-----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, CgzqV8wttdud62KjwXGjXY+Cx6f9Yrlh9VDTb4C28MMpAJLDwI40FIfukJT2Ke65 0yYsKPbQT9YwR1WZJIrxuw== 0000950124-96-001367.txt : 19960329 0000950124-96-001367.hdr.sgml : 19960329 ACCESSION NUMBER: 0000950124-96-001367 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCOTSMAN INDUSTRIES INC CENTRAL INDEX KEY: 0000846660 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 363635892 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10182 FILM NUMBER: 96539656 BUSINESS ADDRESS: STREET 1: 775 CORPORATE WOODS PKWY CITY: VERNON HILLS STATE: IL ZIP: 60061 BUSINESS PHONE: 7082154500 10-K 1 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission file number 1-10182 SCOTSMAN INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 36-3635892 (State of incorporation) (I.R.S. Employer Identification No.) 775 Corporate Woods Parkway, Vernon Hills, Illinois 60061 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (847) 215-4500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered ------------------- --------------------- Common stock, $0.10 par value New York Stock Exchange Common stock purchase rights, no par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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. / / At March 15, 1996 there were 8,964,974 shares of registrant's common stock outstanding, and the aggregate market value of the voting stock held by nonaffiliates of the registrant as of such date was approximately $163.0 million. The market value of the registrant's Series A $0.62 Cumulative Convertible Preferred Stock, par value $1.00 per share, held by nonaffiliates is based on the market value, as of such date, of the shares of common stock into which such stock is convertible. DOCUMENTS INCORPORATED BY REFERENCE Registrant's 1995 Annual Report to Shareholders for the fiscal year ended December 31, 1995 (the "1995 Annual Report"): Parts I, II, and IV. Registrant's definitive Proxy Statement for its 1996 Annual Meeting of Shareholders to be held on May 16, 1996 (the "1996 Proxy Statement"): Part III. 2 PART I ITEM 1. BUSINESS The registrant, Scotsman Industries, Inc. (hereinafter referred to, together with its subsidiaries, as "Scotsman" or the "Company"), is a holding company with subsidiaries engaged in the manufacture and marketing of refrigeration products primarily for the foodservice industry, including ice machines, food preparation and storage equipment, and drink dispensing equipment. Scotsman was organized under the laws of the state of Delaware on January 26, 1989. Effective April 14, 1989, Scotsman was spun-off from Household International, Inc. ("Household") through the issuance of one share of Scotsman common stock for every five shares of Household common stock then outstanding to Household shareholders. As of such date, Scotsman became a publicly traded company listed on the New York Stock Exchange, and its operations ceased to be owned by Household. Scotsman conducts its domestic ice machine business through the Scotsman Ice Systems division ("Scotsman Ice Systems") of its wholly-owned subsidiary, Scotsman Group Inc. ("SGI"), and through the Crystal Tips product line of its wholly-owned subsidiary, Booth, Inc. ("Booth"). Booth acquired substantially all of the assets of Crystal Tips, Inc. in April of 1992. Scotsman conducts its European ice machine business through two Italian subsidiaries, Frimont S.p.A. ("Frimont") and Castel MAC S.p.A. ("Castel MAC"). In January of 1993, Frimont acquired the assets of Simag, an Italian ice machine manufacturer, further expanding the Company's European ice machine line. Scotsman also entered into a joint venture in 1995 in Shenyang, China to produce ice machines for the Chinese market. See "--1995 Acquisitions and Strategic Alliances." Scotsman manufactures and markets food preparation and storage equipment, including food preparation workstations, refrigerators and freezers and other equipment, through its wholly-owned subsidiary, The Delfield Company ("Delfield"), which was acquired on April 29, 1994. Scotsman also manufactures and markets a limited line of refrigerated cabinets, dough retarders and blast freezers in Europe through Frimont and Castel MAC. Scotsman had previously manufactured and sold refrigerators and freezers in the United States through its Glenco-Star Division, which was sold in September 1992. Scotsman manufactures and markets drink dispensing equipment in the United States through Booth and in Europe through Whitlenge Drink Equipment Limited ("Whitlenge") and through Hartek Beverage Handling GmbH and its Austrian distributor, Hartek Awagem Vertriebsges m.b.H. (collectively, "Hartek" or the "Hartek entities"). Whitlenge was acquired by Scotsman on April 29, 1994. Hartek was acquired by Scotsman on December 31, 1995. See "--1995 Acquisitions and Strategic Alliances." Scotsman manufactures and markets niche products through Delfield, including air ventilating equipment, private label "point of purchase" beverage display/dispensing equipment and iced drink mixing and dispensing machines. Scotsman also manufactures and markets a limited line of water coolers through its Italian subsidiaries, Frimont and Castel MAC. -2- 3 1995 ACQUISITIONS AND STRATEGIC ALLIANCES In June 1995, Scotsman entered into a joint venture with Shenyang Xinle Precision Machinery Company ("Xinle") to produce ice machines in Shenyang, China. Xinle, an arm of the Chinese Aerospace Agency, has approximately 6,000 employees and produces electronic control systems and various other products. The joint venture will initially produce ice machines for the Chinese market, and in the future may produce ice machines for distribution by Scotsman in other markets. Scotsman invested in 1995 a total of $0.7 million, primarily in tooling and equipment, for a 40 percent ownership in the venture, with an option to increase its ownership to 60 percent within the first three years. The joint venture began production of ice machines in December 1995. On December 31, 1995, the Company's subsidiary, Scotsman Group Inc. acquired the stock of Hartek Beverage Handling GmbH and the stock of its Austrian distributor, Hartek Awagem Vertriebsges m.b.H. located in Radevormwald, Germany and Vienna, Austria, respectively. Hartek is a beverage dispensing equipment manufacturer. The Hartek entities had combined 1995 annual sales of $24 million. The method of accounting used for the combination was the purchase method. The two Hartek entities were acquired for $4.8 million and no shares of stock were or will be issued as a result of these acquisitions. The Company also assumed $6.4 million of Hartek debt as a result of the acquisition. Preliminary goodwill of $1.9 million in total has been recorded and will be finalized within 12 months of the acquisition. The amount of goodwill from these acquisitions will be amortized for book purposes over 40 years using the straight-line method. Under the terms of the purchase agreement, the Company is required to pay to the seller 75 percent of any tax loss carry forwards used in reduction of taxable profits in the next three calendar years which were available to Hartek as of December 31, 1995, not to exceed 2.2 million deutsche marks or, as of December 31, 1995, approximately $1.5 million. PRODUCTS AND DISTRIBUTION Scotsman manufactures refrigeration products that are marketed primarily to the foodservice industry (restaurants, cafeterias, convenience stores and bars) and also to the supermarket and lodging industries and to food processors. The principal commercial products of Scotsman are ice machines, food preparation workstations, refrigerators and freezers, refrigerated bakery equipment, drink dispensing equipment, self-leveling tray and plate dispensers and ventilation systems. Scotsman also manufactures compact consumer ice machines and refrigerators for the luxury segment of the consumer appliance market. ICE MACHINES. The Company manufactures and markets commercial ice-making machines under the Scotsman and Crystal Tips trademarks worldwide, under the Icematic and Simag trademarks in Europe and Asia and under various brands through other dealer networks. The Company's ice machines produce four forms of ice: cubes (consisting of contour, lenticular, gourmet and square cubes), flakes, scale and nuggets. Each of these forms of ice is designed and marketed for specific applications. Scotsman ice machines are either self-contained units, which make, store and, in some cases, dispense ice, or modular units, which make but do not store ice. Scotsman also manufactures and sells ice storage bins to accompany modular units. -3- 4 A significant percentage of the sales of Scotsman commercial ice machines are to the full service and fast-food restaurant industry. Other major end-users include schools, government and military facilities, grocery stores, health care facilities, hotels and motels, and convenience stores. Scotsman commercial ice machines are sold both through a system of distributors and directly by Scotsman to national customers, contractors, and governmental and military buyers. Presently Scotsman Ice Systems has approximately 85 distributors in the United States, and Frimont and Castel MAC combined have approximately 50 distributors in Europe and Asia. The Crystal Tips line also has its own distribution network consisting of approximately 68 distributors in the United States. The distributors generally do not carry competing brands of ice machines. Independent service dealers also install and service the equipment. The servicing functions performed by dealers are particularly important because ice machines typically require more service, due to variable water conditions, than other major appliances such as refrigerators. Scotsman also maintains inventories of replacement parts to support its ice machine product line. Scotsman sells directly to national customers such as large hotel chains, fast-food franchisers and convenience stores. Sales to federal and state governments are also made directly by Scotsman for use in employee dining, health care and military facilities. Scotsman Ice Systems also owns and operates one of its largest distributors in Southern California, which it purchased upon the retirement of the former owners. Scotsman is the only United States ice machine company with management and production facilities in Europe. In foreign markets, Scotsman manufactures and markets commercial ice machines and related components primarily through Castel MAC and Frimont under the Icematic trademark and the Scotsman and Simag trademarks, respectively. Each of these subsidiaries is located in Italy and manufactures products for sale locally and for export primarily to Eastern and Western Europe, the Middle East, Africa and the Far East. In the majority of countries served, Castel MAC and Frimont each sell through separate distribution channels. The Company also markets the Crystal Tips line internationally through four export marketing firms based in the United States and Canada. In November of 1992, Scotsman entered into distribution and trademark licensing agreements with Howe Corporation. Under these agreements, Scotsman has the exclusive right to distribute Howe industrial flakers in all foreign and domestic markets for a five-year period, subject to renewal. Scotsman also has the right to use the trademarks HOWE and Rapid Freeze in connection with the marketing and distribution of these products. In June of 1995, Scotsman entered into a joint venture with Xinle to produce commercial ice machines in Shenyang, China for the Chinese market. See "--1995 Acquisitions and Strategic Alliances." In addition to commercial ice machines, Scotsman also manufactures compact consumer ice machines and refrigerators for the luxury segment of the consumer appliance markets. These products are sold primarily through luxury consumer appliance distributors who sell to dealers. Scotsman's commercial ice machine business accounted for 52 percent, 57 percent and 83 percent of the Company's sales in fiscal years 1995, 1994 and 1993, respectively. -4- 5 FOOD PREPARATION & STORAGE EQUIPMENT. In the United States, Scotsman manufactures and markets a wide range of commercial food preparation and storage equipment through Delfield under the Delfield, Shellyglas and Shellymatic trademarks. Delfield's principal products include customized and standard food preparation workstations, commercial up-right and under-the-counter refrigerators and freezers, mobile cafeteria systems and self-leveling tray and plate dispensers. Delfield sells its equipment to various purchasers in the foodservice industry, including dealers, wholesalers, major chain restaurants, fast-food franchises and government entities. Delfield sells directly to national accounts, including major retail chain restaurants. Delfield also sells equipment domestically through over 2,000 non-exclusive dealers and dealer buying groups and through a network of approximately 26 independent sales representative firms. Such dealers generally carry competing lines of equipment. The sales representative firms typically carry complementary foodservice equipment, but carry only Delfield refrigeration equipment. Delfield sells in the United Kingdom through a distributor and in South America and Asia through an export agent. Export sales are less than 10 percent of Delfield's total sales. In Europe, Castel MAC and Frimont manufacture and market a line of refrigerated cabinets under the Icematic and Scotsman brand names and a line of dough retarders and blast freezers under the Tecnomac brand name. Tecnomac dough retarders and blast freezers are sold primarily to the European commercial bakery industry through dealers and agents specializing in that industry. Sales of food preparation and storage equipment accounted for approximately 32 percent, 28 percent and 4 percent of Scotsman's sales in fiscal years 1995, 1994 and 1993, respectively. DRINK DISPENSING EQUIPMENT. In the United States, Scotsman manufactures soft-drink beverage dispensing equipment through Booth. Booth manufactures and markets a complete line of non-coin operated soft-drink dispensing products and accessories. Booth offers both pre-mix and post-mix dispensers which can either be ice-cooled or electrically-cooled, ice and drink dispensers, hand-operated valves and other related accessory products used in the fountain market. Booth sells its dispensing equipment primarily to soft drink bottlers franchised by The Coca-Cola Company, Pepsico, Inc., Dr. Pepper and 7-Up, often labeling the equipment with the customer's name or trademark and the names of the beverages that will be dispensed. Major end-users of Booth dispensing equipment are in the foodservice industry. In Europe, Whitlenge manufactures and markets soft drink dispensing equipment, draft beer cooling equipment and related ancillary equipment. Whitlenge specializes in remote and under-the-counter beverage cooling installations, including large installations for foodservice restaurants, and also makes a range of mechanically refrigerated over and under the counter soft-drink units. Whitlenge sells directly to soft-drink bottlers and brewers in the United Kingdom. Sales to export markets are made both by direct sales to bottlers and brewers and through distributors and local agents in various markets throughout Western and Central Europe and the Middle East. Also in Europe, Hartek manufactures and markets soft drink dispensing equipment, draft beer cooling equipment and related ancillary equipment which is sold primarily in Germany, as well as Central and Eastern Europe and the Middle East. Hartek sells directly to soft-drink bottlers and to brewers in Germany. Sales to export markets are made both by direct sales to bottlers and brewers and through -5- 6 distributors and local agents in various markets throughout Western and Central Europe and the Middle East. Hartek's products are sold under the Hartek brand name. Sales of drink dispensing equipment accounted for approximately 12 percent, 12 percent and 10 percent of Scotsman's sales in fiscal years 1995, 1994 and 1993, respectively. NICHE PRODUCTS. Scotsman also manufactures and markets a line of niche products, primarily through Delfield, including air ventilating equipment under the Air Tech trademark, private label "point of purchase" display and dispensing equipment, and iced drink mixing and dispensing machines. Scotsman also manufactures and markets water coolers, as well as coolers for bottled wine and snacks, through Frimont and Castel MAC, and small industrial applications through Whitlenge. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS Financial information pertaining to the Company's foreign and domestic operations is incorporated herein by reference from Note 18, "Geographic Information," in the 1995 Annual Report. ENVIRONMENTAL AND OTHER REGULATORY MATTERS Scotsman's products and manufacturing processes are subject to various environmental, health and safety regulations and standards. Such regulations and standards, from time to time, may require significant changes in products or manufacturing methods. Scotsman believes that environmental, health and safety matters will not have a material effect on its business or financial condition. However, legal and regulatory requirements in this area are increasing, and there can be no assurance that significant costs and liabilities will not be incurred as a result of currently unidentified or future problems or new regulatory developments. Chlorofluorocarbons ("CFCs"), a compound found in the refrigerants and insulation materials used in most refrigeration systems, including those in Scotsman refrigeration products, are an environmental concern, and the international supply has been restricted due to their potential impact on the atmosphere. Under the Federal Clean Air Act Amendments of 1990 (the "Clean Air Act Amendments"), producers of CFCs were required to phase out production of CFCs in a series of steps culminating in the termination of all such production by the year 2000. Pursuant to authority granted under the Clean Air Act Amendments, on February 11, 1992, former President Bush announced an accelerated schedule pursuant to which, with certain limited exceptions, production of CFCs in the United States was required to cease by January 1, 1996. Approximately 125 countries which are parties to the Montreal Protocol on Substances that Deplete the Ozone Layer agreed to such an accelerated schedule. Scotsman pioneered the use of hydrofluorocarbon refrigerants, with zero ozone depletion potential, in commercial ice making equipment. All products currently being manufactured by Scotsman are in compliance with the accelerated CFC phase-out schedule. COMPETITION The primary markets for Scotsman's products are highly competitive. The most significant competitive factors are price, product reliability and performance and service, with the relative importance of such factors varying among products. Delfield also relies on its computer-assisted design and manufacturing -6- 7 system and its design library in competing in the market for custom and standard food preparation workstations. Scotsman has a number of competitors in each product line that it offers. Scotsman believes that IMI Cornelius, plc, is the leading supplier of beverage dispensing equipment in continental Europe, one of the markets in which Whitlenge and Hartek compete. Scotsman does not believe that another single competitor or group of competitors dominates any market for any other product line in which it competes. Most of Scotsman's competitors are small, privately owned companies, although a few are divisions of larger companies. RESEARCH AND DEVELOPMENT Scotsman conducts an extensive research and development program in its product fields. These programs seek to develop product improvements and cost reductions, as well as new products. Scotsman's total research and development expenditures for fiscal years 1995, 1994 and 1993 were approximately $4.8 million, $5.1 million and $3.9 million, respectively. RAW MATERIALS The principal materials used in the manufacture of Scotsman's products are refrigeration components, including compressors, condensers, motors and controls. Other raw materials include stainless steel, galvanized steel, aluminum, copper and plastics. These materials are readily available from several sources, and Scotsman has not experienced difficulties with respect to their availability. GENERAL CUSTOMERS. Scotsman is not dependent upon any single customer, or upon any single group of customers, and no single customer or related group of customers accounted for 10 percent or more of Scotsman's consolidated revenues in 1995. Delfield, Booth and Whitlenge are, however, each dependent upon a limited number of major customers. Although the loss of one or more of such customers could have a material adverse effect on the sales of Delfield, Booth or Whitlenge, Scotsman does not believe that such a loss would have a material adverse effect on Scotsman as a whole. No material portion of Scotsman's business is subject to renegotiation of profits or termination of contracts at the election of the government. BACKLOG OF ORDERS. The backlog of unshipped orders at the end of fiscal years 1995 and 1994 was $29.3 million and $23.6 million, respectively. The increase in the backlog of unshipped orders in 1995 was due primarily to the inclusion of approximately $0.7 million in unshipped orders of Hartek and to unusually strong fourth quarter demand for the products of Scotsman's other European operations. Scotsman expects that all of the orders in the backlog at the end of fiscal year 1995 will be shipped during 1996. SEASONALITY. The volume of sales for most of the products sold by Scotsman is somewhat higher in the second and third quarters, corresponding with the major selling season for refrigeration products. In addition, Delfield has experienced significant quarterly fluctuations in the sales of foodservice equipment because of the irregularity of large orders from major chain restaurants. -7- 8 PATENTS AND TRADEMARKS. Scotsman holds or is licensed under many United States and foreign patents covering various design features used in its products, and also holds a number of other patents and patent applications, licenses, trademarks and trade names including the trademarks and trade names mentioned herein. Scotsman does not believe that any of the foregoing is material to its business, with the exception of the Scotsman and Delfield trademarks. Scotsman believes it possesses adequate protection with respect to the Scotsman and Delfield trademarks. EMPLOYEES. Scotsman employs approximately 2,182 people, approximately 963 of whom are covered by collective bargaining agreements with various labor unions. Delfield is currently in the process of negotiating a new collective bargaining agreement covering 517 of its employees to replace an existing collective bargaining agreement which expires on April 15, 1996. Relationships with employees of Scotsman have been satisfactory. ITEM 2. PROPERTIES Scotsman's corporate headquarters are located in Scotsman Ice Systems Division's headquarters, a 36,000 square foot facility in Vernon Hills, Illinois which is leased through November 1998. Since 1993, Scotsman has had an option to purchase this property. Scotsman has facilities located in Fairfax, South Carolina, consisting of a 247,000 square foot plant built in 1980 and an 80,000 square foot separate warehouse. The Fairfax facilities are owned by Scotsman and produce ice making machines and commercial refrigeration equipment. Scotsman leases for storage, on a monthly basis, a 3,000 square foot section of a building located in Fairfax. Scotsman also leases a 13,000 square foot distribution facility near Los Angeles under a lease which expires in March 1998. In June 1993, Booth began leasing 170,000 square feet of a facility located in Dallas, Texas, under a ten-year lease which expires in June 2003. During 1994, the Company completed the relocation of the manufacturing operations of both Booth and Crystal Tips to this facility. Scotsman owns a 65,000-foot facility near Dallas, Texas, which housed Booth's operations prior to the relocation and has leased this facility to a tenant under a lease which expires in 2005. Delfield's main headquarters are located in Mt. Pleasant, Michigan, where it occupies a 347,000 square foot facility consisting of plant and office facilities. A section of the facility is subject to a lien securing industrial revenue bonds issued by Isabella County. Delfield also leases a 188,000 square foot plant and office facility in Covington, Tennessee under a lease which will expire in September 2006. Upon expiration of the lease, Delfield will have the option to purchase the property for a nominal sum. The Tennessee facility was financed by the issuance of industrial revenue bonds by the town of Covington, Tennessee and is subject to a lien securing the bonds. Delfield also leases warehouses on a month-to-month basis in approximately ten states, including Michigan and Tennessee, for the storage of finished goods inventory. The Company operates two plants in Italy which contain 242,000 and 205,000 square feet, respectively. The larger of these facilities is owned, and the smaller consists of a number of buildings leased under separate leases which expire between December 31, 1996, and January 1, 2002. Whitlenge's main headquarters and its operations are located in a 76,000 square foot building in Halesowen, England. The building is leased under separate leases which expire from December 24, 2002, through December 24, 2006. -8- 9 Hartek's main headquarters and its operations are located in a 35,000 square foot building in Radevormwald, Germany which is owned by the Company. Hartek also leases 19,000 square feet of warehousing space in Radevormwald, Germany which is renewable annually until December 1998. Hartek's Austrian distributorship occupies 11,000 square feet in Vienna, Austria which is used primarily for office and warehousing and is leased on an annual basis. Scotsman considers the condition of its plants and other properties to be generally good and believes the capacity of its plants to be adequate for the current needs of its business. Except as described above, none of the principal properties owned by Scotsman are subject to encumbrances material to the operations of Scotsman. ITEM 3. LEGAL PROCEEDINGS LITIGATION RELATING TO INDIANAPOLIS ATHLETIC CLUB FIRE. Delfield, which was acquired by the Company on April 29, 1994, was originally named as a defendant in a number of actions brought in Marion County, Indianapolis, Indiana, arising out of a fire at the Indianapolis Athletic Club (the "IAC") on February 5, 1992. The actions included two cases filed in the Marion County Superior Court, Indiana Athletic Club, Inc. v. The Delfield Company, et al, in which the IAC seeks to recover property damages of between $10 to $12 million allegedly incurred in the fire, and Mutz v. The Delfield Company, et al, brought by the estate of Thomas R. Mutz alleging an unspecified amount of damages for the alleged wrongful death of Mr. Mutz in the fire. A number of other actions alleging claims for wrongful death, personal injury and/or property damage were also filed. Although the cause of the fire has not yet been determined, the claimants alleged, in these actions, that a refrigerator manufactured by Delfield caused the fire and asserted negligence, strict liability and breach of warranty claims against Delfield. Delfield has been dismissed as a defendant in the suits brought by the IAC and the estate of Mr. Mutz. Such dismissals were, however, without prejudice to the rights of those plaintiffs to reinstate their claims against Delfield, and the Company continues to monitor those actions. The plaintiffs in the IAC and the Mutz actions have continued to pursue their claims against the Delfield Division of Alco Standard Corporation ("Alco"). The IAC and the Mutz cases have been consolidated and have been set for trial on January 27, 1997, although the parties anticipate that the Mutz action will be bifurcated from the IAC action prior to trial. All of the other actions in which Delfield was originally named as a defendant have also been dismissed or settled for nominal amounts by Delfield's insurer, except for two cases involving claims for property damage and/or personal injury in which the total damages alleged do not exceed, in the aggregate, $70,000. Delfield has denied that the refrigerator caused the fire. In addition, Delfield believes that the refrigerator in the IAC at the time of the fire was manufactured, not by Delfield, but by the Delfield Division of Alco prior to the acquisition of the Delfield Division by DFC Holding Corporation ("DFC"), which was in turn acquired by Scotsman. Pursuant to the agreement by which DFC acquired the Delfield Division, Alco is obligated to indemnify Delfield for all losses to Delfield resulting from product liability claims relating to products manufactured by the Delfield Division prior to its acquisition by DFC. Alco has agreed that its indemnity applies to some of the actions arising out of the fire (including the action brought by the IAC) but not all of the actions. Delfield believes that all of the actions arising from the IAC fire are covered by Alco's indemnity and that Delfield's insurance should cover any claims that are not covered by Alco's indemnity. Moreover, -9- 10 under the terms of the agreements pursuant to which the Company acquired Delfield and Whitlenge, the former shareholders of DFC and Whitlenge Acquisition Limited ("WAL"), an affiliate of DFC, are also required to indemnify the Company for up to $30 million in losses and expenses arising out of, among other things, suits, claims or proceedings arising out of the IAC fire. The Company is unable to determine at this time the amount of Delfield's potential liability, if any, with respect to the IAC fire. Although no assurances can be given, based upon the Company's review of Alco's indemnity, Delfield's insurance policies, the indemnification obligations of the former shareholders of DFC and WAL, and the financial ability of certain former shareholders of DFC and WAL to comply with those indemnification obligations, the Company does not believe that the imposition of liability upon Delfield in one or more actions arising out of the IAC fire would be likely to have a material adverse effect upon the financial condition of the Company or its results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the last fiscal quarter of 1995. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names, ages and positions of all executive officers of Scotsman, the period that each has held his position with the Company, and a brief account of each such officer's business experience during the past five years. Executive officers are appointed annually at a meeting of the Board of Directors of the Company held as soon as practicable after each annual meeting of the Company's shareholders. Officers of the Company are appointed to serve until the next annual election of officers and until their respective successors are chosen.
