate Purchase Price be greater than $50,000,000 during the term of this Agreement and (iii) Permitted Acquisitions up to an Aggregate Purchase Price of $15,000,000 during the term of this Agreement shall not be subject to the satisfaction of the conditions in (x) subsection (i) below and (y) clauses (a) and (c) and the proviso in subsection (ii) below: (i) Agent shall receive at least thirty (30) days' prior written notice of such proposed Permitted Acquisition, which notice shall include a reasonably detailed description of such proposed Permitted Acquisition; (ii) (a) such Permitted Acquisition shall only involve assets (or assets of the Target) located in the United States of America; (b) such Permitted Acquisition shall involve only a business, or those assets of a business, of the type engaged in by Borrower as of the Closing Date or a similar business as contemplated by Borrower's business plan provided to Lenders on the Closing Date or subsequently 119 amended, updated or supplemented (to the reasonable satisfaction of the Lenders); and (c) any part of such business would not subject Agent or any Lender to regulatory or third party approvals (other than those disclosed to Agent in writing prior to the Closing Date and any written updates thereto within 30 days after the Closing Date) in connection with the exercise of its rights and remedies under this Agreement or any other Loan Documents other than approvals applicable to the exercise of such rights and remedies with respect to Borrower prior to such Permitted Acquisition; provided, however, that a portion of the assets involved in such Permitted Acquisition may be located outside of the United States of America to the extent that the book value of such assets (as determined by reference to the financial statements delivered by Target to Borrower pursuant to Section 6.1(vii)(C)) do not constitute more than fifty-percent (50%) of the purchase price of such Target or Borrower after giving effect to such Permitted Acquisition; (iii) such Permitted Acquisition shall have been approved by the Target's board of directors; (iv) such Permitted Acquisition shall be structured as an asset acquisition by Borrower or a Subsidiary of Borrower, as a merger of the Target into Borrower with Borrower as the surviving corporation or with or into a Subsidiary of Borrower or as an acquisition of all or substantially all the capital stock of such Target directly by Borrower or a Subsidiary of Borrower; provided that after giving effect to such Permitted Acquisition, any such Subsidiary of Borrower shall immediately become a Subsidiary Guarantor to the extent permitted under the Senior Note Indenture, and provided, further, that Borrower shall update Schedule 3.9 to include all new Subsidiaries of Borrower created or acquired in connection with such Permitted Acquisition; (v) the business and assets acquired in such Permitted Acquisition shall be acquired free and clear of all Liens (other than Permitted Encumbrances or Liens otherwise permitted under this Agreement); (vi) as promptly as possible, but in no event greater than thirty (30) days after the date of the closing of any Permitted Acquisition, to the extent permitted under the Senior Note Indenture, Agent will be granted a first priority perfected Lien (subject to Permitted Encumbrances or other Liens permitted under this Agreement) in all assets acquired pursuant thereto (in the case of an asset acquisition or merger) or in the assets and capital stock of the Target (and its Subsidiaries, if any) (in the case of an acquisition of the capital stock of the Target) and Borrower, Borrower's Subsidiaries, the Target and the Target's Subsidiaries (if any) shall have executed such documents and taken such actions as may be reasonably required by Agent in connection therewith, including, without limitation, in the case of a Permitted Acquisition in which the Target (and/or a Subsidiary of the Target) becomes a Subsidiary of Borrower, such documents and actions as may be required by Agent to make such Target (and/or such Subsidiary) a party to this Agreement as Borrower or a guarantor; 120 (vii) no less than 10 Business Days prior to the proposed Permitted Acquisition above, Borrower shall have delivered to Agent, in form and substance satisfactory to Agent: (A) a certificate of a Responsible Officer of Borrower certifying to Agent and Lenders that the Leverage Covenant Ratio does not exceed 5:1 on a pro forma basis for the four Fiscal Quarter period reflected in the financial data most recently delivered to Agent pursuant to Annex D prior to the consummation of such Permitted Acquisition (giving effect to such Permitted Acquisition as if it were consummated at the conclusion of such four Fiscal Quarter period); (B) a certificate of a Responsible Officer of Borrower, in his capacity as such, to the effect that Borrower will be Solvent upon the consummation of the Permitted Acquisition; and (C) a copy of the most recent financial statements of the Target delivered to Borrower. (viii) as promptly as possible, but in no event greater than thirty (30) days after the date of the closing of such Permitted Acquisition, Agent shall have received all acquisition documents related thereto and legal opinions, certificates and other documents reasonably requested by Agent; provided, that to the extent that any legal opinion is delivered to Borrower or its Subsidiaries in connection with such Permitted Acquisition, Borrower shall use its reasonable best efforts to obtain a reliance letter addressed to Agent and Lenders with respect to such legal opinion; provided, however, that the failure by Borrower to obtain such a reliance letter after its reasonable best efforts shall not affect the status of such acquisition as a Permitted Acquisition; and (ix) at the time of such Permitted Acquisition and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing. 6.2. Investments. Borrower shall not (and shall not permit any of its Subsidiaries to), directly or indirectly, make or maintain any Investment except (i) as otherwise permitted by Section 6.1, 6.3, 6.4, 6.6 or 6.10(c); (ii) Investments outstanding on the date hereof and listed on Schedule 6.2; (iii) advances constituting trade credit representing the purchase price of inventory or supplies sold to any Person (other than a Subsidiary or Affiliate of Borrower) in the ordinary course of business; (iv) Investments in Cash Equivalents; (v) Investments consisting of promissory notes and other securities received as proceeds of a disposal permitted by Section 6.8 and any replacement Investment so long as such replacement Investment is at least as liquid as such original Investment as evidenced by a certificate of a Responsible Officer delivered to Agent not less than three (3) Business Days prior to such transaction indicating that the conditions contained in this Section 6.2(v) shall have been satisfied; provided, however, that the amount of such replacement Investment which cannot be converted to cash or Cash Equivalents shall not 121 exceed $1,000,000 for any single disposal permitted by Section 6.8 and $5,000,000 in the aggregate during the term of this Agreement; (vi) Investments consisting of guarantees, indemnities and similar obligations in favor of any buyer in any disposal transaction permitted under Section 6.8; (vii) Investments in Joint Venture Subsidiaries or entities which upon the occurrence of any such Investment shall become a Joint Venture Subsidiary in an aggregate amount not to exceed $5,000,000 made in Fiscal Year 1999 and $1,000,000 made in any Fiscal Year thereafter, provided that any excess of the amount provided above for any one Fiscal Year over the actual aggregate Investments of Borrower or any Subsidiary of Borrower in Joint Venture Subsidiaries made during such Fiscal Year may be carried forward to, and made available for, the next succeeding Fiscal Year; (viii) Investments acquired in connection with a Permitted Acquisition, provided that the Fair Market Value of such Investments does not exceed $5,000,000 in the aggregate during the term of this Agreement; (ix) miscellaneous Investments not to exceed $1,000,000 in the aggregate at any time based upon the book value of such Investments. 6.3. Indebtedness. Borrower shall not (and shall not permit any of its Subsidiaries to) create, incur, assume or permit to exist any Indebtedness, except (i) the Obligations; (ii) Deferred Taxes; (iii)(x) Capital Lease Obligations secured by Liens permitted under clause (iv) of Section 6.7 and (y) Indebtedness secured by purchase money Liens permitted under clause (iv) of Section 6.7 in a maximum aggregate amount outstanding at any time under clauses (x) and (y) not to exceed $5,000,000; (iv) existing Indebtedness as of the Closing Date, provided that any such Indebtedness in excess of $1,000,000 in aggregate principal amount shall be set forth on Schedule 6.3; (v) Indebtedness of any Subsidiary of Borrower owing to Borrower or another Subsidiary of Borrower and which is permitted under Section 6.4, provided that (A) upon the request of Agent and/or Required Lenders such Subsidiary of Borrower shall execute and deliver to Borrower a demand note (collectively the "Intercompany Notes") to evidence any such intercompany Indebtedness owing by such Subsidiary to Borrower or by any Unrestricted Subsidiary to another Unrestricted Subsidiary, and (B) Agent and/or Required Lenders may request an Intercompany Note to evidence any such Indebtedness outstanding on the Closing Date, which Intercompany Notes shall be in form and substance satisfactory to Agent and shall be pledged and delivered by Borrower to Agent pursuant to the Borrower Pledge Agreement as additional collateral security for the Obligations; (vi) other Indebtedness not to exceed $5,000,000 in the aggregate at any time outstanding; (vii) Indebtedness of Borrower owing to any Subsidiary of Borrower and which is permitted under Section 6.4 in the form of cash loans or advances to Borrower, provided that (A) Agent and/or Required Lenders may request an Intercompany Note for any such Indebtedness outstanding on the Closing Date or arising thereafter and, solely with respect to Unrestricted Subsidiaries, that such Intercompany Note be pledged and delivered to Agent as additional collateral security for the Obligations, and (B) the documentation evidencing any such Indebtedness shall provide that, and Borrower hereby agrees that, upon the occurrence and during the continuance of any Event of Default, the payment of principal of (and premium, if any) and interest and other payment obligations in respect of such Indebtedness shall be subordinate to the prior payment in full of the Obligations and shall not occur prior to the Termination Date; (viii) any renewal, extension, refinancing or refunding of any Indebtedness permitted in clause (iv) above (other than Senior Notes) on 122 terms no less favorable to Borrower, Agent or any Lender, as determined by Agent in the case of any such renewal, extension, refinancing or refunding of Indebtedness in excess of $5,000,000, than the terms of the Indebtedness being renewed, extended, refinanced or refunded, including, without limitation, with respect to amount, maturity, amortization, interest rate, premiums, fees, covenants, events of default and remedies; (ix) Indebtedness assumed or incurred in connection with a Permitted Acquisition to the extent any such Indebtedness incurred shall be subordinated to the Obligations hereunder; and (x) Indebtedness incurred in connection with the Jacobs Chagrin Office Building One secured by a mortgage or other security interest in an amount not to exceed $15,000,000 in the aggregate during the term of this Agreement. 6.4. Affiliate and Employee Loans and Transactions; Employment Agreements. Except as provided in Section 6.1, Borrower shall not (and shall not permit any of its Subsidiaries to) enter into or suffer to exist any lending, borrowing or other commercial transaction with any of its Subsidiaries, Affiliates, officers, directors or employees, including, without limitation, payment of any management, consulting, advisory or similar fee, other than any such transaction with an Affiliate (other than a Subsidiary), officer, director or employee of Borrower which is entered into on an arm's-length basis and in the ordinary course of business of Borrower; provided, however, (a) Borrower may (i) extend loans to its officers, directors and employees in a maximum aggregate principal amount outstanding at any time for all officers, directors and employees of $2,000,000, (ii) extend loans or make other advances to the Foreign Subsidiaries in an aggregate amount not to exceed (x) in the case of any such existing loans and advances, the amount of such loans and advances listed on Schedule 6.4 and outstanding as of the Closing Date (the "Existing Foreign Loans") and (y) in the case of any such loans and advances made after the Closing Date, $4,000,000 outstanding at any time (the amount referred to in clause (y), the "Foreign Subsidiary Basket") for the purpose of enabling such Foreign Subsidiaries to pay taxes, pay insurance premiums, pay miscellaneous filing, registration and other fees, repay Indebtedness to facilitate Borrower's tax planning or otherwise satisfy obligations in connection with Borrower's divestiture program, provided that (A) subject to the terms of Section 6.13(iii), the Existing Foreign Loans shall be permanently reduced from time to time by repayments made in accordance with the terms thereof as in effect on the date hereof, and (B) any repayments made by any Foreign Subsidiary of loans or advances made by Borrower to such Foreign Subsidiary pursuant to the Foreign Subsidiary Basket shall be made in cash or Cash Equivalents, (iii) extend loans or make other advances to the Domestic Subsidiaries which are Restricted Subsidiaries in an aggregate amount not to exceed (x) in the case of any such existing loans and advances, the amount of such loans and advances listed on Schedule 6.4 and outstanding as of the Closing Date (the "Existing Domestic Loans"), and (y) in the case of any such loans and advances made after the Closing Date, $7,000,000 outstanding at any time (the amount referred to in clause (y), the "Domestic Subsidiary Basket"), for the purpose of (A) repaying miscellaneous obligations of the Domestic Subsidiaries to the extent Borrower would be permitted to pay such obligations under Section 6.4 and (B) repaying Indebtedness secured by mortgages on any such Domestic Subsidiary's real property to the extent any such repayment is permitted by Section 6.13(iii), provided that the Existing Domestic Loans shall be permanently reduced from time to time by repayments made in accordance with the terms thereof as in effect on 123 the date hereof, (iv) extend loans and make other advances to the Domestic Subsidiaries which are Unrestricted Subsidiaries; (v) extend loans to Joint Venture Subsidiaries to the extent permitted by Section 6.2(vii), and (vi) with Subsidiaries of Borrower, provide payroll, accounting, legal and similar administrative services and enter into real property leases, intellectual property licenses, intercompany sales of goods and similar transactions, in each case to the extent entered into on an arm's-length basis in the ordinary course of Borrower's business consistent with past practices, (b) any Subsidiary of Borrower may extend loans or advances to Borrower in accordance with Section 6.3(vii), and (c) any Unrestricted Subsidiary may extend loans or advances to another Unrestricted Subsidiary and any Restricted Subsidiary may extend loans or advances to another Restricted Subsidiary. With respect to any repayment provided for in clause (a)(ii) or (iii) above, Borrower shall deliver to Agent not less than three (3) Business Days in advance of any such repayment a certificate of a Responsible Officer indicating whether any repayments of Indebtedness pursuant to Section 6.13 are to be applied to the repayment of (x) loans or advances made pursuant to either the Foreign Subsidiary Basket or the Domestic Subsidiary Basket or (y) Existing Domestic Loans or Existing Foreign Loans. Set forth on Schedule 6.4 is a list of all such lending, borrowing or other commercial transactions existing or outstanding as of the date hereof. 6.5. Capital Structure and Business. Except as permitted under Section 5.1, Borrower shall not (and shall not permit any of its Subsidiaries to) (i) make any changes in its business objectives, purposes, or operations which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect, (ii) except as permitted under Section 6.14, make any change in its capital structure as described on Schedule 3.9 (including, without limitation, the issuance or recapitalization of any shares of Stock or other securities convertible into Stock or any revision of the terms of its outstanding Stock); provided, however, that Borrower may issue shares of its Stock for cash or Cash Equivalents; and provided, further, that Borrower shall update Schedule 3.9 to include all new Subsidiaries of Borrowers created or acquired in connection with any Permitted Acquisition, or (iii) in the case of Borrower or any Material Subsidiary, amend its articles or certificate of incorporation, charter, by-laws or other organizational documents other than any amendment to cure any ambiguity, defect or inconsistency with any other provision therein or to correct or supplement any provision therein which may be inconsistent with any other provision therein, provided that any such amendment shall not adversely affect the interests of Lenders in any material respect. Notwithstanding the foregoing terms of this Section 6.5, Borrower may change its articles of incorporation, by-laws and other organizational documents in order to create one class of Stock to replace or consolidate Borrower's existing Class A and Class B common Stock; provided, however, that any such change may not provide for Restricted Payments, a Change of Control, or other terms which in any such instance could reasonably be expected to cause a Default or Event of Default hereunder or otherwise, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. 6.6. Guaranteed Indebtedness. Except as set forth in Schedule 6.6, Borrower shall not (and, except as provided for in Section 6.1, shall not permit any of its Subsidiaries to) incur any Guaranteed Indebtedness except (i) by endorsement of 124 instruments or items of payment for collection or deposit to the general account of such Person, (ii) for Guaranteed Indebtedness incurred for the benefit of Borrower if the primary obligation is permitted by this Agreement for Borrower to incur (and such Guaranteed Indebtedness shall be treated as a primary obligation for all purposes hereof), (iii) for performance bonds, indemnities, product warranties and similar obligations entered into in the ordinary course of business consistent with past practices, (iv) guarantees by Borrower of the obligations of Joint Venture Subsidiaries to the extent permitted by Section 6.2(vii), (v) guarantees by Borrower of Indebtedness of any Subsidiaries of Borrower to the extent Borrower would be permitted to create, incur or assume such Indebtedness hereunder and (vi) for Guaranteed Indebtedness incurred in connection with a Permitted Acquisition to the extent the underlying Indebtedness is permitted hereunder. 6.7. Liens. Borrower shall not (and shall not permit any of its Subsidiaries to) create or permit to exist any Lien on any of its properties or assets except for (i) presently existing or hereafter created Liens in favor of Agent on behalf of Lenders to secure the Obligations; (ii) Liens set forth on Schedule 6.7 existing on the date hereof; (iii) Permitted Encumbrances; (iv) purchase money liens or purchase money security interests upon or in Equipment acquired by Borrower or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such Equipment or to secure Indebtedness or Capital Lease Obligations in each case to the extent permitted under Section 6.3(iii) incurred solely for the purpose of financing the acquisition of such Equipment, so long as such Equipment is not a component, part or accessory installed on, or an accession, addition or attachment to, any other Equipment or other property of Borrower or any Subsidiary thereof (except other Equipment on which a security interest exists under this clause); (v) Liens in connection with a Permitted Acquisition to the extent the Indebtedness secured thereunder is permitted hereunder; (vi) Liens in connection with the underlying Indebtedness incurred in connection with the Jacobs Chagrin Office Building One and (vii) extensions, renewals and replacements of Liens referred to in clauses (ii) and (vi) above, provided that any such extension, renewal or replacement Lien is limited to the property or assets covered by the Lien extended, renewed or replaced and does not secure Indebtedness in an amount greater than the amount of the outstanding Indebtedness secured thereby immediately prior to the date of such extension, renewal or replacement. 6.8. Sale of Assets. Borrower shall not (and shall not permit any of its Subsidiaries to) sell, transfer, convey, assign or otherwise dispose of any of its assets or properties, including, without limitation, any Collateral; provided, however, that the foregoing shall not prohibit (i) the sale of Inventory in the ordinary course of business; (ii) the sale or disposition of any assets which have become obsolete or surplus to the business of Borrower or any of its Subsidiaries; (iii) the sale by Borrower and its Subsidiaries of assets, including Dispositions and those divestitures listed in Schedule 6.8; other than the Collateral for a sale price not less than the Fair Market Value of such assets; and (iv) the sale or exchange of Investments received in connection with divestitures to the extent permitted by Section 6.2(v). 6.9. ERISA. Neither Borrower nor any ERISA Affiliate shall acquire any 125 new ERISA Affiliate that (i) maintains or has an obligation to contribute to a Pension Plan other than a Multiemployer Plan that has an "accumulated funding deficiency," as defined in Section 302 of ERISA; or (ii) has an obligation to contribute to a Multiemployer Plan where its share of any "unfunded vested benefits," as defined in Section 4006(a)(3)(E)(iii) of ERISA equals or exceeds $1,000,000. Additionally, neither Borrower nor any ERISA Affiliate shall (i) terminate any Pension Plan that is subject to Title IV of ERISA where such termination could reasonably be anticipated to result in liability to Borrower; (ii) permit any accumulated funding deficiency, as defined in Section 302(a)(2) of ERISA, to be incurred with respect to any Pension Plan; (iii) fail to make any contributions or fail to pay any amounts due and owing as required by the terms of any Plan before such contributions or amounts become delinquent; (iv) make a complete or partial withdrawal (within the meaning of Section 4201 of ERISA) from any Multiemployer Plan; or (v) at any time fail to provide Agent and any Lender with copies of any Plan documents or governmental reports or filings, if reasonably requested by Agent or any Lender; such that the liability under any of (i) through (v) above, or any combination thereof, equals or exceeds $1,000,000. 6.10. Financial Covenants. Borrower shall not breach or fail to comply with any of the following financial covenants, each of which shall be calculated in accordance with GAAP consistently applied (and based upon the financial statements delivered hereunder): (a) Leverage Covenant Ratio. Borrower shall maintain for each four Fiscal Quarter period, commencing with the fourth Fiscal Quarter period ending on December 31, 1998, a Leverage Covenant Ratio for such period of not greater than 5:1. (b) Fixed Charge Coverage Ratio. Borrower shall maintain for each of the one Fiscal Quarter period ending on March 31, 1999, the two Fiscal Quarter period ending on June 30, 1999, the three Fiscal Quarter period ending on September 30, 1999 and each four Fiscal Quarter period thereafter, a Fixed Charge Coverage Ratio for such period of not less than 1.50:1. (c) Capital Expenditures. Borrower and its Subsidiaries shall not make aggregate Capital Expenditures (excluding any Capital Expenditures made by Borrower pursuant to Section 5.5 to replace, repair or restore any Property subject to any loss or taking described therein and excluding the Aggregate Purchase Price of Permitted Acquisitions) in excess of $13,000,000 in the four Fiscal Quarter Period ending on December 31, 1999, in excess of $12,000,000 in the four Fiscal Quarter period ending on December 31, 2000, in excess of $10,000,000 in each four Fiscal Quarter period thereafter. Borrower may make Capital Expenditures for the purpose of building a headquarters facility in the Chagrin Highlands development in addition to Capital Expenditures otherwise permitted by this Section 6.10(c) in an aggregate amount not to exceed $10,000,000 during the term of this Agreement. Such $10,000,000 of Capital Expenditures for purposes of the Chagrin Highland development may be made directly by Borrower and 126 shall be in addition to the Investments permitted by Section 6.2(vii) hereof. 6.11. Hazardous Materials. Borrower shall not and shall not knowingly permit any of its Subsidiaries or any other Person to (a) cause or permit a Release of Hazardous Material on, under in or about any Subject Property; (b) use, store, generate, treat or dispose of Hazardous Materials, except in compliance with Environmental Laws; or (c) transport any Hazardous Materials to or from any Subject Property, except in compliance with Environmental Laws. 6.12. Sale-Leasebacks. Except as set forth on Schedule 6.12, Borrower shall not (and shall not permit any of its Subsidiaries to) engage in any sale-leaseback, synthetic lease or similar transaction involving any of its property or assets, except to the extent such sale-leaseback is assumed or acquired in connection with a Permitted Acquisition; provided, however, that Borrower may enter into any new sale-leaseback, synthetic lease or similar transaction after the date hereof on terms no less favorable to Borrower, Agent or any Lender, as determined by Required Lenders in the case of any such transaction with GE Capital and as determined by Agent otherwise, than those of the sale-leaseback transactions listed on Schedule 6.12, including, without limitation, with respect to lease payments, lease term, covenants, events of default and remedies, provided that Borrower shall be in compliance with Section 6.3(iii) after giving effect to any such transaction. 6.13. Cancellation of Indebtedness; Amendments. Except as permitted under Section 5.7 or Section 6.1, Borrower shall not (and shall not permit any of its Subsidiaries to) cancel any claim or Indebtedness owing to it, except for reasonable consideration and in the ordinary course of its business, or voluntarily prepay, redeem, purchase, retire, defease, or make any sinking fund payment or similar payment in respect of, any Indebtedness (other than the Obligations), except for (i) regularly scheduled payments of Indebtedness as in effect on the date hereof and (ii) prepayments in respect of personal property leases in connection with the sale of the equipment subject to such leases pursuant to Section 6.8, and (iii) the cancellation, conversion, sale and exchange of Investments obtained by Borrower as a result of divestitures permitted under Section 6.8, pursuant to such discounts and other terms as Borrower may reasonably deem beneficial. Borrower shall not amend the Senior Note Indenture without the prior written consent of Required Lenders. 6.14. Restricted Payments. Except as permitted under Section 6.4, Borrower shall not make any Restricted Payment to any Person and Borrower shall not permit any of its Subsidiaries to make any Restricted Payment other than to Borrower or to a wholly-owned Subsidiary of Borrower which owns the Stock of such Subsidiary; provided, however, that Borrower may (a) make repurchases of its Stock pursuant to the Directors Stock Option Plan and the Key Employees Stock Option Plan, (b) make Permitted Stock Buy Backs and (c) make repurchases of its Stock and/or pay cash dividends, provided that in the case of clause (c), any such repurchases and/or dividend payments shall not in the aggregate exceed 50% of the cumulative Net Income, excluding net income or losses from the Snorkel Sale or the Dispositions measured on a cumulative basis from the Closing Date, for the period commencing January 1, 1999 and ending on the last day of the last full Fiscal 127 Quarter ending immediately preceding the date of such repurchase or dividend (as reduced by the amount of any repurchases or cash dividends previously paid pursuant to this Section 6.14), (iii) no Default or Event of Default exists and is continuing or would exist by reason of any such repurchase or dividend, and (iv) after giving effect to any such repurchase or dividend Borrower will be in compliance with Section 6.10 as if such repurchase or dividend had occurred prior to the end of the last full Fiscal Quarter ending immediately preceding the date of such repurchase or dividend as evidenced by a certificate of a Responsible Officer delivered to Agent not less than three (3) Business Days prior to such transaction indicating that the conditions contained in this Section 6.14(iv) shall have been satisfied. 6.15. [Reserved.] 6.16. Blocked Accounts. Borrower shall not permit collections from Scott Aviation to be deposited in any account other than the Blocked Accounts identified on Schedule 3.19 or any other account with respect to which Borrower has delivered to Agent an effective Blocked Account Agreement. 6.17. No Speculative Transactions. Borrower shall not (and shall not permit any of its Subsidiaries to) engage in any speculative transaction or any transaction involving French franc currency swap contracts (other than in the ordinary course of business consistent with past practice) in excess of an aggregate notional value of $3,000,000 outstanding at any time during the term of this Agreement; provided, however, Borrower may enter and maintain interest rate cap, swap and/or collar agreements, or other agreements or arrangements designed to provide protection against fluctuations in interest rates, which shall be on terms, periods and with counterparties acceptable to Agent (with consent by Agent in writing), and by which Borrower is protected against increases in interest rates from and after the date of such contracts. 6.18. Margin Regulations. Borrower shall not use or permit any proceeds of any Revolving Credit Advance or Letter of Credit Obligation to be used to purchase or carry any Margin Stock or any equity security of a class which is registered pursuant to Section 12 of the Exchange Act. 6.19. Limitation on Negative Pledge Clauses. Except as set forth on Schedule 6.19 and except for purchase money loans, capital leases, operating leases limited to the subject property and otherwise permitted hereunder, Borrower shall not (and shall not permit any of its Subsidiaries to), directly or indirectly, enter into any agreement with any Person other than Agent or Lenders pursuant to a Loan Document which prohibits or limits the ability of Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any Collateral or on any other material property, assets or revenues, whether now owned or hereafter acquired. 