NAME AND AGE OFFICE AND EXPERIENCE - ------------ --------------------- Richard C. Osborne, 52 Mr. Osborne is Chairman of the Board and has held that position since May 1991. He is also President, Chief Executive Officer and a director of the Company and has held those positions since April 1989. Emanuele Lanzani, 61 Mr. Lanzani is an Executive Vice President of the Company and has held that position since April 1989. He is also the Managing Director, Frimont and Castel MAC. Mr. Lanzani has been Managing Director of Castel MAC since its acquisition by a wholly-owned subsidiary of Household in October 1985 and has been Managing Director of Frimont since 1968. Paolo Faenza, 56 Mr. Faenza is General Manager, Castel MAC, and has held that position since 1986. Richard M. Holden, 45 Mr. Holden is Vice President-Human Resources of the Company and has held that position since January 1990.
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NAME AND AGE OFFICE AND EXPERIENCE - ------------ --------------------- Donald D. Holmes, 58 Mr. Holmes is Vice President-Finance and Secretary of the Company and has held those positions since April 1989. Christopher D. Hughes, 49 Mr. Hughes is a Vice President of the Company and has held that position since June 1994. Mr. Hughes is also President of Booth and has held that position since May 1994. From 1993 to May 1994, he was Vice President/General Manager of the Central and Western Transit Operations of Morrison Knudsen Corporation, a division engaged in the business of assembling new and overhauling used passenger rail cars. From 1991 to 1993, Mr. Hughes was Vice President of Operations of Scotsman Ice Systems and Scotsman's former Glenco-Star division. From 1989 to 1991, he was President of Scotsman's former Halsey Taylor/Consumer Products Division. Ludwig H. Klein, 53 Mr. Klein is a Vice President of the Company and has held that position since February 1996. Mr. Klein is also Managing Director of Hartek and has held that position since February 1995. From June 1994 until February 1995, he worked as an independent consultant and provided, during that period, consulting services to Hartek and in the capital goods industry. From July of 1986 until June of 1994, Mr. Klein held the position of General Manager of Haacon Hebetechnik GmbH, a manufacturer of industrial lifting equipment. Kevin E. McCrone, 47 Mr. McCrone is a Vice President of the Company and has held that position since April 1994. Mr. McCrone is also President and Chief Executive Officer of Delfield. He has served as its President and Chief Executive Officer since 1984. Gerardo Palmieri, 56 Mr. Palmieri is Director-Sales and Marketing, Frimont, and has held that position since 1980.
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NAME AND AGE OFFICE AND EXPERIENCE - ------------ --------------------- Randall C. Rossi, 44 Mr. Rossi is a Vice President of the Company and has held that position since January 1995. Mr. Rossi is also President of Scotsman Ice Systems and has held that position since January 1995. From January 1994 to January 1995, he was an Executive Vice President of Scotsman Ice Systems. From 1989 to January 1994, he was Vice President-Sales and Marketing of Scotsman Ice Systems. William J. Rotenberry, 41 Mr. Rotenberry is Vice President - Business Development, has been employed by the Company since January 1996 and became a Vice President of the Company in February 1996. From 1990 until January 1996, he was Director of Corporate Development for Joslyn Corporation, a diversified manufacturer. Michael de St. Paer, 50 Mr. de St. Paer is a Vice President of the Company and has held that position since April 1994. Mr. de St. Paer is also Managing Director of Whitlenge and has held that position since April 1993. From June 1992 to April 1993 he was Assistant Managing Director of Whitlenge. From 1991 until June 1992, he was the Managing Director and a Group Technical Director of Hartek.
PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. The information contained in the table entitled "Common Stock" in the 1995 Annual Report and in Note 8 of the "Notes to Consolidated Financial Statements" in the 1995 Annual Report is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The selected financial data contained in the table entitled "Five Year Summary" in the 1995 Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 1995 Annual Report are incorporated herein by reference. -12- 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The report of Arthur Andersen LLP, independent public accountants, and the consolidated financial statements, together with the notes thereto (as set forth in the List of Financial Statements in Part IV, Item 14 (a)(1), below) in the 1995 Annual Report are incorporated herein by reference. The selected financial data contained in the table entitled "Selected Quarterly Financial Data" in the 1995 Annual Report are also incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in accountants or disagreements with accountants on accounting and financial disclosures during 1995. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information contained in "Information Regarding Nominees and Directors" and "Compliance with Section 16(a) of the Exchange Act" in the 1996 Proxy Statement is incorporated herein by reference. See also "Executive Officers of the Registrant," Part I, above. ITEM 11. EXECUTIVE COMPENSATION The information contained in the sections entitled "Executive Compensation," "Options and Stock Appreciation Rights," "Pension Plan," "Executive Compensation and Severance Agreements, Including Change of Control Provisions," and "Directors' Fees and Compensation" is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information contained in the sections entitled "Security Ownership of Management" and "Security Ownership of Certain Beneficial Owners" in the 1996 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information contained in the sections entitled "Executive Compensation," "Executive Compensation and Severance Agreements, Including Change of Control Provisions" and "Other Agreements" in the 1996 Proxy Statement is incorporated herein by reference. -13- 14 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) LIST OF FINANCIAL STATEMENTS The following financial statements, together with the report thereon of Arthur Andersen LLP dated February 7, 1996, appearing in the Company's 1995 Annual Report, are incorporated herein by reference. Scotsman Industries, Inc. and Subsidiaries: Report of Independent Public Accountants Consolidated Statement of Income for each of the three years ended December 31, 1995, January 1, 1995, and January 2, 1994. Consolidated Balance Sheet as of December 31, 1995, and January 1, 1995. Consolidated Statement of Cash Flows for each of the three years ended December 31, 1995, January 1, 1995, and January 2, 1994. Consolidated Statement of Shareholders' Equity for each of the three years ended December 31, 1995, January 1, 1995, and January 2, 1994. Notes to Consolidated Financial Statements. Five Year Summary. Selected Quarterly Financial Data (Unaudited). (a)(2) LIST OF FINANCIAL STATEMENT SCHEDULES Report of Independent Public Accountants on Schedules. II - Valuation and Qualifying Accounts (a)(3) LIST OF EXHIBITS The following exhibits are filed as part of this report. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report has been marked with an asterisk. Unless otherwise indicated, all documents incorporated by reference to prior filings have been filed under Commission File No. 1-10182. -14- 15 Exhibit 2 - Agreement for the Sale, Purchase and Assignment of the Entire Share Capital of Hartek Beverage Handling GmbH and Hartek Awagem Vertriebsges, m.b.H., dated December 31, 1995, among Hartek Beverage Handling B.V., Hartwall Bolagen AB, Scotsman Group Inc. and Scotsman Industries, Inc. Exhibit 3.1 - Restated Certificate of Incorporation of the Company (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1989). Exhibit 3.2 - By-Laws of the Company, as amended (incorporated herein by reference to the Company's 8-K, dated June 21, 1991). Exhibit 4 - Rights Agreement dated as of April 14, 1989 between Scotsman Industries, Inc. and Harris Trust & Savings Bank (incorporated herein by reference to the Company's 8-K, dated April 25, 1989), as amended by Amendment No. 1 thereto, dated as of January 11, 1994 (incorporated herein by reference to Scotsman Industries, Inc. Amendment No. 4 to General Form for Registration of Securities on Form 10/A, as filed with the Commission on January 27, 1994). Exhibit 10.1 - Reorganization and Distribution Agreement dated as of March 15, 1989 by and among Household International, Inc., Eljer Industries, Inc., Schwitzer, Inc. and Scotsman Industries, Inc. (incorporated herein by reference to the Company's 8-K, dated April 25, 1989). Exhibit 10.2 - Tax Sharing Agreement dated as of March 15, 1989 among Household International, Inc., Eljer Industries, Inc., Schwitzer, Inc. and Scotsman Industries, Inc. (incorporated herein by reference to the Company's 8-K, dated April 25, 1989). Exhibit 10.3 - Benefits and Labor Agreement dated as of March 15, 1989 among Household International, Inc., Eljer Industries, Inc., Schwitzer, Inc. and Scotsman Industries, Inc. (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1989). Exhibit 10.4 - Reimbursement Agreement dated as of April 14, 1989 by and between Household International, Inc. and Scotsman Group, Inc. (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1989). Exhibit 10.5 - Supplemental Reimbursement Agreement dated as of August 4, 1989 among Household International, Inc., Scotsman Industries, Inc. and Scotsman Group, Inc. (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1989), as amended by Amendment No. 1 thereto, dated as of September 20, 1993 (incorporated herein by reference to the Company's 10-Q for the quarter ended October 3, 1993). -15- 16 Exhibit 10.6 - Credit Agreement among Scotsman Group Inc. and the other parties named therein, as Borrowers, the Lenders named therein and The First National Bank of Chicago, as Agent, dated as of April 29, 1994 (incorporated herein by reference to the Company's 10-Q for the quarter ended April 3, 1994), as amended by Amendment No. 1 thereto, dated March 31, 1995 (incorporated herein by reference to the Company's 10-Q for the quarter ended April 2, 1995). Exhibit 10.7 - Amended and Restated Note Purchase Agreement dated as of April 29, 1994, as separately entered into among Scotsman Group Inc., Scotsman Industries, Inc., and each of the following: Connecticut General Life Insurance Company, individually and for the account of one or more separate accounts, Cigna Property and Casualty Insurance Company, INA Life Insurance Company of New York, Life Insurance Company of North America, Ohio National Life Assurance Corporation and Southern Farm Bureau Life Insurance Company (incorporated herein by reference to the Company's 10-Q for the quarter ended April 3, 1994). Exhibit 10.8 - Promissory Notes in the principal amounts of $5,000,000 and $4,000,000, respectively, each made as of June 30, 1995 by Scotsman Group Inc. to Comerica Bank-Illinois, together with the related Reaffirmation of Guaranty and Consent, dated June 30, 1995, by Scotsman Industries, Inc. in favor of Comerica Bank-Illinois. Exhibit 10.9 - Reimbursement Agreement, dated March 1, 1988, among Household Manufacturing, Inc., King-Seeley Thermos Co. and the National Westminster Bank PLC, as amended by the Amendments dated as of April 14, 1989, December 12, 1989, June 26, 1992, November 20, 1992, March 17, 1993, among Scotsman Group Inc., Scotsman Industries, Inc. and The Bank of Nova Scotia (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 3, 1993) and the Amendment dated April 29, 1994 (incorporated herein by reference to the Company's 10-Q for the quarter ended April 3, 1994). Exhibit 10.10 - ISDA Master Agreement, dated as of May 19, 1994, including the Schedule thereto, dated as of May 19, 1994, and an Amended Confirmation, dated June 6, 1994, between Bank of America Illinois (formerly known as Continental Bank) and Scotsman Group Inc. (incorporated herein by reference to the Company's 10-Q for the quarter ended October 2, 1994). Exhibit 10.11 - ISDA Master Agreement, dated as of March 3, 1994, including the Schedule and Amended Confirmation (2) thereto, between The First National Bank of Chicago and Scotsman Group Inc. (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 1, 1995) Exhibit 10.12* - Long-Term Executive Incentive Compensation Plan of Scotsman Industries, Inc., as amended May 21, 1992 (incorporated herein by reference to the Company's 10-Q for the quarter ended June 28, 1992). -16- 17 Exhibit 10.13* - Scotsman Industries, Inc., Executive Incentive Compensation Program, Plans AA, A-1 and A-2 (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 30, 1990) and B-1. Exhibit 10.14* - Scotsman Group Inc. Supplemental Tax Reduction Investment Plan, dated as of April 14, 1989 (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 30, 1990). Exhibit 10.15* - Non-Employee Directors Stock Option Plan, effective as of August 11, 1994 (incorporated herein by reference to the Company's Registration Statement on Form S-8, No. 33-59397). Exhibit 10.16* - Employment Agreement dated September 16, 1991 between Scotsman Group, Inc. and Richard C. Osborne (incorporated herein by reference to the Company's 10-Q for the quarter ended September 29, 1991). Exhibit 10.17* - Employment Agreement dated September 16, 1991 between Scotsman Group, Inc. and Emanuele Lanzani (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 29, 1991). Exhibit 10.18* - Employment Agreement dated September 16, 1991 between Scotsman Group, Inc. and Donald D. Holmes (incorporated herein by reference to the Company's 10-Q for the quarter ended September 29, 1991). Exhibit 10.19* - Executive Severance Agreement dated as of September 16, 1991 between Richard C. Osborne and Scotsman Group, Inc. (incorporated herein by reference to the Company's 10-Q for the quarter ended September 29, 1991), as amended by Amendment No. 1 thereto, dated as of January 11, 1994 (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 2, 1994). Exhibit 10.20* - Executive Severance Agreement dated as of September 16, 1991 between Emanuele Lanzani and Frimont S.p.A (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 29, 1991), as amended by Amendment No. 1 thereto, dated as of January 11, 1994 (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 2, 1994). Exhibit 10.21* - Executive Severance Agreement dated as of September 16, 1991 between Donald D. Holmes and Scotsman Group Inc. (incorporated herein by reference to the Company's 10-Q for the quarter ended September 29, 1991), as amended by Amendment No. 1 thereto, dated as of January 11, 1994, between Donald D. Holmes and Scotsman Group, Inc (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 2, 1994). -17- 18 Exhibit 10.22* - Retirement Program for Emanuele Lanzani of Frimont, S.p.A., Subsidiary of King-Seeley Thermos Co. dated July 25, 1984 (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1989). Exhibit 10.23 - Agreement dated March 27, 1981 by and between Emanuele Lanzani and King-Seeley Thermos Co. and Frimont, S.p.A. (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1989), as amended by the Amendment dated March 20, 1990 (incorporated herein by reference to the Company's 10-Q for the quarter ended September 30, 1990). Exhibit 10.24 - Industrial Building Lease Agreement dated September 21, 1988 by and between American National Bank and Trust Company of Chicago, as Trustee under Trust Agreement No. 64661 dated June 17, 1985, and Household Manufacturing, Inc. (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1989). Exhibit 10.25 - Lease Agreement, dated as of April 16, 1993, by and between the Western and Southern Life Insurance Company and Booth, Inc. together with the related Guaranty by Scotsman Group Inc. dated as of April 8, 1993 (incorporated herein by reference to the Company's 10-Q for the quarter ended October 2, 1993). Exhibit 10.26 - First Amendment to the Lease Agreement, dated October 27, 1993, by and between the Western and Southern Life Insurance Company and Booth, Inc. (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 1, 1995). Exhibit 10.27 - Second Amendment to the Lease Agreement, dated December 3, 1993, by and between the Western and Southern Life Insurance Company and Booth, Inc. (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 1, 1995). Exhibit 10.28 - Agreement and Plan of Merger, dated as of January 11, 1994, among Scotsman Industries, Inc., Scotsman Acquisition Corporation, DFC Holding Corporation, The Delfield Company, Onex Corporation, Onex DHC LLC, Pacific Mutual Life Insurance Co., PM Group Life Insurance Co., EJJM, Matthew O. Diggs, Jr., Timothy C. Collins, W. Joseph Manifold, Charles R. McCollom, Anita J. Moffatt Trust, Anita J. Moffatt, Remo Panella, Teddy F. Reed, Robert L. Schafer, Graham E. Tillotson, John A. Tilmann Trust, John A. Tilmann, Kevin E. McCrone, Michael P. McCrone, Ronald A. Anderson and Continental Bank N.A. (incorporated herein by reference to the Company's 8-K, dated January 13, 1994), as amended by the First Amendment thereto, dated as of March 17, 1994 (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 2, 1994). -18- 19 Exhibit 10.29 - Share Acquisition Agreement, dated as of January 11, 1994, among Scotsman Industries, Inc., Whitlenge Acquisition Limited, Whitlenge Drink Equipment Limited, Timothy C. Collins, Graham F. Cook, Christopher R.L. Wheeler, Michael de St. Paer and John Rushton (incorporated herein by reference to the Company's 8-K, dated January 13, 1994), as amended by the First Amendment thereto, dated as of March 17, 1994 (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 2, 1994). Exhibit 13 - Those portions of Scotsman's 1995 Annual Report to Shareholders which are incorporated herein by reference under Part I, Item 1, "Financial Information about Foreign and Domestic Operations," and Part II, Items 5, 6, 7, and 8 of the Form 10-K, consisting of "Management's Discussion and Analysis of Financial Condition and Results of Operations," the report of Arthur Andersen LLP and the consolidated financial statements, together with the notes thereto (as set forth in the list of financial statements under Item 14(a)(1)), "Five Year Summary," "Selected Quarterly Financial Data" and "Common Stock." Exhibit 21 - List of Subsidiaries Exhibit 23 - Consent of Arthur Andersen LLP Exhibit 27 - Article 5 Financial Data Schedule for the Fiscal Year Ended December 31, 1995. Copies of the exhibits referred to above will be furnished to shareholders upon written request at a cost of fifteen cents per page. Requests should be made to Scotsman Industries, Inc. 775 Corporate Woods Parkway, Vernon Hills, Illinois 60061, Attention: Donald D. Holmes, Secretary. (B) REPORTS ON FORM 8-K The Registrant filed no reports on Form 8-K during the quarterly period ended December 31, 1995. (C) EXHIBITS The exhibits required under this Item 14(c) are filed as a separate section of this report. (D) FINANCIAL STATEMENT SCHEDULES See pages 21 through 22 of this report. -19- 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 28, 1996 SCOTSMAN INDUSTRIES, INC. BY: /s/ R.C. Osborne -------------------------------------- R.C. Osborne, Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Scotsman and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ R.C. Osborne , Chairman of the Board, President, March 28, 1996 - -------------------------------------- Chief Executive Officer & Director (R.C. Osborne) (Principal Executive Officer) /s/ D.C. Clark , Director March 28, 1996 - -------------------------------------- (D.C. Clark) /s/ T.C. Collins , Director March 28, 1996 - -------------------------------------- (T.C. Collins) /s/ F.W. Considine , Director March 28, 1996 - -------------------------------------- (F.W. Considine) /s/ M.O. Diggs, Jr. , Director March 28, 1996 - -------------------------------------- (M.O. Diggs, Jr.) /s/ G.D. Kennedy , Director March 28, 1996 - -------------------------------------- (G.D. Kennedy) /s/ J.J. O'Connor , Director March 28, 1996 - -------------------------------------- (J.J. O'Connor) /s/ R.G. Rettig , Director March 28, 1996 - -------------------------------------- (R.G. Rettig) /s/ D.D. Holmes , Vice President-Finance and March 28, 1996 - -------------------------------------- Secretary (Principal Financial & (D.D. Holmes) Accounting Officer)
-20- 21 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES To the Shareholders of Scotsman Industries, Inc.: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Scotsman Industries, Inc.'s 1995 Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 7, 1996. Our report on the consolidated financial statements includes an explanatory paragraph with respect to the change in accounting for post-retirement benefits other than pensions, post-employment expenses and income taxes effective January 4, 1993, as discussed in Note 10 and Note 12 to the consolidated financial statements. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14(a)(2) Financial Statement Schedules is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated 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 consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Chicago, Illinois February 7, 1996 -21- 22 SCOTSMAN INDUSTRIES, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Additions ---------------------- Charged Charged Balance at to to Balance Beginning Costs/ Other at End of Period Expenses Accounts(A) Deductions of Period --------- -------- ----------- ---------- --------- 1993 - Accounts Receivable Reserves $1,260 $ 453 $ 103 $(268) $1,548 ====== ===== ===== ===== ====== 1994 - Accounts Receivable Reserves $1,548 $ 430 $ 716 $(398) $2,296 ====== ===== ===== ===== ====== 1995 - Accounts Receivable Reserves $2,296 $ 645 $ 572 $(553) $2,960 ====== ===== ===== ===== ======
- -------------- (A) Includes the translation impact and also includes increases due to inclusion of the accounts receivable reserves of the acquired businesses as of the date of their acquisition by the Company. -22- 23 EXHIBIT INDEX
Exhibit Page Number Number Description(1) of Exhibit - ------- -------------- ----------- 2 Agreement for the Sale, Purchase and Assignment of the Entire Share Capital of Hartek Beverage Handling GmbH and Hartek Awagem Vertriebsges, m.b.H., dated December 31, 1995, among Hartek Beverage Handling B.V., Hartwall Bolagen AB, Scotsman Group Inc. and Scotsman Industries, Inc. 3.1 Restated Certificate of Incorporation of the Company (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1989). 3.2 By-Laws of the Company, as amended (incorporated herein by reference to the Company's 8-K, dated June 21, 1991). 4 Rights Agreement dated as of April 14, 1989 between Scotsman Industries, Inc. and Harris Trust & Savings Bank (incorporated herein by reference to the Company's 8-K, dated April 25, 1989), as amended by Amendment No. 1 thereto, dated as of January 11, 1994 (incorporated herein by reference to Scotsman Industries, Inc. Amendment No. 4 to General Form for Registration of Securities on Form 10/A, as filed with the Commission on January 27, 1994). 10.1 Reorganization and Distribution Agreement dated as of March 15, 1989 by and among Household International, Inc., Eljer Industries, Inc., Schwitzer, Inc. and Scotsman Industries, Inc. (incorporated herein by reference to the Company's 8-K, dated April 25, 1989). 10.2 Tax Sharing Agreement dated as of March 15, 1989 among Household International, Inc., Eljer Industries, Inc., Schwitzer, Inc. and Scotsman Industries, Inc. (incorporated herein by reference to the Company's 8-K, dated April 25, 1989). 10.3 Benefits and Labor Agreement dated as of March 15, 1989 among Household International, Inc., Eljer Industries, Inc., Schwitzer, Inc. and Scotsman Industries, Inc. (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1989). 10.4 Reimbursement Agreement dated as of April 14, 1989 by and between Household International, Inc. and Scotsman Group, Inc. (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1989).
-23- 24
Exhibit Page Number Number Description(1) of Exhibit - ------- -------------- ----------- 10.5 Supplemental Reimbursement Agreement dated as of August 4, 1989 among Household International, Inc., Scotsman Industries, Inc. and Scotsman Group, Inc. (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1989), as amended by Amendment No. 1 thereto, dated as of September 20, 1993 (incorporated herein by reference to the Company's 10-Q for the quarter ended October 3, 1993). 10.6 Credit Agreement among Scotsman Group Inc. and the other parties named therein, as Borrowers, the Lenders named therein and The First National Bank of Chicago, as Agent, dated as of April 29, 1994 (incorporated herein by reference to the Company's 10-Q for the quarter ended April 3, 1994), as amended by Amendment No. 1 thereto, dated March 31, 1995 (incorporated herein by reference to the Company's 10-Q for the quarter ended April 2, 1995). 10.7 Amended and Restated Note Purchase Agreement dated as of April 29, 1994, as separately entered into among Scotsman Group Inc., Scotsman Industries, Inc., and each of the following: Connecticut General Life Insurance Company, individually and for the account of one or more separate accounts, Cigna Property and Casualty Insurance Company, INA Life Insurance Company of New York, Life Insurance Company of North America, Ohio National Life Assurance Corporation and Southern Farm Bureau Life Insurance Company (incorporated herein by reference to the Company's 10-Q for the quarter ended April 3, 1994). 10.8 Promissory Notes in the principal amounts of $5,000,000 and $4,000,000, respectively, each made as of June 30, 1995 by Scotsman Group Inc. to Comerica Bank-Illinois, together with the related Reaffirmation of Guaranty and Consent, dated June 30, 1995, by Scotsman Industries, Inc. in favor of Comerica Bank-Illinois. 10.9 Reimbursement Agreement, dated March 1, 1988, among Household Manufacturing, Inc., King-Seeley Thermos Co. and the National Westminster Bank PLC, as amended by the Amendments dated as of April 14, 1989, December 12, 1989, June 26, 1992, November 20, 1992, March 17, 1993, among Scotsman Group Inc., Scotsman Industries, Inc. and The Bank of Nova Scotia (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 3, 1993) and the Amendment dated April 29, 1994 (incorporated herein by reference to the Company's 10-Q for the quarter ended April 3, 1994).
-24- 25
Exhibit Page Number Number Description(1) of Exhibit - ------- -------------- ----------- 10.10 ISDA Master Agreement, dated as of May 19, 1994, including the Schedule thereto, dated as of May 19, 1994, and an Amended Confirmation, dated June 6, 1994, between Bank of America Illinois (formerly known as Continental Bank) and Scotsman Group Inc. (incorporated herein by reference to the Company's 10-Q for the quarter ended October 2, 1994). 10.11 ISDA Master Agreement, dated as of March 3, 1994, including the Schedule and Amended Confirmation (2) thereto, between The First National Bank of Chicago and Scotsman Group Inc. (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 1, 1995) 10.12 Long-Term Executive Incentive Compensation Plan of Scotsman Industries, Inc., as amended May 21, 1992 (incorporated herein by reference to the Company's 10-Q for the quarter ended June 28, 1992). 10.13 Scotsman Industries, Inc., Executive Incentive Compensation Program, Plans AA, A-1 and A-2 (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 30, 1990) and B-1. 10.14 Scotsman Group Inc. Supplemental Tax Reduction Investment Plan, dated as of April 14, 1989 (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 30, 1990). 10.15 Non-Employee Directors Stock Option Plan, effective as of August 11, 1994 (incorporated herein by reference to the Company's Registration Statement on Form S-8, No. 33-59397). 10.16 Employment Agreement dated September 16, 1991 between Scotsman Group, Inc. and Richard C. Osborne (incorporated herein by reference to the Company's 10-Q for the quarter ended September 29, 1991). 10.17 Employment Agreement dated September 16, 1991 between Scotsman Group, Inc. and Emanuele Lanzani (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 29, 1991). 10.18 Employment Agreement dated September 16, 1991 between Scotsman Group, Inc. and Donald D. Holmes (incorporated herein by reference to the Company's 10-Q for the quarter ended September 29, 1991). 10.19 Executive Severance Agreement dated as of September 16, 1991 between Richard C. Osborne and Scotsman Group, Inc. (incorporated herein by reference to the Company's 10-Q for the quarter ended September 29, 1991), as amended by Amendment No. 1 thereto, dated as of January 11, 1994 (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 2, 1994).
-25- 26
Exhibit Page Number Number Description(1) of Exhibit - ------- -------------- ----------- 10.20 Executive Severance Agreement dated as of September 16, 1991 between Emanuele Lanzani and Frimont S.p.A (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 29, 1991), as amended by Amendment No. 1 thereto, dated as of January 11, 1994 (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 2, 1994). 10.21 Executive Severance Agreement dated as of September 16, 1991 between Donald D. Holmes and Scotsman Group Inc. (incorporated herein by reference to the Company's 10-Q for the quarter ended September 29, 1991), as amended by Amendment No. 1 thereto, dated as of January 11, 1994, between Donald D. Holmes and Scotsman Group, Inc (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 2, 1994). 10.22 Retirement Program for Emanuele Lanzani of Frimont, S.p.A., Subsidiary of King-Seeley Thermos Co. dated July 25, 1984 (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1989). 10.23 Agreement dated March 27, 1981 by and between Emanuele Lanzani and King-Seeley Thermos Co. and Frimont, S.p.A. (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1989), as amended by the Amendment dated March 20, 1990 (incorporated herein by reference to the Company's 10-Q for the quarter ended September 30, 1990). 10.24 Industrial Building Lease Agreement dated September 21, 1988 by and between American National Bank and Trust Company of Chicago, as Trustee under Trust Agreement No. 64661 dated June 17, 1985, and Household Manufacturing, Inc. (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1989). 10.25 Lease Agreement, dated as of April 16, 1993, by and between the Western and Southern Life Insurance Company and Booth, Inc. together with the related Guaranty by Scotsman Group Inc. dated as of April 8, 1993 (incorporated herein by reference to the Company's 10- Q for the quarter ended October 2, 1993). 10.26 First Amendment to the Lease Agreement, dated October 27, 1993, by and between the Western and Southern Life Insurance Company and Booth, Inc. (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 1, 1995) 10.27 Second Amendment to the Lease Agreement, dated December 3, 1993, by and between the Western and Southern Life Insurance Company and Booth, Inc. (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 1, 1995)
-26- 27
Exhibit Page Number Number Description(1) of Exhibit - ------- -------------- ----------- 10.28 Agreement and Plan of Merger, dated as of January 11, 1994, among Scotsman Industries, Inc., Scotsman Acquisition Corporation, DFC Holding Corporation, The Delfield Company, Onex Corporation, Onex DHC LLC, Pacific Mutual Life Insurance Co., PM Group Life Insurance Co., EJJM, Matthew O. Diggs, Jr., Timothy C. Collins, W. Joseph Manifold, Charles R. McCollom, Anita J. Moffatt Trust, Anita J. Moffatt, Remo Panella, Teddy F. Reed, Robert L. Schafer, Graham E. Tillotson, John A. Tilmann Trust, John A. Tilmann, Kevin E. McCrone, Michael P. McCrone, Ronald A. Anderson and Continental Bank N.A. (incorporated herein by reference to the Company's 8-K, dated January 13, 1994), as amended by the First Amendment thereto, dated as of March 17, 1994 (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 2, 1994). 10.29 Share Acquisition Agreement, dated as of January 11, 1994, among Scotsman Industries, Inc., Whitlenge Acquisition Limited, Whitlenge Drink Equipment Limited, Timothy C. Collins, Graham F. Cook, Christopher R.L. Wheeler, Michael de St. Paer and John Rushton (incorporated herein by reference to the Company's 8-K, dated January 13, 1994), as amended by the First Amendment thereto, dated as of March 17, 1994 (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 2, 1994). 13 Those portions of Scotsman's 1995 Annual Report to Shareholders which are incorporated herein by reference under Part I, Item 1, "Financial Information about Foreign and Domestic Operations," and Part II, Items 5, 6, 7, and 8 of the Form 10-K, consisting of "Management's Discussion and Analysis of Financial Condition and Results of Operations," the report of Arthur Andersen LLP and the consolidated financial statements, together with the notes thereto (as set forth in the list of financial statements under Item 14(a)(1)), "Five Year Summary," "Selected Quarterly Financial Data" and "Common Stock." 21 List of Subsidiaries 23 Consent of Arthur Andersen LLP 27 Article 5 Financial Data Schedule for the Fiscal Year Ended December 31, 1995.
(1) Unless otherwise indicated, all documents incorporated herein by reference to prior filings have been incorporated by reference to filings made under Commission File No. 1-10182. -27- EX-2 2 AGREEMENT FOR SALE 1 EXHIBIT 2 AGREEMENT FOR THE SALE, PURCHASE AND ASSIGNMENT OF THE ENTIRE SHARE CAPITAL OF HARTEK BEVERAGE HANDLING GmbH AND HARTEK-AWAGEM VERTRIEBGES. m.b.H. 1. Mr E. Hartwall, identified through his passport, acting not in his own name but as director of HARTEK BEVERAGE HANDLING BV, which has its registered offices at Fokkerstraat 11, 2811 Reeuwijk, Netherlands, and is registered in the Commercial Register of the Chamber of Industry and Commerce for Central Holland under file number 37302 (hereinafter referred to as THE VENDOR). A copy of an extract from the Commercial Register of the Vendor is attached as APPENDIX 1. 2. Mr D. Holmes, identified through his passport, acting not in his own name but as authorized agent for SCOTSMAN GROUP, INC., which has its registered office at Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, USA (hereinafter referred to as THE PURCHASER), pursuant to the Power of Attorney, a copy of which is attached hereto as APPENDIX 2. 3. Mr E. Hartwall, identified through his passport, acting not in his own name but as director of HARTWALL BOLAGEN AB, Korsakerswagen 4, 00390 Helsingfors, Finland (hereinafter referred to as HARTWALL BOLAGEN). 4. Mr D. Holmes, identified through his passport, acting not in his own name but as authorized agent for SCOTSMAN INDUSTRIES, INC., 775 Corporate Woods Parkway, Vernon Hills, Illinois, USA (hereinafter referred to as SCOTSMAN), pursuant to the Power of Attorney, a copy of which is attached hereto as APPENDIX 3. The above-named parties represented by the above-named individuals hereby conclude the following: 2 AGREEMENT FOR THE SALE, PURCHASE AND ASSIGNMENT OF SHARES PREAMBLE A. The Vendor is the sole shareholder, and HARTWALL BOLAGEN is the ultimate parent company of HARTEK BEVERAGE HANDLING GmbH, Otto Hahn Strasse 4, Radevormwald, Germany, which is registered in the Commercial Register of Wipperfurth under file number HRB 1361 (hereinafter referred to as HARTEK), and of HARTEK AWAGEM VERTRIEBSGES. m.b.H., Josef Osterreichergasse 41-4, Vienna, Austria (hereinafter referred to as HARTEK AWAGEM) which is registered in the Commercial Register of Vienna under file number BP360B/FN64432d. B. Copies of the following documents are attached to this Agreement as Appendices: (a) extracts from the Commercial Registers relating to Hartek dated 10 November 1995 and relating to Hartek Awagem dated 19 December 1995 showing all matters requiring registration as of the date of this Agreement (APPENDIX 4); (b) the Articles of Association of the Companies as last amended (in der zuletzt beschlossenen Fassung) (APPENDIX 5). C. The Vendor intends to sell to the Purchaser and the Purchaser intends to acquire from the Vendor all of the Shares in the Companies as going concerns in accordance with the terms and conditions of this Agreement. D. Hartwall Bolagen intends to guarantee the fulfillment of certain obligations of the Vendor under this Agreement, and Scotsman intends to guarantee the fulfillment of certain obligations of the Purchaser under this Agreement. THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: DEFINITIONS AND INTERPRETATION 1.1 In this Agreement, except so far as the context otherwise requires, the following terms shall have the following meanings: ACCOUNTS means: (a) the audited balance sheets of Hartek and Hartek Awagem as at the Accounts Dates; and (b) the audited profit and loss accounts of Hartek and Hartek Awagem as at the Accounts Dates, together with any notes, reports, statements or documents permitted or required by German law in relation to Hartek and by Austrian law in relation to Hartek Awagem to be made thereon or annexed or attached thereto; ACCOUNTS DATE means the last day of the financial years of Hartek and Hartek Awagem; -2- 3 ADDITIONAL CONSIDERATION has the meaning given in clause 4.3; ATS means Austrian Schillings; AUSTRIAN ACCOUNTING PRINCIPLES means generally accepted accounting principles in Austria; BUILDINGS means all buildings and constructions existing on the Plant Premises at the time of signature of this Agreement; CASCADE means Hartek Cascade GmbH, Kirchgasse 5, Ratingen; CASCADE PROFIT AND LOSS PARTICIPATION AGREEMENT means the domination and profit and loss participation agreement between Hartek and Cascade dated 26 February 1993; CASH BALANCE means the aggregate amount of Hartek and Hartek Awagem's cash reserves as at the Transfer Date; COMPANY OR THE COMPANIES means Hartek and Hartek Awagem singly and collectively; COMPLETION ACCOUNTS means the consolidated balance sheet and consolidated profit and loss statements for both Hartek and Hartek Awagem as at the Transfer Date to be established in accordance with clauses 5.1 to 5.5; DATE OF RECEIPT OF THE COMPLETION ACCOUNTS has the meaning given in clause 5.5.2; ESCROW ACCOUNT (Notar-Anderkonto) means an escrow account established or to be established with the Escrow Agent at such bank and account as he may specify for the purpose; ESCROW AGENT means Herr J. Schaudinn, Frankfurt, being a German notary public; ESCROW AMOUNT means DM 1,500,000 (one million five hundred thousand deutschmarks); ESCROW GUARANTEE means an unconditional guarantee up to the Escrow Amount payable upon the first written demand of the Purchaser issued by a first class bank in Finland in favor of the Purchaser in form and substance reasonably satisfactory to the Purchaser pursuant to clause 4.6; ESTIMATED FUNDING COST DIFFERENCE means DM600,000 (six hundred thousand deutschmarks); ESTIMATED MONETARY DEBTS means DM7,500,000 (seven million, five hundred thousand deutschmarks); EXPERTS means an independent firm of internationally recognized chartered accountants to be agreed upon by the Vendor and the Purchaser pursuant to clause 5.4 or, failing Agreement between the Vendor and the Purchaser pursuant to clause 5.4, to be selected by the president for the time being of the Industrie-und Handelskammer in Dusseldorf; FUNDING COST DIFFERENCE means the amount by which the aggregate projected cost to Hartek of borrowing the Monetary Debts from the Transfer Date to their respective maturities exceeds the aggregate projected -3- 4 cost which Scotsman would incur if it borrowed an amount equal to the Monetary Debts for such period, discounted forwards at the rate per annum which is Scotsman's cost of borrowing (as aforesaid) and determined in accordance with clause 5.6.8; GERMAN ACCOUNTING PRINCIPLES means accounting principles in accordance with ss.246 et sequ. of the German Commercial Code and generally accepted in Germany (Grundsatze ordnungsmassiger Buchfuhrung und Bilanzierung); GROUP COST AGREEMENT means the agreement dated 23 November 1995 made between Hartek Invest OY AB and Hartek; HARTEK means Hartek Beverage Handling GmbH, Otto Hahn Strasse 4, Radevormwald; HARTEK AWAGEN means Hartek Awagem Vertriebsges.m.b.H., Josef Osterreichergasse 41-4, Vienna, Austria; HARTEK AWAGEM BUSINESS means the trading with goods of all kinds, especially drink dispensing systems and catering equipment, as well as the planning, installation and servicing of such equipment; HARTEK AWAGEM SHARES means all shares in Hartek Awagem; HARTEK AWAGEM SHARE CAPITAL means the registered share capital (Stamnikapital) of Hartek Awagem amounting to ATS 1,500,000; HARTEK BUSINESS means the manufacturing and sale of equipment and components for the storage, the cooling and the dispensing of beverages of all kinds as well as of similar devices, especially the manufacturing and sale of beverage dispensing systems; HARTEK SHARES means all shares in Hartek; HARTEK SHARE CAPITAL means the registered share capital (Stamnikapital) of Hartek amounting to DM1,150,000; HARTWALL BOLAGEN means Hartwall Bolagen AB, Korsakerswagen 4, 00390 Helsingfors, Finland; INDUSTRIAL PROPERTY RIGHTS means all industrial property rights including, in particular, patents (Patente), marks (Marken), brand names, copyrights and design rights (Gebrauch- und Geschmacksmuster); KALL means Kall GmbH; KALL PROFIT AND LOSS PARTICIPATION AGREEMENT means the domination and profit and loss participation agreement between Hartek and Kall dated 18 July 1991; LEASED PREMISES means all real property on which the Companies operate or of which they otherwise make use other than the Plant Premises; -4- 5 LICENSES means all licenses and permits (Erlaubnisse und Genehmigungen) required by any of the Companies for carrying on its business effectively in the places and in the manner in which it is carried on as at the date of signature of this Agreement; MAIN AMOUNT means DM5,400,000 (five million four hundred thousand deutschmarks); MONETARY DEBTS means all interest bearing bank debts of the Companies on a consolidated basis as at the Transfer Date; NET EQUITY means (in the sense of section 266 paragraph 3 lit. A of the German Commercial Code -Handelsgesetzbuch, HGB) the monetary figure expressed in DM for Hartek and Hartek Awagem on a consolidated basis as shown in the Completion Accounts which results from the following calculation: subscribed capital (geszeichnetes Kapital) plus capital reserve (Kapitalucklage) plus profit reserves (Gewinnrucklage) plus profit carry forward/minus loss carry forward (Gewinnvortrag/Verlustvortrag) plus profit for 1995/minus loss for 1995 (Jahresuberschuss 1995/Jahresfehlbetrag 1995). NET EQUITY SHORTFALL means the amount by which actual Net Equity (as determined by reference to the Completion Accounts) falls short of DM8,300,000 (eight million three hundred thousand deutschmarks) as at the Transfer Date; PLANT PREMISES means the Companies' real estate listed in APPENDIX 6; POLICIES means the insurance policies taken out by the Companies as at the date of signature of this Agreement; PURCHASE PRICE means DM 15,000,000 (in words: fifteen million deutschmarks) less the aggregate of: (a) the Monetary Debts; and (b) the Funding Cost Difference, as adjusted pursuant to the terms of this Agreement; PURCHASER means Scotsman Group, Inc.; PURCHASER'S ACCOUNTANTS means Arthur Andersen & Co. GmbH, Wirtschaftsprufungsgesellschaft, Steuerberatungsgesellschaft/Koln und Dusseldorf; SCOTSMAN means Scotsman Industries, Inc.; -5- 6 SHARES means singly and collectively the Hartek Shares and the Hartek Awagem Shares; STATEMENTS means the statements contained in clauses 9.2 to 9.28; TAX shall have the meaning set out in clause 7.2.1; TAX LIABILITY shall have the meaning set out in clause 7.2.2; TRANSFER DATE means 31 December 1995, 24.00 hrs; VENDOR means Hartek Beverage Handling BV; VENDOR'S ACCOUNTANTS means KPMG Peat Marwick, Dusseldorf; VENDOR'S BEST KNOWLEDGE means the best knowledge of any current directeur of the Vendor, member of the board of directors of Hartwall Bolagen, or Geschaftsfuhrer of Hartek or Hartek Awagem, together with the best knowledge of Frau Loffler, as the case may be; VENDOR GROUP means the group of companies affiliated with the Vendor or Hartwall Bolagen (verbundene Unternehmen) within the meaning of section 15 of the German Stock Corporation Act). 1.2 In this Agreement, unless the context otherwise requires: (a) words denoting any gender shall include all genders; (b) words denoting the singular shall include the plural and vice versa; (c) the headings are inserted for convenience only and shall not affect the construction of this Agreement; (d) references to the Preamble, clauses and Appendices and subdivisions thereof are to the Preamble and clauses of and Appendices to this Agreement and subdivisions thereof respectively. 1.3 The Preamble and Appendices hereto form part of this Agreement and shall have the force and effect as expressly set out in the body of this Agreement. Accordingly, any reference to "this Agreement" shall include the Preamble and Appendices hereto. SALE AND ASSIGNMENT OF SHARES 2.1.1 The Hartek Share Capital amounts to DM 1,150,000 consisting of one share in a nominal amount of DM 1,150,000. 2.1.2 The Hartek Awagem Share Capital amounts to ATS 1,500,000 consisting one share in a nominal amount of ATS 1,500,00. 2.2 The Hartek Shares represent 100% of the Hartek Share Capital and the Hartek Awagem Shares represent 100% of the Hartek Awagem Share Capital. -6- 7 2.3 The Vendor hereby offers to sell and assign the Shares including all ancillary rights and claims attaching thereto to the Purchaser. The Purchaser hereby accepts this offer. The assignment will be effected by notarized contracts which will be concluded by the Parties immediately after the signing of this Agreement. Such notarization will cure the formal deficiencies of this Agreement in accordance with Article 15 paragraph (4) of the German GmbH Act. 2.4 The Shareholders Meeting of Hartek has by way of shareholders' resolution, which is attached as APPENDIX 7, granted its consent to the sale and assignment of the Hartek Shares to the Purchaser. PROFITS 3. For the avoidance of doubt, any right to the profit of the Companies during their current financial year ending on 31 December 1995 shall accrue to the Purchaser. CONSIDERATION FOR THE SHARES 4.1 The consideration for the Shares shall consist of the Purchase Price and the Additional Consideration. PAYMENT OF THE PURCHASE PRICE 4.2 The Purchaser shall: (a) within two business days after the date of this Agreement remit the Main Amount and the Escrow Amount to a bank account of Freshfields, Frankfurt, legal advisers to the Purchaser, and provide the Vendor with a fax copy of the remittance instruction to its bank and the instructions to Freshfields to remit such amounts in accordance with paragraph (b) below; (b) subject to the satisfaction (or waiver by the Purchaser) of the undertakings set out in paragraphs (c), (d), (e), (f) and (g) of clause 6.1, on or before the Transfer Date, pay: (i) the Main Amount to the Vendor to such bank and account as the Vendor shall notify for the purpose; and (ii) the Escrow Amount by remittance into the Escrow Account or, if the Escrow Guarantee has been established on or before the Transfer Date pursuant to clause 4.6, to the Vendor together with the Main Amount in accordance with paragraph (i) above. The Escrow Account shall be operated in accordance with clause 4.5. The Escrow Guarantee may be established in accordance with clause 4.6. THE ADDITIONAL CONSIDERATION 4.3.1 The Additional Consideration (the ADDITIONAL CONSIDERATION) shall consist of 75% of the actual amount of any tax saving realized by Hartek in respect of each of its financial years ended on 31 December 1996, 1997 and 1998 through the use of the amount of any tax loss carry forward available to Hartek as at the Transfer Date in reduction of taxable profits for those financial years Provided that -7- 8 the Additional Consideration shall not exceed in aggregate DM 2.2 million (the MAXIMUM ADDITIONAL CONSIDERATION). 