6.20. Accounting Changes; Fiscal Year. Borrower shall not (and shall not permit any of its Subsidiaries to) make, any significant change in accounting treatment and reporting practices except for changes concurred in by Borrower's independent public 128 accountants. Borrower shall not (and shall not permit any of its Subsidiaries to) change its Fiscal Year. 7. TERM 7.1. Duration. The financing arrangement contemplated hereby shall be in effect until the Commitment Termination Date, and the Obligations shall automatically become due and payable in full, in cash, on such date. 7.2. Survival of Obligations. Except as otherwise expressly provided for in the Loan Documents, no termination or cancellation (regardless of cause or procedure) of any financing arrangement under this Agreement shall in any way affect or impair the Obligations, duties, indemnities, and liabilities of any Loan Party, or the rights of Agent or any Lender relating to any Obligations, due or not due, liquidated, contingent or unliquidated or any transaction or event occurring prior to such termination, or any transaction or event, the performance of which is not required until after the Commitment Termination Date. Except as otherwise expressly provided herein or in any other Loan Document, all undertakings, agreements, covenants, warranties and representations of or binding upon any Loan Party, and all rights of Agent and each Lender, all as contained in the Loan Documents shall not terminate or expire, but rather shall survive such termination or cancellation and shall continue in full force and effect until such time as all of the Obligations have been indefeasibly paid in full in accordance with the terms of the agreements creating such Obligations; provided, however, that in all events the provisions of Section 11, the payment obligations under Section 1.17 and 1.18, and the indemnities contained in the Loan Documents shall survive such date. 8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES 8.1. Events of Default. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an "Event of Default" hereunder: (a) Borrower shall fail to make any payment in respect of any Obligations hereunder or under any of the other Loan Documents when due and payable or declared due and payable, including, without limitation, any payment of principal of, or interest on, the Loans or any fees. (b) Borrower shall fail or neglect to perform, keep or observe any of the provisions of Section 1.7, Section 4.1 or Section 6, including, without limitation, any of the provisions set forth on Annex B or Annex D. (c) Any Loan Party shall fail or neglect to perform, keep or observe any term or provision of this Agreement (other than any such term or provision referred to in paragraph (a) or (b) above) or of any of the other Loan Documents to which such Loan Party is a party, and the same shall remain unremedied for a period ending on the first to occur of ten (10) days after Borrower shall receive written notice of any such failure from Agent or any Lender or thirty (30) days after Borrower shall become aware thereof. 129 (d) A default shall occur under any other agreement, document or instrument to which Borrower or any Material Subsidiary is a party or by which any such Person or its property is bound, and such default (i) involves the failure to make any payment (whether of principal, interest or otherwise) due beyond any applicable grace period (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) in respect of any Indebtedness of such Person in an aggregate amount exceeding $5,000,000 or (ii) causes (or permits any holder of such Indebtedness or a trustee to cause) such Indebtedness, or a portion thereof in an aggregate amount exceeding $5,000,000, to become due prior to its stated maturity or prior to its regularly scheduled dates of payment. (e) Any representation or warranty herein or in any Loan Document or in any written statement pursuant thereto or hereto, any report, financial statement or certificate made or delivered to Agent or any Lender by any Loan Party shall be untrue or incorrect as of the date when made or deemed made (including those made or deemed made pursuant to Section 2.2). (f) Any of the assets of Borrower, any Significant Subsidiary or any Material Subsidiary shall be attached, seized, levied upon or subjected to a writ or distress warrant, or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors of Borrower, such Significant Subsidiary or such Material Subsidiary and shall remain unstayed or undismissed for sixty (60) consecutive days; or any Person other than Borrower, any Significant Subsidiary or any Material Subsidiary, as the case may be, shall apply for the appointment of a receiver, trustee or custodian for Borrower's, such Significant Subsidiary's or such Material Subsidiary's assets and shall remain unstayed or undismissed for sixty (60) consecutive days; or Borrower, any Significant Subsidiary or any Material Subsidiary shall have concealed, removed or permitted to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or any of them or made or suffered a transfer of any of its property or the incurring of an obligation which may be fraudulent under any bankruptcy, fraudulent conveyance or other similar law. (g) A case or proceeding shall have been commenced against Borrower, any Significant Subsidiary or any Material Subsidiary in a court having competent jurisdiction seeking a decree or order (i) under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of Borrower, such Significant Subsidiary or such Material Subsidiary or of any substantial part of its properties, or (iii) ordering the winding up or liquidation of the affairs of Borrower, such Significant Subsidiary or such Material Subsidiary and such case or proceeding shall remain undismissed or unstayed for sixty (60) consecutive days or such court shall enter a decree or order granting the relief sought in such case or proceeding. (h) Borrower, any Significant Subsidiary or any Material Subsidiary shall (i) file a petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign 130 bankruptcy or other similar law, (ii) consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of Borrower, such Significant Subsidiary or such Material Subsidiary or of any substantial part of Borrower's, such Significant Subsidiary's or such Material Subsidiary's properties, (iii) fail generally to pay its debts as such debts become due, or (iv) take any corporate action in furtherance of any such action. (i) Final judgment or judgments (after the expiration of all times to appeal therefrom) for the payment of money in excess of $2,500,000 in the aggregate (and as to which an insurer satisfactory to Required Lenders has not acknowledged liability in writing) shall be rendered against any Loan Party, unless the same shall be vacated, stayed, bonded, paid or discharged within a period of thirty (30) days from the date of such judgment. (j) There shall occur any Material Adverse Effect since the date hereof which shall not have been cured (or waived by Required Lenders) within ten days of notice thereof from Agent to Borrower. (k) Any provision of any Loan Document shall for any reason cease to be valid, binding and enforceable in accordance with its terms against Borrower or any Material Subsidiary or any such party shall so state in writing; or any Lien created under any Collateral Document shall cease to be a valid and perfected Lien having the first priority in any of the Collateral purported to be covered thereby. (l) There shall occur a Change of Control. (m) There shall occur any "Event of Default" under and as defined in the Senior Note Indenture. (n) An event or condition specified in Section 6.9 hereof shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions not shown on Schedule 3.13, Borrower, any Subsidiary thereof or any ERISA Affiliate shall incur or in the opinion of Required Lenders shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan, PBGC or any Person (or any combination of the foregoing) which equals or exceeds $1,000,000 in the aggregate. (o) Any event shall occur, whether or not insured or insurable, as a result of which revenue-producing activities cease or are substantially curtailed at any facility of Borrower generating more than 15% of Borrower's revenues for the Fiscal Year preceding such event and such cessation or curtailment continues for more than 30 days. 8.2. Remedies. If any Default shall have occurred and be continuing, the rate of interest applicable to the Revolving Credit Loan and the fees payable in connection with the Letter of Credit Obligations may, at the discretion of the Agent or at the direction of Required Lenders, be increased, effective upon notice of such increase to Borrower from 131 Agent on behalf of Required Lenders, to the Default Rate as provided in Section 1.4(d) or, in the case of Letter of Credit Obligations, increased by 2% per annum. If any Event of Default shall have occurred and be continuing Agent may, or shall with the consent of Required Lenders, without notice, take any one or more of the following actions: (a) terminate the Revolving Credit Commitment and/or Term Loan Commitment whereupon Lenders' obligation to make further Revolving Credit Advances, Term Loans and Agent's or the Issuing Bank's, as the case may be, obligation to incur Letter of Credit Obligations shall terminate; (b) declare all or any portion of the Obligations to be forthwith due and payable, including any contingent liabilities with respect to Letter of Credit Obligations, whereupon such Obligations shall become and be due and payable; (c) require that all Letter of Credit Obligations be fully cash collateralized in accordance with the terms of Annex F; or (d) exercise any rights and remedies provided to Agent or Lenders under the Loan Documents and/or at law or equity, including all remedies provided under the Code; provided, however, that upon the occurrence of an Event of Default specified in Section 8.1(f), (g) or (h), the rate of interest applicable to all Obligations shall be increased automatically to the Default Rate as provided in Section 1.4(d) and the fees payable in connection with the Letter of Credit Obligations shall be increased by 2% per annum, and the Revolving Credit Commitment and Term Loan Commitment shall immediately terminate and the Obligations shall become immediately due and payable, in each case, without declaration, notice or demand by any Person. 8.3. Waivers by Borrower. Except as otherwise provided for in this Agreement and applicable law to the full extent permitted by applicable law, Borrower waives (i) presentment, demand and protest and notice of presentment, dishonor, notice of intent to accelerate, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all Loan Documents, notes, commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Agent or any Lender on which Borrower may in any way be liable, and Borrower hereby ratifies and confirms whatever Agent or any Lender may do in this regard, (ii) all rights to notice and a hearing prior to Agent's or Lenders' taking possession or control of, or to Agent's or Lenders' replevy, attachment or levy upon, the Collateral or any bond or security which might be required by any court prior to allowing Agent or Lenders to exercise any of their remedies, and (iii) the benefit of any right of redemption and all valuation, appraisal and exemption laws. Borrower acknowledges that it has been advised by counsel of its choice with respect to this Agreement, the other Loan Documents and the transactions contemplated by this Agreement and the other Loan Documents. 9. AGENT 9.1. Appointment, Powers and Immunities. Each Lender hereby irrevocably appoints and authorizes GE Capital to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to Agent by the terms of this Agreement and of the other Loan Documents, together with such other powers as are reasonably incidental thereto. Agent (which term as used in this sentence and in Section 9.5 and the first sentence of Section 9.6 hereof shall include reference to its affiliates and its own and its affiliates' officers, directors, employees and agents): (a) shall have no duties 132 or responsibilities except those expressly set forth in this Agreement and in the other Loan Documents, and shall not by reason of this Agreement or any other Loan Document be a trustee or fiduciary for any Lender; (b) shall not be responsible to Lenders for any recitals, statements, representations or warranties contained in this Agreement or in any other Loan Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Loan Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or any other document referred to or provided for herein or therein or for any failure by any Loan Party or any other Person to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Loan Document; (d) shall not be responsible to Lenders for any action taken or omitted to be taken by it hereunder or under any other Loan Document or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a notice of the assignment or transfer thereof shall have been filed with Agent. 9.2. Reliance by Agent. Agent shall be entitled to rely upon any certification, notice or other communication (including, without limitation, any thereof by telephone, telecopy, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by Agent. As to any matters not expressly provided for by this Agreement or any other Loan Document, Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by Required Lenders or all Lenders as is required in such circumstance, and such instructions of such Lenders and any action taken or failure to act pursuant thereto shall be binding on all Lenders. 9.3. Defaults. Agent shall not be deemed to have knowledge or notice of the occurrence of a Default (other than the non-payment of principal of or interest on Revolving Credit Advances or of Fees) unless Agent has received notice from a Lender or Borrower specifying such Default and stating that such notice is a "Notice of Default". In the event that Agent receives such a notice of the occurrence of a Default, Agent shall give prompt notice thereof to Lenders (and shall give each Lender prompt notice of each such non-payment). Agent shall (subject to Section 9.7) take such action with respect to such Default as shall be directed by Required Lenders; provided, however, that, unless and until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of Lenders except to the extent that this Agreement expressly requires that such action be taken, or not be taken, only with the consent or upon the authorization of Required Lenders or all Lenders as is required in such circumstance. 133 9.4. Rights as a Lender. With respect to its Commitments hereunder, GE Capital (and any successor acting as Agent) in the event it shall become a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include Agent in its individual capacity. GE Capital (and any successor acting as Agent) and its affiliates may (without having to account therefor to any Lender) lend money to, make investments in and generally engage in any kind of business with the Loan Parties (and any of their Subsidiaries or Affiliates) as if it were not acting as Agent, and GE Capital and its affiliates may accept fees and other consideration from the Loan Parties for services in connection with this Agreement or otherwise without having to account for the same to Lenders. 9.5. Indemnification. Lenders agree to indemnify Agent (to the extent not reimbursed by Borrower hereunder and without limiting the obligations of Borrower hereunder) ratably in accordance with their respective Pro Rata Shares (or, if no Loans are at the time outstanding, ratably in accordance with their respective Commitments), for any and all Claims of any kind and nature whatsoever that may be imposed on, incurred by or asserted against Agent (including by any Lender) arising out of or by reason of any investigation in or in any way relating to or arising out of this Agreement or any other Loan Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses that Borrower is obligated to pay hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents; provided, however, that no Lender shall be liable for any of the foregoing to the extent they arise solely from the gross negligence or willful misconduct of the party to be indemnified as determined by a final non-appealable judgment of a court of competent jurisdiction. Without limiting the foregoing, each Lender agrees to reimburse Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement and each other Loan Document, to the extent that Agent is not reimbursed for such expenses by Borrower. 9.6. Non-Reliance on Agent and Other Lenders. Each Lender agrees that it has, independently and without reliance on Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of Borrower and its Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Loan Documents. Agent shall not be required to keep itself informed as to the performance or observance by any Loan Party of this Agreement or any of the other Loan Documents or any other document referred to or provided for herein or therein or to inspect the properties or books of Borrower or any of its Subsidiaries. Agent will use reasonable efforts to provide Lenders with any information received by Agent from Borrower which 134 is required to be provided to Lenders hereunder, with any notice of a Default received by Agent from Borrower and with any notice of a Default delivered by Agent to Borrower; provided, however, that Agent shall not be liable to any Lender for any failure to do so, except to the extent that such failure is attributable solely to Agent's gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction. Agent shall not have any duty or responsibility to provide any Lender with any other credit or other information concerning the affairs, financial condition or business of Borrower or any of its Subsidiaries (or any of their affiliates) that may come into the possession of Agent or any of its affiliates nor to update or correct any information previously given which becomes incorrect or which Agent learns is incorrect. 9.7. Failure to Act. Except for action expressly required of Agent hereunder and under the other Loan Documents, Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from Lenders of their indemnification obligations under Section 9.5 against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. 9.8. Resignation of Agent. Subject to the appointment and acceptance of a successor Agent as provided below, Agent may resign at any time by giving notice thereof to Lenders and Borrower. Upon any such resignation Required Lenders shall have the right to appoint a successor Agent, which (as long as no Event of Default has occurred and is continuing) shall be subject to the prior approval of Borrower (which approval shall not be unreasonably denied or delayed). If no successor Agent shall have been so appointed by Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of Lenders, appoint a successor Agent, that shall be a financial institution with a combined capital and surplus or net worth of at least $300,000,000, which (as long as no Event of Default has occurred and is continuing) shall be subject to the prior approval of Borrower (which approval shall not be unreasonably denied or delayed). Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 9 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. 9.9. Consents under Loan Documents. Except as otherwise provided in Section 11.1 with respect to this Agreement, Agent may, with the prior consent of Required Lenders (but not otherwise), consent to any modification, supplement or waiver under any of the Loan Documents; provided, however, that, without the prior consent of each Lender, Agent shall not (except as provided herein or in the Collateral Documents) release any Collateral or otherwise terminate any Lien under any Collateral Document, or agree to additional obligations being secured by such Collateral, except that no such consent shall be required, and Agent is hereby authorized, to release any Lien covering Collateral (i) which is the subject of a disposition permitted hereunder, (ii) which secures 135 Indebtedness to the extent permitted under Section 6.3, (iii) to which Required Lenders have consented (except as otherwise provided in Section 11.1) or (iv) the value of which does not exceed $10,000,000 in any Fiscal Year. 9.10. Collateral Matters. (a) Except as otherwise expressly provided for in this Agreement, Agent shall have no obligation whatsoever to any Lender or any other Person to investigate, confirm or assure that the Collateral exists or is owned by any Loan Party or is cared for, protected or insured or has been encumbered, or whether any particular reserves are appropriate, or that the Liens granted to Agent herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent in this Agreement or in any of the other Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, Agent may act in any manner it may deem appropriate, in its sole discretion, given Agent's own interest in the Collateral as a Lender and that Agent shall have no duty or liability whatsoever to any other Lender, other than liability for its own gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. (b) Each Lender hereby appoints each other Lender as agent for the purpose of perfecting Lenders' security interest in assets which, in accordance with Article 9 of the Code can be perfected only by possession. Should any Lender (other than Agent) obtain possession of any such Collateral, such Lender shall notify Agent thereof and, promptly upon Agent's request therefor, shall deliver such Collateral to Agent or in accordance with Agent's instructions. 9.11. Advances; Payments; Non-Funding Lenders; Information; Actions in Concert. (a) Advances; Payments. (i) Revolving Lenders shall refund or participate in the Swing Line Loan in accordance with clauses (iii) and (iv) of Section 1.1(c). If the Swing Line Lender declines to make a Swing Line Loan or if Swing Line Availability is zero, Agent shall notify Revolving Lenders, promptly after receipt of a Notice of Revolving Credit Advance and in any event prior to 1:00 p.m. (New York time) on the date such Notice of Revolving Credit Advance is received, by telecopy, telephone or other similar form of transmission. Each Revolving Lender shall make the amount of such Lender's Pro Rata Share of such Revolving Credit Advance available to Agent in same day funds by wire transfer to Agent's account as set forth in Annex G not later than 3:00 p.m. (New York time) on the requested funding date, in the case of an Index Rate Loan and not later than 11:00 a.m. (New York time) on the requested funding date in the case of the LIBO Rate Loan. After receipt of such wire transfers (or, in the Agent's sole discretion, before receipt of such wire transfers), 136 subject to the terms hereof, Agent shall make the requested Revolving Credit Advance to Borrower. All payments by each Revolving Lender shall be made without setoff, counterclaim or deduction of any kind. (ii) On the second (2nd) Business Day of each calendar week or more frequently as aggregate cumulative payments in excess of $2,000,000 are received with respect to the Loans (other than the Swing Line Loan) (each, a "Settlement Date"), Agent will advise each Lender by telephone, or telecopy of the amount of such Lender's Pro Rata Share of principal, interest and Fees paid for the benefit of Lenders with respect to each applicable Loan. Provided that such Lender has funded all payments and Advances and Term Loans required to be made by it and purchased all participations required to be purchased by it under this Agreement and the other Loan Documents as of such Settlement Date, Agent will pay to each Lender such Lender's Pro Rata Share of principal, interest and Fees paid by Borrower since the previous Settlement Date for the benefit of that Lender on the Loans held by it. To the extent that any Lender (a "Non-Funding Lender") has failed to fund all such payments and Advances and Term Loans or failed to fund the purchase of all such participations, Agent shall be entitled to set off the funding short-fall against that Non-Funding Lender's Pro Rata Share of all payments received from Borrower. Such payments shall be made by wire transfer to such Lender's account (as specified by such Lender in Annex G or the applicable Assignment Agreement) not later than 2:00 p.m. (New York time) on the next Business Day following each Settlement Date. (b) Availability of Lender's Pro Rata Share. Agent may assume that each Revolving Lender and Term Lender will make its Pro Rata Share of each Revolving Credit Advance and Term Loan available to Agent on each funding date. If such Pro Rata Share is not, in fact, paid to Agent by such Revolving Lender or Term Lender when due, Agent will be entitled to recover such amount on demand from such Revolving Lender or Term Lender without set-off, counterclaim or deduction of any kind. If any Revolving Lender or Term Lender fails to pay the amount of its Pro Rata Share forthwith upon Agent's demand, Agent shall promptly notify Borrower and Borrower shall immediately repay such amount to Agent. Nothing in this Section 9.11(b) or elsewhere in this Agreement or the other Loan Documents shall be deemed to require Agent to advance funds on behalf of any Revolving Lender or Term Lender or to relieve any Revolving Lender or Term Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Borrower may have against any Revolving Lender or Term Lender as a result of any default by such Revolving Lender or Term Lender hereunder. To the extent that Agent advances funds to Borrower on behalf of any Revolving Lender or Term Lender and is not reimbursed therefor on the same Business Day as such Advance or Term Loan is made, Agent shall be entitled to retain for its account all interest accrued on such Advance or Term Loan until reimbursed by the applicable Revolving Lender or Term Lender. (c) Return of Payments. (i) If Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received 137 by Agent from Borrower and such related payment is not received by Agent, then Agent will be entitled to recover such amount from such Lender on demand without set-off, counterclaim or deduction of any kind. (ii) If Agent determines at any time that any amount received by Agent under this Agreement must be returned to Borrower or paid to any other Person pursuant to any insolvency law or otherwise, then, notwithstanding any other term or condition of this Agreement or any other Loan Document, Agent will not be required to distribute any portion thereunder to any Lender. In addition, each Lender will repay to Agent on demand any portion of such amount that Agent has distributed to such Lender, together with interest at such rate, if any, as Agent is required to pay to Borrower or such other Person, without set-off, counterclaim or deduction of any kind. (d) Non-Funding Lenders. The failure of any Non-Funding Lender to make any Revolving Credit Advance or Term Loan or any payment required by it hereunder, or to purchase any participation in any Swing Line Loan to be made or purchased by it on the date specified therefor shall not relieve any other Revolving Lender or Term Lender (each such other Revolving Lender or Term Lender, an "Other Lender") of its obligations to make such Advance or Term Loan or purchase such participation on such date, but neither any Other Lender nor Agent shall be responsible for the failure of any Non-Funding Lender to make an Advance or Term Loan or to purchase a participation required hereunder. Notwithstanding anything set forth herein to the contrary, a Non-Funding Lender shall not have any voting or consent rights under or with respect to any Loan Document or constitute a "Lender" or a "Revolving Lender" or "Term Lender" (or be included in the calculation of "Requisite Lenders" or "Requisite Revolving Lenders" or "Requisite Term Lenders" hereunder) for any voting or consent rights under or with respect to any Loan Document. (e) Dissemination of Information. Agent will use reasonable efforts to provide Lenders with any notice of Default or Event of Default received by Agent from, or delivered by Agent to, any Loan Party, with notice of any Event of Default of which Agent has actually become aware and with notice of any action taken by Agent following any Event of Default; provided, however, that Agent shall not be liable to any Lender for any failure to do so, except to the extent that such failure is attributable to Agent's gross negligence or willful misconduct. Lenders acknowledge that Borrower is required to provide Financials to Lenders in accordance with Annex D hereto and agree that Agent shall have no duty to provide the same to Lenders. (f) Actions in Concert. Anything in this Agreement to the contrary notwithstanding, each Lender hereby agrees with each other Lender that no Lender shall take any action to protect or enforce its rights arising out of this Agreement or the Notes (including exercising any rights or set-off) without first obtaining the prior written consent of Agent and Requisite Lenders, it being the intent of Lenders that any such action to protect or enforce rights under this Agreement and the Notes shall be taken in concert and at the direction or with the consent of Agent. 138 10. SUCCESSORS AND ASSIGNS 10.1. Successors and Assigns. This Agreement and the other Loan Documents shall be binding on and shall inure to the benefit of Borrower, Agent, Lenders, and their respective successors and assigns, including a debtor in possession acting on behalf of any such Person, except as otherwise provided herein or therein. Borrower may not assign, delegate, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder or under any of the Loan Documents without the prior express written consent of Agent and all Lenders. Any such purported assignment, transfer, hypothecation or other conveyance by Borrower without such prior express written consent shall be void. The terms and provisions of this Agreement and the other Loan Documents are for the purpose of defining the relative rights and obligations of Borrower, Agent and Lenders with respect to the transactions contemplated hereby and there shall be no third party beneficiaries of any of the terms and provisions of this Agreement or any of the other Loan Documents. 