4.3.2 Subject to clause 4.3.3, the Additional Consideration shall be paid by the Purchaser to the Vendor within four (4) weeks after Hartek's audited statutory annual accounts for each relevant financial year have been determined (festgestellt) by Hartek's shareholders' meeting pursuant to section 42a of the German law concerning companies with limited liability (Gesetz betreffend die Gesellschaften mit beschrankter Haftung-GmbHG). 4.3.3 If the sum of the payments made pursuant to clause 4.3.2 has reached the Maximum Additional Consideration, then the Purchaser shall have no obligation to pay any further Additional Consideration to the Vendor. If the use of any tax loss carry forward in respect of which Additional Consideration has been paid to the Vendor pursuant to clause 4.3.2 is not permitted by any relevant German tax authority with the result that tax is paid by Hartek, then the Vendor shall, on or before the date such tax is payable by the Purchaser, repay the amount of that Additional Consideration to the Purchaser. If such tax payment is successfully appealed then the Additional Consideration shall be repaid to the Vendor. 4.3.4 The Purchaser undertakes with the Vendor that it will not carry out any restructuring or other change to the business or operating methods of Hartek or its accounting principles as at the Transfer Date whose sole or main purpose is to avoid the payment of Additional Consideration to the Vendor or to reduce the amount which would, but for such restructuring or other change, have otherwise been payable. BANK ACCOUNTS 4.4 All payments to be made to the Vendor or Purchaser under this Agreement, other than the payments into the Escrow Account, shall be made into the account of the Vendor or the Purchaser to such bank and account as each may specify for the purpose. THE ESCROW ACCOUNT 4.5 The funds in the Escrow Account shall be held on the following terms: (a) any bank or other charges arising on the Escrow Account shall be charged to the Escrow Account; (b) any interest or profit generated on the Escrow Account (subject to any deduction of tax at source or any bank or other charges properly charged to the Escrow Account) (the INCOME) shall accrue to and form part of the Escrow Account. Each time part of the funds in the Escrow Account is paid out it shall have added to it the corresponding proportion of the Income; (c) subject to paragraphs (d) and (e) below, the funds in the Escrow Account shall be retained for a period of 12 months from the Transfer Date (the ESCROW PERIOD). At the end of the Escrow Period (subject to paragraphs (e) and (f) below) the Escrow Agent shall release to the Vendor the funds in the Escrow Account (together with any Income); -8- 9 (d) immediately upon final determination of any amount payable pursuant to clause 5.6, the Purchaser and the Vendor shall issue joint written instructions to the Escrow Agent to release such amount from the Escrow Account to the Purchaser or the Vendor, as the case may be; (e) to the extent that, prior to the expiry of the Escrow Period, the Purchaser shall have notified the Vendor and the Escrow Agent of any other claim arising under this Agreement (including, without limitation, pursuant to clause 6, 7, 8, 9 or 10) and the amount of any such claim shall have been agreed by the Vendor and the Purchaser or determined in accordance with clause 21.2 the Escrow Agent shall immediately upon such agreement or determination pay the amount of such claim from the Escrow Account to the Purchaser; (f) to the extent that the liability for or the quantum of any claim or claims notified under (e) above shall not have been agreed or determined (as described above) by the expiry of the Escrow Period, the amount claimed (together with any interest thereon) shall continue to be held in the Escrow Account after expiry of the Escrow Period pending agreement or determination; immediately upon such agreement or determination the Escrow Agent shall pay the amount of any claim from the Escrow Account to the Purchaser and, immediately all such claims have been so agreed or determined, the balance (if any) remaining in the Escrow Account shall be paid to the Vendor. THE ESCROW GUARANTEE 4.6.1 The Vendor shall be entitled on or before the Transfer Date or by not less than thirty (30) days notice to the Purchaser at any time during the Escrow Period to provide an Escrow Guarantee for the Escrow Period in favor of the Purchaser for the Escrow Amount in substitution for operation of the Escrow Account pursuant to clause 4.5 4.6.2 Upon delivery of the Escrow Guarantee to the Purchaser, the Purchaser and the Vendor will instruct the Escrow Agent to pay the full amount then standing to the credit of the Escrow Account to the Vendor LESS the amount (if any) of any claim or claims which have been made but not agreed or determined as referred to in clause 4.5(f) which shall remain in such Escrow Account in accordance with that paragraph and LESS any amounts which are to be paid to the Purchaser pursuant to clause 4.5(d) or (e) which shall be remitted to the Purchaser. 4.6.3 The Purchaser shall be entitled to demand payment under the Escrow Guarantee to the Escrow Agent into the Escrow Account on or before expiry of the Escrow Period of the amount of any claim to be held thereafter in accordance with clause 4.5(f). COMPLETION ACCOUNTS COMPLETION ACCOUNTS 5.1.1 The Vendor and the Purchaser shall use all reasonable endeavours to procure that, promptly after the Transfer Date, the Completion Accounts for the Companies are prepared and consolidated on the basis of German Accounting Principles. 5.1.2 For the purposes of the Completion Accounts, the stocks and the inventory of the Companies shall be valued in accordance with the following rules and principles. The value of the stocks and the -9- 10 inventory shall be determined, based on a physical inventory at the Transfer Date, at the respective Company's average costs as presently applied. The value so determined shall then be adjusted for any excess or obsolete inventory or stocks, which shall be determined according to the following guidelines: (a) raw materials (including purchased parts) or work in progress acquired for use in a product not currently offered for sale by any of the Companies, even if such product is listed in the respective Company's most recent catalogue, shall be valued at one DM; (b) finished goods not currently offered for sale by any of the Companies, even if such products are listed in the respective Company's most recent catalogue, shall be valued at one DM; (c) any inventory or stocks (except products which have been introduced into the market by the respective Company during the last six months prior to the Transfer Date) which could not be expected to be consumed within: (i) six months (but less than one year) shall be subject to a discount of 25%; (ii) one year (but less than 18 months) shall be subject to a discount of 50%; (iii) 18 months (but less than 2 years) shall be subject to a discount of 75%; (iv) two years or more shall be discounted to one DM (such time periods being based on the rate of sales for (or in the case of raw materials, usage of) those products during the year preceding the Transfer Date); (d) items of inventory or stock which are damaged and are not economically repairable, shall be valued at one DM; and (e) returned goods which are not re-saleable in accordance with customary industry practice at or above the inventory value that would otherwise have been attributed thereto, shall be valued at one DM. PREPARATION OF DRAFT COMPLETION ACCOUNTS 5.2 The Purchaser shall arrange for draft Completion Accounts to be prepared by the Companies, and the Purchaser and the Vendor shall arrange that the draft Completion Accounts be jointly reviewed by Purchaser's Accountants and Vendor's Accountants with a view to such reviewed draft Completion Accounts being delivered to the Purchaser and the Vendor within 45 days after the Transfer Date. The Purchaser shall use all reasonable endeavours to ensure that the Companies provide the Purchaser's Accountants and the Vendor's Accountants with such access to such accounts, working papers and other financial information of the Companies as is reasonably necessary for the purpose of their review of the draft Completion Accounts. NOTIFICATION 5.3 The Purchaser and the Vendor shall notify each other in writing within 30 days of receipt of such draft Completion Accounts if either of them or both do not accept them for the purposes of this -10- 11 Agreement. If the Purchaser and/or the Vendor notifies the other that it does not accept such draft Completion Accounts: (a) it shall set out in detail its reasons for such non-acceptance and specify the adjustments (and provide appropriate supporting evidence for each such adjustment) which, in its opinion, should be made to the draft Completion Accounts in order to comply with the requirements of this Agreement; and (b) the parties shall use all reasonable endeavours to meet and discuss the objections of the Purchaser and/or the Vendor and to reach Agreement upon the adjustments (if any) required to be made to the draft Completion Accounts. RESOLUTION OF DISPUTES 5.4 If the Vendor and the Purchaser do not reach Agreement within 30 days of the Purchaser's and/or Vendor's notice of non-acceptance under clause 5.3, whichever is earlier, then the matters in dispute shall be referred, on the application of either party, for determination by the Experts, to be agreed upon between the Purchaser and the Vendor or failing agreement between the Vendor and the Purchaser within 14 days from the said application, to be selected by the president for the time being of the Industrie- und Handelskammer in Dusseldorf. The following terms of reference shall apply: (a) the Purchaser's Accountants and the Vendor's Accountants shall each promptly prepare a written statement on the matters in dispute which (together with the relevant documents) shall be submitted to the Experts; (b) in giving such determination, the Experts shall state what adjustments (if any) are necessary to the draft Completion Accounts in respect of the matters in dispute (but in so doing shall not exceed the scope of any such matters referred to them for determination) in order to comply with the requirements of this Agreement; (c) the Experts shall act as an expert (Schiedsgutachter) (and not as an arbitrator (Schiedsrichter)) in making any such determination which shall be final and binding on the parties; and (d) the Experts' expenses shall be borne between the Vendor and the Purchaser in such proportions as the Experts shall determine by applying ss.ss. 91 et seq. of the German Code on Civil Procedure. FINAL DETERMINATION 5.5.1 If the Vendor and the Purchaser reach Agreement on the draft Completion Accounts or the draft Completion Accounts are finally determined by the Experts or the Purchaser and the Vendor have not notified the other pursuant to clause 5.3 of any objections to the draft Completion Accounts: (a) the draft Completion Accounts as so agreed, determined or (as the case may be) non-objected shall be the Completion Accounts for the purposes of this Agreement and shall be final and binding on the parties; and -11- 12 (b) the amount of the Net Equity, Cash Balance and Monetary Debts (and the amount payable pursuant to clause 5.6.5) shall be derived from the Completion Accounts. 5.5.2 The Experts shall send the Completion Accounts immediately after their determination to the Vendor and to the Purchaser, notifying the Vendor and Purchaser by fax of such dispatch. and the Vendor and the Purchaser shall be deemed to have received such Completion Accounts two working days later (the DATE OF RECEIPT OF THE COMPLETION ACCOUNTS). If the draft Completion Accounts become the Completion Accounts by Agreement of the Vendor and the Purchaser pursuant to clause 5.5.1(a) or by non-objection pursuant to clause 5.5.1 (a), then such events shall also constitute Dates of Receipt of the Completion Accounts for the purposes of this Agreement. ADJUSTMENT OF PURCHASE PRICE 5.6.1 If the Completion Accounts show a Net Equity Shortfall, then the Purchase Price shall be reduced by an amount equal to such Net Equity Shortfall. 5.6.2 If the Monetary Debts are less than the Estimated Monetary Debts, the Purchase Price shall be increased by the amount of such shortfall. If the Monetary Debts are greater than the Estimated Monetary Debts, the Purchase Price shall be reduced by the amount of such excess except and to the extent that the Cash Balance exceeds DM1,000,000 (one million deutschmarks). 5.6.3 If the Cash Balance is less than DM1,000,000 (one million deutschmarks), the Purchase Price shall be reduced by the amount of such shortfall. 5.6.4 If the Funding Cost Difference is less than the Estimated Funding Cost Difference, the Purchase Price shall be increased by the amount of such shortfall. If the Funding Cost Difference is greater than the Estimated Funding Cost Difference, the Purchase Price shall be reduced by the amount of such shortfall. 5.6.5 The net amount of any increase or decrease (as the case may be) of the Purchase Price pursuant to clause 5.6.1, 5.6.2 and 5.6.3 shall be paid to the Vendor or the Purchaser (as the case may be) within ten (10) days of determination thereof and, (if relevant) notification pursuant to clause 5.7.1. 5.6.6 The amount of any increase or decrease (as the case may be) of the Purchase Price pursuant to clause 5.6.4 shall be paid to the Vendor or the Purchaser (as the case may be) within ten (10) days of notification to the Vendor of the amount of the Funding Cost Difference pursuant to clause 5.6.8. 5.6.7 If the Escrow Amount is not sufficient to cover the adjustment pursuant to this clause 5.6 then, subject to clause 5.7.2, the Vendor shall pay to the Purchaser the amount not so covered within ten (10) days upon the Purchaser's written request. 5.6.8 The Purchaser shall, during the period of thirty (30) days of the Transfer Date, with the assistance of the Vendor, use its reasonable endeavours to renegotiate the terms and conditions of the Monetary Debts and shall use its best efforts (including the offer of sufficient Scotsman guarantees) to release existing Vendor Group guarantees for the Monetary Debts in each case so as to reduce the Funding Cost Difference. If the terms and conditions have been renegotiated they shall be used as the basis for calculating the Funding Cost Difference. The amount of the Funding Cost Difference shall be determined -12- 13 (in consultation with the Vendor) by the Purchaser and notified to the Vendor within three (3) months of the Transfer Date. NOTIFICATION AND RIGHT TO WITHDRAW 5.7.1 The Purchaser shall notify the Vendor of a claim arising under clause 5.6.1, 5.6.2 or 5.6.3 within thirty (30) days of the Date of Receipt of the Completion Accounts. 5.7.2 If the amount claimed by the Purchaser pursuant to clause 5.61 exceeds DM3,000,000 (three million deutschmarks) then the Vendor shall have the option to withdraw from this Agreement without liability (other than to transfer to the Vendor such title to the Shares as the Purchaser received from the Vendor) on the part of the Purchaser. 5.7.3 If the Vendor wishes to exercise the option referred to in clause 5.7.2 it shall do so by notice to the Purchaser within ten (10) days of notification by the Purchaser of the amount claimed from the Vendor pursuant to clause 5.6 and the transfer referred to in clause 5.7.2 shall be conditional upon repayment in full by the Vendor of the Main Amount and release by the Vendor of the full Escrow Amount to the Purchaser, in each case together with interest thereon. UNDERTAKINGS PRE-COMPLETION UNDERTAKINGS 6.1 The Vendor undertakes to the Purchaser that on or prior to the Transfer Date it will procure: (a) the prompt repayment of all debts then owed to the Companies by the Vendor or Hartwall Bolagen or any company within the Vendor Group provided, however, that intercompany debts between Hartek and Hartek Awagem are not subject to such repayment obligation; (b) the prompt release of the Companies from any intra-group guarantees and, pending such release, to indemnify the Companies from all claims, losses and liabilities arising thereunder; (c) each of the Kall Profit and Loss Participation Agreement and the Cascade Profit and Loss Participation Agreement will have been terminated; (d) the entire issued share capital of each of Cascade and Kall has been sold by Hartek (and all of the shares in each of Kall and Cascade assigned to a third party) for cash without any liability whatsoever on the part of Hartek at a price in the case of Kall which is not less than the value attributed to it in the 1994 Accounts of Hartek and in the case of Cascade, at a price of DM100,000 in accordance with paragraph (g) below; (e) the delivery to the Purchaser of a Control Power of Attorney duly executed by the Vendor in the form set out in APPENDIX 8; (f) the delivery to the Purchaser of a waiver by the lenders of the Monetary Debts of any right to require repayment of all or any part of the Monetary Debts by reason of the sale of the Shares by the Vendor to the Purchaser in the form attached as APPENDIX 9; -13- 14 (g) that Hartwall Bolagen shall purchase from Hartek for cash at face value, the debt in the amount of DM1,500,000 owed to Hartek by Cascade. Hartek shall utilize the purchase proceeds in part repayment of the debt of DM1,600,000 owed to Cascade by Hartek and shall repay the balance of such debt from its own funds. Hartwall Bolagen shall acquire all the shares in Cascade from Hartek for cash pursuant to paragraph (d) above, for a purchase price of DM100,000; (h) all the members of the board (Beirat) of Hartek will resign without any claim for compensation. POST-COMPLETION UNDERTAKINGS 6.2.1 The parties agree that Hartwall Bolagen and the Purchaser on behalf of the Companies or the Companies directly with Hartwall Bolagen shall from time to time negotiate at regular intervals over a three-year period from the Transfer Date for continued sales by the Companies on arms-length terms of such proportion of the Vendor Group's requirements of the Companies' products as may be appropriate having regard to market conditions and to the extent that it shall be lawful to do. 6.2.2 If after the Transfer Date a creditor of Cascade or Kall requires Hartek pursuant to Section 303 (1) of the German Stock Corporation Act to provide to it collateral in respect of a claim it has or alleges it has against Cascade or Kall, the Purchaser shall notify the Vendor thereof whereupon the Vendor shall promptly provide or make available to that creditor collateral within the meaning of Section 303 (1) of the Stock Corporation Act. The Vendor undertakes to indemnify Hartek or the Purchaser (as the Purchaser may elect) on first written demand against any costs or losses Hartek may incur as a result of a creditor making any such claim against Hartek or of Cascade or Kall making any claim against Hartek under the Cascade Profit and Loss Participation Agreement or Kall Profit and Loss Participation Agreement (or any third party making a claim deriving therefrom). 