10.2. Assignments and Participations. (a) Each Lender may assign and grant participations in, at any time or times, the Loan Documents, Loans, Letter of Credit Obligations and any Commitment or of any portion thereof or interest therein, including any Lender's rights, title, interests, remedies, powers or duties thereunder, whether evidenced by a writing or not, to an Affiliate or to any other Person; provided, however, that any such disposition (other than a participation pursuant to Section 10.2(c), or a disposition of any type to another Lender or an Affiliate of a Lender) shall (i) be subject to the consent of Agent and, if no Event of Default shall have occurred and be continuing, the consent of Borrower, which consent of Borrower shall not be unreasonably withheld, denied or delayed, (ii) require the execution of an assignment agreement (an "Assignment Agreement" substantially in the form attached hereto as Exhibit F and otherwise in form and substance satisfactory to, and acknowledged by, Agent) and (iii) be conditioned on such assignee Lender representing to the assigning Lender and Agent that it is purchasing the applicable Loans to be assigned to it for its own account, for investment purposes and not with a view to the distribution thereof; and, provided, further, that any Lender may assign or create a security interest in all or any portion of its rights under this Agreement or any of its Notes in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System (or any successor regulation), and any Lender that is an investment fund may assign the Obligations held by it and such Lender's rights under this Agreement and the other Loan Documents to another investment fund managed by the same investment advisor; provided, however, that no such pledge to a Federal Reserve Bank shall release such Lender from such Lender's obligations hereunder or under any other Loan Document. (b) In the case of an assignment by a Lender under this Section 10.2, the assignee shall have, to the extent of such assignment, the same rights, benefits and obligations as it would if it were a Lender hereunder; provided, however, that (i) any such partial assignment shall be at least (x) $5,000,000 if such assignee is not a Lender and (y) in multiples of $1,000,000 in the event such assignee is a Lender; and (ii) each such 139 assignment shall be of a constant, and not a varying, percentage of the assigning Lender's rights and obligations under this Agreement with respect to the Commitment being assigned and the assignment shall cover the same percentage of the assigning Lender's Loans and Commitments being assigned and Letter of Credit Obligations; and, provided, further, that no Lender shall hold a Revolving Credit Commitment nor a Term Loan Commitment, as the case may be of less than $5,000,000 after giving effect to any such assignment. Upon execution by the assignor and the assignee of an instrument pursuant to which the assignee assumes such rights and obligations, payment by such assignee to such assignor of an amount equal to the purchase price agreed between such assignor and such assignee and delivery to Agent and Borrower of an executed copy of such instrument together with payment to Agent of a processing fee of $3,500, such assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights and benefits as it would have if it were a Lender hereunder and the assignor shall be, to the extent of such assignment (unless otherwise provided therein) released from its obligations under this Agreement. Borrower hereby acknowledges and agrees that any assignment will give rise to a direct obligation of Borrower to the assignee and that the assignee shall be considered to be a "Lender." In all instances, each Lender's liability to make Loans shall be several and not joint and shall be limited to such Lender's Pro Rata Share of the applicable Commitment. Upon any such assignment, Borrower, at its own expense, shall execute and deliver to Agent in exchange for the surrendered Note of the assignor Lender a new Note to the order of the assignee Lender in an amount equal to the Commitment assumed by such assignee Lender and if the assignor Lender has retained a Commitment hereunder a new Note to the order of the assignor Lender in an amount equal to such retained Commitment. Such new Notes shall be dated the Closing Date and shall otherwise be in the form of the Note replaced thereby. The Notes surrendered to Agent shall be returned by Agent to Borrower marked "cancelled". (c) Subject to Section 10.2(a), each Lender may sell participations in all or any part of its Loans and its Commitments; provided that (a) all amounts payable by Borrower hereunder shall be determined as if such Lender had not sold such participation and the participating Lender shall remain a "Lender" for all purposes under this Agreement, (b) any such grant of a participation will be made in compliance with all applicable state or federal laws, rules, and regulations, (c) any such participation shall be divided pro rata among the participating Lender's share of the Loan and the Letter of Credit Obligations, and (d) such Lender shall not grant any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or the Loan Documents, except to the extent such amendment or waiver would (i) extend the maturity date for payment of the Loan in which such participant is participating; (ii) reduce the interest rate or the amount of principal or Fees applicable to the Loan in which such participant is participating, other than as a result of waiving the applicability of any post-default increase in interest rates or Fees; or (iii) release all or substantially all of the Collateral, except as expressly provided herein. In those cases in which a Lender grants rights to its participants to approve any amendment to or waiver of this Agreement or the other Loan Documents respecting the matters described in the foregoing clauses (i) through (iii), and any such participant does not consent to any such amendment, such Lender shall have the right to repurchase the participation of such participant at a repurchase price equal to the face 140 amount of such participation. In the case of any participation, the participant shall not have any rights under this Agreement or any of the other Loan Documents entered into in connection herewith (the participant's right against such Lender in respect of such participation to be those set forth in the participation or other agreement executed by such Lender and the participant relating thereto) and all amounts payable to any Lender hereunder shall be determined as if such Lender had not sold such participation. (d) Except as otherwise provided in this Section 10.2, no Lender shall, as between Borrower and that Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or granting of participation in, all or any part of the Loans or other Obligations owed to such Lender. Any Lender permitted to sell assignments and participations under this Section 10.2 may furnish any information concerning Borrower and its Subsidiaries in the possession of that Lender from time to time to assignees and participants (including prospective assignees and participants). (e) Borrower shall assist any Lender permitted to sell assignments or participations under this Section 10.2 in whatever manner reasonably necessary in order to enable or effect any such assignment or participation, including (but not limited to) the execution and delivery of any and all agreements, notes and other documents and instruments as shall be requested and the preparation and delivery of informational materials, appraisals or other documents for, and the participation of relevant management in meetings with, potential assignees or participants. Borrower shall certify, to the extent it is reasonably able to, the correctness, completeness and accuracy of all descriptions of Borrower and its affairs contained in any selling materials and all information provided by it and included in such materials. (f) So long as no Event of Default shall have occurred and be continuing, no Lender shall assign or sell participations in any portion of its Loans or Commitments to a potential Lender or participant, if, as of the date of the proposed assignment or sale, the assignee Lender or participant would be subject to capital adequacy or similar requirements under Section 1.18(a), increased costs under Section 1.18(b), an inability to fund LIBO Rate Loans under Section 1.18(c), or withholding taxes in accordance with Section 1.17(a). 11. MISCELLANEOUS 11.1. Complete Agreement; Modification of Agreement. The Loan Documents and the Fee Letter constitute the complete agreement between the parties with respect to the subject matter thereof and supersede all prior agreements, commitments, understandings or inducements (oral or written, expressed or implied). Neither this Agreement nor any other Loan Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by Required Lenders; provided, however, that no such change, waiver, discharge or termination shall, without the consent of each affected Lender and Agent, (i) extend the scheduled final maturity of any Loan, or any portion thereof, or reduce the rate or extend the time of payment of interest thereon or fees (other than as a result of 141 waiving the applicability of any post-default increase in interest rates or Fees) or reduce the principal amount thereof, or change the method of calculation of the Borrowing Base, or increase the Commitment of such Lender over the amount thereof then in effect (it being understood that a waiver of any Default shall not constitute a change in the terms of any Commitment of any Lender), (ii) release all or substantially all of the Collateral (except as expressly permitted by the Loan Documents), (iii) amend, modify or waive any provision of this Section, or Section 1.15, 9.5, 11.2 or 11.7, (iv) reduce any percentage specified in, or otherwise modify, the definition of Required Lenders, (v) consent to the assignment or transfer by Borrower of any of its rights and obligations under this Agreement, or (vi) amend the definition of the term "Pro Rata Share". No provision of Section 9 may be amended without the prior written consent of Agent. 11.2. Fees and Expenses. (a) Borrower shall pay on demand all reasonable costs and expenses (including, without limitation, reasonable fees of counsel) of Agent in connection with the preparation, negotiation, approval, execution, delivery, modification, amendment, waiver and enforcement (whether through negotiations, legal proceedings or otherwise) of the Loan Documents, and commitments relating thereto, and the other documents to be delivered hereunder or thereunder and the transactions contemplated hereby and thereby and the fulfillment or attempted fulfillment of conditions precedent hereunder, including, without limitation: (i) wire transfer fees and other costs of forwarding to Borrower or any other Person on behalf of Borrower by Agent and each Lender of the proceeds of the Loans, to the extent such fees and costs are typical for such transactions; (ii) any amendment, modification or waiver of, or consent with respect to, any of the Loan Documents or advice in connection with the administration of the advances made pursuant hereto or its rights hereunder or thereunder; (iii) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Agent, any Lender, Borrower or any other Person) in any way relating to the Collateral, any of the Loan Documents or any other agreements to be executed or delivered in connection therewith or herewith, whether as party, witness, or otherwise, including any litigation, contest, dispute, suit, case, proceeding or action, and any appeal or review thereof, in connection with a case commenced by or against Borrower or any other Person that may be obligated to Agent and Lenders by virtue of the Loan Documents; (iv) any attempt to enforce any rights of Agent or Lenders against Borrower or any other Person that may be obligated to Agent or Lenders by virtue of any of the Loan Documents; or (v) after the occurrence and during the continuance of any Default, any effort to (A) evaluate, observe, assess Borrower or its affairs, or (B) verify, protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of the Collateral. (b) Borrower shall pay on demand all reasonable costs and expenses (including, without limitation, reasonable fees of counsel) of (i) Agent in connection with any Default, (ii) Agent and Lenders in connection with any enforcement or collection proceedings resulting therefrom or (iii) Agent in connection with any amendment, modification or waiver of, or consent with respect to, any of the Loan Documents in connection with any Default. 142 (c) Without limiting the generality of clauses (a) and (b) above, Borrower's obligation to reimburse Agent and/or any Lender for costs and expenses shall include the reasonable fees and expenses of counsel (and local, foreign or special counsel, advisors, consultants and auditors retained by such counsel), accountants, environmental advisors, appraisers, investment bankers, management and other consultants and paralegals; court costs and expenses; photocopying and duplicating expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telegram charges; secretarial overtime charges; expenses for travel, lodging and food; and all other out-of-pocket costs and expenses of every type and nature paid or incurred in connection with the performance of such legal or other advisory services. (d) Agent shall be entitled to order and receive, at Borrower's expense, (i) one appraisal of Borrower's Equipment and machinery each calendar year and (ii) a new appraisal with respect to any new Equipment or machinery; provided, however, that if an Event of Default shall have occurred and be continuing, Agent shall be entitled to order and receive more frequent appraisals of Borrower's Equipment and machinery at Borrower's expense. 11.3. No Waiver. No failure on the part of Agent or Lenders, at any time or times, to require strict performance by any Loan Party, of any provision of this Agreement and any of the other Loan Documents shall waive, affect or diminish any right of Agent or Lenders thereafter to demand strict compliance and performance therewith. Any suspension or waiver of a Default shall not suspend, waive or affect any other Default whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of any Loan Party contained in this Agreement or any of the other Loan Documents and no Default by any Loan Party shall be deemed to have been suspended or waived by Lenders, unless such waiver or suspension is by an instrument in writing signed by a Responsible Officer of or other authorized employee of Agent and Required Lenders or all Lenders if required hereunder and directed to Borrower specifying such suspension or waiver. 11.4. Remedies. The rights and remedies of Agent and Lenders under this Agreement shall be cumulative and nonexclusive of any other rights and remedies which Agent or any Lender may have under any other agreement, including, without limitation, the Loan Documents, by operation of law or otherwise. Recourse to the Collateral shall not be required. 11.5. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 11.6. Conflict of Terms. Except as otherwise provided in this Agreement or any of the other Loan Documents by specific reference to the applicable provisions of this Agreement, if any provision contained in this Agreement is in conflict with, or 143 inconsistent with, any provision in any of the other Loan Documents, the provisions contained in this Agreement shall govern and control. 11.7. Right of Set-off. Subject to Section 9.11(d), upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of Borrower against any and all of the Obligations now or hereafter existing irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such Obligations may be unmatured. Each Lender agrees promptly to notify Agent and Borrower after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to the other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. 11.8. Authorized Signature. Until Agent shall be notified by Borrower to the contrary, the signature upon any document or instrument delivered pursuant hereto and believed by Agent or any of Agent's officers, agents, or employees to be that of a Responsible Officer or duly authorized representative of Borrower listed on Schedule 11.8 shall bind Borrower and be deemed to be the act of Borrower affixed pursuant to and in accordance with resolutions duly adopted by Borrower's Board of Directors, and Agent and each Lender shall be entitled to assume the authority of each signature and authority of the person whose signature it is or appears to be unless the person acting in reliance of such signature shall have actual knowledge of the fact that such signature is false or the person whose signature or purported signature is presented is without authority. 11.9. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK CITY SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, HOWEVER, THAT LENDER AND BORROWER ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK CITY; AND, PROVIDED, FURTHER, THAT NOTHING IN THIS AGREEMENT 144 SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT OR ANY LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT OR ANY LENDER. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN SECTION 11.10(c) AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. 11.10. Notices. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give or serve upon any other party any communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be deemed to have been validly served, given or delivered (i) upon the earlier of actual receipt and three (3) days after deposit in the United States Mail, registered or certified mail, return receipt requested, with proper postage prepaid, (ii) upon transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section 11.10, (iii) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid or (iv) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address or facsimile number indicated below or to such other address (or facsimile number) as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any Person (other than Borrower, Agent or any Lender) designated below to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. (a) If to Agent, as a Lender or as Agent, at: General Electric Capital Corporation 145 201 High Ridge Road Stamford, Connecticut 06927-5100 Attention: Account Manager - Scott Technologies Telecopy No.: (203) 316-7893 With copies to: GE Capital Commercial Finance, Inc. 201 High Ridge Road Stamford, Connecticut 06927-5100 Attention: Commercial Finance - Legal Department Telecopy No.: (203) 316-7889 and Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attention: Ted S. Waksman, Esq. Telecopy No.: (212) 310-8007 (b) If to another Lender, at its address set forth under its signature below or in the instrument of assignment delivered to Agent at the time it becomes a Lender. (c) If to Borrower, at: Scott Technologies, Inc. 5875 Landerbrook Drive Suite 250 Mayfield Heights, Ohio 44124 Attention: Chief Financial Officer Telecopy No.: (440) 442-1519 With copies to: Scott Technologies, Inc. 5875 Landerbrook Drive Suite 250 Mayfield Heights, Ohio 44124 Attention: General Counsel Telecopy No.: (440) 442-1519 and 146 Calfee, Halter & Griswold LLP 1400 McDonald Investment Center 800 Superior Avenue Cleveland, Ohio 44114-2688 Attention: Martin S. Gates, Esq. Telecopy No.: (216) 241-0816 11.11. Section Titles. The Section titles and Table of Contents contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of this Agreement. 11.12. Counterparts. This Agreement may be executed in any number of separate counterparts, each of which shall, collectively and separately, constitute one agreement. 11.13. Time of the Essence. Time is of the essence of this Agreement and each of the other Loan Documents. 11.14. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 11.15. Press Releases; Publicity. Borrower shall not and shall not permit any of its Affiliates to issue any press release or other public disclosure using the name of GE Capital or any of its Affiliates or referring to this Agreement or any of the other Loan Documents without the prior written consent of GE Capital unless Borrower or any of its Affiliates is required to do so under applicable law and then, in any event, Borrower or such Affiliate will consult with GE Capital before issuing such press release or other public disclosure. Agent or any Lender may publish a tombstone or similar advertising material relating to the financing transaction contemplated by this Agreement with the prior written consent of Borrower, which consent shall not be unreasonably withheld or delayed. 11.16. Reinstatement. This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Borrower for liquidation or reorganization, should Borrower become insolvent or make an assignment 147 for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of Borrower's assets, and shall continue to be effective or to be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a "voidable preference," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 11.17. Advice of Counsel. Each of the parties represents to each other party hereto that it has discussed this Agreement and, specifically, the provisions of Sections 11.9 and 11.14, with its counsel. 11.18. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. 148 IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above. SCOTT TECHNOLOGIES, INC. (formerly Figgie International Inc.) By: /s/ Mark A. Kirk Name: Mark A. Kirk Title: Senior Vice President Chief Financial Officer GENERAL ELECTRIC CAPITAL CORPORATION, as AGENT By: /s/ Charles D. Chiodo Name: Charles D. Chiodo Title: Duly Authorized Signatory Lenders: Revolving Credit Commitment GENERAL ELECTRIC CAPITAL $75,000,000 CORPORATION Term Loan Commitment By: /s/ Charles D. Chiodo $20,000,000 Name: Charles D. Chiodo Title: Duly Authorized Signatory 149 ANNEX A to CREDIT AGREEMENT Dated as of December 31, 1998 DEFINITIONS In addition to the defined terms appearing below, capitalized terms used in this Agreement shall have (unless otherwise provided elsewhere in this Agreement) the following respective meanings when used in this Agreement "Account Debtor" shall mean any Person who may become obligated to Borrower under, with respect to, or on account of, an Account, Chattel Paper or General Intangibles. "Accounts" shall mean all "accounts," as such term is defined in the Code, now owned or hereafter acquired by Borrower and, in any event, including, without limitation, (a) all accounts receivable, other receivables, book debts and other forms of obligations (other than forms of obligations evidenced by chattel paper, documents or instruments) now owned or hereafter received or acquired by or belonging or owing to Borrower, whether arising out of goods sold or services rendered by it or from any other transaction (including, without limitation, any such obligations which may be characterized as an account or contract right under the Code), (b) all of Borrower's rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, (c) all of Borrower's rights to any goods represented by any of the foregoing (including, without limitation, unpaid sellers' rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), (d) all monies due or to become due to Borrower under all purchase orders and contracts for the sale or lease of goods or the performance of services or both by Borrower or in connection with any other transaction (whether or not yet earned by performance on the part of Borrower) now or hereafter in existence, including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and (e) all collateral security and guarantees of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. "Adjustment Certificate" shall have the meaning assigned thereto in Section 1.4(a). "Advance" shall mean a Revolving Credit Advance. "Advance Date" shall have the meaning assigned to it in Section 1.11. "Affiliate" shall mean, with respect to any Person, (i) each Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or 150 other fiduciary, five percent (5%) or more (and solely for the purposes of Section 1.15(a), twenty-five percent (25%)) of the Stock having ordinary voting power in the election of directors of such Person, (ii) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person or (iii) each of such Person's officers, directors, joint ventures and partners. For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise; provided, however, that the term "Affiliate" shall specifically exclude Agent and each Lender. "Agent" has the meaning assigned to it in the first paragraph of this Agreement. "Aggregate Purchase Price" shall mean the amount of consideration including, without limitation, cash, Cash Equivalents, notes, Stock, other securities and the assumption of liabilities (valued, if not in a quantifiable amount, at the maximum amount reasonably ascertainable by Borrower), paid, issued or incurred by Borrower in connection with a Permitted Acquisition under Section 6.1; provided, however, that any such notes, Stock or other securities shall be valued at Fair Market Value. "Agreement" shall mean this Amended and Restated Credit Agreement to which this Annex A is attached and of which it forms a part including all Annexes, Schedules, and Exhibits attached or otherwise identified thereto, restatements and modifications and supplements hereto and any appendices, attachments, exhibits or schedules to any of the foregoing, and shall refer to this Agreement as the same may be in effect at the time such reference becomes operative; provided, however, that any reference to the Schedules to this Agreement shall be deemed a reference to the Schedules as in effect on the Closing Date or in a written amendment thereto executed by Borrower and Agent. "Applicable L/C Margin" shall mean the per annum fee, from time to time in effect, payable with respect to outstanding Letter of Credit Obligations as determined by reference to Section 1.4(a). "Applicable Margins" shall mean, collectively, the Applicable L/C Margin, the Applicable Unused Line Fee Margin, the Applicable Revolver Index Margin, the Applicable Term Loan Index Margin, the Applicable Revolver LIBO Rate Margin and the Applicable Term Loan LIBO Rate Margin. "Applicable Revolver Index Margin" shall mean the per annum interest rate margin from time to time in effect and payable in addition to the Index Rate applicable to the Revolving Loan, as determined by reference to Section 1.4(a) of the Agreement. "Applicable Revolver LIBO Rate Margin" shall mean the per annum interest rate from time to time in effect and payable in addition to the LIBO Rate applicable to the Revolving Loan, as determined by reference to Section 1.4(a) of the Agreement. "Applicable Term Loan Index Margin" shall mean the per annum interest 151 rate from time to time in effect and payable in addition to the Index Rate applicable to the Term Loan, as determined by reference to Section 1.4(a) of the Agreement. "Applicable Term Loan LIBO Rate Margin" shall mean the per annum interest rate from time to time in effect and payable in addition to the LIBO Rate applicable to the Term Loan, as determined by reference to Section 1.4(a) of the Agreement. "Applicable Unused Line Fee Margin" shall mean the per annum fee, from time to time in effect, payable in respect to Borrower's non-use of committed funds pursuant to Section 1.6(a), which fee is determined by reference to Section 1.4(a). "Assignment Agreement" shall have the meaning assigned thereto in Section 10.2(a). "Blocked Accounts" shall have the meaning assigned thereto in Annex B. "Blocked Account Agreements" shall have the meaning assigned to it in Annex B. "Borrower" shall mean Scott Technologies, Inc., a Delaware corporation. "Borrower Pledge Agreement" shall mean the Pledge Agreement, made by Borrower in favor of Agent, as from time to time amended, supplemented or modified, an executed copy of which, as in effect as of the Closing Date, is attached hereto as Exhibit E. "Borrower Security Agreement" shall mean the Security Agreement, between Agent and Borrower, as from time to time amended, supplemented or modified, an executed copy of which, as in effect as of the Closing Date, is attached hereto as Exhibit D. "Borrowing Availability" shall mean, during the first 30 days after the Closing Date, $50,000,000 less the outstanding Letter of Credit Obligations and at any time thereafter, (a) with respect to the Revolving Credit Loan, the lesser of (i) the Maximum Amount less the sum of (x) the outstanding Letter of Credit Obligations and (y) the outstanding amount of the Revolving Credit Loan and (ii) the Borrowing Base; and (b) with respect to Letter of Credit Obligations, an amount not to exceed the lesser of (i) $30,000,000 and (ii) the Maximum Amount less the outstanding Revolving Credit Loan, provided that the Borrowing Base shall not be a negative number. "Borrowing Base" shall mean, at any time, an amount determined by Agent to be equal to (a) the product of (i) four (4) times (ii) EBITDA of Borrower and its Subsidiaries for the immediately preceding twelve (12) months, less (b) the sum of (i) Indebtedness for borrowed money and purchase money Indebtedness of Borrower and its Subsidiaries, (ii) the Letter of Credit Reserve, (iii) the Term Loan Reserve and (iv) any other Reserves as Agent may determine from time to time plus cash and Cash Equivalents of Borrower. 152 "Borrowing Base Certificate" shall mean a certificate in the form attached hereto as Exhibit B. "Business Day" shall mean any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in New York City and, if the applicable Business Day relates to a LIBO Rate Loan, a day on which dealings are also carried on in the London interbank market. "Capital Expenditures" shall mean all payments or accruals for any fixed assets or improvements or for replacements, substitutions or additions thereto and that are required to be capitalized under GAAP. "Capital Lease" shall mean, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee that, in accordance with GAAP, either would be required to be classified and accounted for as a capital lease on a balance sheet of such Person or otherwise be disclosed as such in a note to such balance sheet, other than, in the case of Borrower or any Subsidiary thereof, any such lease under which Borrower or any Subsidiary thereof is the lessor. "Capital Lease Obligation" shall mean, with respect to any Capital Lease, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease or otherwise be disclosed in a note to such balance sheet. "Cash Collateral Account" shall have the meaning assigned thereto in Annex F. "Cash Equivalents" shall mean, (i) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed or insured by the United States government or any agency thereof and backed by the full faith and credit of the United States, (ii) certificates of deposit, eurodollar time deposits, overnight bank deposits and bankers' acceptances of any domestic commercial bank having capital and surplus in excess of $300,000,000 having maturities of 90 days or less from the date of acquisition, and (iii) commercial paper of an issuer rated at least A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors Services, Inc., or carrying an equivalent rating by a nationally recognized rating agency if both of the two named rating agencies cease publishing ratings of investments. "Change of Control" shall mean: (x) any Person or any Persons acting together that would constitute a "group" (for purposes of Section 13(d) of the Exchange Act, or any successor provision thereto) (a "Group"), together with any Affiliates thereof, shall beneficially own (as defined in Rule 13d-3 under the Exchange Act, or any successor provision thereto) 50% or more of the Voting Stock of Borrower; or (y) during any period of two consecutive years, individuals who at the beginning of such period constitute Borrower's Board of Directors (together with any new Director whose election by Borrower's Board of Directors or whose nomination for election by Borrower's stockholders was approved by a vote of at least two-thirds of the Directors then still in 153 office who either were Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute at least two-thirds of the Directors then in office. "Charges" shall mean all federal, state, county, city, municipal, local, foreign or other governmental taxes (including, without limitation, taxes owed to PBGC at the time due and payable), levies, assessments, charges, liens, claims or encumbrances upon or relating to (i) the Collateral, (ii) the Obligations, (iii) the employees, payroll, income or gross receipts of any Loan Party, (iv) any Loan Party's ownership or use of any of its assets, or (v) any other aspect of any Loan Party's business. "Chattel Paper" shall mean any "chattel paper," as such term is defined in the Code, now owned or hereafter acquired by Borrower, wherever located. "Claim" shall have the meaning assigned to it in Section 1.15. "Closing Date" shall mean the Business Day on which the conditions precedent set forth in Section 2 have been satisfied or waived and either the initial Loan has been made or the initial Letter of Credit Obligation has been incurred. "Code" shall mean the Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; provided, however, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of Agent's security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term "Code" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions. "Collateral" shall mean the property covered by the Collateral Documents and any other property, real or personal, tangible or intangible, now existing or hereafter acquired, that may at any time be or become subject to a security interest or Lien in favor of Agent or Lenders to secure the Obligations. "Collateral Documents" shall mean the Borrower Security Agreement, the Blocked Account Agreements, the Borrower Pledge Agreement and, if and when entered into after the date hereof, the Subsidiary Guaranties, the Subsidiary Security Agreements and the Mortgages. "Collection Account" shall mean that certain account of Agent, account number 50-232-854 in the name of GECC/CAF Depository at Bankers Trust Company, 17 Wall Street, New York, New York, ABA number 021-001-033. "Commencement Date" shall have the meaning assigned to it in Section 1.1(b). "Commitment Termination Date" shall mean the earliest of (i) January 3, 154 2005, (ii) the date of termination of Lenders' obligations to make Advances and/or incur Letter of Credit Obligations or permit existing Loans to remain outstanding pursuant to Section 8.2(b), and (iii) the date of indefeasible prepayment in full by Borrower of the Loans and the cancellation and return (or stand-by guarantee) of all Letters of Credit or the cash collateralization of all Letter of Credit Obligations pursuant to Annex F, and the permanent reduction of the Revolving Loan Commitment, the Term Loan Commitment and the Swing Line Commitment to zero dollars ($0); provided, however, that the Term Loan is immediately due and payable if the Revolving Credit Commitment is terminated. "Commitments" shall mean (a) as to any Lender, the aggregate of such Lender's Revolving Loan Commitment (including without duplication the Swing Line Lender's Swing Line Commitment as a subset of its