6.2.3 The Vendor shall, within thirty (30) days of notice from the Purchaser, reimburse the Purchaser for any accounts receivable of the Companies shown in the Completion Accounts which remain unpaid 180 days after the Transfer Date to the extent that the aggregate amount remaining unpaid exceeds the provision for bad debts contained in the Completion Accounts. The maximum liability of the Vendor under this clause 6.2.3 shall not exceed DM 500,000 (five hundred thousand deutschmarks) in aggregate. TAX TAX INDEMNITY 7.1 The Vendor shall indemnify the Companies from, and hold the Companies harmless in respect of any Tax Liability (as defined in clause 7.2.2 below) which exists on the Transfer Date, or which arises from or relates to acts, omissions or circumstances in the period prior to the Transfer Date except to the extent that provisions in respect of the Tax Liability (as defined in clause 7.2.2 below) have been made in the Completion Accounts. DEFINITIONS 7.2 For the purposes of this Agreement, the following terms shall have the following meaning: 7.2.1 TAX shall include: -14- 15 (a) any tax (Steuern) within the meaning of ss.3 sub-paragraphs (1) and (2) of the German Tax Procedure Act (Abgabenordnung); (b) social security payments (Sozialversicherungsbeitrage); (c) payments to the Association for the Guaranty of Pensions in Cases of Bankruptcy (Pensionssicherungsverein), together with any payment relating to any of the above including interest, costs, penalties, late payment charges, late filing charges and any comparable obligations (steuerliche Nebenleistungen) within the meaning of ss.3 sub-paragraph (3) of the German Tax Procedure Act. 7.2.2 For the purposes of this Agreement TAX LIABILITY shall mean: (a) any liability of any of the Companies to make a payment of or relating to Tax (in this event the Tax Liability shall be equal to the amount so payable); and (b) the loss (full or partial) of (i) any right to repayment in respect of Tax (or the right to set off any right to repayment of Tax against any Tax Liability) to the extent such right is included in the Completion Accounts (in this event the Tax Liability shall be equal to the amount of the right so lost); and (ii) any allowance, depreciation (Abschreibung), credit, deduction or exemption relevant to the computation of any income, profits or gains and net worth (Vermogen) for the purposes of any Tax payable by any of the Companies (in this event the Tax Liability shall be calculated on the assumption that the allowance, credit or exemption can be used immediately) by any of the Companies; and (c) any disadvantage of any of the Companies relating to Tax which results from an assessment of the equity breakdown (Bescheid uber die Feststellung des verwendbaren Eigenkapitals) of the respective Company deviating from that shown in the tax return of that Company for the financial year ending as at 31 December 1994 (in this event the Tax Liability shall be calculated on the assumption that such disadvantage materializes immediately). NOTIFICATION OF CLAIMS AND CONDUCT OF DISPUTES 7.3 If the Purchaser becomes aware that any Tax Liability will give rise to a claim against the Vendor under clause 7.1 above, the Purchaser shall notify the Vendor thereof without undue delay (unverzuglich) and shall take such action as the Vendor may request to dispute the relevant assessment of Tax. The Purchaser shall, however, only be obliged to take such action if he is promptly indemnified from or secured to his reasonable satisfaction by the Vendor against all losses, costs, damages and expenses that may result from such action. -15- 16 TAX AUDIT/RIGHT OF INSPECTION 7.4 The Purchaser shall inform the Vendor in due course of any impending tax audit relating to financial years of any of the Companies ending on or before the Transfer Date and the Vendor shall be entitled to inspect all tax audit reports and to participate in all discussions with tax auditors relating to such financial years. TAX REPAYMENTS 7.5 If, in respect of any financial period of either of the Companies expiring on or prior to the Transfer Date either of the Companies receives after the Transfer Date a repayment in respect of Tax then, except to the extent a right to receive such repayment was included in the Completion Accounts, the Purchaser shall pay to the Vendor an amount equal to the actual repayment received by either of the Companies within thirty (30) days of receipt thereof. NON-COMPETE RESTRICTION ON COMPETITION 8.1 During a period of five (5) years from the Transfer Date, the Vendor shall not and shall procure that each other member of the Vendor Group shall not (whether directly or indirectly) carry on or be engaged in or (except as the owner for investment purposes of securities listed on a stock exchange and not exceeding three (3) per cent in nominal value of the securities of the listed issuer in question) be interested in any business: (a) which competes, directly or indirectly, with the Hartek Business and/or the Hartek Awagem Business; and (b) which is carried on in the Federal Republic of Germany and/or Austria. NO SOLICITATION 8.2 The Vendor shall not (and shall procure that each other member of the Vendor Group shall not) within a period of three (3) years after the Transfer Date, directly or indirectly, solicit or endeavour to entice away from the Companies any person who was employed by any of the Companies in skilled or managerial work at any time during the three (3) years prior to the Transfer Date. PENALTY 8.3 The Vendor shall pay to the Purchaser for each case of a breach of: (a) clause 8.1 an amount equal to 10% of the turnover generated by the activity carried out in breach of such provision, but in any case a minimum amount of DM 100,000. In the event of a recurring breach, a minimum penalty in the amount of DM 100,000 will be payable for each week of the breach; (b) clause 8.2 an amount equal to the sum of five times the aggregate of the annual salary and the value in Deutschmarks of any fringe benefits of the respective person. -16- 17 The right to claim damages or to demand specific performance in the event of a breach of this clause 8 remains with the Purchaser. GUARANTEES GUARANTEE 9.1 The Vendor and the Guarantor jointly and severally represent, warrant (sichern zu) and guarantee (garantieren) to the Purchaser as an independent contractual obligation (im Wege eines selbstandigen Garantievertrages) that the statements (the Statements) contained in clauses 9.2 to 9.28 below are correct and not misleading as of the date of signing of this Agreement and as of the Transfer Date (with reference to the facts then existing). RECITALS, APPENDICES 9.2 The information contained in the Preamble and Appendices to this Agreement is complete and correct in all material respects. Appendices to this Agreement are true and complete copies of the documents in question. CORPORATE SHARES 9.3 The Vendor is the sole owner of the Shares. The Shares are in good legal standing and have no defect in title (Rechtsmangel). The Shares (and all other equity shares in either of the Companies which have been issued in the past, whether or not still in existence) have been fully paid up in cash and have not been repaid in whole or in part. The Shares carry full dividend entitlement as at 1 January 1995. No obligation exists in respect of the Shares or otherwise to pay in further capital. There are no rights or claims to issue or grant any shares or equity interests in the Companies. RIGHTS OF THIRD PARTIES 9.4 The Shares are free from any rights or claims of third parties and are not subject to any option, preemption right or right of first refusal. The Vendor is entitled to transfer the Shares as contemplated by this Agreement to the Purchaser without any third party's consent. The Shares do not represent all or substantially all of the Vendor's assets within the meaning of Section 419 of the German Civil Code. ENTERPRISE AGREEMENTS 9.5 None of the Companies is party to, or committed to enter into, any enterprise agreement. The Group Cost Agreement will end on the Transfer Date. BOOKS AND RECORDS 9.6 To the Vendor's Best Knowledge, all books and records of the Companies are complete and correct, have been maintained with the care of a conscientious businessman and the principle of proper bookkeeping. -17- 18 FINANCIAL ACCOUNTS 9.7.1 Subject to clause 9.7.2, the Accounts of Hartek and Hartek Awagem for the financial years 1992 (APPENDIX 10), 1993 (APPENDIX 11) and 1994 (APPENDIX 12) have been prepared on the basis of proper bookkeeping (aufgrund ordnungsgemasser Buchfuhrung) and in relation to Hartek in accordance with the German Accounting Principles and in relation to Hartek Awagem in accordance with the Austrian Accounting Principles and, in each case, have been prepared consistently, both in form and substance with the accounts for the relevant preceding financial year of the Companies. The Accounts give a true and fair view of the net worth (Vermogenslage), financial position (Finanzlage) and the results (Ertragslage) of the Companies (in relation to Hartek within the meaning of ss. 264 sub-paragraph (2) of the German Commercial Code and in relation to Hartek Awagem within the meaning of the equivalent terms of the Austrian Accounting Law (Rechnungslegungsgesetz)) as at, and for the financial year ending on the respective Accounts Date. As at the relevant Accounts Date, none of the Companies had liabilities, actual or contingent, known or unknown, and whether or not already existing, other than those shown in the said Accounts. The results of none of the Companies have been affected by any extraordinary profits in relation to Hartek within the meaning of ss. 277 sub-paragraph (4) of the German Commercial Code and in relation to Hartek Awagem, other than as is expressly disclosed in the Accounts affected thereby. 9.7.2 For the avoidance of doubt, the Purchaser acknowledges for the purposes of clause 9.7.1 that each of the Companies has been restructured since the respective Accounts Dates and that such Accounts do not reflect the effects of any restructuring which has taken place after the Accounts Date to which they relate. The Vendor has disclosed to the Purchaser full particulars of all such restructurings. WORKING CAPITAL/CASH 9.8 The Companies have cash reserves of DM1,000,000 (one million deutschmarks) on a consolidated basis as at the Transfer Date as shown in the Completion Accounts. DEBTS 9.9 There are no debts owing to any of the Companies other than trade debts incurred in the ordinary and usual course of business of the Companies. ACCOUNTS RECEIVABLE, BORROWINGS 9.10.1 None of the Companies has outstanding any borrowing or indebtedness in the nature of borrowing other than moneys borrowed from Deutsche Bank and Volksbank Remscheid eG which do not exceed DM10,000,000 and certain details of which are set out in APPENDIX 13. 9.10.2 None of the Companies has received any notice to repay under any Agreement relating to any borrowing or indebtedness in the nature of borrowing which is repayable on demand. -18- 19 GUARANTEES, COMFORT LETTERS 9.11 None of the Companies has issued any guarantees and/or letters of comfort or similar instruments securing the payment of monies by third parties. ASSETS ASSET OWNERSHIP 9.12 Other than in the ordinary course of business, except for the assets listed in APPENDIX 14 all assets included in the Completion Accounts are fully and solely owned by the Companies and free of any rights of third parties. POSSESSION 9.13 Other than consignment stock as listed in APPENDIX 15 (as at 30 November 1995) and items possessed by third parties in the ordinary cause of business, all of the assets owned by the Companies, or in respect of which the Companies have a right of use, are in the possession of the Companies. DEPENDENCY 9.14 To the Vendor's Best Knowledge the assets of the Companies and the facilities and services to which the Companies have a contractual right include all rights, properties, assets, facilities and services relevant to the carrying on of the business of the Companies in the manner in which it is currently carried on. Where any assets are used but not owned by the Companies or any facilities or services are provided to the Companies by any third party, they are provided on the basis of arm's length agreements. CONDITIONS OF ASSETS 9.15 All the plant, machinery, equipment and vehicles used by the Companies: (a) are in a good state of repair and have been regularly and properly maintained in accordance with all relevant technical specifications, safety regulations and the terms and conditions of any applicable agreement, provided, however, that normal wear and tear as well as past depreciation and actual book value will be taken into consideration; (b) are capable of being efficiently and properly used for the purposes (pound)or which they were acquired or are retained. PLANT REGISTER 9.16 The plant registries of the Companies comprise a complete and accurate record of all the plant, machinery, equipment and vehicles owned or possessed by the Companies. -19- 20 REAL PROPERTY 9.17.1 The Companies have sole and unrestricted title to, and sole possession of, the Plant Premises. Up-to-date extracts from the relevant Land Registers in respect of the Plant Premises are attached as APPENDIX 16. The Companies have not sold, and are not committed to transfer, any or all of the Plant Premises. None of the Companies owns any real property other than the Plant Premises. The Leased Premises are listed in APPENDIX 17. The Leased Premises are used on the basis of valid lease agreements and all buildings thereon are in such condition as corresponds to the relevant lease Agreement. 9.17.2 The Companies have neither granted nor have they committed to grant any encumbrances, restrictions or rights of third parties in relation to the Plant Premises, except for those shown in the extracts from the relevant Land Registers attached as APPENDIX 16. All mortgages (Grundschulden, Hypotheken) listed in relation to Hartek in Part III of the Land Register extracts (APPENDIX 16) secure only liabilities of the Companies which will be fully shown in the Completion Accounts. The Companies have an unconditional right to require the release of any such mortgage or encumbrance if and when the liability secured ceases to exist. 9.17.3 To the Vendor's Best Knowledge, the Buildings do not encroach on property owned by third parties and all permits, licenses etc. required in relation to the Buildings have been properly granted, are of unlimited term and in full force and effect and all conditions attaching to them are, and always have been, duly complied with in all material respects. To the Vendor's Best Knowledge, the condition and the present use of the Plant Premises including the Buildings do not violate any zoning plans, building regulations or other legal provisions. CONNECTED PARTIES 9.18.1 Except as listed in APPENDIX 18 the Companies have no liabilities to, or for the benefit of, any member of the Vendor Group. 9.18.2 No member of the Vendor Group, at the time of signing of this Agreement, holds an interest in an enterprise which is engaged in the same area of activity as the Companies in the Federal Republic of Germany/Austria. 9.18.3 None of the Companies has any subsidiary or holds any majority or minority interest in another company or enterprise. Hartek's former interests in Cascade and Kall have been (or will have been, not later than the Transfer Date) sold by Hartek at book value and the Cascade Profit and Loss Participation Agreement as well as the Kall Profit and Loss Participation Agreement have been (or will have been, not later than the Transfer Date) validly and irrevocably terminated. 9.18.4 Hartek is not subject to any liabilities resulting from the Cascade Profit and Loss Participation Agreement and/or the Kall Profit and Loss Participation Agreement nor from the former domination and profit and loss participation agreements between Hartek and Kall Schankanlagen GmbH and/or between Hartek and Kall Mix-Drink-GmbH. ENVIRONMENT 9.19.1 To the Vendor's Best Knowledge there is not currently and there has not been on, into or from any of the Plant Premises or Leased Premises any spill, leakage, discharge, release, emission, injection, -20- 21 escape or deposit of any kind (whether to air, water (including underground water), sewage systems or land or a combination of these) of any substance or energy which may require investigation or remediation and which may result in any liability of any of the Companies or inhibit, restrict or make materially more costly any redevelopment of any of the Plant Premises or Leased Premises or any part thereof. 9.19.2 To the Vendor's Best Knowledge and except as listed in APPENDIX 19 there are no underground storage tanks or vessels (whether used or disused) located on any of the Plant Premises or Leased Premises. 9.19.3 To the Vendor's Best Knowledge none of the Companies has any obligation or liability, absolute or contingent, known or unknown, with respect to the storage, treatment, clean-up, disposal, containment or other remediation of any land, building, water or substance. 9.19.4 All environmental audits and reviews of each of the Companies, its business or the Plant Premises or the Leased Premises have been fully disclosed to the Purchaser. 9.19.5 There has not been on, into or from the former premises at Blau-Kreuz-Heim Strasse 19, 57299 Burbach-Holzhausen any spill, leakage, discharge, release, emission, injection, escape or deposit of any kind (whether to air, water (including underground water), sewage systems or land or a combination of these) of any substance or energy which may require investigation or remediation and which may result in any liability of any of the Companies. INDUSTRIAL PROPERTY RIGHTS 9.20.1 The Companies do not own any Industrial Property Rights. To the Vendor's Best Knowledge none of the Companies intends to use or requires the use of any Industrial Property Rights. To the Vendor's Best Knowledge, none of the Companies infringes any Industrial Property Rights (or use any confidential information) of third parties. 9.20.2 No third party has been granted by any of the Companies a right to use any Industrial Property Right or the firm name of any of the Companies or any destined part thereof other than as set out in APPENDIX 20. 9.20.3 To the Vendor's Best Knowledge, there is no liability of any of the Companies (actual or contingent) under any statutory employee inventor compensation provision (including, in particular, the Arbeitnehmererfindungsgesetz), or like employee inventor compensation provision, in any jurisdiction. COMPLIANCE 9.21.1 To the Vendor's Best Knowledge: (a) each of the Companies has obtained all Licenses; (b) the Licenses are in full force and effect, are not limited in duration and not subject to any unusual or onerous conditions; (c) the Licenses are (and have always been) complied with in all material respects; -21- 22 (d) there are no circumstances which indicate that any of such Licenses may be revoked or not renewed, in whole or in part, in the ordinary course of events (whether as a result of the acquisition of the Shares or otherwise); and (e) the supply of water and energy is sufficient for the Companies's current requirements and any planned increases of production and the disposal of waste water is assured to the same degree. 9.21.2. The business operation of the Companies does not infringe any statutory provisions or rights of third parties and the Companies have complied with all their statutory obligations. 9.21.3 To the Vendor's Best Knowledge: (a) none of the Companies has manufactured, sold or supplied any product or service which is, or will become faulty (fehlerhaft) where the respective Company does not have a valid and enforceable claim for indemnification from any claim and liability resulting therefrom under product liability insurance; (b) all products manufactured or distributed by any of the Companies comply with all relevant legal provisions and technical standards (such as DIN); and (c) no change or amendment to any such legal provision or technical standards is currently planned which (once in force) will have the result that the products currently manufactured or distributed by any of the Companies would not comply with such standards and requirements as so amended. EMPLOYMENT, PENSIONS 9.22.1 APPENDIX 21 sets forth a list of all employees of the Companies with aggregate annual compensation including fringe benefits and bonuses in excess of DM100,000 containing information as to the name, position, date of commencement of employment, salary, date of birth, notice period as well as all other remuneration, bonuses and benefits. None of the Companies has agreed to any variation of the terms of any employment or service Agreement. The Companies do not have any standard terms of employment. All shop agreements (Betriebsvereinbarungen) and other commitments and practices (Betgriebliche Ubung) applicable to any of the Companies or its employees (in whole or in part) are listed or contained in APPENDIX 22. The Companies may at any time discontinue their operations at certain locations, reduce their workforce, cease to employ employees and to implement operational changes (in relation to Hartek within the meaning of Section 111 of the Shop Constitution Act) subject only to the restrictions under applicable statutory law and collective bargaining agreements. 9.22.2 None of the Companies has any absolute or contingent liabilities arising from termination of employment or service agreements, early retirement or pension contracts, commitments or schemes (including any direct pension promise, direct insurance or through the setting up of a support fund or pension fund) other than as listed in APPENDIX 23. 9.22.3 The provisions (Ruckstellungen) made in the Completion Accounts for pension obligations of the Companies are correct and sufficient to cover all the respective pension obligations of the Companies under agreements to which any of the Companies is a party at the Transfer Date. -22- 23 9.22.4 APPENDIX 24 contains a list of all powers of attorney (including Prokura und Handlungsvollmachten) as well as charts of all signatory authorities (Zeichnungsberechtigung) granted by the Companies. 9.22.5 To the best knowledge of the Vendor and Hartwall Bolagen, Mr Klein does not intend to resign and to the Vendor's Best Knowledge, no senior employee of the Companies intends to resign in either case as a result of the acquisition of the Shares by the Purchaser or other performance of the terms of this Agreement. INSURANCES 9.23 The Policies are in full force and effect and will remain so for a period of not less than two (2) months following the Transfer Date. All premiums payable under the Policies on or prior to the Transfer Date have been or will be paid when due. OPERATION OF BUSINESS 9.24 None of the Companies is restricted in the operation of its business to compete with other parties or in the purchasing or acquiring assets other than as provided under applicable statutory law. CONTRACTUAL MATTERS 9.25.1 Except as specified in APPENDIX 25 there is no Agreement to which any of the Companies is a party: (a) which, by virtue of the sale and transfer of the Shares or other performance of the terms of this Agreement, may be adversely affected; (b) entered into otherwise than by way of a bargain at arm's length or is otherwise of an unusual or uncommon nature; (c) is not enforceable by the Companies in accordance with its terms and conditions; (d) which upon termination will result in a liability of any of the Companies to make a compensation, penalty or termination payment; (e) which involves or is likely to involve expenditure by, or income of any of the Companies in excess of DM 250,000 or, in the case of long-term agreements, DM 250,000 per annum. 9.25.2 To the Vendor's Best Knowledge, neither the Companies nor a party with whom any of the Companies has entered into any Agreement, is in material default under such Agreement and there are no circumstances likely to give rise to any such default, provided that this clause 9.25.2 shall only relate to agreements of material and essential nature to the operations and/or conduct of business of any of the Companies. -23- 24 INSOLVENCY/LITIGATION 9.26.1 None of the Companies is insolvent (in relation to Hartek within the meaning of Section 102 of the German Bankruptcy Code and in relation to Hartek Awagem within the meaning of the corresponding Austrian statutes) or over-indebted (in relation to Hartek within the meaning of Section 64 subparagraph 1 sentence 2 of the GmbHG and in relation to Hartek Awagem within the meaning of the corresponding Austrian statutes). No application for the opening of a bankruptcy proceeding (Konkursverfahren) or composition proceeding (Vergleichsverfahren) in respect of any of the Companies has been filed. 