Revolving Loan Commitment) and Term Loan Commitment as set forth on the signature page to the Agreement or in the most recent Assignment Agreement executed by such Lender and (b) as to all Lenders, the aggregate of all Lenders' Revolving Loan Commitments (including without duplication the Swing Line Lender's Swing Line Commitment as a subset of its Revolving Loan Commitment) and Term Loan Commitments, which aggregate commitment shall be Ninety-five Million Dollars ($95,000,000) on the Closing Date, as to each of clauses (a) and (b), as such Commitments may be reduced, amortized or adjusted from time to time in accordance with the Agreement. "Contracts" shall mean all the contracts, undertakings, or agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which Borrower may now or hereafter have any right, title or interest, including, any agreement relating to the terms of payment or the terms of performance of any Account. "Copyrights" shall mean any U.S. copyright to which Borrower now or hereafter has title, as well as any application for a U.S. copyright hereafter made by Borrower. "Default" shall mean any event which, with the passage of time or notice or both, would, unless cured or waived, become an Event of Default. "Default Rate" shall mean a rate per annum equal to two percent (2%) plus the Index Rate or the LIBO Rate (whichever is then applicable) as in effect from time to time plus the Applicable Margin. "Deferred Taxes" shall mean, with respect to any Person at any date, the amount of deferred taxes of such Person as shown on the balance sheet of such Person prepared in accordance with GAAP of such date. "Directors Stock Option Plan" shall mean the July 1, 1998 Scott Technologies, Inc. Directors Stock Option Plan, as in effect on the date hereof. "Disbursement Account" shall have the meaning assigned to it on Annex B. "Disposition" shall mean the disposition of each of the stock and/or assets 155 of Interstate Electronics Corp. and STI Properties in one or more transactions by Borrower. "Documents" shall mean any "documents," as such term is defined in the Code, now owned or hereafter acquired by Borrower, wherever located, and in any event any bills of lading, dock warrants, dock receipts, warehouse receipts, or other documents of title. "Dollars" and "$" shall mean lawful money of the United States of America. "DOL" shall mean the United States Department of Labor or any successor thereto. "Domestic Subsidiary" shall mean any Subsidiary of Borrower which is not a Foreign Subsidiary. "Domestic Subsidiary Basket" shall have the meaning assigned thereto in Section 6.4. "EBITDA" shall mean, for any period, Net Income, plus Interest Expense, tax expense, amortization expense, depreciation expense and extraordinary losses and other non-cash expenses and minus extraordinary gains, in each case determined in accordance with GAAP and to the extent included in the determination of Net Income; provided, that commencing on January 1, 1999 that any gains or losses of Interstate Electronics shall not be treated as extraordinary gains or losses; and provided, however, that (a) any gains or losses on any assets of Borrower and its Subsidiaries held for sale and listed among items 1 and 2 of Schedule 6.8 shall be treated as extraordinary gains or losses when sold, and (b) through the end of the Fiscal Year ending on December 31, 1999, any gains or losses of Borrower and its Subsidiaries listed among items 3 and 4 of Schedule 6.8 shall be treated as extraordinary gains or losses. "Environmental Laws" shall mean all federal, state and local laws, statutes, ordinances, orders and regulations, now or hereafter in effect, and in each case as amended or supplemented from time to time, and any applicable judicial or administrative interpretation thereof relating to the regulation and protection of human health, safety, the environment and natural resources (including, without limitation, ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include, but are not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. ss.ss. 9601 et seq.) ("CERCLA"); the Hazardous Material Transportation Act, as amended (49 U.S.C. ss.ss. 1801 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. ss.ss. 136 et seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. ss.ss. 6901 et seq.) ("RCRA"); the Toxic Substance Control Act, as amended (15 U.S.C. ss.ss. 2601 et seq.); the Clean Air Act, as amended (42 U.S.C. ss.ss. 740 et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C. ss.ss. 1251 et seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. ss.ss. 651 et seq.) ("OSHA"); and the Safe Drinking Water Act, as amended (42 U.S.C. ss.ss. 300(f) et seq.), and any and all regulations promulgated thereunder, and all analogous state and local counterparts or 156 equivalents and any transfer of ownership notification or approval statutes. "Environmental Liabilities and Costs" shall mean all liabilities, obligations, responsibilities, remedial actions, removal costs, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including, without limitation, all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim, suit, action or demand by any person or entity, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law (including, without limitation, any thereof arising under any Environmental Law, permit, order or agreement with any Governmental Authority) and which relate to any health or safety condition regulated under any Environmental Law or in connection with any other environmental matter or Release, threatened Release, or the presence of a Hazardous Material. "Equipment" shall mean any "equipment" as such term is defined in the Code, and, in any event, shall include, but shall not be limited to, all machinery, equipment, furnishings and vehicles and any and all additions, accessions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto, but shall not include any fixtures as such term is defined in the Code. "ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or any successor legislation thereto), as amended from time to time, and any regulations promulgated thereunder. "ERISA Affiliate" shall mean, with respect to Borrower, any trade or business (whether or not incorporated) under common control with Borrower or any Loan Party and which, together with Borrower or any Loan Party, are treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the IRC. "ERISA Event" shall mean, with respect to Borrower, any Subsidiary thereof or any ERISA Affiliate, (i) a Reportable Event with respect to a Title IV Plan or a Multiemployer Plan; (ii) the withdrawal of Borrower, any Subsidiary thereof or any ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (iii) the complete or partial withdrawal of Borrower, any Subsidiary thereof or any ERISA Affiliate from any Multiemployer Plan; (iv) the filing of a notice of intent to terminate a Title IV Plan or the treatment of a plan amendment as a termination under Section 4041 of ERISA; (v) the institution of proceeding to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (vi) the failure to make required contributions to a Qualified Plan; or (vii) any other event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA. 157 "Event of Default" shall have the meaning assigned to it in Section 8.1. "Excess Cash Flow" of Borrower for any period shall mean EBITDA for such period minus (i) cash Interest Expense for such period, minus (ii) taxes paid in cash during such period, minus (iii) Capital Expenditures of Borrower and its Subsidiaries for such period, minus (iv) scheduled payments of Indebtedness of Borrower and its Subsidiaries for such period, minus (v) Investments in Joint Venture Subsidiaries made pursuant to Section 6.2(vii), Section 6.4(iv) or Section 6.6(iv) during such period, minus (vi) any Restricted Payments paid in cash pursuant to Section 6.14(b) or 6.14(c) during such period. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Existing Domestic Loans" shall have the meaning assigned thereto in Section 6.4. "Existing Foreign Loans" shall have the meaning assigned thereto in Section 6.4. "Fair Market Value" shall mean (i) with respect to any asset (other than a marketable security) at any date, the value of the consideration obtainable in a sale of such asset at such date assuming a sale by a willing seller to a willing purchaser dealing at arm's length and arranged in an orderly manner over a reasonable period of time having regard to the nature and characteristics of such asset, as reasonably determined by a Responsible Officer of Borrower, or, if such asset shall have been the subject of a relatively contemporaneous appraisal by an independent third party appraiser, the basic assumptions underlying which have not materially changed since its date, as set forth in such appraisal, and (ii) with respect to any marketable security at any date, the closing sale price of such security on the Business Day (on which any national securities exchange is open for the normal transaction of business) next preceding such date, as appearing in any published list of any national securities exchange or in the National Market List of the National Association of Securities Dealers, Inc. or, if there is no such closing sale price of such security, the final price for the purchase of such security at face value quoted on such Business Day by a financial institution of recognized standing which regularly deals in securities of such type. "Federal Funds Rate" shall mean, for any date, a fluctuating interest rate per annum equal for such day to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" shall mean the Fee Letter, dated December 14, 1998, between 158 Agent and Borrower. "Fees" shall mean the fees due to Agent and Lenders as set forth in Section 1.6 or otherwise pursuant to the Loan Documents. "Financials" shall mean the financial statements referred to in Section 3.4. "Fiscal Month" shall mean any of the monthly accounting periods of Borrower. "Fiscal Quarter" shall mean the three month periods ending on March 31, June 30, September 30 or December 31. "Fiscal Year" shall mean the 12-month period of Borrower and its Subsidiaries ending December 31 of each year. "Fixed Charge Coverage Ratio" shall mean, for any period, the ratio of the following for Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP: (i) EBITDA for such period less Capital Expenditures for such period which are not financed to (ii) the sum of (a) Interest Expense plus (b) scheduled principal payments of Indebtedness (excluding the principal amount of the Revolving Credit Loan and scheduled principal payments under the Senior Notes) during such period, (c) taxes paid in cash during such period and (d) Restricted Payments paid in cash pursuant to Section 6.14(c) during such period. "Foreign Plans" shall mean any employee benefit plan maintained, sponsored or contributed to by Borrower or any Loan Party that (i) is not required to be maintained by statute, (ii) is excluded from coverage under Section 4(b)(4) of ERISA and (iii) covers personnel working outside the United States. "Foreign Subsidiary" shall mean any Subsidiary of Borrower which (i) is organized or incorporated under the laws of any jurisdiction other than the laws of the United States of America or of any state thereof or (ii) shall not conduct any significant portion of its business in the United States of America. "Foreign Subsidiary Basket" shall have the meaning assigned thereto in Section 6.4. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board, which are applicable to the circumstances as of the date of determination except that, for purposes of Sections 6.10 and 6.14, GAAP shall be determined on the basis of such principles in effect on December 31, 1997 and consistent with those used in the preparation of the audited financial statements referred to in Section 3.4. 159 "GE Capital" shall mean General Electric Capital Corporation, a New York corporation having an office at 201 High Ridge Road, Stamford, Connecticut 06927-5100. "General Intangibles" shall mean any "general intangibles," as such term is defined in the Code, now owned or hereafter acquired by Borrower and, in any event, including, without limitation, all right, title and interest which Borrower may now or hereafter have in or under any Contract, all customer lists, Intellectual Property, interests in partnerships, joint ventures and other business associations, permits, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials and records, goodwill (including, without limitation, the goodwill associated with any Intellectual Property), all rights and claims in or under insurance policies, (including, without limitation, insurance for fire, damage, loss, and casualty, whether covering personal property, real property, tangible rights or intangible rights, all liability, life, key man, and business interruption insurance, and all unearned premiums), uncertificated securities, choses in action, and other bank accounts, rights to receive tax refunds and other payments and rights of indemnification. "Goods" shall mean all "goods" as such term is defined in the Code, now owned or hereafter acquired by Borrower, wherever located, including, without limitation, movables, Equipment, Inventory, or other tangible personal property. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranteed Indebtedness" shall mean, as to any Person, any obligation of such Person guaranteeing any indebtedness, lease, dividend, or other obligation ("primary obligations") of any other Person (the "primary obligor") in any manner including, without limitation, any obligation or arrangement of such Person (i) to purchase or repurchase any such primary obligation, (ii) to advance or supply funds (a) for the purchase or payment of any such primary obligation or (b) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) to indemnify the owner of such primary obligation against loss in respect thereof. "Hazardous Material" shall mean a Hazardous Substance and/or a Hazardous Waste. "Hazardous Substance" shall mean any element, material, compound, mixture, solution, chemical, substance, or pollutant within the definition of "hazardous substance" under Section 101(14) of the Comprehensive Environmental Response, 160 Compensation and Liability Act, 42 USC ss.9601(14); petroleum or any fraction, byproduct or distillation product thereof; friable asbestos, polychlorinated biphenyls, or any radioactive substances; and any material regulated as a hazardous substance by any jurisdiction in which any Loan Party owns or operates or has owned or operated a facility. "Hazardous Waste" shall mean any element, pollutant, contaminant or discarded material (including any radioactive material) within the definition of Section 103(6) of the Resource Conservation and Recovery Act, 42 USCA ss.6903(6); and any material regulated as a hazardous waste by any jurisdiction in which any Loan Party owns or operates or has owned or operated a facility, or to which any Loan Party sends material for treatment, storage or disposal as waste. "Income Tax Expense" of Borrower shall mean for any period the consolidated provision for federal, state, local, provincial and foreign income taxes of Borrower and its Subsidiaries for such period calculated on a consolidated basis in accordance with GAAP. "Indebtedness" of any Person shall mean (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (including, without limitation, reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers' acceptances, whether or not matured, but not including obligations to trade creditors or service providers incurred in the ordinary course of business), (ii) all obligations evidenced by notes, bonds, debentures or similar instruments, (iii) all indebtedness created or arising under any conditional sale or other title retention agreements with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (iv) all Capital Lease Obligations, (v) all Guaranteed Indebtedness, (vi) all fixed or contingent obligations of such Person under interest rate, commodity or foreign currency exchange, swap, collar, cap, futures, purchase, option, synthetic cap, price hedging or other derivatives agreements, (vii) all Indebtedness referred to in clause (i), (ii), (iii), (iv), (v) or (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, (viii) the Obligations, and (ix) all liabilities under Title IV of ERISA. "Indemnified Person" shall have the meaning assigned to it in Section 1.15. "Index Rate Loan" shall mean a Loan or a portion thereof which bears interest at a rate based upon the Index Rate. "Index Rate" shall mean, for any day, a floating rate equal to the higher of (i) the rate publicly quoted from time to time by The Wall Street Journal as the "base rate on corporate loans at large U.S. money center commercial banks" (or, if The Wall Street Journal ceases quoting a base rate of the type described, the highest per annum rate of interest published by the Board of Governors of the Federal Reserve system in Federal 161 Reserve statistical release H.15 (519) entitled "Selected Interest Rates" as the Bank prime loan rate or its equivalent), and (ii) the Federal Funds Rate plus fifty (50) basis points per annum. Each change in any interest rate provided for in the Agreement based upon the Index Rate shall take effect at the time of such change in the Index Rate. "Instruments" shall mean any "instrument," as such term is defined in the Code, now owned or hereafter acquired by Borrower, wherever located and in any event all certificated securities, certificate of deposit and all notes and other, without limitation, evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper. "Intellectual Property" shall mean, collectively, all Trademarks, all Patents, all Copyrights and all Licenses now held or hereafter acquired by Borrower, together with all franchises, tax refund claims, rights of indemnification, payments under insurance, indemnities, warranties and guarantees payable with respect to the foregoing. "Intercompany Notes" shall have the meaning assigned thereto in Section 6.3. "Interest Expense" shall mean, for any period, the amount which would, in conformity with GAAP, be set forth opposite the caption "interest expense" or any like caption on a consolidated income statement of Borrower and its Subsidiaries for such period. "Interest Payment Date" means (a) as to any Index Rate Loan, the first Business Day of each month to occur while such Loan is outstanding, and (b) as to any LIBO Rate Loan, the last day of the applicable LIBO Rate Period; provided, that in the case of any LIBO Rate Period greater than three months in duration, interest shall be payable at three month intervals and on the last day of such LIBO Rate Period; and provided further that, in addition to the foregoing, each of (x) the date upon which all of the Commitments have been terminated and the Loans have been paid in full and (y) the Commitment Termination Date shall be deemed to be an "Interest Payment Date" with respect to any interest which is then accrued under the Agreement. "Interstate Electronics" shall mean Interstate Electronics Corporation, a California corporation and a wholly-owned Subsidiary of Borrower. "Inventory" shall mean any "inventory," as such term is defined in the Code, now or hereafter owned or acquired by, Borrower, wherever located, and, in any event, including, without limitation, inventory, merchandise, goods and other personal property which are held by or on behalf of Borrower for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in Borrower's business or in the processing, production, packaging, promotion, delivery or shipping of the same, including, without limitation, other supplies, and all accessions and additions thereto and all documents of title covering any of the foregoing. 162 "Investment" shall mean, for any Person (a) the acquisition (whether for cash, property, services or securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities of any other Person or any agreement to make any such acquisition; (b) the making of any deposit with, or advance, loan or other extension of credit to, any other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such Person); and (c) the entering into of any Guaranteed Indebtedness of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person. "IRC" shall mean the Internal Revenue Code of 1986, as amended, and any successor thereto. "IRS" shall mean the Internal Revenue Service, or any successor thereto. "Issuing Bank" shall mean a Lender acceptable to GE Capital which shall act hereunder as issuer of Letters of Credit and, provided that no Event of Default shall have occurred and be continuing, approved by Borrower, which approval shall not be unreasonably withheld, denied or delayed. "Joint Venture Subsidiary" shall mean any corporation, association or other business entity, other than any Subsidiary of Borrower in existence on the date hereof, (a) which would be a Subsidiary of Borrower but for its designation as a Joint Venture Subsidiary by a Responsible Officer at or before the time of determination as provided below and evidenced by a certificate of such Responsible Officer delivered to Agent and (b) in which any Person (other than Borrower or any of its Affiliates) has, in the determination of a Responsible Officer evidenced by a certificate of such Responsible Officer delivered to Agent, a significant joint or shared equity interest with Borrower or any of its Subsidiaries and which is created in connection with the purchase of properties and assets used in the business of Borrower. A Responsible Officer of Borrower may designate any Subsidiary of Borrower (including any newly acquired or newly formed Subsidiary) which satisfies the requirements of clause (b) above to be a Joint Venture Subsidiary; provided, however, that (i) immediately after giving pro forma effect to such designation there would not exist any Default or Event of Default, (ii) no Joint Venture Subsidiary shall be a general partner of a limited partnership or a partner of a general partnership, and (iii) any Joint Venture Subsidiary shall be an Unrestricted Subsidiary. "Key Employees Stock Option Plan" shall mean the October 20, 1994 Scott Technologies, Inc. Key Employees Stock Option Plan, as in effect on the date hereof. "Leases" shall mean all of those leasehold estates in real property now owned or hereafter acquired by a Loan Party, as lessee. "Lender" and "Lenders" shall have the meaning provided in the first paragraph of this Agreement. 163 "Letter of Credit Fee" shall have the meaning assigned thereto in Section 1.6(c). "Letter of Credit Obligations" shall mean all outstanding obligations incurred by Agent or the Issuing Bank, as the case may be, at the request of Borrower, whether direct or indirect, contingent or otherwise, due or not due, in connection with the issuance or guaranty by Agent, the Issuing Bank or another Person, of Letters of Credit. The amount of such Letter of Credit Obligations at any time shall equal the maximum amount which may be payable by Agent or the Issuing Bank thereupon or pursuant thereto at such time. "Letter of Credit Reserve" shall mean 50% of the amount of all Letter of Credit Obligations guaranteed by GE Capital or issued by the Issuing Bank, as the case may be. "Letters of Credit" shall mean commercial or standby letters of credit issued at the request and for the account of Borrower for which Agent or the Issuing Bank, as the case may be, has incurred Letter of Credit Obligations. "Leverage Covenant Ratio" shall mean, with respect to any date of determination, the ratio of (a) Indebtedness for borrowed money and purchase money Indebtedness of Borrower and its Subsidiaries less the amount of Restricted Cash to (b) EBITDA of Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP for the most recently ended four Fiscal Quarter period ended as of such date of determination. "Leverage Ratio" shall mean, with respect to any date of determination, the ratio of (a) the sum of Indebtedness for borrowed money and purchase money Indebtedness of Borrower and Subsidiaries less cash and Cash Equivalents, to (b) EBITDA of Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP for the most recently ended four Fiscal Quarter period ended as of such date of determination. "LIBO Rate" shall mean for each LIBO Rate Period, a rate of interest determined by Agent equal to: (a) the offered rate for deposits in United States Dollars for the applicable LIBO Rate Period which appears on Telerate Page 3750 as of 11:00 a.m., London time, on the second full Business Day next preceding the first day of each LIBO Rate Period (unless such date is not a Business Day, in which event the next succeeding Business Day will be used); divided by (b) a number equal to 1.0 minus the aggregate (but without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on the day which is two (2) Business Days prior to the beginning of such LIBO Rate Period (including basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve system or other governmental authority having jurisdiction with respect thereto, as now and from 164 time to time in effect) for Eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of such Board which are required to be maintained by a member bank of the Federal Reserve System. If such interest rates shall cease to be available from Telerate News Service, the LIBO Rate shall be determined from such financial reporting service or other information as shall be mutually acceptable to Agent and Borrower. "LIBO Rate Loan" shall mean a Loan or any portion thereof which bears interest at a rate based on the LIBO Rate. "LIBO Rate Period" shall mean, with respect to any LIBO Rate Loan, each period commencing on a Business Day selected by Borrower pursuant to the Agreement and ending one, two or three months thereafter, as selected by Borrower's irrevocable notice to Agent as set forth in Section 1.4(e); provided that the foregoing provision relating to LIBO Rate Periods is subject to the following: (a) if any LIBO Rate Period would otherwise end on a day that is not a Business Day, such LIBO Rate Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such LIBO Rate Period into another calendar month in which event such LIBO Rate Period shall end on the immediately preceding Business Day; (b) any LIBO Rate Period that would otherwise extend beyond the Commitment Termination Date shall end two (2) Business Days prior to such date; (c) any LIBO Rate Period pertaining to a LIBO Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such LIBO Rate Period) shall end on the last Business Day of a calendar month; and (d) Borrower shall select LIBO Rate Periods so as not to require a payment or prepayment of any LIBO Rate Loan during a LIBO Rate Period for such Loan. "License" shall mean any Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by Borrower. "License Agreements" shall mean the license agreements listed on Schedule 3.16 to this Agreement pursuant to which Figgie Licensing has granted to Borrower an exclusive license to use certain trademarks. "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement 165 perfecting a security interest under the Code or comparable law of any jurisdiction). "Loan Documents" shall mean this Agreement, the Notes and the Collateral Documents and all other agreements, instruments, documents and certificates identified in Annex C executed and delivered to, or in favor of, Agent and/or Lenders and including all other pledges, powers of attorney, consents, assignments, contracts, notices, and all other written matter whether heretofore, now or hereafter executed by or on behalf of any Loan Party, or any employee of any Loan Party, and delivered to Agent or any Lender in connection with the Agreement or the transactions contemplated hereby. Any reference in the Agreement or any other Loan Document to a Loan Document shall include all appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to such Agreement as the same may be in effect at any and all times such reference becomes operative. "Loan Party" means each of Borrower and each Subsidiary of Borrower. "Loans" shall mean the Revolving Loan, the Swing Line Loan and the Term Loan. "Lock Boxes" shall have the meaning assigned to it on Annex B. "Margin Stock" shall have the meaning specified in Regulation T, U or X of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Material Adverse Effect" shall mean a material adverse effect on (i) the business, assets, operations, prospects, or financial or other condition of Borrower or Borrower and its Subsidiaries taken as a whole, (ii) Borrower's ability to pay or Borrower's or any Material Subsidiary's ability to perform their respective obligations under the Loan Documents in accordance with the terms thereof, (iii) the Collateral or Agent's Lien on the Collateral or the priority of any such Lien or (iv) the rights and remedies of Agent and Lenders under this Agreement and the other Loan Documents. "Material Contracts" shall mean each contract to which Borrower or any of its Material Subsidiaries is now or hereafter a party involving aggregate consideration payable to or by Borrower or any of its Material Subsidiaries, contingent or otherwise, in excess of $5,000,000. "Material Subsidiary" shall mean each of Interstate Electronics, STI Licensing, STI Properties and any Subsidiary of Borrower formed after the date hereof which has a Net Worth in excess of $5,000,000; provided, however, that any Subsidiary of Borrower which becomes a party to a Loan Document after the date hereof shall be deemed to be a Material Subsidiary. "Maximum Amount" shall mean, at any particular time, an amount equal to the Revolving Loan Commitments of all Lenders, which is equal to $75,000,000 as of the Closing Date. 166 "Maximum Lawful Rate" shall have the meaning assigned to it in Section 1.4(d). "Mortgages" shall mean the mortgages, deeds of trust or other similar real estate security documents made by Borrower or an Unrestricted Subsidiary in favor of Agent, in form and substance acceptable to Agent, as from time to time amended, supplemented or modified. "Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA, and to which Borrower or any ERISA Affiliate is making, is obligated to make, has made or been obligated to make, contributions on behalf of participants who are or were employed by any of them. "Net Borrowing Availability" shall mean as of any date of determination, the lesser of (i) the Maximum Amount and (ii) the Borrowing Base. "Net Income" shall mean, for Borrower for any period, the aggregate of net income (or loss) of Borrower and its Subsidiaries for such period, determined on a consolidated basis in conformity with GAAP. "Net Proceeds" shall mean the net cash amount realized from any asset sale after deducting (i) all reasonable costs and expenses payable (or for which reserves are established in accordance with GAAP) in connection therewith, including, without limitation, reasonable attorneys fees and taxes with respect to such sale and repayment of any Indebtedness permitted hereunder which by its terms is required to be repaid in connection with the sale of such assets (but without deducting therefrom (x) any such amounts paid in cash to any Affiliate of Borrower in a transaction which is not arm's length or (y) any amounts repaid in cash to Borrower from cash realized from such sale in repayment of loans or advances made by Borrower to the Subsidiary of Borrower selling such asset which are outstanding as of the date hereof and listed on Schedule 6.4), and (ii) without duplication, the amount of any escrow funds, letters of credit, deposits and/or similar escrow arrangements or credit support established or obtained by Borrower in connection with any such asset sale. "Net Worth" shall mean, with respect to any Person, at any date, the total assets minus the total liabilities, in each case, of such Person and its Subsidiaries, on a consolidated basis, at such date determined in accordance with GAAP. "Non-Funding Lender" shall have the meaning assigned to it in Section 9.11(d). "Non-use Fee" shall have the meaning assigned to it on Section 1.6. "Notes" shall mean the Revolving Credit Notes, the Swing Line Note and the Term Notes, collectively. "Notice of Conversion/Continuation" shall have the meaning assigned to it 167 in Section 1.4(e). "Notice of Revolving Credit Advance" shall have the meaning assigned to it in Section 1.1(a)(iii). "Obligations" shall mean all loans, advances, debts, liabilities and obligations for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or amounts are liquidated or determinable) owing by Borrower or any other Loan Party to Agent or any Lender, and all covenants and duties regarding such amounts, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, arising under any of the Loan Documents. This term includes, without limitation, all principal, interest (including, without limitation, interest which accrues after the commencement of any case or proceeding referred to in Section 8.1(g) or (h)), all Fees, Charges, expenses, attorneys' fees and any other sum chargeable to Borrower under any of the Loan Documents. "Other Lender" shall have the meaning assigned to it in Section 9.11(d). "Other Taxes" shall have the meaning assigned to it in Section 1.17(b). "Patent License" shall mean rights under any written agreement now owned or hereafter acquired by Borrower granting any right with respect to any invention on which a Patent is in existence. "Patents" shall mean all of the following in which Borrower now holds or hereafter acquires any interest: (i) all letters patent of the United States or any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or any other country, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State or Territory thereof, or any other country, and (ii) all reissues, divisions, continuations, continuations-in-part or extensions thereof. "Payor" shall have the meaning assigned to it in Section 1.11. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor thereto. "Pension Plan" shall mean an employee pension benefit plan, as defined in Section 3(2) of ERISA (other than a Multiemployer Plan), which is not an individual account plan, as defined in Section 3(34) of ERISA, and which Borrower or, if a Title IV Plan, any Subsidiary of Borrower or any ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Permitted Acquisition Pro Forma" shall have the meaning assigned to it in Section 6.1. 168 "Permitted Acquisitions" shall have the meaning assigned to it in Section 6.1. "Permitted Encumbrances" shall mean the following encumbrances: (i) Liens for taxes or assessments or other governmental Charges or levies, either not yet due and payable or to the extent that nonpayment thereof is permitted by the terms of Section 5.2; (ii) pledges or deposits securing obligations under workers' compensation, unemployment insurance, social security or public liability laws or similar legislation; (iii) pledges, progress payments or deposits securing bids, tenders, contracts (other than contracts for the payment of money) or leases to which Borrower is a party as lessee made in the ordinary course of business; (iv) deposits securing public or statutory obligations of Borrower; (v) inchoate and unperfected workers', mechanics', suppliers' or similar liens arising in the ordinary course of business; (vi) carriers', warehousemen's or other similar possessory liens arising in the ordinary course of business and securing indebtedness not yet due and payable in an outstanding aggregate amount not in excess of $1,000,000 at any time; (vii) deposits securing, or in lieu of, surety, appeal or customs bonds in proceedings to which Borrower is a party; (viii) any attachment or judgment lien securing a judgment not exceeding $500,000, unless the judgment it secures shall not, within 30 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 30 days after the expiration of any such stay; and (ix) zoning restrictions, easements, licenses, or other restrictions on the use of real property or other minor irregularities in title (including leasehold title) thereto, so long as the same do not materially impair the use, value, or marketability of such real property, leases or leasehold estates. "Permitted Senior Note Purchase" shall mean the repurchase of Senior Notes by Borrower, from time to time, pursuant to terms and conditions and for consideration acceptable to Agent. "Permitted Stock Buy Back" shall mean the repurchase by Borrower of its Stock, from time to time, pursuant to terms and conditions and for consideration acceptable to Agent; provided, the amount of aggregate Permitted Stock Buy Backs shall not exceed $30 million; and provided, further, that after giving effect to each Permitted Stock Buy Back, the Net Borrowing Availability of Borrower shall not be less than $40,000,000. "Person" shall mean any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Plan" shall mean, with respect to Borrower or any ERISA Affiliate, at any time, an employee benefit plan, as defined in Section 3(3) of ERISA other than a Foreign Plan, which Borrower maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. 169 "Proceeds" shall mean "proceeds," as such term is defined in the Code and, in any event, shall include, with respect to any Person, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to such Person from time to time with respect to any of its property or assets, (ii) any and all payments (in any form whatsoever) made or due and payable to such Person from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of such Person's property or assets by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority), (iii) any claim of such Person against third parties (a) for past, present or future infringement of any Patent or Patent License or (b) for past, present or future infringement or dilution of any Trademark or Trademark License or for injury to the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License, (iv) any recoveries by such Person against third parties with respect to any litigation or dispute concerning any of such Person's property or assets, and (v) any and all other amounts from time to time paid or payable under or in connection with any of such Person's property or assets, upon disposition or otherwise. "Projections" shall mean the projections referred to in Section 3.4. "Property" shall have the meaning assigned to it in Section 5.5. "Pro Rata Share" shall mean with respect to all matters relating to any Lender (a) with respect to the Revolving Credit Loan (including the Swing Line Loan as a subset of the Swing Lien Lender's Revolving Credit Loan), the percentage obtained by dividing (i) the Revolving Credit Loan Commitment (including the Swing Line Commitment as a subset of the Swing Line Lender's Revolving Credit Loan Commitment), by (ii) the aggregate Revolving Credit Loan Commitments, (b) with respect to the Term Loan, the percentage obtained by dividing (i) the Term Loan Commitment of that Lender by (ii) the aggregate Term Loan Commitments of all Lenders, as any such percentages may be adjusted by assignments permitted pursuant to Section 10.2, (c) with respect to all Loans, the percentage obtained by dividing (i) the aggregate Commitments of that Lender by (ii) the aggregate Commitments of all Lenders, and (d) with respect to all Loans on and after the Commitment Termination Date, the percentage obtained by dividing (i) the aggregate outstanding principal balance of the Loans held by that Lender, by (ii) the outstanding principal balance of the Loans held by all Lenders. "Qualified Plan" shall mean an employee pension benefit plan, as defined in Section 3(2) of ERISA, which is intended to be tax-qualified under Section 401(a) of the IRC, and which Borrower, and Subsidiary thereof or any ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Regulatory Change" shall mean, with respect to any Lender, any change after the date of this Agreement in Federal, state or foreign law or regulations (including, without limitation, Regulation D of the Federal Reserve Board) or the adoption or making after such date of any interpretation, directive or request applying to a class of lenders 170 including such Lender of or under any Federal, state or foreign law or regulations (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Release" shall mean, as to any Person, any release or any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing or migration of a Hazardous Material into the indoor or outdoor environment by such Person (or by a person under such Person's direction or control), including the movement of a Hazardous Material through or in the air, soil, surface water, ground water or property; but shall exclude any release, discharge, emission or disposal in material compliance with a then effective permit or order of a Governmental Authority. "Reportable Event" shall mean any of the events described in Section 4043(c)(3), (5), (6), (9), (10), (11), (12) or (13) of ERISA with respect to which the PBGC has not waived its requirement that the PBGC be given notice of the event. "Required Lenders" shall mean, at any time, (a) on or prior to the Commencement Date, Lenders holding at least 66-2/3% of the Commitments of all Lenders at such time, (b) after the Commencement Date, Lenders holding at least 66-2/3% of the sum of (i) the Commitments of all Lenders at such time and (ii) the aggregate outstanding amount of the Term Loan, or (c) if the Commitments have been terminated, Lenders holding at least 66-2/3% of the aggregate outstanding amount of the Loans. "Required Payment" shall have the meaning assigned to it in Section 1.11. "Reserves" shall mean such reserves against Borrowing Availability of Borrower which Agent may, in its reasonable credit judgment, establish from time to time. Without limiting the generality of the foregoing, Reserves established to ensure the payment of accrued Interest Expenses or Indebtedness shall be deemed to be a reasonable exercise of Agent's credit judgment. "Responsible Officer" shall mean any Senior Officer and any other officer of Borrower with responsibility for the administration of the relevant provision of this Agreement. "Restricted Cash" shall mean cash of Borrower or any of its Subsidiaries which has been deposited into a blocked account and pledged to Agent and Lenders. "Restricted Payment" shall mean, with respect to any Person, (i) the declaration or payment of any dividend or the occurrence of any liability to make any other payment or distribution of cash or other property or assets in respect of such Person's Stock, (ii) any payment on account of the purchase, redemption, defeasance or other retirement of such Person's Stock or any other payment or distribution made in respect thereof, either directly or indirectly, (iii) any payment of a claim for the rescission of the purchase or sale of, or for material damages arising from the purchase or sale of any shares of the Stock of Borrower or of a claim for reimbursement, indemnification or contribution 171 arising out of or related to any such claim for damages or rescission, or (iv) any payment, loan, contribution, or other transfer of funds or other property to any Stockholder of such Person; provided, however, that "Restricted Payment" shall not include any dividend in respect of Borrower's Stock which is paid in Stock of Borrower. "Restricted Subsidiary" shall have the meaning assigned thereto in the Senior Note Indenture. "Retiree Welfare Plan" shall refer to any Welfare Plan providing for continuing coverage or benefits for any participant or any beneficiary of a participant after such participant's termination of employment, other than continuation coverage provided pursuant to Section 4980B of the IRC. "Revolving Credit Advance" shall have the meaning assigned to it in Section 1.1(a)(i). "Revolving Credit Commitment" shall mean, (a) as to any Revolving Lender, the commitment of such Revolving Lender to make its Pro Rata Share of Revolving Credit Advances to Borrower or incur Letter of Credit Obligations pursuant to Section 1.1 in the aggregate principal amount outstanding not to exceed the amount set forth opposite such Lender's name on the signature page to the Agreement or in the most recent Assignment Agreement executed by such Revolving Lender and (b) as to all Revolving Lenders, the aggregate commitment of all Revolving Lenders to make the Revolving Credit Loan, which aggregate commitment shall be Seventy-five Million Dollars ($75,000,000) on the Closing Date, as such Revolving Credit Commitments may be reduced or modified pursuant to this Agreement. "Revolving Credit Loan" shall mean the aggregate amount of Revolving Credit Advances of all Lenders outstanding at any time. "Revolving Credit Notes" shall mean the promissory notes provided for by Section 1.1(a)(iv) evidencing the Revolving Credit Loan and all promissory notes delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. "Revolving Lenders" shall mean, as of any date of determination, Lenders having a Revolving Credit Loan Commitment. "Schedule of Closing Documents" shall mean the schedule attached hereto as Annex C, including all appendices, exhibits or schedules thereto, listing certain documents and information to be delivered in connection with the Loan Documents and the transactions contemplated thereunder. "Scott Aviation" shall mean the Scott Aviation Division of Borrower. "Senior Note Indenture" shall mean the Indenture, dated as of October 1, 1989, between Borrower and Continental Bank, National Association, as Trustee, as in 172 effect on the date hereof, relating to the Senior Notes. "Senior Notes" shall mean Borrower's 9-7/8% Senior Notes due October 1, 1999 issued pursuant to the Senior Note Indenture. "Senior Officer" shall mean the Chief Executive Officer, Chief Financial Officer, Controller, Treasurer or Assistant Treasurer of Borrower. "Settlement Date" shall have the meaning assigned thereto in Section 9.11(a)(ii). "Significant Subsidiary" shall mean any Subsidiary of Borrower which is a "significant subsidiary" of Borrower within the meaning of Rule 1-02(w) of Regulation S-X promulgated under the Exchange Act and any successor provision thereto. "Snorkel Sale" shall mean the disposition of the Snorkel Division of Borrower, pursuant to the Asset Purchase Agreement, dated as of July 19, 1997. "Solvent" and "Solvency" mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Persons's property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "STI Licensing" shall mean STI Licensing Corporation, a Delaware corporation and a wholly-owned Subsidiary of Borrower and formerly named Figgie Licensing Corporation. "STI Properties" shall mean STI Properties, Inc., a Delaware corporation and a wholly-owned Subsidiary of Borrower and formerly named Figgie Properties Inc. "Stock" shall mean all shares, options, warrants, general or limited partnership interests, participation or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including, without limitation, common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended). 173 "Stockholder" shall mean each holder of Stock of Borrower. "Subject Property" shall mean all real property owned, leased or operated by Borrower or any Material Subsidiary. "Subsidiary" shall mean, with respect to any Person, (i) any corporation of which an aggregate of 50% or more of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of 50% or more of such Stock whether by proxy, agreement, operation of law or otherwise and (ii) any partnership or limited liability company in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of 50% or more or of which any such Person is a general partner or may exercise the powers of a general partner; provided, however, that a Joint Venture Subsidiary shall not be deemed to be a Subsidiary for purposes of this Agreement. "Subsidiary Guarantors" shall mean any Subsidiary of Borrower which executes and delivers a Subsidiary Guaranty. "Subsidiary Guaranties" shall mean the Guaranties, in form satisfactory to Agent, executed by the Subsidiary Guarantors in favor of Agent and Lenders, as from time to time amended, supplemented or modified. "Subsidiary Security Agreements" shall mean the Security Agreements, in form satisfactory to Agent, executed by the Subsidiary Guarantors in favor of Agent, as from time to time amended, supplemented or modified. "Swing Line Advance" has the meaning assigned to it in Section 1.1(c)(i). "Swing Line Availability" has the meaning assigned to it in Section 1.1(c)(i). "Swing Line Commitment" shall mean, as to the Swing Line Lender, the commitment of the Swing Line Lender to make Swing Line Loans as set forth on the signature page to the Agreement, which commitment constitutes a subfacility of the Revolving Credit Loan Commitment of the Swing Line Lender and shall be Ten Million Dollars ($10,000,000) on the Closing Date, as such Swing Line Commitment may be reduced or modified from time to time in accordance with this Agreement. "Swing Line Lender" shall mean GE Capital. "Swing Line Loan" shall mean at any time, the aggregate amount of Swing Line Advances outstanding to Borrower. 174 "Swing Line Note" has the meaning assigned to it in Section 1.1(c)(ii). "Tangible Net Worth" of Borrower shall mean, at any date, the Net Worth of Borrower at such date, excluding, however, from the determination of the total assets of Borrower at such date, (i) all goodwill, capitalized organizational expenses, capitalized research and development expenses, trademarks, trade names, copyrights, patents, patent applications, licenses and rights in any thereof, (ii) the unamortized portion of items aggregating $4,619,000 and designated as "Other" and constituting a component of Borrower's "Other Assets" as shown on the executive summary of Borrower's consolidated balance sheet for the Fiscal Year ended December 31, 1995, a copy of which has been delivered to Agent, plus the unamortized portion of any additions thereto, (iii) all unamortized debt discount and expense, (iv) treasury Stock, and (v) any write-up in the book value of any asset resulting from a revaluation thereof. "Target" shall have the meaning assigned to it in Section 6.1. "Taxes" shall mean taxes, levies, imposts, deductions, Charges or withholdings, and all liabilities with respect thereto, excluding franchise taxes and taxes imposed on or measured by the net income of any Lender by the United States, the jurisdiction under the laws of which such Lender is organized or the jurisdiction in which such Lender's applicable lending office is located or, in each case, any political subdivision thereof. "Term Lenders" shall mean those Lenders having Term Loan Commitments. "Term Loan" shall have the meaning assigned to it in Section 1.1(b)(i). "Term Loan Advances" shall have the meaning assigned to it in Section 1.1(b)(i). "Term Loan Commitment" shall mean (a) as to any Term Lender, the commitment of such Term Lender to make its Pro Rata Share of the Term Loan as set forth on the signature page to the Agreement or in the most recent Assignment Agreement executed by such Term Lender, and (b) as to all Term Lenders, the aggregate commitment of all Term Lenders to make the Term Loan, which aggregate commitment shall be Twenty Million Dollars ($20,000,000) on the Closing Date, as such Term Loan Commitments may be reduced, amortized or adjusted from time to time in accordance with the Agreement. "Term Loan Reserve" shall mean $5,000,000 commencing as of April 1, 1999 and increasing by an additional $5,000,000 per month as of the first day of each month thereafter until the later to occur of (i) October 1, 1999 or (ii) the payment in full of the Senior Notes; provided, however, that at such time as the Term Lenders have assumed Term Loan Commitments of at least $50,000,000, the Term Loan Reserve shall be reduced to $0. "Term Note" shall mean the promissory notes provided for by Section 1(b)(i) evidencing the Term Loan and all promissory notes delivered in substitution or 175 exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. "Termination Date" shall mean the date on which the Loans have been indefeasibly repaid in full and all other Obligations under the Agreement and the other Loan Documents have been completely discharged and Letter of Credit Obligations have been cash collateralized, cancelled or backed by stand-by letters of credit in accordance with Annex F, and Borrower shall not have any further right to borrow any monies under the Agreement. "Termination Fee" shall have the meaning provided in Section 1.6. "Third Party Interactives" shall mean all Persons with whom any Loan Party exchanges data electronically in the ordinary course of business, including, without limitation, customers, suppliers, third-party vendors, subcontractors, processors-converters, shippers and warehousemen. "Title IV Plan" shall mean a Pension Plan, other than a Multiemployer Plan, which is covered by Title IV of ERISA. "Trademark License" shall mean rights under any written agreement now owned or hereafter acquired by Borrower granting any right to use any Trademark or Trademark registration. "Trademarks" shall mean all of the following now owned or hereafter acquired by Borrower: (i) all common law and statutory trademarks, trade names, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State or Territory thereof, or any other country or any political subdivision thereof, (ii) all reissues, extensions or renewals thereof, and (iii) all licenses thereunder and together with the goodwill associated with and symbolized by such trademark. "Type" shall refer to whether a Loan is an Index Rate Loan or a LIBO Rate Loan, each of which constitutes a "Type". "Unfunded Pension Liability" shall mean, at any time, the aggregate amount, if any, of the sum of (i) the amount by which the present value of all accrued benefits under each Title IV Plan exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits in accordance with Title IV of ERISA, all determined as of the most recent valuation date for each such Title IV Plan using the actuarial assumptions in effect under such Title IV Plan, and (ii) for a period of five (5) years following a transaction reasonably likely to be covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that could be avoided by Borrower or any ERISA Affiliate as a result of such transaction. 176 "Unrestricted Subsidiary" shall have the meaning assigned thereto in the Senior Note Indenture. "Voting Stock" of any Person shall mean capital Stock of such Person which ordinarily has voting power for the election of directors (or persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. "Welfare Plans" shall mean any welfare plan, as defined in Section 3(1) of ERISA, which is maintained or contributed to by Borrower or any ERISA Affiliate. "Withdrawal Liability" shall mean, at any time, the aggregate amount of the liabilities, if any, pursuant to Section 4201 of ERISA, and any increase in contributions pursuant to Section 4243 of ERISA with respect to all Multiemployer Plans. "Year 2000 Assessment" shall mean a comprehensive written assessment of the nature and extent of Year 2000 Problems and Year 2000 Date-Sensitive Systems/Components of Borrower or any of its Subsidiaries, including, without limitation, Year 2000 Problems regarding data exchanges with Third Party Interactives. "Year 2000 Corrective Actions" shall mean, as to all actions necessary to address such Person's Year 2000 Problems as identified in the Year 2000 Assessment, including, without limitation, computer code enhancements and revisions, upgrades and replacements of Year 2000 Date-Sensitive Systems/Components, and coordination of such enhancements, revisions, upgrades and replacements with Third Party Interactives. "Year 2000 Corrective Plan" shall mean, with respect to any Loan Party, a comprehensive plan to address all of its Year 2000 Problems as identified in the Year 2000 Assessment, including, without limitation, (i) computer code enhancements or revisions, (ii) upgrades or replacements of Year 2000 Date-Sensitive Systems/Components, (iii) test and validation procedures, (iv) an implementation time line and budget and (v) designation of specific employees who will be responsible for planning, coordinating and implementing each phase or subpart of the Year 2000 Corrective Plan. "Year 2000 Date-Sensitive System/Component" shall mean, as to any Person, any system software, network software, applications software, data base, computer file, embedded microchip, firmware or hardware that accepts, creates, manipulates, sorts, sequences, calculates, compares or outputs calendar-related data accurately; such system and components shall include, without limitation, mainframe computers, file server/client systems, computer workstations, routers, hubs, other network-related hardware, and other computer-related software, firmware or hardware and information processing and delivery systems of any kind and telecommunications systems and other communications processors, security systems, alarms, elevators and HVAC systems. "Year 2000 Implementation Testing" shall mean, as to Borrower or any of its Material Subsidiaries, (i) the performance of test and validation procedures regarding Year 2000 Corrective Actions on a unit basis and on a systemwide basis; (ii) the 177 performance of test and validation procedures regarding data exchanges among the Year 2000 Date-Sensitive Systems/Components and data exchanges with Third Party Interactives of; and (iii) the design and implementation of additional Year 2000 Corrective Actions, the need for which has been demonstrated by test and validation procedures. "Year 2000 Problems" shall mean, with respect to Borrower or any of its Material Subsidiaries, limitations on the capacity or readiness of any of its Year 2000 Date-Sensitive Systems/Components to accurately accept, create, manipulate, sort, sequence, calculate, compare or output calendar data information with respect to calendar year 1999 or any subsequent calendar year beginning on or after January 1, 2000 (including leap year computations), including, without limitation, exchanges of information among Year 2000 Date-Sensitive Systems/Components of Borrower and its Subsidiaries and exchanges of information among Borrower and its Subsidiaries and Year 2000 Date-Sensitive Systems/Components of Third Party Interactives and functionality of peripheral interfaces, firmware and embedded microchips. Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed, unless otherwise specifically provided herein, in accordance with GAAP consistently applied. That certain items or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. All other undefined terms contained in this Agreement shall, unless the context indicates otherwise, have the meanings provided for by the Code as in effect in the State of New York to the extent the same are used or defined therein. The words "herein," "hereof" and "hereunder" or other words of similar import refer to the Agreement as a whole, including the Annexes, Exhibits and Schedules hereto, as the same may from time to time be amended, modified or supplemented, and not to any particular section, subsection or clause contained in this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. Whenever any provision in any Loan Document refers to the "knowledge" of any Person, such provision is intended to mean that such Person has actual knowledge or awareness of a particular fact or circumstance, or that such Person, if it had exercised reasonable diligence, should have known or been aware of such fact or circumstance. 178 AMENDMENT NO.1 AMENDMENT NO. 1 (this "Amendment"), dated as of February 26, 1999, by and between General Electric Capital Corporation ("GE Capital"), as lender ("Lender") and agent ("Agent") under the Credit Agreement referred to below and Scott Technologies, Inc. ("Borrower"). W I T N E S S E T H WHEREAS, Borrower and GE Capital, as Lender and as Agent, have entered into an Amended and Restated Credit Agreement, dated as of December 31, 1998 (as heretofore amended, the "Credit Agreement"; the terms defined in Credit Agreement being used herein as therein defined, unless otherwise defined herein); and WHEREAS, Borrower and GE Capital, as Lender and as Agent, wish to amend the definition of the term "Required Lenders" contained in Annex A to the Credit Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereby agree as follows: SECTION 1. Amendment to Annex A to the Credit Agreement. (a) Definition of "Required Lenders". The definition of the term "Required Lenders" is hereby amended to delete each reference therein to "66 - -2/3%" and to substitute in each case the reference to "51%" in lieu thereof. SECTION 2. Representations and Warranties. Borrower represents and warrants to Agent and Lenders as follows: (a) All of the representations and warranties of Borrower contained in the Credit Agreement and in the other Loan Documents are true and correct on the date hereof as though made on such date, except to the extent that any such representation or warranty expressly relates to an earlier date, for changes permitted or contemplated by the Credit Agreement or as otherwise disclosed in writing to Agent and Lenders. No Default or Event of Default has occurred and is continuing or would result from the transactions contemplated hereby. (b) The execution, delivery and performance by Borrower of this Amendment have been duly authorized by all necessary or proper corporate action and do not require the consent or approval of any Person which has not been obtained. (c) This Amendment has been duly executed and delivered by Borrower and each of this Amendment and the Credit Agreement as amended hereby constitutes a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, subject as to enforcement, to bankruptcy, 179 insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. SECTION 3. Reference to and Effect on the Loan Documents. (a) Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of like import, and each reference in other Loan Documents to the Credit Agreement, shall mean and be a reference to the Credit Agreement as modified hereby. (b) Except as specifically amended herein, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a modification of any right, power, or remedy of the Agent or the Lenders under any of the Loan Documents, nor constitute a modification of any provision of any of the Loan Documents. SECTION 4. Effectiveness. This Amendment shall become effective as of the date first written above, provided that each of the following conditions has been satisfied on the date hereof, including the delivery to Agent of each of the documents set forth below in form and substance satisfactory to Agent: (a) Counterparts of this Amendment duly executed by Borrower, each Lender and Agent. (b) All of the representations and warranties of Borrower contained in Section 2 hereof shall be true and correct. SECTION 5. Expenses. Borrower agrees to pay on demand all reasonable out-of-pocket costs and expenses of Agent in connection with the preparation, execution and delivery of this Amendment, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for Agent with respect thereto. SECTION 6. Governing Law. This Amendment shall be governed by, construed and enforced in accordance with the laws of the State of New York, without regard to conflict of laws principles thereof. SECTION 7. Counterparts. This Amendment may be executed in any number of counterparts, which shall, collectively and separately, constitute one agreement. 180 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. SCOTT TECHNOLOGIES, INC. By: /s/ Mark A. Kirk Name: Mark A. Kirk Title: Senior Vice President and Chief Financial Officer GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and Lender By: /s/ James F. Hogan, Jr. Name: James F. Hogan, Jr. Title: Duly authorized signatory 181 AMENDMENT NO. 2 AMENDMENT NO. 2 (this "Amendment"), dated as of March 1, 1999, by and among the Lenders under the Credit Agreement referred to below, General Electric Capital Corporation ("GE Capital"), as agent for the Lenders ("Agent"), and Scott Technologies, Inc. ("Borrower"). W I T N E S S E T H WHEREAS, Borrower, Lenders and Agent, have entered into an Amended and Restated Credit Agreement, dated as of December 31, 1998 (as heretofore amended, the "Credit Agreement"; the terms defined in Credit Agreement being used herein as therein defined, unless otherwise defined herein); WHEREAS, Borrower, Lenders and Agent, wish to amend certain terms and provisions of the Credit Agreement; and NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereby agree as follows: SECTION 1. Amendments to Credit Agreement. The Credit Agreement is hereby amended as follows: (a) Amendment to Section 1.1(a)(i). Section 1.1(a)(i) is hereby amended by deleting it in its entirety and substituting in lieu thereof the following: "(i) Subject to the terms and conditions hereof, each Revolving Lender agrees to make available, from time to time, from the Closing Date until the Commitment Termination Date its Pro Rata Share of advances (each, a "Revolving Credit Advance"). The Pro Rata Share of the Revolving Credit Loan of any Revolving Lender shall not exceed its separate Revolving Credit Commitment. The obligations of each Revolving Lender hereunder shall be several and not joint. The aggregate amount of Revolving Credit Advances outstanding shall not exceed at any time the lesser of (A) the Maximum Amount less the sum of Letter of Credit Obligations and the Swing Line Loan outstanding at such time, and (B) the Borrowing Base, in each case less such Reserves as Agent determines in its reasonable credit judgment. Until the Commitment Termination Date, Borrower may from time to time borrow, repay and reborrow Revolving Credit Advances under this Section 1.1(a)." 182 (b) Amendment to Section 1.1(b)(vii). Section 1.1(b)(vii) is hereby amended by deleting the last sentence thereof. (c) Amendments to Section 1.1 (c). (i) Section 1.1(c)(i) is hereby amended by deleting clause (B) of the third sentence therein in its entirety and substituting in lieu thereof the phrase, "(B) the Borrowing Availability ("Swing Line Availability")". (ii) Section 1.1(c)(iii) is hereby amended by deleting the word "may" in the first sentence therein and substituting in lieu thereof the phrase ", but not less frequently than weekly, shall". (d) Amendments to Section 1.2(b). Sections 1.2(b)(ii) and 1.2(b)(iii) are hereby amended by deleting each reference therein to "Net Borrowing Availability" and substituting in lieu thereof in each case the phrase "Borrowing Availability". (e) Amendment to Section 1.4(d). Section 1.4(d) is hereby amended by deleting the phrase "under Section 8.1 (a)" and substituting in lieu thereof the phrase "other than specified in Section 8.1(f), (g), or (h)". (f) Amendments to Section 1.8. Section 1.8 is hereby amended by (i) inserting the phrase ", without any setoff, counterclaim or other deduction" at the end of the first sentence thereof, and (ii) deleting the phrase "or Net Borrowing Availability" in the second sentence thereof. (g) Amendment to Section 1.12(a). Section 1.12(a) is hereby amended by inserting the phrase "or its Affiliates" immediately after the phrase "held by it" therein. (h) Amendment to Section 1.16(b). Section 1.16(b) is hereby amended by inserting the phrase ", to the extent permitted by applicable laws" immediately after the word "disclosure" in the proviso to clause (w) of subsection (ii) thereof. (i) Amendments to Section 1.18. (i) Section 1.18 is hereby further amended by inserting the phrase "or any corporation controlling such Lender" immediately after (x) the phrase "such Lender" in the first sentence of subsection (a) thereof and (y) the phrase "any Lender" in the first sentence of subsection (b) thereof. (ii) Section 1.18(a) is hereby further amended by deleting the phrase "such Lender's capital" therein and substituting in lieu thereof the phrase "the capital of such Lender or any corporation controlling such Lender". 183 (iii) Section 1.18(d) is hereby amended by deleting the phrase "Sections 1.15(a), 1.16(a) and 1.16(b)" at the end thereof and substituting in lieu thereof the phrase "Sections 1.17(a), 1.18(a) and 1.18(b)". (j) Amendment to Section 5.5(c). Section 5.5(c) is hereby amended by inserting the word "lender" immediately before the phrase "loss payee" therein. (k) Amendments to Section 6.14. Section 6.14 is hereby amended by (i) deleting the phrase "make repurchases of its Stock and/or" in clause (c) of the proviso to the first sentence thereof, (ii) deleting the phrase "repurchases and/or" in the second proviso to the first sentence thereof, (iii) inserting the phrase "and provided, further, however, that in the case of clauses (a), (b) and (c)," immediately after the phrase "Section 6.14),", (iv) deleting the phrase "(iii)" therein and substituting in lieu thereof the phrase "(i)", (v) deleting the phrase "(iv)" therein and substituting in lieu thereof the phrase "(ii)", (vi) inserting immediately after the phrase "not less than three (3) Business Days prior to such transaction" therein the phrase "(except in the case of clause (b), as soon as practicable after such Permitted Stock Buy Back)" and (vii) deleting the phrase "Section 6.14 (iv)" and substituting in lieu thereof the phrase "clause (ii)". (l) Amendment to Section 9.5. Section 9.5 is hereby amended by deleting the word "solely" in the proviso in the first sentence thereof. (m) Amendment to Section 10.2(b). Section 10.2(b) is hereby amended by deleting the phrase "a Revolving Credit Commitment nor a Term Loan Commitment, as the case may be" and substituting in lieu thereof the phrase "an aggregate Commitment". (n) Amendment to Section 11.7. Section 11.7 is hereby amended by inserting the phrase "or its Affiliates" immediately after the phrase "owing by such Lender" in the first sentence thereof. SECTION 2. Amendments to Annex A to Credit Agreement. Annex A to the Credit Agreement is hereby amended as follows: (a) Amendment to Definition of "Borrowing Availability". The definition of "Borrowing Availability" is hereby amended by deleting in its entirety and substituting in lieu thereof the following: "'Borrowing Availability" shall mean, during the first 30 days after the Closing Date, $50,000,000 less the outstanding Letter of Credit Obligations and at any time thereafter, (a) with respect to the Revolving Credit Loan, 184 the lesser of (i) the Maximum Amount less the sum of (x) the outstanding amount of the Revolving Credit Loan, and (y) the Swing Line Loan outstanding and (ii) the Borrowing Base; and (b) with respect to Letter of Credit Obligations, an amount not to exceed the lesser of (i) $30,000,000 and (ii) the Maximum Amount less the outstanding Revolving Credit Loan, provided that the Borrowing Base shall not be a negative number. (b) Amendment to Definition of "Borrowing Base". The definition of "Borrowing Base" is hereby amended by inserting immediately after the word "Subsidiaries" in part (i) of clause (b) thereof the phrase "(not including the outstanding Letter of Credit Obligations)". (c) Amendment to Definition of "Net Borrowing Availability". The definition of "Net Borrowing Availability" is hereby amended by deleting it in its entirety. (d) Amendment to Definition of "Permitted Stock Buy Back". The definition of "Permitted Stock Buy Back" is hereby amended by deleting the phrase "Net Borrowing Availability" therein and substituting in lieu thereof the phrase "Borrowing Availability". (e) Amendment to Definition of "Pro Rata Share". The definition of Pro Rata Share is thereby amended by deleting the word "Lien" therein and substituting in lieu thereof the word "Line". (f) Amendment to Definition of "Revolving Credit Loan". The definition of "Revolving Credit Loan" is hereby amended by deleting it in its entirety and substituting lieu thereof the following: "'Revolving Credit Loan' shall mean, at any time, the sum of (i) the aggregate amount of Revolving Credit Advances outstanding to Borrower plus (ii) the aggregate Letter of Credit Obligations incurred on behalf of Borrower. Unless the context otherwise requires, references to the outstanding principal balance of the Revolving Credit Loan shall include the outstanding balance of Letter of Credit Obligations." SECTION 3. Representations and Warranties. Borrower represents and warrants to Agent and Lenders as follows: 185 (a) All of the representations and warranties of Borrower contained in the Credit Agreement and in the other Loan Documents are true and correct on the date hereof as though made on such date, except to the extent that any such representation or warranty expressly relates to an earlier date, for changes permitted or contemplated by the Credit Agreement or as otherwise disclosed in writing to Agent and Lenders. No Default or Event of Default has occurred and is continuing or would result from the transactions contemplated hereby. (b) The execution, delivery and performance by Borrower of this Amendment have been duly authorized by all necessary or proper corporate action and do not require the consent or approval of any Person which has not been obtained. (c) This Amendment has been duly executed and delivered by Borrower and each of this Amendment and the Credit Agreement as amended hereby constitutes a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. SECTION 4. Reference to and Effect on the Loan Documents. (a) Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of like import, and each reference in other Loan Documents to the Credit Agreement, shall mean and be a reference to the Credit Agreement as modified hereby. (b) Except as specifically amended herein, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a modification of any right, power, or remedy of the Agent or the Lenders under any of the Loan Documents, nor constitute a modification of any provision of any of the Loan Documents. SECTION 5. Effectiveness. This Amendment shall become effective as of the date first written above, provided that each of the following conditions has been satisfied on the date hereof, including the delivery to Agent of each of the documents set forth below in form and substance satisfactory to Agent: (a) Counterparts of this Amendment duly executed by Borrower, each Lender and Agent. (b) All of the representations and warranties of Borrower contained in Section 3 hereof shall be true and correct. 186 SECTION 6. Expenses. Borrower agrees to pay on demand all reasonable out-of-pocket costs and expenses of Agent in connection with the preparation, execution and delivery of this Amendment, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for Agent with respect thereto. SECTION 7. Governing Law. This Amendment shall be governed by, construed and enforced in accordance with the laws of the State of New York, without regard to conflict of laws principles thereof. SECTION 8. Counterparts. This Amendment may be executed in any number of counterparts, which shall, collectively and separately, constitute one agreement. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. SCOTT TECHNOLOGIES, INC. By: /s/ Mark A. Kirk Name: Mark A. Kirk Title: Senior Vice President and Chief Financial Officer GENERAL ELECTRIC CAPITAL CORPORATION, as Agent By: /s/ James F. Hogan, Jr. Name: James F. Hogan, Jr. Title: Duly Authorized Signatory Lenders: GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ James F. Hogan, Jr. Name: James F. Hogan, Jr. Title: Duly Authorized Signatory 187 AMENDMENT NO. 3 AMENDMENT NO. 3 (this "Amendment"), dated as of March 2, 1999, by and among the Lenders under the Credit Agreement referred to below, General Electric Capital Corporation ("GE Capital"), as agent for the Lenders ("Agent"), and Scott Technologies, Inc. ("Borrower"). W I T N E S S E T H WHEREAS, Borrower, Lenders and Agent, have entered into an Amended and Restated Credit Agreement, dated as of December 31, 1998 (as heretofore amended, the "Credit Agreement"; the terms defined in Credit Agreement being used herein as therein defined, unless otherwise defined herein); WHEREAS, Borrower, Lenders and Agent, wish to (a) amend the amount of each of GE Capital's Revolving Credit Commitment and Term Loan Commitment, and (b) provide for additional Lenders and Commitments; and NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereby agree as follows: SECTION 1. Amendment to Signature Page of Credit Agreement. The Lenders and the respective Commitments are hereby amended by deleting all of the text immediately following the phrase "Lenders:" on the signature page to the Credit Agreement and substituting in lieu thereof the Lenders and the amounts of the Commitments set forth opposite each such Lender on the signature page hereto. SECTION 2. Representations and Warranties. Borrower represents and warrants to Agent and Lenders as follows: (a) All of the representations and warranties of Borrower contained in the Credit Agreement and in the other Loan Documents are true and correct on the date hereof as though made on such date, except to the extent that any such representation or warranty expressly relates to an earlier date, for changes permitted or contemplated by the Credit Agreement or as otherwise disclosed in writing to Agent and Lenders. No Default or Event of Default has occurred and is continuing or would result from the transactions contemplated hereby. (b) The execution, delivery and performance by Borrower of this Amendment have been duly authorized by all necessary or proper corporate action and do not require the consent or approval of any Person which has not been obtained. (c) This Amendment has been duly executed and delivered by 188 Borrower and each of this Amendment and the Credit Agreement as amended hereby constitutes a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. SECTION 3. Reference to and Effect on the Loan Documents. (a) Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of like import, and each reference in other Loan Documents to the Credit Agreement, shall mean and be a reference to the Credit Agreement as modified hereby. (b) Except as specifically amended herein, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a modification of any right, power, or remedy of the Agent or the Lenders under any of the Loan Documents, nor constitute a modification of any provision of any of the Loan Documents. SECTION 4. Effectiveness. This Amendment shall become effective as of the date first written above, provided that each of the following conditions has been satisfied on the date hereof, including the delivery to Agent of each of the documents set forth below in form and substance satisfactory to Agent: (a) Counterparts of this Amendment duly executed by Borrower, each Lender and Agent. (b) All of the representations and warranties of Borrower contained in Section 4 hereof shall be true and correct. SECTION 5. Expenses. Borrower agrees to pay on demand all reasonable out-of-pocket costs and expenses of Agent in connection with the preparation, execution and delivery of this Amendment, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for Agent with respect thereto. SECTION 6. Governing Law. This Amendment shall be governed by, construed and enforced in accordance with the laws of the State of New York, without regard to conflict of laws principles thereof. SECTION 7. Counterparts. This Amendment may be executed in any number of counterparts, which shall, collectively and separately, constitute one 189 agreement. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. SCOTT TECHNOLOGIES, INC. By: /s/ Mark A. Kirk Name: Mark A. Kirk Title: Senior Vice President and Chief Financial Officer GENERAL ELECTRIC CAPITAL CORPORATION, as Agent By: /s/ James F. Hogan, Jr. Name: James F. Hogan, Jr. Title: Duly Authorized Signatory Lenders: Revolving Credit Commitment GENERAL ELECTRIC CAPITAL $22,250,000 CORPORATION Term Loan Commitment $22,250,000 By: /s/ James F. Hogan, Jr. Name: James F. Hogan, Jr. Title: Duly authorized signatory Revolving Credit Commitment NATIONSBANK, N.A. $8,750,000 Term Loan Commitment By: /s/ Lisa S. Donoghue $8,750,000 Name: Lisa S. Donoghue Title: Senior Vice President 190 Revolving Credit Commitment NBD BANK $8,750,000 Term Loan Commitment By: /s/ Paul R. DeMelo $8,750,000 Name: Paul R. DeMelo Title: Vice President Revolving Credit Commitment ABN AMRO BANK N.V. $6,000,000 Term Loan Commitment By: /s/Patrick M. Pastore /s/Carrie A.Pence $6,000,000 Name: Patrick M. Pastore Carrie A.Pence Title: Vice President-Vice President Revolving Credit Commitment NATIONAL CITY BANK $6,000,000 Term Loan Commitment By: /s/ Matthew P. Tuohey $6,000,000 Name: Matthew P. Tuohey Title: Vice President Revolving Credit Commitment THE HUNTINGTON NATIONAL $6,000,000 BANK Term Loan Commitment $6,000,000 By: /s/ John R. Macks Name: John R. Macks Title: Portfolio Manager Revolving Credit Commitment PNC BANK, NATIONAL $6,000,000 ASSOCIATION Term Loan Commitment $6,000,000 By: /s/ Bryon A. Pike Name: Bryon A. Pike Title: Vice President 191 Revolving Credit Commitment AMSOUTH BANK $3,750,000 Term Loan Commitment By: /s/ George L. Grieco $3,750,000 Name: George L. Grieco Title: Attorney in Fact Revolving Credit Commitment THE PROVIDENT BANK $3,750,000 Term Loan Commitment By: /s/ Christopher B. Gribble $3,750,000 Name: Christopher B. Gribble Title: Vice President STAR BANK, N.A. Revolving Credit Commitment $3,750,000 By: /s/ W. Gregory Schmid Term Loan Commitment Name: W. Gregory Schmid $3,750,000 Title: Vice President 192 EX-10.(XXXVI) 4 EXHIBIT 10 (XXXVI) Exhibit 10 (xxxvi) PRINCETON EAGLE WEST INSURANCE COMPANY LIMITED Continental Building, 25 Church Street Hamilton HMJX, Bermuda IN RELIANCE UPON STATEMENTS MADE IN THE APPLICATION AND IN RETURN FOR THE PAYMENT OF THE PREMIUM, AND SUBJECT TO ALL OF THE TERMS OF THIS POLICY, WE AGREE WITH YOU TO PROVIDE THE INSURANCE STATED IN THIS POLICY. AGGREGATE STOP LOSS INSURANCE POLICY DECLARATIONS Policy No. SCO/001/98 Item 1. Named Insured: Scott Technologies, Inc. (And as defined in Endorsement # 1) 5875 Landerbrook Dr. Mayfield Heights, OH 44124 Item 2. Policy Period: This Policy is effective as of December 31, 1998 (at 12:01 A.M. Standard Time at the mailing address shown above) and shall continue in force until exhaustion of the Aggregate Ultimate Net Loss Limit by payments made hereunder in connection with occurrences or claims covered by the Scheduled Policies and Reinsurance, subject to the terms, limitations, exclusions and conditions of this Policy. Item 3. Premium: $ 5,950,000. Item 4. Limits of Insurance: Aggregate Ultimate Net Loss Limit: $ 20,000,000. Item 5. Retention: $ 40,000,000. Authorization: In Witness Whereof, the Company issuing this Policy has caused this Policy to be signed by its authorized officers. Princeton Eagle West Insurance Company Limited /s/ /s/ Robin Mehta William Wood Senior Vice President Vice President Date: 12/31/98 12/31/98 THESE DECLARATIONS, TOGETHER WITH THE ATTACHED SCHEDULE OF FORMS AND ENDORSEMENTS, AND ANY FORMS AND ENDORSEMENTS WE MAY LATER ATTACH TO REFLECT CHANGES, MAKE UP AND COMPLETE THE ABOVE NUMBERED POLICY. 193 AGGREGATE STOP LOSS INSURANCE POLICY In consideration of the payment of the premium and in reliance upon the statements made to the Company and subject to the limits of liability, exclusions, conditions and all other terms of this Policy, the Company agrees with the Insured as follows: I. INSURANCE AGREEMENTS A. COVERAGE: The Company hereby agrees, subject to thc limitations, terms, Exclusions and Conditions hereinafter mentioned, to indemnify thc Insured for the Aggregate Ultimate Net Losses of the Insured after December 31, 1998, but only to the extent of the Insured's obligations to pay by reason of the deductible, retained amount, self-insured retention or retrospective provisions (collectively the "Deductible Provisions") of the Scheduled Policies or Reinsurance, and subject to the limits and retention and any other provision hereunder. B. TERRITORY: The insurance afforded by this Policy shall cover wherever Scheduled Policies and Reinsurance cover. C. LIMITS AND RETENTION: 1. For the historical period beginning January 1, 1978 through November 30, 1998, the Company shall be liable for 100% of the amount, if any, by which the Aggregate Ultimate Net Losses of the Insured exceeds the Retention of $40,000,000 as noted in Item 5 of this Declaration. With respect to said Retention of the Insured, only $2,500,000 of such Aggregate Ultimate Net Losses arising from Mass Torts can serve to erode said Retention. Additionally, the Retention of the Insured shall not be eroded by losses arising out of Pollution liabilities or liabilities arising out of Aircraft Products and Completed Operations and Grounding. 2. The total limit of the Company's liability for the Aggregate Ultimate Net Losses under this Policy shall never exceed the amount stated in the Declarations as the Aggregate Ultimate Net Loss Limit. D. NO OBLIGATION TO DEFEND The Company shall have no obligation to investigate or defend any claim or suit brought under this Policy or the Scheduled Policies. E. ASSIGNMENT: This Policy is fully assignable or transferable upon prior written notification to the Company. 194 F. CHANGES: Notices to any agent or knowledge possessed by any agent or other person acting on behalf of the Company shall not effect a waiver or a change in any part of this Policy or stop the Company from asserting any right under the terms of the Policy, nor shall the terms of this Policy be waived or changed, except by Endorsement issued to form a part of this Policy. G. NAMED INSURED: The insured named in Item 1 of the Declarations is the only Insured under this Policy. No other person or organization other than the Named Insured or those shown in the Scheduled Policies or Reinsurance, and any assignee or transferee pursuant to Section I. E. of this Policy shall have any rights whatsoever as an Insured or otherwise under this Policy. II. EXCLUSIONS This Policy does not apply to: A. Punitive or exemplary damages, fines or penalties except as provided in the Scheduled Policies or Reinsurance. B. Liability of others assumed by the Insured by agreement under any contract, whether oral or in writing except as covered by the Scheduled Policies or Reinsurance. C. Liability arising out of Mass Torts. D. Liability including defense costs and expenses, arising out of the actual, alleged or threattened discharge, dispersal, seepage, migration, release or escape of Pollutants. Additionally, this Policy will not apply to any loss, cost or expense arising out of any governmental direction or request that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize Pollutants. E. Liability arising out of Aircraft Products and Completed Operations or reliance upon any representation or warranty made with respect thereto, nor to any liability arising out of the Grounding of any aircraft. III. CONDITIONS A. REPORTING REQUIREMENTS AND PAYMENTS: 1. The Insured shall submit reports to the Company within 45 days after the end 195 of each calendar quarter beginning with the calendar quarter ending September 30, 1999. Such reports will furnish the Company with the following cumulative data with respect to the Aggregate Ultimate Net Losses: a) Ultimate Net Losses b) reserves for expected Ultimate Net Losses Such reports shall also identify the Ultimate Net Losses with respect to which reimbursement by the Company is then required. The Insured shall continue to submit such reports to the Company until the insurance activity hereunder is no longer contemplated. 2. The Company shall pay any amounts due hereunder only after the Insured has paid an amount equal to the Insured's Retention. Subject to their being within the Deductible Provisions of the Scheduled Policies or Reinsurance, the Company agrees to accept and abide by all Ultimate Net Loss payments of the Insured, the claims and losses for which the Insured shall have the right to adjust, defend, settle or compromise within the Insured's sole reasonable discretion. All such adjustments, payments, settlements or compromises shall be binding upon the Company. Company's payments to the Insured shall be made promptly to the insured on a quarterly basis after - receipt of the quarterly report and reasonable verification of the Aggregate Ultimate Net Losses, but in no event later than 45 days after the receipt of such quarterly report. B. AUDIT: The Company may examine and audit the Insured's books and records at any reasonable time during the pendency of this Policy and within three years after the exhaustion of the Policy's Limits of Insurance, as far as they relate to the subject matter of this Policy. C. ACTION AGAINST THE COMPANY: No action shall lie against the Company or the Insured unless each party shall have fully complied with all terms of this Policy up until the point in time at which the action is brought. However, the Company will not be liable for damages that are not payable under the terms of this Policy or that are in excess of the applicable Limits of Insurance. Nothing contained in this Policy shall give any third party any right to join the Company as a co-defendant in any action against the Insured to determine the Insured's liability. Bankruptcy or insolvency of the Insured shall neither relieve nor increase any of the obligations of the Company hereunder. D. OTHER INSURANCE: 196 In the event that the Insured has completely eroded or exhausted any annual aggregates pertaining to Deductible Provisions, as listed in the Scheduled Policies or Reinsurance, and as such, has no further obligations to make claim payments in a specific policy period, then the Company also will have no further obligations to make claim payments for that specific policy period. E. SALVAGES AND RECOVERIES: All salvages, recoveries and payments recovered or received subsequent to a loss settlement under this Policy shall be applied as if received prior to the said settlement and all necessary adjustments shall be made by the parties hereto. F. PREMIUM: The Insured shall pay to the Company for the insurance coverage provided hereunder a premium of $ 5,950,000 which will be fully earned upon receipt and issuance of this Policy, subject, however, to the provisions of the Profit Sharing Agreement as set forth in Endorsement #2. G. ACCESS TO RECORDS: The Insured shall place at the disposal of the Company and the Company shall have the right to inspect, through its authorized representatives, at all reasonable times during the pendency of this Policy, and within three years of the exhaustion of the Policy's Limits of Insurance, the books, records and papers of the Insured pertaining to the coverage provided hereunder and all claims made in connection therewith. H. SUBROGATION: In the event of any payment under this Policy, the Company shall be subrogated to all the Insured's rights of recovery (if any) with respect to such payment against any non-settling person or organization, and the Insured shall execute and deliver instruments and papers and do whatever else is reasonably necessary to secure such rights. Subject to the foregoing, the Insured shall do nothing after loss to prejudice such rights. The Company shall not be bound to pay any loss if the Insured has impaired any right of recovery for such loss, except as permitted by the Scheduled Policies, Reinsurance or this Policy, but only to the extent of such impairment . I. JURISDICTION: This Policy has been applied for, negotiated and issued in Bermuda, and accordingly, shall be interpreted according to the laws of Bermuda. J. SERVICE OF SUIT: It is agreed that in the event of the failure of the Company to pay any amount claimed to be due hereunder, the Company, at the request of the Insured, will submit to the jurisdiction of the Courts of Ohio, or in the State where the Insured maintains its principal place of business. Nothing in this provision constitutes or should be understood to constitute a waiver of the Company's rights to 197 commence an action in the Courts of Ohio, or in the State where the Insured maintains its principal place of business, to remove an action to a United States District Court, or to seek a transfer of a case to another Court as permitted by the laws of the United States, the State of Ohio, or in the State where the Insured maintains its principal place of business. It is further agreed that service of process in such suit may be made upon: Conyers, Dill and Pearman Claredon House Church Street P.O. Box HM666 Hamilton HMCX Bermuda K. CLAIMS PAYMENTS: All payments of claims hereunder shall be made directly to the Insured or any entity whom the named Insured shall designate to accept funds on its behalf. IV. DEFINITIONS A. INSURED: The term "Insured" means the Party(ies) so designated in the Declarations. B. COMPANY: The term "Company" means the Insurance Company so designated in the Declarations. C. POLICY: The term "Policy" means the Company's Aggregate Stop Loss Insurance Policy as well as all accompanying attachments, exhibits and Policy endorsements. D. SCHEDULED POLICIES: The term "Scheduled Policy" or Scheduled Policies" mean(s) the Policy or policies listed in Exhibit A attached hereto and made part of this Policy. E. ALLOCATED LOSS ADJUSTMENT EXPENSES The term "Allocated Loss Adjustment Expenses" as used herein, shall mean expenses associated with the investigation, defense and adjustment of specific claims including, but not limited to, the following: Independent Adjusters Investigators Legal Fees General Court Costs and Fees Medical Testimony for Attendance or Testimony at Depositions, Trials or 198 Hearings Expert consultants and Expert Witnesses for Attendance or Testimony at Depositions, Trials or Hearings Medical Examinations for the Purpose of Trial and Determining Questions of Liability Miscellaneous Costs as provided in the Scheduled Policies or Reinsurance Prejudgment interest and Post-judgement interest as provided in the Scheduled Policies or Reinsurance F. ULTIMATE NET LOSS(ES): The term "Ultimate Net Loss(es)" shall mean the actual loss, including Allocated Loss Adjustment Expenses paid by the Insured by reason of the Deductible Provisions of the Schedule Policies or Reinsurance after making deductions for all recoveries, salvage and subrogation payments. G. AGGREGATE ULTIMATE NET LOSSES: The term "Aggregate Ultimate Net Losses" shall mean the aggregate of Ultimate Net Losses occurring from time to time during the Policy Period set forth in the Declarations. H. MASS TORTS: The term "Mass Torts" shall mean any liability arising from asbestos, asbestosis, silicosis or hearing loss. I. POLLUTANTS: The term "Pollutants" shall mean any solid, liquid, gaseous or thermal irritant or contaminant including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed. J. AIRCRAFT PRODUCTS and COMPLETED OPERATIONS The term "Aircraft Products and Completed Operations" means (1) aircraft (including missiles or space craft and ground support or control equipment used therewith) and any other goods or products manufactured, sold, handled or distributed by the Insured or any services provided or recommended by the Insured or by others trading under his name for use in the manufacture, repair, operation, maintenance or use of any aircraft, and (2) any articles, furnished by the Insured and installed in aircraft or used connection with aircraft or for spare parts for aircraft, including ground handling tools and equipment, and also means training aids, instructions, manuals, blueprints, engineering or other data, engineering or other advice, and labor related to such aircraft or articles. M. GROUNDING The term "Grounding" means the withdrawal of one or more aircraft from the flight operations or the imposition of speed, passenger or load restrictions on such aircraft, by reason of the existence of or alleged or suspected existence or any 199 defect, fault or condition in such aircraft or any part thereof sold, handled or distributed by the Insured or manufactured, assembled or processed by any other person or organization according to specifications, plans, suggestions, orders or drawings of the Insured or with tools, machinery or other equipment furnished to such persons or organizations by the Insured, whether such aircraft so withdrawn are owned or operated by the same or different persons, organizations or corporations. A grounding shall be deemed to commence on the date of an accident or occurrence which discloses such condition, or on the date an aircraft is first withdrawn from service on account of such condition, whichever occurs first. N. REINSURANCE The term "Reinsurance" means any reinsurance agreements (in any form), indemnification agreements or similar arrangements issued or entered into by the Insured as more fully described in Exhibit A attached hereto and made a part of this Policy. 