9.26.2 To the Vendor's Best Knowledge, none of the Companies is a plaintiff or defendant in or otherwise a party to any litigation, arbitration or administrative proceedings nor are there any litigation, arbitration or administrative proceedings threatened and there are no circumstances likely to give rise to any such proceedings, provided that this clause 9.26.2 shall only apply to litigious or other proceedings which are outside the ordinary course of business of any of the Companies. RECENT EVENTS 9.27 Since 31 December 1994 (a) subject to the merger between Hartek and Kall-Mix-Drink GmbH in 1995, each of the Companies has carried on its business only in the ordinary and regular course (gewohnlicher und ordnungsgemasser Geschaftsbetrieb), on an arm's length basis and without interrupting or changing its nature, scope or manner; (b) none of the Companies has transferred to any third party any part or line of its business or any business opportunities; (c) there has been no material deterioration in the prospects or (except in the case of Hartek Awagem which anticipates a temporary shortfall in profits for the financial period ending on the Transfer Date) in the financial or business position or prospects or turnover of any of the Companies; (d) no event of damage has arisen which affects the value of any of the Companies' assets or the operation of their business to a material extent; and (e) no significant customer of or supplier to any of the Companies has ceased, or has indicated an intention to cease to deal (or to deal on a materially smaller scale) with the respective Company and, to the Best Knowledge of the Vendor, no such person is likely to do so. DISCLOSURE 9.28 To the Vendor's Best Knowledge, all facts and circumstances material to the assets, business, operations, financial condition or prospects of any of the Companies have been disclosed to the Purchaser in this Agreement. -24- 25 PURCHASER'S RIGHTS BREACH OF GUARANTEES 10.1. If any of the Statements is wholly or partly incorrect, incomplete or misleading, the Vendor and the Guarantor shall jointly and severally indemnify and hold the Purchaser or, if the Purchaser so elects, any of the Companies or both harmless in respect of all liabilities, losses or damages resulting therefrom and in any case pay to the Purchaser or the Company or Companies, as the Purchaser elects, a sum equal to the amount which is necessary to put the Purchaser and the Company or Companies, as the case may be, into the position they would have been in had the Statements been correct, complete and not misleading (positives Interesse). PURCHASER'S KNOWLEDGE 10.2 Any investigation made by, or knowledge of, the Purchaser and/or any of its advisers and/or any Managing Director or employee of any of the Companies shall not affect any rights and claims the Purchaser or any of the Companies may have against the Vendor. LIMITATIONS TIME LIMITATION 11.1 The Vendor shall not be liable in respect of any claims arising under clauses 7.1 or 10.1, unless the Purchaser has given notice in writing of the alleged claim to the Vendor: (a) in the case of clause 7.1 above, within a period of four (4) months following the date of the assessments (or amended assessments) or the relevant administrative decisions or other measures of the tax or other authorities which result in any Tax Liability becoming unappealable (unanfechtbar wird); and (b) in the case of clause 10.1 above within a period of eighteen (18) months beginning on the Transfer Date. OTHER LIMITATIONS 11.2.1 Claims under clause 10 and clause 17 can be made only: (a) if the amount of the particular claim resulting from a certain set of facts exceeds DM 50,000; (b) if the total amount of claims exceeding DM 50,000 exceeds an aggregate of DM 200,000 it being understood that if such threshold is exceeded, not only the amount of the claims exceeding such threshold but all claims can be made; and (c) to the extent that the total amount of claims will not exceed DM 8,000,000 (eight million deutschmarks). 11.2.2 Claims may be brought under clause 10 and clause 17 only to the extent that the matter is not specifically provided or reserved for in the Completion Accounts. -25- 26 NON-APPLICABILITY OF LIMITATIONS 11.3 None of the limitations or exclusions of rights contained in clauses 11.1 and 11.2 above shall apply to a claim which is the result of fraud or wilful concealment on the part of the Vendor. INTERIM PERIOD 12. In the period from the date hereof to the Transfer Date, the Vendor shall ensure (except to the extent otherwise agreed in writing with the Purchaser) that: (a) the Companies shall carry on their business only in the ordinary and usual course and on arm's length terms; (b) the Purchaser's representatives shall be allowed, upon reasonable notice and during normal business hours, access to the books and records of the Companies together with the right to take copies; (c) no steps are taken or omissions made by it or the Companies which would result in any Statement being incorrect, incomplete or misleading if the Statement was repeated on or at any time before the Transfer Date by reference to the facts and circumstances then existing; (d) none of the Companies enters into any commitment (or makes an offer which may lead to a contract or commitment) having a value or involving expenditure in excess of DM 200,000 or which is of a long term or unusual nature or which could involve an obligation of a material nature or which may result in any material change in the nature or scope of its operations; and (e) none of the Companies acquires or disposes of, or agrees to acquire or dispose of; any business or any asset having a value in excess of DM 200,000 or enters into any Agreement, contract, arrangement or transaction (whether or not legally binding) other than in the ordinary and usual course of business. RIGHT TO NAME 13. The Vendor agrees that the Companies and any enterprise from time to time connected with them within the meaning of Section 15 of the German Stock Corporation Act shall continue to be entitled to use the Companies' current firm names or similar names as part of their firm names after the Transfer Date. PUBLICITY 14. Except as may be required by any applicable law or regulations (including those of stock exchanges in the U.S.A. and Finland), no announcement or disclosure in connection with the subject-matter or about any terms or conditions of this Agreement shall be made by any party hereto without the prior written consent of the other parties. CONFIDENTIALITY 15. The Vendor shall, and shall ensure that all members of the Vendor Group (including all of their respective employees, advisers etc.) keep confidential and shall not, without the express written -26- 27 permission of the Purchaser, use at any time to the detriment of the Companies or the Purchaser any business secrets or other confidential information in respect of the Companies. For each case of a breach of this provision, the Vendor shall pay to the Purchaser a penalty in the amount of DM 100,000.00 (in words: one hundred thousand deutschmark). The provisions of this clause 15 shall be without prejudice to any rights the Purchaser may have to claim damages or to demand specific performance. Notwithstanding the first sentence of this clause 15, the Vendor shall be under no duty of confidentiality in respect of information which they can demonstrate: (a) is, at the time of disclosure, in the public domain; or (b) has been lawfully disclosed by third parties who did not impose any restrictions on its further disclosure or use; or (c) is required to be disclosed under any law, rule or regulation, or by any judgement, or order of any court or governmental body or agency having jurisdiction over the Vendor. PARENT COMPANIES GUARANTEES 16.1 Hartwall Bolagen hereby unconditionally and irrevocably guarantees as an independent contractual obligation (im Wege eines selbstandigen Garantievertrages) the proper and punctual performance by the Vendor of all its obligations under or pursuant to this Agreement. 16.2 Scotsman hereby unconditionally and irrevocably guarantees as an independent contractual obligation (im Wege eines selbstandigen Garantievertrages) the proper and punctual performance by the Purchaser of all its obligations under or pursuant to this Agreement. OTHER REMEDIES 17. The remedies stipulated in this Agreement for the breach of any warranty, guarantee or other obligation of any of the parties hereto shall not exclude the application of any further remedy provided for under German or Austrian law in relation to the fulfillment or breach of any obligation hereunder Provided however that any right of the Purchaser to withdraw from the Agreement (Rucktrittsrecht) is expressly excluded and the provisions of clause 11.2.1(c) shall apply (mutatis mutandis) to remedies under this clause 17. COSTS 18. Each party shall bear its own costs (in each case including the costs of legal, financial and other advisers) incurred in connection with the negotiation, preparation and implementation of this Agreement. The Purchaser shall bear the costs incurred in connection with the notarization of this Agreement. NOTICES WRITTEN NOTICES 19.1 Any notice or other communication to be given under this Agreement shall be in writing and signed by or on behalf of the party giving it and may be served by sending it by fax or registered post to the address and for the attention of the relevant party set out in clause 19.2 (or as otherwise notified -27- 28 from time to time hereunder). Any notice so served by fax or post shall be deemed to have been received: (a) in the case of fax, twelve (12) hours after the time of despatch; (b) in the case of registered post, three days (3) from the date of posting. ADDRESSES 19.2 The addresses of the parties for the purpose of clause 19.1 are as follows: (a) THE VENDOR: Address: Fokkerstraat 11, 2811 Reeuwijk Netherlands For the attention of: Mr E. Hartwall (b) THE PURCHASER: Address: 775 Corporate Woods Parkway Vernon Hills, Illinois 60061, USA For the attention of: Mr D. Holmes Fax: 001 708 634 8823 (c) HARTWALL BOLAGEN: Address: 00390 Helsinki 39 Finland For the attention of: Mr E. Hartwall Fax: 00358 054 02420 (d) SCOTSMAN: Address: 775 Corporate Woods Parkway Vernon Hills, Illinois 60061, USA For the attention of: Mr D. Holmes Fax: 001 708 634 8823 -28- 29 SEVERABILITY, ENTIRE AGREEMENT, VARIATION SEVERABILITY 20.1 If any provision of this Agreement (or any part thereof) is or becomes invalid, unenforceable or impracticable in whole or in part, the other provisions of this Agreement shall not be affected thereby. The invalid, unenforceable or impracticable provision shall be deemed to be replaced by a valid, enforceable and practicable provision the effect of which is as close as possible to the intended effect of the invalid, unenforceable or impracticable provision. ENTIRE AGREEMENT 20.2 This Agreement sets forth the entire understanding between the parties regarding the subject-matter hereof Modifications or supplements to this Agreement are not binding unless they are executed in the legally required form and in any case in writing. The same applies to any modification or waiver of the requirements of this clause 20.2. GOVERNING LAW, ARBITRATION, MISCELLANEOUS GOVERNING LAW 21.1 This Agreement shall be governed by the laws of the Federal Republic of Germany and in relation to the assignment (dinglicher Rechtsubergang) of the Hartek Awagem Shares by the relevant mandatory provisions of Austrian law. ARBITRATION 21.2 All disputes arising in relation to or in connection with the present Agreement, or for the breach thereof, shall be finally settled under the then valid Rules of Conciliation and Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with the said Rules. The arbitration shall take place in Dusseldorf, Germany and shall be conducted in the English language. The Vendor and Hartwall Bolagen shall be jointly entitled to appoint not more than one arbitrator. The Purchaser and Scotsman shall be jointly entitled to appoint not more than one arbitrator. ANCILLARY ACTS 21.3 The Vendor shall take all such measures as the Purchaser may from time to time reasonably require for the purpose of making the transfer of the Shares effective. The Vendor shall, upon reimbursement of reasonable costs and expenses incurred in connection therewith, assist the Purchaser in the enforcement of any rights against third parties, and in the defence of any claims brought by third parties, in relation to the Companies. TRANSFER OF RIGHTS AND OBLIGATIONS UNDER THIS AGREEMENT 21.4 The Purchaser shall be entitled, after payment of the Purchase Price in accordance with clause 4.2, to transfer all rights and obligations under this Agreement to any of its affiliates (Vertragsubernahme) and the Vendor hereby irrevocably consents to any such transfer. -29- 30 RIGHT OF CLAIM 21.5 Any of the Companies may bring claims against the Vendor under all provisions in this Agreement which operate to the benefit of the Companies and/or their affairs (Vertrag zu Gunsten Dritter) provided the Purchaser has given its consent thereto. Frankfurt am Main, 21 December 1995 /s/ E. Hartwall /s/ D. Holmes - --------------------------------- ------------------------ HARTEK BEVERAGE HANDLING B.V. SCOTSMAN GROUP INC. AS VENDOR AS PURCHASER /s/ E. Hartwall /s/ D. Holmes - --------------------------------- ------------------------ HARTWALL BOLAGEN AB SCOTSMAN INDUSTRIES INC. AS GUARANTOR AS GUARANTOR The above Agreement is hereby confirmed by the Parties to it after the assignment of the Shares in notarized form on 21 December 1995 at 3.48 pm. /s/ E. Hartwall /s/ D. Holmes - --------------------------------- ------------------------ HARTEK BEVERAGE HANDLING B.V. SCOTSMAN GROUP, INC. AS VENDOR AS PURCHASER /s/ E. Hartwall /s/ D. Holmes - --------------------------------- ------------------------ HARTWALL BOLAGEN AB SCOTSMAN INDUSTRIES INC. AS GUARANTOR AS GUARANTOR The above Agreement is hereby confirmed by the Parties to it again after the assignment of the Shares (including the notarization of assignment of the Hartek Awagem Shares) at 4.30 p.m. /s/ E. Hartwall /s/ D. Holmes - --------------------------------- ------------------------ HARTEK BEVERAGE HANDLING B.V. SCOTSMAN GROUP, INC. AS VENDOR AS PURCHASER /s/ E. Hartwall /s/ D. Holmes - --------------------------------- ------------------------ HARTWALL BOLAGEN AB SCOTSMAN INDUSTRIES INC. AS GUARANTOR AS GUARANTOR -30- EX-10.8 3 PROMISSORY NOTES 1 EXHIBIT 10.8 TAX I.D. NO. 36-3635935 PROMISSORY NOTE $5,000,000.00 Detroit, Michigan June 30, 1995 On or before June 30, 1996, FOR VALUE RECEIVED, the undersigned, SCOTSMAN GROUP INC., a Delaware corporation (herein called "Maker") promises to pay to the order of COMERICA BANK-ILLINOIS, an Illinois banking corporation (herein called "Bank"), at the principal office of Bank at Franklin Park, Illinois, in lawful currency of the United States of America, FIVE MILLION DOLLARS ($5,000,000.00) or so much of said sum as has been advanced and is then outstanding hereunder, together with interest thereon as hereinafter set forth. This Note is a note under which advances, repayments and new advances may be made from time to time, provided that Bank shall not be obligated to make any advance hereunder. Advances hereunder may be requested in Maker's discretion by telephonic notice to Bank or by submission of a request for advance in form annexed hereto as Exhibit "A". Any advance requested by telephonic notice (i) shall be made only to Account No. 1076111614 with Bank in the name of Maker or to such other account as Maker shall subsequently designate by written notice to Bank, and (ii) shall be confirmed by Maker that same day by submission to Bank by first class mail of the written request for advance aforementioned. Maker acknowledges that if Bank makes an advance based on a telephonic request, it shall be for Maker's convenience and all risks involved in the use of such procedure shall be borne by Maker, and Maker expressly agrees to indemnify and hold Bank harmless therefor. Bank shall have no duty to confirm the authority of anyone requesting an advance by telephone. Each advance outstanding under this Note from time to time shall bear interest at a per annum rate equal to Bank's prime rate established by Bank from time to time or such other rate accepted by Bank with respect thereto, and shall be payable upon the repayment date therefor. The amount, rate and repayment date of each advance shall be noted on Bank's records, which records will be prima facie evidence thereof, absent manifest error. Failure to pay any advance on its repayment date, without Bank's consent, shall constitute a default and such advance shall thereafter bear interest at three percent (3%) above said prime rate as it may vary from time to time until paid. Interest shall be computed on a daily basis using a year of 360 days and assessed for the actual number of days elapsed. Interest on each advance shall be payable monthly on the last day of each month in the case of a prime based advance, and in all other cases on the respective repayment date therefore which date shall not be later than the maturity date of this Note. This Note replaces the Promissory Note dated April 29, 1994 by Maker payable to Bank, which Promissory Note was a renewal of a certain Promissory Note dated June 17, 1993 in the principal amount of $5,000,000 by Maker payable to Bank. Whenever Bank deems itself insecure, or on default in payment of any liability hereunder, or upon the occurrence of any Default as defined under that Scotsman Group Inc. $90,000,000 Revolving Credit Agreement dated as of April 29, 1994, among Maker, The First National Bank of Chicago, as Agent, Bank, as lender, and the various banks listed on the signature pages thereof, the representations, warranties, covenants and default provisions of which are hereby incorporated by reference into this Note, 2 notwithstanding the earlier termination and expiration of said Revolving Credit Agreement, as said representations, warranties, covenants and default provisions may be amended from time to time in writing by and between the parties thereto, or upon any default in payment of any other liability of Maker to Bank and continuance thereof beyond any period of grace, if any, provided with respect thereto, the Bank may declare this Note due forthwith. Nothing herein shall limit any right granted Bank by other instrument or by law. SCOTSMAN GROUP INC. By: /s/ D. D. Holmes ------------------------------- Its: V. P. ------------------------------ -2- 3 EXHIBIT "A" REQUEST FOR ADVANCE TO: COMERICA BANK-ILLINOIS (the "Bank") The undersigned hereby requests an advance, or confirms such a request made by telephone, under the Five Million Dollar ($5,000,000.00) Promissory Note dated June 30, 1995, made by undersigned to the Bank, pursuant to the following terms: Advance Amount: $________________ Interest Rate: __________% per annum Advance Date: __________, 19__ Repayment Date:__________, 19__. The proceeds of this advance shall be or have been deposited to the Account No. _____________________ of the undersigned with the Bank or as follows________________________________. Undersigned warrant(s) that no condition exists or event has occurred which constitute or, with the giving of notice or the running of time, or both, would constitute a default under said Promissory Note or any related agreement with the Bank, and the undersigned further warrants that no Event of Default, or condition or event which, with the giving of notice or the running of time, or both, would have otherwise constituted a "Default" under that certain Scotsman Group Inc. Revolving Credit Agreement dated as of April 29, 1994, among the undersigned, The First National Bank of Chicago, as Agent, and the banks and other parties listed on the signature pages thereof (as amended from time to time in writing by and between the parties thereto), notwithstanding the earlier termination and expiration of said Credit Agreement, has occurred and is continuing as of the date hereof. Dated this _______ day of __________________, 19___. SCOTSMAN GROUP INC. By: ------------------------------- Its: ------------------------------ 4 TAX I.D. NO. 36-3635935 PROMISSORY NOTE $4,000,000.00 Detroit, Michigan June 30, 1995 On or before June 30, 1996, FOR VALUE RECEIVED, the undersigned, SCOTSMAN GROUP INC., a Delaware corporation (herein called "Maker") promises to pay to the order of COMERICA BANK-ILLINOIS, an Illinois banking corporation (herein called "Bank"), at the principal office of Bank at Franklin Park, Illinois, in lawful currency of the United States of America, FOUR MILLION DOLLARS ($4,000,000.00) or so much of said sum as has been advanced and is then outstanding hereunder, together with interest thereon as hereinafter set forth. This Note is a note under which advances, repayments and new advances may be made from time to time, provided that Bank shall not be obligated to make any advance hereunder. Advances hereunder may be requested in Maker's discretion by telephonic notice to Bank or by submission of a request for advance in form annexed hereto as Exhibit "A". Any advance requested by telephonic notice (i) shall be made only to Account No. 1076111614 with Bank in the name of Maker or to such other account as Maker shall subsequently designate by written notice to Bank, and (ii) shall be confirmed by Maker that same day by submission to Bank by first class mail of the written request for advance aforementioned. Maker acknowledges that if Bank makes an advance based on a telephonic request, it shall be for Maker's convenience and all risks involved in the use of such procedure shall be borne by Maker, and Maker expressly agrees to indemnify and hold Bank harmless therefor. Bank shall have no duty to confirm the authority of anyone requesting an advance by telephone. Each advance outstanding under this Note from time to time shall bear interest at a per annum rate equal to Bank's prime rate established by Bank from time to time or such other rate accepted by Bank with respect thereto, and shall be payable upon the repayment date therefor. The amount, rate and repayment date of each advance shall be noted on Bank's records, which records will be prima facie evidence thereof, absent manifest error. Failure to pay any advance on its repayment date, without Bank's consent, shall constitute a default and such advance shall thereafter bear interest at three percent (3%) above said prime rate as it may vary from time to time until paid. Interest shall be computed on a daily basis using a year of 360 days and assessed for the actual number of days elapsed. Interest on each advance shall be payable monthly on the last day of each month in the case of a prime based advance, and in all other cases on the respective repayment date therefore which date shall not be later than the maturity date of this Note. Whenever Bank deems itself insecure, or on default in payment of any liability hereunder, or upon the occurrence of any Default as defined under that Scotsman Group Inc. $90,000,000 Revolving Credit Agreement dated as of April 29, 1994, among Maker, The First National Bank of Chicago, as Agent, Bank, as lender, and the various banks listed on the signature pages thereof, the representations, warranties, covenants and default provisions of which are hereby incorporated by reference into this Note, notwithstanding the earlier termination and expiration of said Revolving Credit Agreement, as said representations, warranties, covenants and default provisions may be amended from time to time in writing by and between the parties thereto, or upon any default in payment of any other liability of Maker 5 to Bank and continuance thereof beyond any period of grace, if any, provided with respect thereto, the Bank may declare this Note due forthwith. Nothing herein shall limit any right granted Bank by other instrument or by law. SCOTSMAN GROUP INC. By: /s/ D. D. Holmes ------------------------------- Its: V. P. ------------------------------ -2- 6 EXHIBIT "A" REQUEST FOR ADVANCE TO: COMERICA BANK-ILLINOIS (the "Bank") The undersigned hereby requests an advance, or confirms such a request made by telephone, under the Four Million Dollar ($4,000,000.00) Promissory Note dated June 30, 1995, made by undersigned to the Bank, pursuant to the following terms: Advance Amount: $_______________ Interest Rate: ___% per annum Advance Date: __________, 19__ Repayment Date:__________, 19__. The proceeds of this advance shall be or have been deposited to the Account No. _____________________ of the undersigned with the Bank or as follows: _____________________________. Undersigned warrant(s) that no condition exists or event has occurred which constitute or, with the giving of notice or the running of time, or both, would constitute a default under said Promissory Note or any related agreement with the Bank, and the undersigned further warrants that no Event of Default, or condition or event which, with the giving of notice or the running of