200 EXHIBIT A Scheduled Policies and Reinsurance Page 1 of 15 Scheduled Policies Named Insured: Scott Technologies, Inc. Coverage: General Liability Policy Period/Number: January 1, 1978 - September 30, 1978 CLA 783718 Carrier: Northwestern National Program: Reinsurance Policy Period/Number: October 1, 1978 - September 30, 1979 CLA 783718 Carrier: Northwestern National Program: Reinsurance Policy Period/Number: October 1, 1979 - September 30, 1980 CLA 210027 Carrier: Northwestern National Program: Reinsurance Policy Period/Number: October 1, 1980 - September 30, 1981 CLA 79557 Carrier: Northwestern National Program: Reinsurance Policy Period/Number October 1, 1981- September 30, 1982 TBD Carrier: Northwestern National Program: Reinsurance Policy Period/Number October 1, 1982- September 30, 1983 CLA 234146 Carrier: Northwestern National Program: Reinsurance Policy Period/Number: October 1, 1983- September 30, 1984 SCG003923 SCGG05674359 Carrier: CIGNA Program: Reinsurance Policy Period/Number: October 1, 1984- September 30, 1985 WHA-GL-84 Carrier: Waite Hill Assurance LTD (n/k/a Willoughby Hills Assurance, Ltd.- Bermuda Subsidiary) Program: Direct Issue/Reinsurance 201 EXHIBIT A Scheduled Policies and Reinsurance Page 2 of 15 Scheduled Policies (continued) Policy Period/Number: October 1, 1985- September 30, 1986 SCGG0625413 Carrier: CIGNA Program: Reinsurance Policy Period/Number: October 1, 1986- September 30, 1987 HDCG0692570 Carrier: CIGNA Program: Reinsurance Policy Period/Number: October 1, 1987- September 30, 1988 HDCG1088239 HDCG1088240 Carrier: CIGNA Program: Reinsurance Policy Period/Number: October 1, 1988- September 30, 1989 NG 1363937 Carrier: Reliance Program: High Deductible Policy Period/Number: October 1, 1988- September 30, 1989 TBD (Economy Engineering Only) Carrier: Reliance Program: High Deductible Policy Period/Number: October 1, 1989- September 30, 1990 RMGL 460-00-48 RMGL 249-80-69 RMGL 460-00-49 Carrier: AIG Program: High Deductible Policy Period/Number: October 1, 1990- September 30, 1991 RMGL2498721 RMGL2498722 RMGL2498723 Carrier: AIG Program: High Deductible Policy Period/Number: October 1, 1991- September 30, 1992 RMGL3258157 RMGL3258158 RMGL32496052 Carrier: AIG Program: High Deductible 202 EXHIBIT A Scheduled Policies and Reinsurance Page 3 of 15 Scheduled Policies (continued) Policy Period/Number October 1, 1992- September 30, 1993 RMGL3265224 RMGL3265225 RMGLA2496168 Carrier: AIG Program: High Deductible Policy Period/Number: October 1, 1993- September 30, 1994 RMGL001759809 RMGL001759810 RMGLA2505024 Carrier: AIG Program: High Deductible Policy Period/Number: October 1, 1994- September 30, 1995 RMGL3199198 RMGL3199199 RMGLA2505125 Carrier: AIG Program: High Deductible Policy Period/Number: October 1, 1995- September 30, 1996 HDOG18378541 Carrier: CIGNA Program: High Deductible Policy Period/Number: October 1, 1996- September 30, 1997 1465206 Carrier: AIG Program: High Deductible Policy Period/Number: October 1, 1997-November 30 1998 HDOG19310103 Carrier: CIGNA Program: High Deductible Coverage: Workers' Compensation Policy Period/Number: January 1, 1978 - October 1, 1978 TDRKUB-151T738-6-78 Carrier: Travelers Program: Reinsurance Policy Period/Number: January 1, 1978 - December 31, 1978 WC577394 Carrier: Northwestern National Program: Reinsurance 203 EXHIBIT A Scheduled Policies and Reinsurance Page 4 of 15 Scheduled Policies (continued) Policy Period/Number: October 1, 1978 - December 31, 1978 [TBD] Carrier: Northwestern National Program: Reinsurance Policy Period/Number: October 1, 1978 - November 30, 1978 [TBD] Carrier: Northwestern National Program: Reinsurance Policy Period/Number: October 1, 1978 - September 30, 1978 [TBD] Carrier: Northwestern National Program: Reinsurance Policy Period/Number: January 1, 1979 - December 31, 1979 WC576965 Carrier: Northwestern National Program: Reinsurance Policy Period/Number: October 1, 1979 - December 31, 1979 [TBD] Carrier: Travelers Program: Reinsurance Policy Period/Number: January 1, 1980 - September 30, 1980 WC576965 Carrier: Northwestern National Program: Reinsurance Policy Period/Number: January 1, 1980 - September 30, 1980 WC637410 Carrier: Northwestern National Program: Reinsurance Policy Period/Number: October 1, 1979- December 31, 1979 TBD Carrier: Travelers Program: Reinsurance Policy Period/Number: January 1, 1980 - October 1, 1980 WC637424 Carrier: Northwestern National Program: Reinsurance 204 EXHIBIT A Scheduled Policies and Reinsurance Page 5 of 15 Scheduled Policies (continued) Policy Period/Number: January 1, 1980 - December 31, 1980 [TBD] Carrier: [TBD] Program: Retro Policy Period/Number: October 1, 1980- September 30, 1981 WC637630 WC637424 Carrier: Northwestern National Program: Reinsurance Policy Period/Number: October 1, 1981- September 30, 1982 TBD Carrier: Northwestern National Program: Reinsurance Policy Period/Number: January 1, 1981 - December 31, 1981 [TBD] Carrier: [TBD] Program: Retro Policy Period/Number: October 1, 1982- September 30, 1983 WC 650935 WC 650934 Carrier: Northwestern National Program: Reinsurance Policy Period/Number: January 1, 1982 - December 31, 1982 [TBD] Carrier: [TBD] Program: Retro Policy Period/Number: January 1, 1983 - December 31, 1983 WC65-09-45 Carrier: Northwestern National Program: Reinsurance Policy Period/Number: January 1, 1983 - December 31, 1983 [TBD] Carrier: [TBD] Program: Retro Policy Period/Number: October 1, 1983- September 30, 1984 WC 651208, WC651209, WC651210 Carrier: Northwestern National Program: Reinsurance 205 EXHIBIT A Scheduled Policies and Reinsurance Page 6 of 15 Scheduled Policies (continued) Policy Period/Number: October 1, 1984- September 30, 1985 RSC C2320671 Carrier: CIGNA Program: Reinsurance Policy Period/Number: October 1, 1985- September 30, 1986 RSC C2307868 Carrier: CIGNA Program: Reinsurance Policy Period/Number: October 1, 1986- September 30, 1987 RSC C2793739 Carrier: CIGNA Program: Reinsurance Policy Period/Number: October 1, 1987- September 30, 1988 SCFC2716075 SCFC2966440 Carrier: CIGNA Program: Reinsurance Policy Period/Number: October 1, 1988- September 30, 1989 [TBD] Carrier: Reliance Program: Guaranteed Cost Policy Period/Number: October 1, 1989- September 30, 1990 RMWC4193215 RMWC1127495 RMWC4193216 Carrier: AIG Program: Retention Policy Period/Number: October 1, 1990- September 30, 1991 RMWC4195486 RMWC1178697 RMWC4195408 RMWC4195407 Carrier: AIG Program: Retention Policy Period/Number: October 1, 1991- September 30, 1992 RMWC1231787, RMWC1231788 RMWC1231789, RMWC1231790 RMWC1233427 Carrier: AIG Program: Retention 206 EXHIBIT A Scheduled Policies and Reinsurance Page 7 of 15 Scheduled Policies (continued) Policy Period/Number: October 1, 1992- September 30, 1993 RMWC4198431 RMWC4198432 RMWC4198433 RMWC4198434 RMWC4198435 RMWC4198436 Carrier: AIG Program: Retention Policy Period/Number: October 1, 1993- September 30, 1994 RMWC003170327 RMWC003170328 RMWC003170329 RMWC003170330 RMWC003170331 RMWC003170332 RMWC003170333 Carrier: AIG Program: Retention Policy Period/Number: October 1, 1994- September 30, 1995 RMWC3175495 RMWC3175496 RMWC3175497 RMWC0170507 RMWC0170508 RMWC0170509 RMWC0170510 Carrier: AIG Program: Retention Policy Period/Number: October 1, 1995- September 30, 1996 WLRC4122284 WLRC4122422 CCSC412285-2 CCSC4122422-8 Carrier: CIGNA Program: Retention Policy Period/Number: October 1, 1995- September 30, 1996 CCSC4122285 CCSC4122422 Carrier: CIGNA Program: Paid Loss Retention Program 207 EXHIBIT A Scheduled Policies and Reinsurance Page 8 of 15 Scheduled Policies (continued) Policy Period/Number: October 1, 1996- September 30, 1997 1466209 1466210 1466208 1466207 Carrier: AIG Program: Retention Policy Period/Number: October 1, 1997- September 30,1998 WLRC3656885-9 PLCR3656886-0 WLRC4209590-4 Carrier: CIGNA Program: Retention Policy Period/Number: October 1, 1998 - November 30,1998 WLR C4 246774-O NWC C4 246783-2 WLR C4 246787-A Carrier: CIGNA Program: Retention Coverage: Automobile Liability Policy Period/Number: January 1, 1978 - October 1, 1978 TRUB-110T430-9-78 Carrier: Travelers Program: Reinsurance Policy Period/Number: October 1, 1978 - September 30, 1979 TRUB-163T8682-78 Carrier: Travelers Program: Reinsurance Policy Period/Number: October 1, 1978- September 30, 1979 Program: [TBD - Guaranteed Cost] Policy Period/Number: October 1, 1979- December 31, 1979 Program: [TBD - Guaranteed Cost] Policy Period/Number: October 1, 1979- September 30, 1980 Program: [TBD - Guaranteed Cost] 208 EXHIBIT A Scheduled Policies and Reinsurance Page 9 of 15 Scheduled Policies (continued) Policy Period/Number: October 1, 1980- September 30, 1981 Program: [TBD - Guaranteed Cost] Policy Period/Number: October 1, 1981- September 30, 1982 Program: [TBD - Guaranteed Cost] Policy Period/Number: October 1, 1982- September 30, 1983 Program: [TBD - Guaranteed Cost] Policy Period/Number: October 1, 1983- September 30, 1984 Program: [TBD - Guaranteed Cost] Policy Period/Number: October 1, 1984- September 30, 1985 Program: [TBD - Guaranteed Cost] Policy Period/Number: October 1, 1985- September 30, 1986 Program: [TBD - Guaranteed Cost] Policy Period/Number: October 1, 1986- September 30, 1987 Program: [TBD - Guaranteed Cost] Policy Period/Number: October 1, 1987- September 30, 1988 Program: [TBD - Guaranteed Cost] Policy Period/Number: October 1, 1988- September 30, 1989 Program: [TBD - Guaranteed Cost] Policy Period/Number: October 1, 1989- September 30, 1990 [TBD] Carrier: AIG Program: Retention Policy Period/Number: October 1, 1990- September 30, 1991 RMCA5629636 RMCA5629637 RMCA5629638 Carrier: AIG Program: Retention Policy Period/Number: October 1, 1991- September 30, 1992 RMCA1427974 RMCA1427975 RMCA1427976 RMBA3762121 Carrer: AIG Program: Retention 209 EXHIBIT A Scheduled Policies and Reinsurance Page 10 of 15 Scheduled Policies (continued) Policy Period/Number: October 1, 1992- September 30, 1993 RMCA1429072 RMCA1429073 RMCA1429074 RMBA3762212 Carrier: AIG Program: Retention Policy Period/Number: October 1, 1993- September 30, 1994 RMCA001431403 RMCA001431404 RMBA3762301 Carrier: AIG Program: Retention Policy Period/Number: October 1, 1994- September 30, 1995 RMCA1437124 RMCA1437125 RMBA3762383 Carrier: AIG Program: Retention Policy Period/Number: October 1, 1995- September 30, 1996 CAL HO 187781-5 Carrier: CIGNA Program: Guaranteed Cost Policy Period/Number: October 1, 1996- September 30, 1997 1376908 1376909 Carrier: AIG Program: Guaranteed Cost Policy Period/Number: October 1, 1997- November 30, 1998 CAL HO 731822-4 Carrier: CIGNA Program: Guaranteed Cost 210 EXHIBIT A Scheduled Policies and Reinsurance Page 11 of 15 Reinsurance Reinsurer: Waite Hill Assurance, Ltd. (n/k/a Willoughby Assurance, Ltd.) (Bermuda captive insurance company) Insured: Scott Technologies, Inc. (Active Programs/Policies) Coverage: General Liability Policy Period: January 1, 1978 - September 30, 1978 October 1, 1978 - September 30, 1979 October 1, 1979 - September 30, 1980 October 1, 1980 - September 30, 1981 October 1, 1981 - September 30, 1982 October 1, 1982 - September 30, 1983 Insurer: Northwestern National Policy Period: October 1, 1983 - September 30, 1984 Insurer: Insurance Company of North America (CIGNA) Policy Period: October 1, 1985 - September 30, 1986 October 1, 1986 - September 30, 1987 Insurer: Insurance Company of North America (CIGNA) Coverage: Workers' Compensation Policy Period: January 1, 1978 - September 30, 1978 October 1, 1978 - September 30, 1979 October 1, 1979 - December 31, 1979 Insurer: Travelers Policy Period: January 1, 1980 - September 30, 1980 October 1, 1980 - September 30, 1981 October 1, 1981 - September 30, 1982 October 1, 1982 - September 30, 1983 October 1, 1983 - September 30, 1984 Insurer: Northwestern National Policy Period: October 1, 1984 - September 30, 1985 October 1, 1985 - September 30, 1986 October 1, 1986 - September 30, 1987 Insurer: Insurance Company of North America (CIGNA) 211 EXHIBIT A Scheduled Policies and Reinsurance Page 12 of 15 Reinsurance (continued) Coverage: Auto Liability Policy Period: January 1, 1978 - September 30, 1978 October 1, 1978 - September 30, 1979 October 1, 1979 - December 31, 1979 Insurer: Travelers Insured: Scott Technologies, Inc. (Inactive Programs / Policies) Figgie Inc. Fidelity 3/84-2/85 3/85-9/86 10/86-9/87 Property Liability 7/79-6/80 7/80-6/81 7/81-6/82 7/82-6/83 7/83-6/84 7/84-6/85 7/85-6/86 7/86-6/87 Anaheim 5/82-4/83 IEC California WC 1/80-12/80 Retro 1/80-12/80 IEC California WC 1/81-12/81 Retro 1/81-12/81 IEC California WC 1/82-12/82 Retro 1/82-12/82 IEC California WC 1/83-12/83 Dividend 1/83-12/83 Professional Liab. E&O 10/82-9/83 10/83-9/84 10/84-9/85 10/85-9/86 10/86-9/87 Workers' Compensation 10/78-11/78 Workers; Comp - Retro 10/78-9/79 Safeway Gen. Liab. 8/77-8/78 8/78-9/79 California W.C. 1/78-12/78 1/79-12/79 212 EXHIBIT A Scheduled Policies and Reinsurance Page 13 of 15 Reinsurance (continued) Less: Transfer BX80/81 10/80-9/81 Professional Liab. E&O 10/81-9/82 Insured: Various Third Parties (Active Programs / Policies) Coverage: Workers' Compensation Program: Rent-a-Captive Insurer: Northwestern National (Fronting Carrier) Policy Periods: July 1980 - June 1985 (multiple policies) Insured: Meatpackers Association members Policy Periods: May 1980 - April 1983 (multiple policies) Insured: Corrugated Converters Association members Policy Periods: January 1981 - December 1983 (multiple policies) Insured: Growers Association members Policy Periods: January 1981 - December 1985 (multiple policies) Insured: Plastics Association members Policy Periods: October 1981 - September 1985 (multiple policies) Insured: Brownguard Association (security guard) members Policy Periods: February 1982 - January 1984 Insured: Globe Packing Program: Rent-a-Captive Insurer: St. Paul Fire & Marine (Fronting Carrier) Policy Periods: October 1982 - September 1984 (multiple policies) Insured: United Egg Producers members Coverage: Commercial Multi-Peril Program: Public School Districts Insurer: Northwestern National (Fronting Carrier) Policy Periods: July 1981 - June 1984 (multiple policies) Insured: Various public school districts Program: Public School Districts Insurer: Fremont (Fronting Carrier) Policy Periods: July 1984 - June 1986 (multiple policies) Insured: Various School Districts 213 EXHIBIT A Scheduled Policies and Reinsurance Page 14 of 15 Reinsurance (continued) Coverage: Various Coverage Under Reinsurance Agreements Insurer: Trenwick Policy Periods: January 1979 - December 1984 Insurer: Trenwick America Re Policy Periods: November 1983 - January 1985 Insurer: Republic Western Policy Periods: July 1982 - September 1985 Insurer: U.S. International Policy Periods: January 1985 - December 1986 Insured: Various Third Parties (Inactive Programs / Policies) Eagle/Bonding/Carlisle February 1982 PWS January 1979 - June 1982 INA Part Surety Bond November 1982 - October 1983 Herald Al/GL XS October 1986 - October 1987 STR Engin Cas XS Prof Liab June 1985 - June 1987 Roller Rinks (SCRA) February 1983 Security Guard Q/S October 1984 - September 1985 Cal Farm May 1983 - June 1984 Wisdom Program November 1983 INA Marine Q/S January 1986 - January 1987 Pacific Comp XS April 1982 - March 1983 Knight Commission 7/82-6/85 ASCIP - Excalibur 7/82-6/86 NASSP Primary 9/86-8/87 NASSP Excess 9/78-8/82 9/86-8/87 North Am. Manuf. 3/87-3/88 EQUIPCO 6/87-7/87 Bott Profit Commission Protective National 1/81-12/81 1/82-12/82 1/83-12/83 Massachusetts 2/82-1/83 2/83-1/84 Forging 8/82-7/83 First Security 4/82-4/83 4/83-4/84 214 EXHIBIT A Scheduled Policies and Reinsurance Page 15 of 15 Reinsurance (continued) Crocketts Container 4/84-3/85 4/85-3/86 BX80/81 Pool 10/80-9/81 Commonwealth Q/S 1/77-12/78 WC - Specific Excess 8/81-6/82 7/82-6/83 7/83-6/84 7/84-6/85 Security Guard Q/S 7/82-6/83 7/83-9/84 Notes to Scheduled Policies and Reinsurance And any other applicable General Liability (inclusive of Products), Automobile Liability, Employers Liability or Workers Compensation policies or Reinsurance for any policy periods beginning on or after January 1, 1978 and ending on or before November 30, 1998 for which the Insured maintained similar deductible, self-insured retention or retrospective provisions. However, this Policy will not apply to policies for which the Insured maintained first dollar or guaranteed cost insurance coverage. In the event that an actual policy or contract (or a copy thereof) does not exist, or is otherwise not available for one of the Scheduled Policies or Reinsurance and the insured cannot reasonably reconstruct the necessary provisions thereof from other sources, including any actuarial studies prepared by Tillinghast-Towers Perrin, then the policy or contract form for the Scheduled Policy or Reinsurance (as applicable) that is closest in time to such unavailable policy or contract shall be utilized as the governing terms and conditions for such Scheduled Policy or Reinsurance; provided however, that in no instance will the Deductible Provisions of any of the Scheduled Policies be greater on a per occurrence or aggregate basis than as noted on page 12 of the Tillinghast-Towers Perrin actuarial study dated August 31, 1998 or page 10, 12 and 13, and Exhibit 2.1 of Section I and Exhibit 1 of Section II of the Tillinghast-Towers Perrin actuarial study for Willoughby Assurance Limited, dated May 14, 1998. Additionally, after December 31, 1998, any material changes in the terms, conditions or policy provisions of the Scheduled Policies or Reinsurance must be submitted to the Company for prior approval, which approval shall not be unreasonably withheld, delayed or denied. 215 Endorsement #1 Named Insured It is hereby agreed that the Named Insured shown in Item 1 of the Declarations shall read as follows: Scott Technologies, Inc., Figgie International, Inc.and/or any predecessor company, owned, controlled, or subsidiary companies or divisions which now exist or may have existed at any time during the Policy Periods listed in the Scheduled Policies and Reinsurance. 216 Endorsement #2 Profit Sharing Agreement It is hereby agreed that the Company shall review and develop an ultimate loss projection for Aggregate Ultimate Net Losses, subject to this Policy, 72 months after the inception of this Policy, December 31, 1998. A paid Loss Development Factor of 1.20 shall be applied to the Aggregate Ultimate Net Losses under this Policy. Should the resulting ultimate loss projection be less than $44,500,000, the Company will return 85% of the difference between $44,500,000 and such ultimate loss projection, subject to a maximum return premium of $3,825,000. 217 Endorsement #3 Additional Exclusions It is hereby agreed that the following exclusions shall apply to the Scheduled Policies and Reinsurance. As such, the Retention of the Insured shall not be eroded by losses arising from liabilities noted hereunder. Additionally, this Policy will not apply to such exclusions. 1. As respects the General Liability policies for the policy periods October 1, 1988 to September 30, 1993, the following does not apply to the Lawyers Professional Liability coverage extension: a) to any dishonest fraudulent, criminal or malicious act or omission of any Insured; b) to any claim for damages made by the Insured; c) to bodily injury or property damage; d) to the liability of any Insured because of any actual or alleged error or misstatement or misleading statement or act or omission or neglect or breach of duty as an advisor to any director or officer of the Insured; e) to any claim for damages arising from any act or omission in connection with or related to the obligations or responsibilities imposed upon any insured by the Federal Employee Retirement Income Security Act of 1974; f) to any claim for damages arising from any act or omission in connection with or related to the raising, investment, retention or disbursement of money or the buying, selling, or offering to buy or sell securities. 2. As respects the General Liability policy issued by Indemnity Insurance Company of North America for the policy period October 1, 1995 to September 30, 1996, Employment-Related Practices Liability is excluded from coverage. The terms and conditions of the Employment-Related Practices Exclusion, form CG21471093, from the policy period October 1, 1996 to September 30, 1997, as issued by the National Union Fire Insurance Company of Pittsburgh, PA shall be deemed to apply. 218 EX-10.(XXXVII) 5 EXHIBIT 10 (XXXVII) Exhibit 10 (xxxvii) STOCKHOLDERS AGREEMENT STOCKHOLDERS AGREEMENT (the "Agreement") dated as of December 15, 1998 between Scott Technologies, Inc. a Delaware corporation (the "Company") and RCBA Strategic Partners, L.P., a Delaware limited partnership (the "Stockholder"). WHEREAS, the Stockholder and its affiliates are the largest shareholder of the Company; and WHEREAS, N. Colin Lind and Jeffrey W. Ubben are Managing Members of the Stockholder; NOW, THEREFORE, in consideration of the covenants and agreements set forth herein, the parties hereto agree as follows: 1. Appointment of N. Colin Lind as Director. The Stockholder shall designate N. Colin Lind as its representative on the Board of Directors of the Company ("Board"), and the Company shall appoint Mr. Lind to the Board. 2. Nomination of N. Colin Lind as Director. The Company shall, for so long as the Stockholder and its Affiliates (as defined below) own or control at least 8% of the outstanding shares of common stock of the Company, use its best efforts to ensure that, following any vote for the election of directors of the Company at a stockholders' meeting or otherwise, N. Colin Lind, or, if he is not available, Jeffrey W. Ubben, a managing member of the Stockholder, is a member of the Board. "Affiliate" means a person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the person specified. The term "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. Notwithstanding the foregoing, the Company shall have the right to terminate its obligations under this Section 2 at any time beginning one year after the effective date of this Agreement. 3. Observer Rights for Jeffrey W. Ubben. The Company shall, for so long as the Stockholder and its Affiliates (as defined above) own or control at least 5% of the outstanding shares of common stock of the Company, permit Jeffrey W. Ubben to attend and observe meetings of the Board, and Mr. Ubben shall receive all written information provided by the Company to the Board. Unless he becomes a Director, Mr. Ubben shall have no right to vote on any matter presented to the Board, but Mr. Ubben shall have the right to examine books and records of the Company and the right to review and participate in all discussions of the Board including, without limitation, capital or equity programs. Notwithstanding the foregoing, the Company shall have the right to terminate its obligations 219 under this Section 3 at any time beginning one year after the effective date of this Agreement. 4. Amendment. This Agreement may be altered or amended only with the written consent of the parties hereto. 5. Assignment. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors of the parties hereto, and this Agreement may not be assigned by any party without the prior written consent of the other party. 6. Notices. Any and all communications provided for herein shall be given in writing and deemed received when delivered by overnight courier or hand delivery, or when sent by facsimile transmission which shall be addressed, or sent, as follows: If to the Company, to it at: Scott Technologies, Inc. 5875 Landerbrook Drive, Suite 250 Mayfield Heights, Ohio 44124 Attention: Debbie Kackley, Esq. Telecopier: 440-442-7307 If to the Stockholder, to it at: RCBA Strategic Partners, L.P. c/o Richard C. Blum & Associates, L.P. 909 Montgomery Street, Suite 400 San Francisco, California 94133 Attention: Murray A. Indick, Esq. Telecopier: 415-434-3130 7. Counterparts. This Agreement may be executed in one or more counterparts, and each counterpart shall be deemed to be an original and which counterparts together shall constitute one and the same agreement of the parties hereto. 8. Choice of Law. This Agreement shall be governed by the laws of the State of California, without regard to principles of conflict of laws. 9. Entire Agreement. This Agreement contains the entire understanding of the parties hereto respecting the subject matter hereof and supersedes any prior 220 agreements, discussions, and understanding with respect to such subject matters. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. SCOTT TECHNOLOGIES, INC. By: /s/ Glen W. Lindemann Its: President and Chief Executive Officer RCBA STRATEGIC PARTNERS, L.P. By: RCBA GP, L.L.C. Its General Partner By: /s/ N. Colin Lind A Managing Member 221 EX-10.(XXXVIII) 6 EXHIBIT 10 (XXXVIII) Exhibit 10 (xxxviii) SCOTT TECHNOLOGIES, INC. REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT is made as of December 16, 1998 by and among Scott Technologies, Inc., a Delaware corporation (the "Company"), and Richard C. Blum & Associates, L.P. ("Blum") on behalf of itself and its affiliates. WHEREAS, Blum has offered to refrain from selling, transferring or otherwise disposing of any of the shares (the "Shares") of common stock, par value, $0.10 per share, of the Company (the "Common Stock") that it beneficially owns as of the date hereof, or any additional shares of Common Stock it beneficially owns after this date, until after May 11, 2000, with certain exceptions, if the Company agrees to register the Shares and such additional shares (the "Registrable Securities") under the Securities Act of 1933, as amended (the "Securities Act"); and WHEREAS, the Company is willing to provide the registration rights set forth in this Agreement in exchange for the various agreements provided herein by Blum in connection with Blum's sale, transfer or other disposition of the Shares. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Demand Registration. a. Requests for Registration. At any time after May 11, 2000, Blum may demand registration under the Securities Act (the "Demand Registration") for an underwritten offering of all or any portion of the Registrable Securities by sending written notice of the demand to the Company. Such notice shall specify the number of the Registrable Securities sought to be registered. The Company will then use its best efforts to file with the Securities and Exchange Commission (the "SEC"), at the earliest possible date but no later than 90 days following such a demand, the registration statement for the Demand Registration (the "Demand Registration Statement"). Blum shall have the right to two Demand Registration Statements. b. Registration of Other Securities. Whenever the Company shall effect 222 a Demand Registration Statement, no shares of Common Stock owned by other stockholders of the Company ("Other Stockholders") other than the Registrable Securities shall be included among the shares of Common Stock covered by such registration statement unless Blum shall have consented in writing to the inclusion of such other shares of Common Stock. c. Expenses. Except as provided below, Blum will pay all of the expenses relating to (i) the preparation, filing and distribution of the registration statement, including the filing fees, printing expenses, messenger and delivery expenses, fees and disbursements of counsel for the Company and for Blum and fees and expenses of the independent certified accountants relating to the preparation of the Demand Registration Statement, but excluding the salary costs and expenses of employees of the Company who participate in the preparation of the registration statement, and (ii) the sale of the Registrable Securities, including commissions, discounts and expenses of the underwriters, but excluding the costs incurred by the Company in connection with the participation of the Company's employees in the road show for the offering and sale of the Registrable Securities. The Company will pay any expenses otherwise payable by Blum and included in (i) above to the extent such expenses exceed $500,000 with respect to the first Demand Registration Statement prepared by the Company pursuant to Section 1.a. hereof and $250,000 with respect to the second Demand Regis tration Statement. If shares of Common Stock to be sold by the Company or Other Stockholders are included in the Demand Registration Statement, the Company or the Other Stockholders will pay their pro rata share, in proportion to the number of shares of Common Stock they have included in the Demand Registration Statement, of the expenses otherwise payable by Blum and included in (i) above, and the maximum amount of expenses included in (i) above that Blum will pay in connection with the Demand Registration Statement will be reduced on a basis proportional to the amount of securities being registered for the Company and such Other Stockholders. The Company and any Other Stockholders will pay the commissions, discounts and expenses of the underwriters relating to their respective sales of shares of Common Stock registered on the Demand Registration Statement, if any. d. Priority on Demand Registration. If the managing underwriters advise the Company that in their good faith opinion the number of the Registrable Securities and other shares of Common Stock requested to be included in the Demand Registration Statement exceeds the number that can be sold in such offering, the Company will include in such Demand Registration Statement (i) first, the Registrable Securities requested to be included in such Demand Registration Statement, (ii) second, assuming Blum has consented in writing to their inclusion in such Demand Registration Statement, any shares of Common Stock that the Company desires to 223 include on its own behalf and (iii) third, assuming Blum has consented in writing to their inclusion, any shares of Common Stock beneficially owned by the Other Stockholders, pro rata on the basis of the number of shares of Common Stock that the Other Stockholders wanted to register. e. Incomplete Offering relating to Demand Registration. A Demand Registration Statement shall not be considered to be one of Blum's two Demand Registration Statements under Section 1.a. and the Company shall pay the expenses relating to such Demand Registration Statement if the Company discontinues the registration process pursuant to Section 4.a. hereof or the underwriters discontinue the registration process at the request of the Company. A Demand Registration Statement shall be considered to be one of Blum's two Demand Registration Statements and Blum shall pay the expenses relating to such Demand Registration Statement in accordance with Section 1.c. above if Blum determines not to complete the offering of any or all of the Registrable Securities covered by the Demand Registration Statement. A Demand Registration Statement shall not be considered to be one of Blum's two Demand Registration Statements under Section 1.a. and Blum shall pay the expenses relating to such Demand Registration Statement if the offering registered on the Demand Registration Statement is not completed because the underwriters (i) determine not to continue with the offering because of (A) governmental restrictions, not in force and effect on the date the offering process was commenced, imposed upon trad ing in securities, the suspension of trading in securities generally on any exchange or in the over-the-counter market by the NASD or the declaration of a banking moratorium by federal or state authorities; (B) political or general economic or financial conditions; or (C) the outbreak or escalation of hostilities or any other insurrection or armed conflict or the declaration of a national emergency in the United States or (ii) terminate their obligations under an underwriting agreement executed with the Company and Blum in accordance with the terms of such underwriting agreement. A Demand Registration Statement shall be considered to be one of Blum's two Demand Registration Statements and Blum shall pay the expenses relating to such Demand Registration Statement in all other situations when the offering registered on the Demand Registration Statement is not completed. f. Selection of Underwriters. The Company shall have the right to select the investment banker(s) and manager(s) for the Demand Registration Statement and make the other decisions regarding the underwriting arrangements for the offering covered by the Demand Registration Statement subject to the reasonable concurrence of Blum. 2. Piggyback Registrations. a. Right to Piggyback. If at any time after May 11, 2000 the Company 224 proposes to register any of its shares of Common Stock under the Securities Act for an underwritten offering, whether or not for sale for its own account, and the registration form to be used may be used for the registration of the Registrable Securities (a "Piggyback Registration"), the Company will give prompt written notice to Blum of such registration. Upon the written request of Blum (given within 20 business days after Blum's receipt of the Company's notice of the proposed registration), the Company will use its best efforts to include in the registration statement for such Piggyback Registration (the "Piggyback Registration Statement"), subject to the allocation provisions below, all Registrable Securities with respect to which the Company has received a written request for inclusion. b. Piggyback Expenses. In all Piggyback Registrations, the Company shall pay all of the expenses relating to the preparation of the Piggyback Registration and the offering of the shares of Common Stock (except to the extent otherwise agreed with Other Stockholders), and the Company shall pay the commissions, discounts and expenses of the underwriters related to the offering of the shares of Common Stock by the Company, but will not pay the commissions, discounts and expenses of the underwriters related to the offering of the shares of Common Stock by Blum and the Other Stockholders registered on the Piggyback Registration Statement. c. Priority. If the managing underwriters for the Piggyback Registration advise the Company that in their good faith opinion the number of shares of Common Stock requested to be included in such Piggyback Registration exceeds the number that can be sold in such offering, the Company will allocate the shares of Common Stock to be included as follows: first, any shares of Common Stock that the Company proposes to sell on its own behalf; second, Registrable Securities requested to be included in such Piggyback Registration Statement; and third, shares of Common Stock beneficially owned by any Other Stockholders of the Company, pro rata on the basis of the number of shares of Common Stock that the Other Stockholders wanted to register. d. Selection of Underwriters. The Company shall have the right to select the investment banker(s) and manager(s) for the Piggyback Registration and to make the other decisions regarding the underwriting arrangements for the offering covered by the Piggyback Registration Statement. Notwithstanding the foregoing, the managing underwriter shall be reasonably acceptable to Blum if Registrable Securities of Blum are included on the Piggyback Registration Statement. e. Impact on Demand Registration. Blum's exercise of this right to a Piggyback Registration will have no impact on Blum's rights to a Demand Registration. 225 3. Holdback Agreements. Blum shall not effect any public sale or distribution of shares of Common Stock, regardless of when or how such shares of Common Stock were acquired by Blum, or any secur ities convertible into or exchangeable or exercisable for such securities, until after May 11, 2000, unless, in the opinion of counsel to Blum, such public sale or distribution is required by Blum's fiduciary duties (or any contractual duties in existence as of the date hereof) to the beneficial owners of such shares and such public sale or distribution is effected in accordance with the provisions of Rule 144. Subsequent to such date and until such time as Blum bene ficially owns less than ten percent of the outstanding shares of the Common Stock, Blum shall not effect any public sale or distribution of shares of Common Stock other than through the Demand Registration or the Piggyback Registration pursuant to this Agreement, or unless, in the opinion of counsel to Blum, such public sale or distribution is required by Blum's fiduciary duties (or any contractual duties in existence as of the date hereof) to the beneficial owners of such shares and such public sale or distribution is effected in accordance with the provisions of Rule 144. Blum shall effect any sales of shares of Common Stock once it beneficially owns less than ten percent of the outstanding shares of Common Stock in accordance with the provisions of Rule 144 if Blum has a designee on the Board of Directors of the Company or is otherwise considered to be an affiliate of the Company under the Securities Act. 4. Registration Procedures. Whenever the holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to Section 1 or 2 of this Agreement, the Company will, as expeditiously as possible: a. prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective and to remain effective until the closing of the underwritten offering, which shall be within five business days after the registration statement is declared effective; provided, however, that the Company may discontinue any effort to prepare the registration statement or cause the registration statement to be declared effective if either such action, in the reasonable opinion of the Company, would adversely affect any financing, acquisition, corporate reorganization or other material trans action in which the Company was engaged or planned to engage; b. provide to Blum before filing a registration statement or prospectus or any amendments or supplements thereto draft copies (that are subject to change) of all such documents proposed to be filed at least two weeks prior to their filing and will give reasonable consideration in good faith to any comments of Blum or its counsel; c. furnish to Blum such number of copies of such registration statement 226 and any amendment or supplement thereto and the prospectus included in such registration statement (including each preliminary prospectus), and such other documents as Blum may reasonably request in order to facilitate the disposition of the Registrable Securities owned by Blum; d. use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as the managing underwriter(s) or Blum may reasonably request; e. enter into such customary agreements (including an underwriting agreement in customary form) and take such other customary actions as may be reasonably necessary to expedite or facilitate the disposition of such Registrable Securities; f. permit Blum to participate in the negotiation of the underwriting agreement and to negotiate the pricing terms in connection with a Demand Registration Statement and to remove the Registrable Securities from a Piggyback Registration Statement based upon the pricing terms; g. obtain a "comfort" letter addressed to the Company from its independent public accountants in customary form and covering such matters of the type customarily covered by "comfort" letters and provide a copy of such letter to Blum; h. provide to Blum a copy of any opinion of counsel required by the under writers; and i. make available for inspection by Blum, any underwriter participating in any disposition pursuant to such registration statement, and any attorney, accountant or other agent retained by Blum or such underwriter, all financial and other records and pertinent corporate documents of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by Blum or any such underwriter, attorney, accountant or agent in connection with such registration statement. 5. Indemnification. a. The Company hereby indemnifies, to the extent permitted by law, Blum and its officers and directors, and each person who controls Blum (within the meaning of the Securities Act), against all losses, claims, damages, liabilities and expenses arising out of or resulting from any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading except insofar as the same are 227 caused by or contained in any information furnished in writing to the Com pany by Blum expressly for use therein or by Blum's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished Blum with a sufficient number of copies of the same. b. In connection with any registration statement in which Blum is participating, Blum will furnish to the Company in writing such information as is reasonably requested by the Company for use in any such registration statement or prospectus and will indemnify, to the extent permitted by law, the Company, its directors and officers and each person who controls the Company (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of material fact or any omission or alleged omission of a material fact required to be stated in the registration statement or prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in information so furnished in writing by Blum specifically for use in preparing the registration statement. Notwithstanding the foregoing, the liability of Blum under this Section 5(b) shall be limited to an amount equal to the net proceeds actually received by Blum from the sale of Registrable Securities covered by the registration statement. c. Any person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). An indemni fying party who is not entitled, or elects not, to assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. 6. Other Agreements of Blum. a. Blum agrees that the Company shall have the right to purchase the Registrable Securities rather than file, upon Blum's request, a Demand Registration Statement, if, within 20 business days after receipt of Blum's 228 notice delivered pursuant to Section 1.a. above, the Company notifies Blum by written notice of its intent to purchase all of the Registrable Securities that Blum wants to register on the Demand Registration Statement. The purchase price to be paid by the Company for each Registrable Security shall be the average of the average of the high and low bid prices for the shares of Common Stock for each of the 20 business days prior to the date of receipt by Blum of the Company's notice pursuant to this Section 6.a., reduced by the amount of commissions, discounts and expenses of underwriters that Blum would have paid in connection with an underwritten sale and an amount equal to $500,000, if the purchase is in lieu of the first Demand Registration, or $250,000, if the purchase is in lieu of the second Demand Registration. b. Blum agrees to enter into an agreement with underwriters in connection with any public offering by the Company of shares of Common Stock or of securities convertible or exchangeable into shares of Common Stock or any public offering in a Demand Registration or a Piggy-back Registration in which Blum agrees not to sell, transfer or otherwise dispose of any of the shares of Common Stock beneficially owned by Blum for the period of time requested by the underwriters. c. Blum agrees to provide to the Company all information required to be disclosed in the Demand Registration or Piggyback Registration by Item 507 of Regulation S-K (or any successor item) and to enter into such customary agreements (including an underwriting agreement in customary form) and take such other customary actions as may be reasonably necessary to expedite or facilitate the disposition of such Registrable Securities. 7. Termination. The rights and obligations of the parties to this Agreement shall terminate at such time as Blum shall beneficially own less than 5% of the shares of Common Stock. 8. Miscellaneous. a. Notices. Any notices required hereunder shall be deemed to be given upon the date when received when the notice is sent by certified or registered mail to the address of the Company's corporate headquarters in the case of any notice to the Company and, until changed by notice to the Company, the address of Blum on file with the Company in the case of any notice to Blum. b. Amendments and Waivers. The provisions of this Agreement may be amended or terminated and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, if approved in writing by Blum. 229 c. Binding Effect. This Agreement will bind and inure to the benefit of the respective successors (including any successor resulting from a merger or similar reorganization), assigns, heirs and personal representatives of the parties hereto. Without limiting the generality of the foregoing, in addition, if Blum liquidates or reorganizes such that its assets are transferred to its own partners or to another entity, such partners or entity shall succeed to all of the rights of Blum hereunder. This Agreement shall be binding upon a party hereto upon its execution and delivery of a copy hereof. d. Governing Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the internal law, not the law of conflicts, of Delaware. e. Counterparts. This Agreement may be executed in counterparts, each of which shall be considered to be an original instrument and to be effective as of the date first written above and all of which taken together shall constitute one and the same instrument. f. Interpretation. Unless the context of this Agreement clearly requires otherwise, (i) references to the plural include the singular, the singular the plural, the part the whole, (ii) references to one gender include all genders and (iii) "including" has the inclusive meaning frequently identified with the phrase "but not limited to." The section and other headings contained in this Agreement are for reference purposes only and shall not control or affect the construction of this Agreement or the interpretation thereof in any respect. g. Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or enforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of Blum shall be enforceable to the fullest extent permitted by the law. 230 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first written above. SCOTT TECHNOLOGIES, INC. By: /s/ ------------------------------------ Name: Glen W. Lindemann Title: President and Chief Executive Officer RICHARD C. BLUM & ASSOCIATES, L.P. By: /s/ ------------------------------------ Name: N. Colin Lind Title: Managing Director 231 EX-10.(XXXIX) 7 EXHIBIT 10 (XXXIX) Exhibit 10 (xxxix) AGREEMENT AGREEMENT dated November 6, 1998 among SCOTT TECHNOLOGIES, INC., a Delaware corporation (the "Company"), and each of the stockholders that have executed this Agreement below (individually a "Stockholder," and collectively the "Stockholders"). W I T N E S S E T H: WHEREAS, as of September 23, 1998, the Stockholders were the beneficial owners of shares of the Company's Class A Common Stock, par value $.10 per share (the "Class A Common Stock"), and/or Class B Common Stock, par value $.10 per share (the "Class B Common Stock" and together with the Class A Common Stock, the "Old Common Stock"), as set forth on Exhibit A attached hereto; and WHEREAS, the Board of Directors of the Company (the "Board") has approved, subject to stockholder approval, an amendment to Article Fourth of the Company's Amended and Restated Certificate of Incorporation (the "Charter") to eliminate the dual class structure, and to provide instead for a single, new class of common stock to be designated as "Common Stock," par value $.10 per share (the "New Common Stock"); and WHEREAS, the Board has approved, subject to stockholder approval, Charter amendments to eliminate the dual class structure and revise Section (c) of Article Sixth of the Charter to eliminate the "Substantial Stockholder Provision," which imposes certain voting limitations upon any stockholder who beneficially owns more than 20% of the outstanding voting shares of any class of the Company's stock; and WHEREAS, the Board has approved, subject to stockholder approval of the Charter amendments mentioned above, the terms of a stockholder rights agreement (the "Rights Agreement") which has the effect of excluding certain shares owned by the Stockholders (the "Exclusion") on the condition that the Stockholders enter into, and abide by the terms of, this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the Company and each of the Stockholders agree as follows: 1. DEFINITIONS. All terms used and not defined herein shall have the definitions provided under the federal securities laws and the rules promulgated thereunder. 2. COMPANY SECURITIES. Each of the Stockholders represents and agrees that Exhibit A attached hereto accurately and completely sets forth as of September 23, 1998 the number of shares of Class A Common Stock and/or Class B Common Stock owned 232 beneficially by any such Stockholder. No Stockholder owns beneficially any securities of the Company other than those set forth on Exhibit A for such Stockholder. 3. RESTRICTIONS ON CERTAIN ACTIONS. None of the Stockholders, without the prior written consent of the Board, shall: (a) solicit or permit any person over whom or which such Stockholder has control (a "Controlled Person") to solicit, or encourage or assist any Associate, partner or Affiliate of such Stockholder to solicit, proxies with respect to any shares of New Common Stock or other securities of the Company entitled to vote generally for the election of directors or otherwise ("Voting Securities") or become a "participant," or permit any Controlled Person, or encourage or assist any Associate, partner or Affiliate of such Stockholder to become a "participant," in any "election contest" (as such terms are used in Rule 14a-11 of Regulation 14A under the Act) relating to the election or removal of directors of the Company; (b) deposit, or permit any Controlled Person or encourage or assist any associate, partner or affiliate of such Stockholder to deposit, any Voting Securities in a voting trust or similar arrangement, or subject, or permit any Controlled Person or encourage or assist any associate, partner or affiliate of such Stockholder to subject, any Voting Securities to a voting or similar agreement; (c) take any action alone or in concert with any other person to acquire or affect the control of the Company or, directly or indirectly, participate in, or encourage the formation of, any group seeking to obtain or take control of the Company; and (d) for so long as the Stockholder has a designee on the Board, sell or purchase any securities of the Company without fully complying with the Company's insider trading policies and procedures. A Controlling Person, a Stockholder, and a Stockholder's designee on the Board, shall not be precluded by this Section 3 from acting in such person's capacity as a Board member. 4. COMPANY COVENANT. The Company covenants that, for so long as this Agreement is in effect and the Stockholders abide by its terms, the Company will not amend the Rights Agreement to alter or delete the Exclusion and will include the Exclusion in each five-year renewal of the Rights Agreement, unless otherwise approved by the Stockholders.. 5. SPECIFIC ENFORCEMENT. Each of the Stockholders acknowledges and agrees that the Company would be irreparably damaged in the event that any of the provisions of this Agreement were not performed by any of the Stockholders in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Company shall be entitled to seek an injunction or injunctions to prevent breaches of such provisions and to specifically enforce such provisions in any action instituted in any court of the United States 233 or any state thereof having subject matter jurisdiction, in addition to any other remedy to which the Company may be entitled, at law or in equity. Each of the Stockholders consents to personal jurisdiction in any such action brought within the States of Ohio or Delaware in a United States District Court or in any state court having subject matter jurisdiction, and to service of process upon it in the manner set forth in paragraph 8(f) hereof. 6. AUTHORITY. Each party to this Agreement represents that (i) it has the authority, and has taken all action necessary, to execute and deliver this Agreement and carry out its obligations set forth herein, and (ii) this Agreement has been duly executed and delivered by it, and assuming due authorization, execution and delivery by the other parties, constitutes a valid and binding obligation of such party. 7. EFFECTIVENESS. This Agreement shall become effective upon the Effective Date (as defined in the Rights Agreement) of the Rights Agreement and shall remain in effect for such time as the Stockholders own beneficially more than five percent of the Company's Voting Securities. 8. MISCELLANEOUS. (a) SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. (b) EXPENSES. Each party hereto shall pay its own expenses incurred in connection with this Agreement. (c) SUCCESSORS AND ASSIGNS. No party shall assign his or its rights hereunder, without the prior written consent of all parties hereto. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. (d) SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND AGREEMENTS. All representations, warranties, covenants and agreements made herein shall survive the execution and delivery of this Agreement without limitation as to time. (e) AMENDMENTS. This Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the parties hereto. (f) NOTICES. All notices, requests, claims, demands and other 234 communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given if given) by delivery, by cable, facsimile transmission, telegram or telex, or by mail (registered or certified mail, postage prepaid, return receipt requested) to the respective parties at their addresses set forth below on the signature pages hereof or to such other address as any party may have furnished to the other parties in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt. (g) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the substantive law of the State of Delaware without giving effect to the principles of conflict of laws thereof. (h) COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 235 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. Addresses: Parties: - ---------- -------- Scott Technologies, Inc. SCOTT TECHNOLOGIES, INC. 5875 Landerbrook Drive, Suite 250 Mayfield Heights, Ohio 44124 By: /s/ Debra L. Kackley Name: Debra L. Kackley Title: Vice President General Counsel and Secretary Richard C. Blum & Associates RICHARD C. BLUM & ASSOCIATES, L.P. 909 Montgomery Street Suite 400 San Francisco, CA 94133 By: /s/ Richard C. Blum Name: Richard C. Blum Title: President RICHARD C. BLUM & ASSOCIATES, INC. By: /s/ Richard C. Blum Name: Richard C. Blum Title: President and Chairman RICHARD C. BLUM By: /s/ Richard C. Blum Name: Richard C. Blum Title: 236 EXHIBIT A BENEFICIAL OWNERSHIP OF OLD COMMON STOCK AS OF SEPTEMBER 23, 1998 NAME STOCK CLASS A COMMON STOCK CLASS B COMMON - ----- -------------------- -------------- Richard C. Bum 1,184,213 1,503,333 & Associates, L.P. Richard C. Blum 1,184,213 1,503,333 & Associates, Inc. Richard C. Blum 1,184,213 1,503,333 237 EX-10.(XL) 8 EXHIBIT 10 (XL) Exhibit 10 (xl) AGREEMENT AGREEMENT dated November 23, 1998 among SCOTT TECHNOLOGIES, INC., a Delaware corporation (the "Company"), and each of the stockholders that have executed this Agreement below (individually a "Stockholder," and collectively the "Stockholders"). W I T N E S S E T H: WHEREAS, as of September 23, 1998, the Stockholders were the beneficial owners of shares of the Company's Class A Common Stock, par value $.10 per share (the "Class A Common Stock"), and/or Class B Common Stock, par value $.10 per share (the "Class B Common Stock" and together with the Class A Common Stock, the "Old Common Stock"), as set forth on Exhibit A attached hereto; and WHEREAS, the Board of Directors of the Company (the "Board") has approved, subject to stockholder approval, an amendment to Article Fourth of the Company's Amended and Restated Certificate of Incorporation (the "Charter") to eliminate the dual class structure, and to provide instead for a single, new class of common stock to be designated as "Common Stock," par value $.10 per share (the "New Common Stock"); and WHEREAS, the Board has approved, subject to stockholder approval, Charter amendments to eliminate the dual class structure and revise Section (c) of Article Sixth of the Charter to eliminate the "Substantial Stockholder Provision," which imposes certain voting limitations upon any stockholder who beneficially owns more than 20% of the outstanding voting shares of any class of the Company's stock; and WHEREAS, the Board has approved, subject to stockholder approval of the Charter amendments mentioned above, the terms of a stockholder rights agreement (the "Rights Agreement") which has the effect of excluding certain shares owned by the Stockholders (the "Exclusion") on the condition that the Stockholders enter into, and abide by the terms of, this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the Company and each of the Stockholders agree as follows: 1. DEFINITIONS. All terms used and not defined herein shall have the definitions provided under the federal securities laws and the rules promulgated thereunder. 2. COMPANY SECURITIES. Each of the Stockholders represents and agrees that Exhibit A attached hereto accurately and completely sets forth as of September 23, 1998 the number of shares of Class A Common Stock and/or Class B Common Stock owned beneficially by any such Stockholder. No Stockholder owns beneficially any securities of the Company other than those set forth on Exhibit A for such Stockholder. 238 3. RESTRICTIONS ON CERTAIN ACTIONS. None of the Stockholders, without the prior written consent of the Board, shall: (a) solicit or permit any person over whom or which such Stockholder has control (a "Controlled Person") to solicit, or encourage or assist any Associate, partner or Affiliate of such Stockholder to solicit, proxies with respect to any shares of New Common Stock or other securities of the Company entitled to vote generally for the election of directors or otherwise ("Voting Securities") or become a "participant," or permit any Controlled Person, or encourage or assist any Associate, partner or Affiliate of such Stockholder to become a "participant," in any "election contest" (as such terms are used in Rule 14a-11 of Regulation 14A under the Act) relating to the election or removal of directors of the Company; (b) deposit, or permit any Controlled Person or encourage or assist any associate, partner or affiliate of such Stockholder to deposit, any Voting Securities in a voting trust or similar arrangement, or subject, or permit any Controlled Person or encourage or assist any associate, partner or affiliate of such Stockholder to subject, any Voting Securities to a voting or similar agreement; (c) take any action alone or in concert with any other person to acquire or affect the control of the Company or, directly or indirectly, participate in, or encourage the formation of, any group seeking to obtain or take control of the Company; and (d) for so long as the Stockholder has a designee on the Board, sell or purchase any securities of the Company without fully complying with the Company's insider trading policies and procedures. A Controlling Person, a Stockholder, and a Stockholder's designee on the Board, shall not be precluded by this Section 3 from acting in such person's capacity as a Board member. 4. COMPANY COVENANT. The Company covenants that, for so long as this Agreement is in effect and the Stockholders abide by its terms, the Company will not amend the Rights Agreement to alter or delete the Exclusion and will include the Exclusion in each five-year renewal of the Rights Agreement, unless otherwise approved by the Stockholders.. 5. SPECIFIC ENFORCEMENT. Each of the Stockholders acknowledges and agrees that the Company would be irreparably damaged in the event that any of the provisions of this Agreement were not performed by any of the Stockholders in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Company shall be entitled to seek an injunction or injunctions to prevent breaches of such provisions and to specifically enforce such provisions in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction, in addition to any other remedy to which the Company may be entitled, at law or in equity. Each of the Stockholders consents to personal jurisdiction in any such action brought within the States of Ohio or Delaware in a United States District Court or in any state court having subject matter jurisdiction, and to service of process upon it in the manner set forth in paragraph 8(f) hereof. 239 6. AUTHORITY. Each party to this Agreement represents that (i) it has the authority, and has taken all action necessary, to execute and deliver this Agreement and carry out its obligations set forth herein, and (ii) this Agreement has been duly executed and delivered by it, and assuming due authorization, execution and delivery by the other parties, constitutes a valid and binding obligation of such party. 7. EFFECTIVENESS. This Agreement shall become effective upon the Effective Date (as defined in the Rights Agreement) of the Rights Agreement and shall remain in effect for such time as the Stockholders own beneficially more than five percent of the Company's Voting Securities. 8. MISCELLANEOUS. (a) SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. (b) EXPENSES. Each party hereto shall pay its own expenses incurred in connection with this Agreement. (c) SUCCESSORS AND ASSIGNS. No party shall assign his or its rights hereunder, without the prior written consent of all parties hereto. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. (d) SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND AGREEMENTS. All representations, warranties, covenants and agreements made herein shall survive the execution and delivery of this Agreement without limitation as to time. (e) AMENDMENTS. This Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the parties hereto. (f) NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given if given) by delivery, by cable, facsimile transmission, telegram or telex, or by mail (registered or certified mail, postage prepaid, return receipt requested) to the respective parties at their addresses set forth below on the signature pages hereof or to such other address as any party may have furnished to the other parties in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt. 240 (g) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the substantive law of the State of Delaware without giving effect to the principles of conflict of laws thereof. (h) COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. Addresses: Parties: ---------- -------- Scott Technologies, Inc. SCOTT TECHNOLOGIES, INC. 5875 Landerbrook Drive, Suite 250 Mayfield Heights, Ohio 44124 By: /s/ Debra L. Kackley Name: Debra L. Kackley Title: Vice President, General Counsel and Secretary Reich & Tang Asset Management REICH & TANG ASSET MANAGEMENT, 600 Fifth Avenue L.P. New York, New York 10020 By: /s/ Richard E. Smith, III Name: Richard E. Smith, III Title: President & CEO Reich & Tang Asset Management, L.P. 241 EXHIBIT A BENEFICIAL OWNERSHIP OF OLD COMMON STOCK AS OF SEPTEMBER 23, 1998 NAME CLASS A COMMON STOCK CLASS B COMMON STOCK - ---- -------------------- -------------------- Reich & Tang Asset Management, L.P. 2,374,400 80,000 242 EX-21 9 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY (AS OF MARCH 25, 1999) Percentage of Jurisdiction of Securities Owned Name Incorporation By the Company ---- ------------- -------------- STI Canadian Holdings Ltd. Canada-Federal 100% Figgie Communications Inc. Ohio 100% Figgie do Brasil Industria e Commercio Ltda. (in liq.) Brazil 100% STI Foreign Sales Corporation Virgin Islands 100% Figgie (G.B.) Limited United Kingdom 100% Figgie (U.K.) Limited United Kingdom 100% Figgie Sportswear (U.K.) Limited United Kingdom 100% Figgie International (H.K.) Ltd. Hong Kong 100% Figgie Investment Trustee Limited United Kingdom 100% Figgie Leasing Corporation Delaware 100% STI Licensing Corporation Delaware 100% Figgie Packaging Systems Pty. Ltd. Australia 100% Figgie Pension Trustee Limited United Kingdom 100% STI Properties, Inc. Delaware 100% Chagrin Highlands, Ltd. LLC United States 50% Chagrin Highlands Inc. Ohio 100% STI Properties, Ltd. Ohio 100% Figgie Risk Management Company Florida 85% Virginia Center Inc. Virginia 100% Figgie Sportswear Limited United Kingdom 100% Interstate Electronics Corporation California 100% Mojonnier de Mexico S de RL de CV (in liq) Mexico 49% Mojonnier do Brasil Industria e Commercio de Equipamentos Ltda. (in liq) Brazil 100% Shanghai Eagle Safety Equipment Ltd. China 51% Willoughby Holdings Inc. Delaware 100% Willoughby Assurance Ltd. Bermuda 100% 59 EX-23 10 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statements File No. 33-56705, File No. 33-33177, File No. 333-12183, File No. 333-38175 and File No. 333-70325. /s/ ARTHUR ANDERSEN LLP Cleveland, Ohio, March 25, 1999 60 EX-27 11 EXHIBIT 27
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 39,344 0 14,235 257 26,360 134,634 70,773 17,972 263,184 75,529 75,550 0 0 1,886 53,380 263,184 177,108 177,108 119,108 148,779 3,254 65 9,154 15,921 6,427 9,494 (16,373) (1,689) 0 (8,568) (0.47) (0.47)
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