time, or both, would have otherwise constituted a "Default" under that certain Scotsman Group Inc. Revolving Credit Agreement dated as of April 29, 1994, among the undersigned, The First National Bank of Chicago, as Agent, and the banks and other parties listed on the signature pages thereof (as amended from time to time in writing by and between the parties thereto), notwithstanding the earlier termination and expiration of said Credit Agreement, has occurred and is continuing as of the date hereof. Dated this _______ day of __________________, 19___. SCOTSMAN GROUP INC. By: ------------------------------- Its: ------------------------------ 7 REAFFIRMATION OF GUARANTY AND CONSENT The undersigned has previously executed a Guaranty Agreement dated July 1, 1993 (the "Guaranty") in favor of COMERICA BANK-ILLINOIS (the "Lender") whereby the undersigned unconditionally guaranteed to Lender the payment and performance of any and all indebtedness, obligations and liabilities heretofore, now, or hereafter owed by Scotsman Group Inc., a Delaware corporation (the "Borrower") to Lender, including, without limitation, the payment and performance of Borrower's Promissory Note dated April 29, 1994 in the principal sum of $5,000,000 payable to the order of Lender with interest as therein described, with the entire unpaid principal balance and accrued interest due on June 30, 1995 (the "Revolving Note") evidencing a $5,000,000 guidance line of credit loan (the "Revolving Loan") extended by Lender to Borrower, and all loans and advances made by Lender to Borrower thereunder. The undersigned have been advised that Borrower has asked Lender to increase the Revolving Loan from $5,000,000 to $9,000,000 and extend the maturity date thereof to June 30, 1996, which would require the Borrower to execute two new Promissory Notes in the aggregate principal sum of $9,000,000 payable to the order of Lender with interest as therein described and with a maturity date of June 30, 1996 (the "New Notes"). The undersigned has reviewed the New Notes and fully understands the terms and provisions. To induce Lender to increase the Revolving Loan to $9,000,000 and extend the maturity date thereof to June 30, 1996 as aforesaid, the undersigned represents and warrants to the Lender with the intent that the Lender rely thereon, as follows: 1. The Guaranty is in full force and effect and is binding and enforceable against the undersigned in accordance with its terms; 2. The undersigned irrevocably consents and agrees to Borrower's execution, delivery and performance of the New Notes; 3. The liability of the undersigned to the Lender under the Guaranty shall in no way be affected, modified, altered, or discharged in any fashion by the Borrower's execution, delivery or performance of the New Notes; 4. The undersigned hereby restates and reaffirms all terms and provisions of the Guaranty as if set forth in full herein; and 5. The undersigned does not possess any claims, defenses, offsets, or counterclaims against the enforcement of the Guaranty, and the undersigned is, and shall remain, unconditionally liable under the Guaranty for all indebtedness, obligations, and liabilities heretofore, now or hereafter owed by Borrower 8 to Lender in accordance with the terms of the Guaranty, including, without limitation, the indebtedness evidenced by the New Notes, and all extensions, renewals, modification, and refinancings thereof. Dated: June 30, 1995 WITNESSES: SCOTSMAN INDUSTRIES, INC. /s/ Judy J. Peltekian By: /s/ D. D. Holmes - --------------------------------- -------------------------------------- /s/ Donna Manahan Its: V. P. - --------------------------------- ------------------------------------- -2- EX-10.13 4 SCOTSMAN IND. EXECUTIVE INCENTIVE PLAN B-1 1 EXHIBIT 10.13 February 16, 1996 SCOTSMAN INDUSTRIES, INC. 1996 EXECUTIVE INCENTIVE COMPENSATION PROGRAM PLAN B-1 PARTICIPANT___________ 1. General (a) This Plan for annual bonus, designed to provide increased incentive through additional compensation to selected key personnel, to be paid from profits to which such personnel have contributed by their services during the fiscal year, is declared effective for the bonus year ending December 31, 1995 to continue in effect thereafter from year to year unless amended or discontinued as hereinafter provided. (b) The Plan, as applicable to any current bonus year, may be amended, revised or discontinued by action of the Management Compensation Committee (the "Committee") of Scotsman Industries only if extraordinary factors occur during the year that would require restructuring of the Plan. (c) The bonus for the preceding bonus year shall be paid in cash to each participant, or in case of death, to his heirs or personal representatives, each year following completion of the regular annual audit by independent public accountants, which normally is completed before February 28. (d) A participant shall have no rights or obligations with respect to any completed bonus year by reason of adjustments applicable thereto made subsequent to determination of the bonus for such completed bonus year. No rights of any nature shall accrue to any participant or employee with respect to any future bonus year. (e) The Committee may at any time amend, revise or discontinue the Executive Incentive Compensation Program as applicable to subsequent bonus years. 2. Participants in Bonus (a) Participants shall include key personnel selected as herein provided. The Chairman, President and Chief Executive Officer of Scotsman Industries shall recommend to the Committee prior to March 1 of each year for its approval, revision or disapproval, lists of names of employees for participation in the bonus for the current bonus year. (b) The Chairman, President and Chief Executive Officer of Scotsman Industries may at any time during the bonus year recommend to the Committee additional names of employees for participation beginning at a fixed date in the year and upon approval by the 2 Executive Incentive Compensation Program Plan B-1 Page 2 Committee such employees shall participate in the bonus for that portion of the year subsequent to the fixed date. (c) The Chairman, President and Chief Executive Officer of Scotsman Industries may at any time during the bonus year recommend to the Committee the exclusion, for cause, of any employee from participation in the bonus for the year or for any portion thereof. Upon approval of the recommendation by the Committee, any such employee shall not participate in the bonus for such year or for any portion of the year subsequent to a date fixed by the Committee. (d) A participant who is separated from employment, for any reason, except death, disability, or retirement, prior to the end of the bonus year shall not participate in the bonus or any part thereof for the bonus year. However, the Chairman, President and Chief Executive Officer of Scotsman Industries may, at his sole discretion, recommend the separated employee to the Committee for participation for all or part of the bonus year. 3. Computation of Bonus (a) The actual bonus earned shall consist of two parts. Part I is discretionary subject to a maximum of 15.0%; Part II is the percentage of the Net Operating Income objective earned subject to a maximum bonus of 15.0%, the percentage of the ROI objective earned subject to a maximum bonus of 10.0% and the percentage of the Working Capital to Sales of 10.0%. For purposes of this Plan, the bonus percentages are set at various levels as follows:
BONUS PERCENTAGE EARNED ----------------------------------------------------- Cut-In Par Premium Maximum ------ --- ------- ------- Part I - Individual Performance Discretionary 0 7.5% 11.3% 15.0% Part II - Team Results Net Operating Income 0 7.5% 11.2% 15.0% Return on Investment 0 5.0% 7.5% 10.0% Working Capital to Sales 0 5.0% 7.5% 10.0% - ---- ---- ---- Total 0 25.0% 37.5% 50.0% = ==== ==== ====
The bonus percentage under Part II for attainment of objectives between any of the levels will be calculated on a pro rata basis. 3 Executive Incentive Compensation Program Plan B-1 Page 3 (b) The discretionary bonus earned by each participant shall vary from zero to a maximum of 15%. The percentage shall be recommended by the Chairman, President and Chief Executive Officer for approval or revision by the Committee. (c) The Net Operating Income, Return on Investment and Working Capital to Sales objectives for each Division will be established by the Committee in U.S. dollars. (d) The bonus payable to each participant shall be a percentage, as determined in paragraphs 3(a), 3(b), and 3(c), of the participant's bonus base. The maximum bonus payable under the Plan is 50% of the participant's bonus base. 4. Definitions (a) The Bonus Year is based on the accounting year used by Scotsman Industries. (b) A participant's bonus base shall be the amount of compensation received by an employee during that portion of the bonus year during which he/she is designated as a participant. For the purposes hereof, compensation shall be the participant's base rate compensation exclusive of bonuses payable hereunder, company contributions to a pension plan and any and all rights and benefits therein, or any other form of bonus, overtime, or such other payments as may be excluded by the Committee. (c) Division net operating income (NOI) shall be profit before taxes on income of each participating division for the bonus year, as determined in accordance with generally accepted accounting principles, adjusted to eliminate extraordinary gains and losses as determined by the Committee and interest expense/income on debt and investments. NOI will be measured on a LIFO basis covering U.S. operations and on a FIFO basis covering foreign operations. However, any U.S. operations with Corporate approved FIFO inventories will be measured on a FIFO basis covering those inventories. (d) Division average investment shall be the reported net assets of the division adjusted to eliminate cash balances, short and long-term investments including interdivision notes receivable, short and long-term debt including interdivision notes payable and obligations under capital leases, and accrued and deferred taxes on income. Division average investment may be adjusted to reflect extraordinary changes in the net investment as determined by the Committee. Inventories will be stated on a LIFO basis covering U.S. operations and on a FIFO basis covering foreign operations. (e) Working Capital to Sales shall be the percentage of the monthly average of the reported consolidated working capital to the annual sales of the participant's division excluding inter-division/inter-company transactions. Working Capital is defined as the net book value of the sum of trade accounts receivable, inventory and trade accounts payable. Average working capital will be based on month end balances starting with the ending balance of the preceding year and ending with the year end balance of the bonus year 4 Executive Incentive Compensation Program Plan B-1 Page 4 (average of 13 monthly balances), adjusted to eliminate extraordinary gains and losses determined by the Committee. EX-13 5 AR-MGMT DISCUSSION/ANALYSIS 1 EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Company generated cash from operating activities of $23.5 million in the fiscal year ended December 31, 1995 ("1995"), compared with $16.2 million in the prior year. Net income plus depreciation and amortization totaled $23.0 million in 1995, an increase of $4.2 million over the prior-year amount of $18.8 million. The Company's balance sheet at December 31, 1995, reflects the acquisition of Hartek Beverage Handling GmbH and its Austrian distributor ("Hartek") as of that date. The consolidated balance sheet included $12.9 million of assets and $6.4 million of debt relating to the Hartek acquisition. The Company's balance sheet and statement of cash flows for the prior year ended January 1, 1995 ("1994"), were impacted substantially by the acquisitions in April 1994 of The Delfield Company ("Delfield") and Whitlenge Drink Equipment Limited ("Whitlenge"). The acquisition price included 667,000 shares of common stock which were issued in the first quarter of 1995 based on Delfield and Whitlenge having achieved a specified level of earnings before interest, income taxes, depreciation and amortization ("EBITDA") in fiscal 1994. Accounts receivable, excluding both the effects of changes in exchange rates and the addition of approximately $1.4 million from the acquisition of Hartek, increased by $2.6 million compared with year-end 1994 due to strong sales growth in the Company's ice machine businesses. Inventories, excluding both the effect of changes in exchange rates and the addition of approximately $5.4 million from the acquisition of Hartek, declined $2.0 million as increased inventory turns were achieved at most of the Company's businesses. Trade accounts payable and other liabilities decreased by $2.1 million, excluding both the effects of changes in exchange rates and the addition of approximately $6.6 million from the acquisition of Hartek, primarily due to lower inventory purchases late in the year and the utilization of reserves established in prior years for certain litigation matters. Capital expenditures, including those financed through capital lease obligations, were $6.6 million, compared with $5.5 million in the prior year. Expenditures were made for productivity improvements, new product tooling, and normal maintenance and replacement items. Capital expenditures in 1996 may increase moderately from 1995 levels and are expected to be financed from internally-generated funds. Cash and temporary cash investments of $15.8 million, primarily held in foreign subsidiaries, increased by $6.0 million. This increase was the result of cash generated from operating activities, which was partially offset by cash applied to the purchase of Hartek at year end and investments in properties and equipment. Long-term debt outstanding at December 31, 1995, was $74.7 million. Of this amount, $41.8 million was outstanding as of December 31, 1995, under a $90 million reducing revolving credit agreement with a bank group. The Company also used a portion of this agreement to provide for letters of credit totaling $10.1 million as of December 31, 1995. Long-term debt also included a $20 million private placement agreement and industrial revenue bonds totaling $12.9 million. The interest rates attributable to the credit agreement and the industrial revenue bonds are floating, whereas the interest rate relating to the private placement agreement is fixed. The Company has entered into interest rate swap agreements to reduce the impact of changes in interest rates on its floating-rate long-term debt. The Company's long-term debt is maintained under agreements which require compliance with specified financial ratios. As of December 31, 1995, the Company was in compliance with all debt covenants. Total debt, including capital leases, at year end was $87.8 million, compared with shareholders' equity of $112.3 million. This resulted in a debt-to-capital ratio of 44 percent, compared with 50 percent at the end of the prior year. 2 Scotsman initiated a quarterly dividend of 2 1/2 cents per share in its first quarter as a public company, which it has maintained. However, the decision to pay dividends, and the amount of such dividends, is determined by the Scotsman Board of Directors from time to time, and may change as conditions warrant. The Company believes that its available cash resources and cash flows are adequate to finance its future internal growth. RESULTS OF OPERATIONS Year ended December 31, 1995 ("1995"), compared with year ended January 1, 1995 ("1994") Scotsman Industries sales increased 22 percent in 1995, to $324.3 million, compared with $266.6 million in 1994. Strong gains in worldwide ice machine sales and the inclusion of Delfield and Whitlenge results for the full year were primary contributors to this growth. Ice machine sales increased 13 percent from the prior year and represented 52 percent of total sales in 1995. Domestic ice machine sales were up 7 percent, a significantly greater gain than the market as a whole. New products and expansion of the distribution system contributed to the share gain. Sales of ice machines outside the U.S. increased more than 20 percent due to improvement in Western European markets and substantial sales increases to the Asia-Pacific region. In December 1995 the Company's joint venture in Shenyang, China began production of ice machines to be sold in the domestic Chinese market. Sales of food preparation and storage equipment increased 39 percent from 1994 to 1995 due to the inclusion of results for Delfield for a full year in 1995 versus a partial year (from April 29, 1994) for 1994. Pro forma full-year sales of these products, as if Delfield had been acquired at the beginning of 1994, were up 1 percent. Reduced sales from Delfield to a few large national accounts were largely offset by sales to other customers. Food preparation and storage equipment represented approximately one-third of total Company sales in 1995. The Company's 1995 worldwide drink dispensing equipment sales increased 23 percent versus the prior year, due to the inclusion of Whitlenge's sales for only eight months of 1994. On a full-year basis, drink dispensing equipment realized increased sales of 5 percent, compared with the prior year, primarily due to Whitlenge's increased penetration of continental European markets. Sales of this equipment accounted for 12 percent of 1995 Company sales. Niche products, including ventilation equipment and certain contract products comprised the balance of the Company's sales. Gross profit increased significantly in dollars but declined as a percentage of sales, to 27.1 percent in 1995 from 28.5 percent in 1994, as a result of the full-year inclusion of Delfield and Whitlenge results, which historically have had lower gross profit margins. The impact of increases of cost of materials and a shift in sales mix at Delfield toward customers served by higher cost distribution channels also impacted gross profit in 1995 as well. Selling and administrative expenses for the year were up substantially in dollars, again due in large measure to acquisitions. As a percentage of sales, however, selling and administrative costs declined to 16.5 percent from 18.0 percent in the prior year due to lower litigation-related costs, favorable health claims costs and the full-year inclusion of Delfield and Whitlenge and their historically lower ratios. Income from operations increased $6.2 million, or 22 percent, from the prior year as a result of the above mentioned factors. Interest expense, net, increased $0.9 million due to the higher average debt levels associated with the Delfield and Whitlenge acquisitions. A higher effective income tax rate of 45.2 percent in 1995, compared to 43.9 percent in 1994, reflects a greater proportion of income from the Company's higher-taxed Italian subsidiaries. 3 1995 net income of $15.4 million and fully-diluted net income per share of $1.45 were record highs for Scotsman Industries. Hartek, acquired on December 31, 1995, had no impact on the income statement for the year. The effect of changes in currency exchange rates was immaterial on the Company's results of operations. Year ended January 1, 1995 ("1994"), compared with year ended January 2, 1994 ("1993") Worldwide sales for 1994 were $266.6 million compared with $164.0 million in the prior year, an increase of 63 percent. The Company's results were impacted substantially by the April 1994 acquisitions of Delfield and Whitlenge, which contributed approximately $93 million to the Company's 1994 sales following their acquisition. Sales of ice machines in 1994 increased 7 percent from the prior year. Domestic ice machine sales increased 6 percent due to a strong economy and the resulting increased market demand. Sales of the Company's Crystal Tips brand ice machines were essentially level with the prior year, impacting the overall domestic growth rate. Start-up production issues associated with the December 1993 relocation of the Crystal Tips business and several 1994 distribution changes, as well as a prior-year build up of inventory in the distribution system in anticipation of the move, negatively impacted 1994 Crystal Tips sales. Ice machine sales from the Company's European operations increased 10 percent in 1994 in local currency, 7 percent in dollars, compared with the prior year. Sales from these operations increased 4 percent in local currency in the first six months of 1994 compared with the similar period of the prior year, while sales in the second half of 1994 were up 19 percent in local currency from the prior-year period, reflecting strong economic growth in the Western European markets in the second half of the year. Sales of the Company's Tecnomac brand refrigeration equipment for bakeries increased 19 percent in local currency in 1994, 15 percent in dollars, versus the prior year as the markets for those products, primarily in Italy, began to rebound from an extended European recession. The Company's 1994 worldwide drink dispensing equipment sales increased 94 percent versus the prior year, due to the inclusion of Whitlenge sales for the eight months following its acquisition in April 1994. Whitlenge, on a 1994 full-year basis, realized increased sales of 5 percent in U.S. dollars, 2 percent in local currency, compared with the prior year. Sales of Booth soft drink dispensers declined 3 percent from 1993 levels. Delfield's sales of food preparation, storage and related equipment contributed over $76 million to the Company's 1994 sales following its acquisition in April 1994. For the full year 1994 on a pro forma basis, Delfield's sales were up 16 percent over 1993, reflecting broad-based demand increases through the dealer network and with national accounts. The Company's 1994 sales on a pro forma basis, as if Delfield and Whitlenge had been acquired as of the beginning of the year, were $304.1 million. Gross profit increased significantly in dollars but declined as a percent of sales, to 28.5 percent in 1994 from 30.2 percent in 1993, as a result of the acquisitions of Delfield and Whitlenge. The historically lower gross profit margins of those businesses, compared with the average of the other operations, caused a reduction in the overall ratio of the consolidated businesses. Gross profit margins of Booth/Crystal Tips declined in 1994 due to the higher costs associated with the relocation and consolidation of those businesses. The impact of those higher costs on the Company's overall gross margin was offset by the positive effect of productivity improvements at other operations, primarily at Scotsman Ice Systems, the largest of the Company's ice machine businesses. 4 Selling and administrative expenses for the year were up substantially, again due in large measure to the acquisitions. Increased investment in research and development resources and the costs associated with certain litigation matters also contributed to the higher selling and administrative costs. As a percentage of sales, however, selling and administrative costs declined, to 18.0 percent from 19.4 percent in the prior year, due to the historically lower ratios at the acquired businesses. Income from operations increased $10.6 million, or 60 percent, from the prior year as a result of the above mentioned factors. Income from operations increased for all of the businesses except for Booth/Crystal Tips, which incurred an operating loss for the year due to consolidation costs and start-up inefficiencies. Interest expense, net, increased $1.2 million as a result of higher debt levels associated with the acquisitions. An unfavorable interest rate swap agreement established in 1989, which also contributed to 1994 interest expense, expired in April 1994. Income tax expense of $10.0 million reflects an effective tax rate of 43.9 percent, down from 44.8 percent in the prior year. This rate is influenced by the proportion of highly-taxed Italian income and the non-tax-deductible goodwill amortization arising from the acquisitions of Delfield and Whitlenge. Net income of $12.8 million was reported for 1994, compared with $7.4 million in 1993, an increase of 73 percent. Net income per share increased by 27 percent, from $1.06 in 1993 to $1.35 in 1994 on a fully-diluted basis, including the effect of convertible preferred shares and 667,000 contingent shares that were subsequently issued in the first quarter of 1995. Pro forma net income and fully-diluted net income per share, as if the acquisitions of Delfield and Whitlenge had been consummated at the beginning of the year, were $13.5 million and $1.28, respectively. 5 Scotsman Industries, Inc. Consolidated Statement of Income (Amounts in thousands, except per-share data)
For the Fiscal Years Ended Dec. 31, Jan. 1, Jan. 2, 1995 1995 1994 Net sales $324,291 $266,632 $163,952 Cost of sales 236,402 190,518 114,472 -------- -------- -------- Gross profit 87,889 76,114 49,480 Selling and administrative expenses 53,435 47,900 31,874 -------- -------- -------- Income from operations 34,454 28,214 17,606 Interest expense, net 6,326 5,416 4,235 -------- -------- -------- Income before income taxes 28,128 22,798 13,371 Income taxes 12,720 10,013 5,989 -------- -------- -------- Net income before cumulative effect of accounting changes 15,408 12,785 7,382 Cumulative effect of accounting changes -- -- 29 -------- -------- -------- Net income $ 15,408 $ 12,785 $ 7,411 Preferred stock dividends 1,240 885 -- -------- -------- -------- Net income available to common shareholders $ 14,168 $ 11,900 $ 7,411 ======== ======== ======== Net income per share before cumulative effect of accounting changes: Primary $ 1.58 $ 1.49 $ 1.06 -------- -------- -------- Fully diluted $ 1.45 $ 1.35 $ 1.06 -------- -------- -------- Net income per share: Primary $ 1.58 $ 1.49 $ 1.06 -------- -------- -------- Fully diluted $ 1.45 $ 1.35 $ 1.06 -------- -------- --------
The accompanying notes to consolidated financial statements are an integral part of this statement. 6 Scotsman Industries, Inc. Consolidated Balance Sheet (Amounts in thousands)
Dec. 31, Jan. 1, 1995 1995 Assets Current Assets: Cash and temporary cash investments $ 15,808 $ 9,770 Trade accounts and notes receivable, net of allowances of $2,960 in 1995 and $2,296 in 1994 54,500 50,102 Inventories 52,251 48,613 Deferred income taxes 5,690 4,642 Other current assets 3,093 3,255 -------- -------- Total current assets 131,342 116,382 Properties and equipment, net 46,373 40,657 Goodwill,net 94,732 84,038 Other noncurrent assets 3,496 3,714 -------- -------- Total assets $275,943 $244,791 ======== ======== Liabilities and Shareholders' Equity Current Liabilities: Short-term debt and current maturities of capitalized lease obligations and long-term debt $ 13,037 $ 3,030 Trade accounts payable 24,174 24,290 Accrued income taxes 4,491 4,173 Accrued expenses 34,812 30,324 -------- -------- Total current liabilities 76,514 61,817 Long-term debt and capitalized lease obligations 74,719 85,161 Deferred income taxes 3,814 2,917 Other noncurrent liabilities 8,577 8,433 -------- -------- Total liabilities 163,624 158,328 Shareholders' Equity: Common stock, $.10 par value, authorized 50,000,000 shares; issued 9,153,014 shares and 8,462,197 shares, respectively 915 846 Preferred stock, $1.00 par value, authorized 10,000,000 shares; issued 1,999,992 shares and 1,999,992 shares, respectively 2,000 2,000 Additional paid in capital 70,514 58,085 Retained earnings 45,232 31,959 Deferred compensation and unrecognized pension cost (88) (53) Foreign currency translation adjustments (4,911) (5,031) Less: Common stock held in treasury; 188,040 and 194,259 shares, respectively (1,343) (1,343) -------- -------- Total shareholders' equity 112,319 86,463 -------- -------- Total liabilities and shareholders' equity $275,943 $244,791 ======== ========
The accompanying notes to consolidated financial statements are an integral part of this statement. 7 Scotsman Industries, Inc. Consolidated Statement of Cash Flows (Amounts in thousands)
For the Fiscal Years Ended Dec. 31, Jan. 1, Jan. 2, 1995 1995 1994 Cash flows from operating activities: Net income $ 15,408 $ 12,785 $ 7,411 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,594 6,019 3,674 Loss (gain) on property dispositions (39) 45 (52) Change in assets and liabilities: Trade accounts receivable (2,607) (7,779) (677) Inventories 2,006 (3,815) 1,018 Trade accounts payable and other liabilities (2,074) 10,290 2,248 Other, net 3,162 (1,369) (1,962) -------- ------- -------- Net cash provided by operating activities 23,450 16,176 11,660 Cash flows from investing activities: Investment in properties and equipment (6,513) (5,434) (3,264) Proceeds from dispositions of properties and equipment 215 34 67 Acquisition of Delfield and Whitlenge -- (28,689) -- Acquisition of Simag -- -- (5,506) Investment in China joint venture, net (665) -- -- Acquisition of Hartek (1,491) -- -- ------ ------- ------- Net cash used in investing activities (8,454) (34,089) (8,703) Cash flows from financing and capital activities: Short-term debt, net 3,616 (74) 1,662 Issuance of long-term debt 17,806 63,000 -- Principal payments under long-term debt and capitalized leases (28,071) (42,831) (115) Purchase of Scotsman Industries, Inc. common stock -- -- (38) Dividends paid to shareholders (2,118) (1,339) (700) ------- ------- ------ Net cash provided by (used in) financing and capital activities (8,767) 18,756 809 Effect of exchange rate changes on cash and temporary cash investments (191) 465 (506) -------- -------- -------- Net increase in cash and temporary cash investments 6,038 1,308 3,260 Cash and temporary cash investments at beginning of year 9,770 8,462 5,202 -------- -------- -------- Cash and temporary cash investments at end of year $ 15,808 $ 9,770 $ 8,462 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 7,431 $ 4,566 $ 4,356 ======== ======== ======== Income taxes $ 10,992 $ 10,685 $ 5,048 ======== ======== ======== Supplemental schedule of noncash investing and financing activities: Investment in properties and equipment through issuance of capitalized lease obligations $ (96) $ (56) $ -- ======== ======== ======== Issuance of stock for acquisition of Delfield and Whitlenge $ (12,089) $(39,000) $ -- ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of this statement. 8 Scotsman Industries, Inc. Consolidated Statement of Shareholders' Equity (Amounts in thousands, except number of shares)
Foreign Treasury Common Preferred Additional Currency Stock Stock Stock Paid in Retained Translation Treasury Number Par Value Par Value Capital Earnings Other (a) Adjustments Stock Total ----- -------- -------- -------- ------- -------- ---------- ------- -------- Balance at January 3, 1993 209,577 $ 720 $ -- $ 20,375 $14,144 $ (34) $(3,753) $(1,306) $ 30,146 Net income -- -- -- -- 7,411 -- -- -- 7,411 Foreign currency translation adjustments -- -- -- -- -- -- (2,988) -- (2,988) Issuance of deferred compensation (7,282) -- -- 85 -- (85) -- -- -- Amortization of deferred compensation -- -- -- -- -- 91 -- -- 91 Dividends declared to common shareholders -- -- -- -- (700) -- -- -- (700) Additional cost relating to prior-year purchase of Scotsman Industries, Inc. common stock for treasury -- -- -- -- -- -- -- (38) (38) Stock options exercised -- 1 -- 97 -- -- -- -- 98 Unrecognized pension cost -- -- -- -- -- (26) -- -- (26) ------- ----- ----- ------ ------ ----- ------ ------ ------ Balance at January 2, 1994 202,295 $ 721 $ -- $20,557 $20,855 $ (54) $(6,741) $(1,344) $33,994 ------- ----- ----- ------ ------ ----- ------ ------ ------ Net income -- -- -- -- 12,785 -- -- -- 12,785 Foreign currency translation adjustments -- -- -- -- -- -- 1,710 -- 1,710 Issuance of deferred compensation (8,038) -- -- 118 -- (119) -- 1 -- Amortization of deferred compensation -- -- -- -- -- 99 -- -- 99 Dividends declared to common shareholders -- -- -- -- (796) -- -- -- (796) Dividends declared to preferred shareholders -- -- -- -- (885) -- -- -- (885) Issuance of common and preferred stock relating to acquisition of Delfield and Whitlenge -- 120 2,000 36,880 -- -- -- -- 39,000 Stock options exercised -- 5 -- 530 -- -- -- -- 535 Unrecognized pension cost -- -- -- -- -- 21 -- -- 21 Other 2 -- -- -- -- -- -- -- -- ------- ----- ----- ------ ------ ----- ------ ------ ------- Balance at January 1, 1995 194,259 $ 846 $2,000 $ 58,085 $ 31,959 $ (53) $ (5,031) $(1,343) $ 86,463 ======= ===== ===== ====== ====== ===== ====== ======= ======= Net income -- -- -- -- 15,408 -- -- -- 15,408 Foreign currency translation
9 adjustments -- -- -- -- -- -- 120 -- 120 Issuance of deferred compensation (6,219) -- -- 120 -- (120) -- -- -- Amortization of deferred compensation -- -- -- -- -- 129 -- -- 129 Dividends declared to common shareholders -- -- -- -- (895) -- -- -- (895) Dividends declared to preferred shareholders -- -- -- -- (1,240) -- -- -- (1,240) Issuance of common stock relating to acquisition of Delfield and Whitlenge -- 67 -- 12,022 -- -- -- -- 12,089 Stock options exercised -- 2 -- 287 -- -- -- -- 289 Unrecognized pension cost -- -- -- -- -- (44) -- -- (44) ------- ---- ----- ------ ------- ----- ------ ------ ------- Balance at December 31, 1995 188,040 $ 915 $2,000 $ 70,514 $ 45,232 $ (88) $(4,911) $(1,343) $112,319 ======= ==== ===== ====== ======= ===== ====== ====== =======
(a) Other shareholders' equity includes deferred compensation and unrecognized pension cost. The accompanying notes to consolidated financial statements are an integral part of this statement. 10 SCOTSMAN INDUSTRIES, INC. DESCRIPTION OF BUSINESS The Company is engaged in the manufacture and marketing of refrigeration products primarily for the foodservice industry, including ice machines, food preparation and storage equipment, and drink dispensing equipment. Scotsman's commercial ice machine business accounted for 52 percent, 57 percent and 83 percent of sales in fiscal years 1995, 1994 and 1993, respectively. Scotsman ice machines are sold both through a system of distributors and directly by Scotsman to national customers and governmental and military buyers. Scotsman also manufactures and markets a line of consumer ice machines primarily for the luxury home market. Scotsman manufactures and markets drink dispensing equipment in Europe through its United Kingdom subsidiary, Whitlenge, and through its Hartek German and Austrian subsidiaries. Whitlenge and Hartek were acquired in April 1994 and December 1995, respectively. Whitlenge's and Hartek's products are sold to soft drink bottlers and breweries. Domestically, Scotsman also manufactures, through its Booth, Inc. subsidiary, soft drink dispensing equipment which is sold primarily in the United States to soft drink bottlers. Drink dispensing equipment accounted for 12 percent, 12 percent and 10 percent of sales in fiscal years 1995, 1994 and 1993, respectively. Scotsman manufactures and markets a line of food preparation and storage equipment through its Delfield subsidiary which was acquired in April 1994. Delfield's products are sold primarily to U.S. commercial foodservice establishments. Scotsman also manufactures and markets a line of bakery equipment and commercial refrigerators and freezers through its European businesses. Food preparation and storage equipment accounted for 32 percent, 28 percent and 4 percent of Scotsman's business in fiscal years 1995, 1994 and 1993, respectively. Scotsman also manufactures and markets a line of niche products primarily through its Delfield subsidiary which includes air ventilating equipment and contract manufactured point of purchase merchandisers. Additionally, Scotsman manufactures and markets water coolers through its European businesses. Geographic information for Scotsman can be found in Note 18 in Notes to Consolidated Financial Statements. 11 SCOTSMAN INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Effective April 14, 1989, Scotsman Industries, Inc. ("Scotsman" or "the Company") was spun-off from Household International, Inc. ("Household") through the issuance of one share of Scotsman common stock for every five shares of Household common stock then outstanding to Household shareholders. Scotsman became a publicly traded company listed on the New York Stock Exchange and its operations ceased to be owned by Household. Basis of Consolidation The consolidated financial statements include the accounts of Scotsman Industries, Inc. and its consolidated subsidiaries. All significant intercompany transactions have been eliminated in consolidation. Certain amounts in the consolidated financial statements for previous years have been reclassified to conform to the presentation used for fiscal year 1995. 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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fiscal Year The Company reports on a 52-53 week fiscal year ending on the Sunday nearest to December 31. Fiscal years 1995, 1994 and 1993 had 52 weeks. Cash Management Scotsman uses a centralized cash management system to provide financing for the majority of its domestic operations. Temporary cash investments, primarily Eurodollar deposits or repurchase agreements with maturities of ninety days or less, are carried at cost, which approximates market. Interest income (in thousands) included in interest expense, net was $633, $277 and $125 for fiscal years 1995, 1994 and 1993, respectively. 12 Trade Accounts and Notes Receivable Trade accounts and notes receivable at December 31, 1995, and January 1, 1995, included notes of $7.3 million and $7.9 million, respectively. Inventories Inventories are stated at the lower of cost or market and include the appropriate elements of material, labor and manufacturing overhead expenses. Cost is determined using the last-in, first-out ("LIFO") method for a portion of domestic inventories and the first-in, first- out ("FIFO") method for the balance of domestic and all foreign inventories. Properties and Equipment Properties and equipment, including capitalized leases, are recorded at cost to the Company at date of acquisition and depreciated over either their estimated useful lives, ranging from 3 to 40 years, or lease terms, whichever is shorter, using principally the straight-line method for financial reporting purposes and accelerated methods for tax reporting purposes. Goodwill Cost of investments in excess of net assets of businesses acquired after October 1970 is being amortized using the straight-line method over 40 years. The related amortization expense was $2.4 million, $1.5 million and $0.3 million for the fiscal years 1995, 1994 and 1993, respectively. At December 31, 1995, and January 1, 1995, accumulated amortization was $5.4 million and $3.0 million, respectively. After an acquisition, the Company continually reviews whether subsequent events and circumstances have occurred that indicate that the remaining estimated useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. If events and circumstances indicate that goodwill related to a particular business should be reviewed for possible impairment, the Company uses projections to assess whether future operating income of the business on a non-discounted basis is likely to exceed the goodwill amortization over the remaining life of the goodwill, to determine whether a writedown of goodwill to recoverable value (as determined by the same projections) is appropriate. 13 Financial Instruments The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. The Company's participation in derivatives is limited primarily to interest rate swap agreements and forward exchange contracts. The Company enters into interest rate swap agreements to reduce the impact of changes in interest rates on its floating-rate long-term debt. The difference between the fixed and floating rates, which is to be paid or received, is accrued as interest rates change and is recognized over the life of the swap agreements. The cash impacts of these instruments are included with the cash flows of the items to which they relate in the Consolidated Statement of Cash Flows. Interest Expense Interest expense included in the Consolidated Statement of Income is related to private placement debt, debt covered under a credit agreement, industrial development revenue bonds, capitalized lease obligations, and borrowings on domestic lines of credit and foreign lines of credit. Research and Development Costs Research and development costs related to both present and future products are expensed currently. Research and development expenditures for fiscal years 1995, 1994 and 1993 were $4.8 million, $5.1 million and $3.9 million, respectively. Foreign Currency Translation The Company has foreign subsidiaries located in Italy, Germany, Austria and the United Kingdom. Foreign subsidiary income and expenses are translated into United States dollars at the average rates of exchange prevailing during the year. The assets and liabilities are translated into U.S. dollars at the rates of exchange on the balance sheet date, and the related translation adjustments are accumulated as a separate component of shareholders' equity. As the Company intends to maintain its investments in these subsidiaries indefinitely, ultimate realization of these translation adjustments is highly uncertain. Foreign currency transaction gains and losses are minimal and are recorded in income as they occur. Income Taxes Federal and state income taxes are not provided on undistributed earnings of foreign subsidiaries that have been or are intended to be reinvested indefinitely. 14 Stock Options In 1995 the Financial Accounting Standards Board issued Statement of Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123"). Currently, when stock options are exercised proceeds from the sale of common stock issued under those options are credited to common stock. Therefore, under the method used by the Company, no charges or credits are made to income for stock options. As permitted by SFAS 123, the Company will continue to account for stock options as described above. As such, the financial statement effect of this new standard will be limited to additional required footnote disclosure in 1996. Earnings Per Share Primary earnings per share are computed based on income after preferred stock dividends. The number of shares includes common stock and common stock equivalents. The calculation of fully-diluted net income per share is based on net income before preferred stock dividends. The number of shares includes common stock and common stock equivalents, assumes conversion of the convertible preferred stock from the date of issue and also includes the dilutive impact, as if issuance had occurred on the acquisition date of Delfield and Whitlenge, of contingent shares that were issued subsequent to January 1, 1995. 2. CUMULATIVE EFFECT OF ACCOUNTING CHANGES In the first quarter of 1993 the Company implemented changes in accounting principles for post-retirement health care benefits, post-employment expenses and income taxes. The cumulative effect of these accounting changes was as follows: Unfavorable cumulative effect of accounting change due to post-retirement health care benefits (in thousands) of $(1,660) pre-tax and $(1,029) after-tax. (See Note 10 of Notes to Consolidated Financial Statements.) Unfavorable cumulative effect of accounting change due to other post-employment benefits (in thousands) of $(508) pre-tax and $(243) after- tax. (See Note 10 of Notes to Consolidated Financial Statements.) Favorable cumulative effect of accounting change relating to income taxes (in thousands) of $1,301. (See Note 12 of Notes to Consolidated Financial Statements.) 15 3. INVENTORIES Inventories consisted of the following (in thousands):
Dec. 31, 1995 Jan. 1, 1995 Finished goods $21,604 $19,450 Work-in-process 8,023 9,805 Raw materials 22,624 19,358 ------ ------ Total inventories $52,251 $48,613 ====== ======
Approximately $7.5 million and $10.7 million of total Company inventories were valued on the LIFO method in fiscal 1995 and 1994, respectively. In 1995 there were reductions in levels of inventory valued on LIFO which reduced cost of sales (in thousands) by $43. If inventories valued on the LIFO method had been valued using the FIFO method, they would have been $4.1 million and $3.8 million higher at December 31, 1995, and January 1, 1995, respectively. 4. PROPERTIES AND EQUIPMENT Properties and equipment consisted of assets owned and leased under capital lease arrangements as follows (in thousands):
Dec. 31, 1995 Jan. 1, 1995 -------------- -------------- Owned: Land $ 1,995 $ 1,669 Buildings and leasehold improvements 28,046 23,432 Machinery, fixtures and equipment 49,294 41,014 Accumulated depreciation and amortization (37,949) (30,574) ------- ------- Owned, net 41,386 35,541 ------- ------- Leased: Buildings and leasehold improvements 5,029 4,970 Machinery, fixtures and equipment 1,540 1,388 Accumulated depreciation and amortization (1,582) (1,242) ------ -------- Leased, net 4,987 5,116 ------ ------- Properties and equipment, net $ 46,373 $ 40,657 ======= =======
16 5. SHORT-TERM DEBT Short-term debt (in thousands) at December 31, 1995, and January 1, 1995, was $12,767 and $2,780, respectively, and principally related to amounts owed under lines of credit. The weighted average interest rate based on short-term debt outstanding as of December 31, 1995, and January 1, 1995, was 7.3 percent and 6.7 percent, respectively. Average borrowings (in thousands) and the related weighted average interest rates were as follows:
1995 1994 ---- ---- Bank and other borrowings $2,463 $3,404 Weighted average interest rate 7.9% 8.0% ====== ======
The maximum aggregate short-term debt outstanding (in thousands) at the end of any month during fiscal years 1995 and 1994 was $12,767 and $3,472, respectively. 6. LINES OF CREDIT The Company maintains various credit agreements which are used primarily to fund the Company's working capital needs. At December 31, 1995, these agreements (in thousands) included foreign and domestic lines of credit of $25,415 and $9,000, respectively. Lines of credit are reviewed annually, with amounts borrowed under lines of credit included in short-term debt. At December 31, 1995, foreign and domestic lines of credit not in use were (in thousands) $18,648 and $3,000, respectively. Borrowings under these agreements are available at the prime rate or other prevailing market rates. There are no fees or compensating balance requirements on the lines of credit. 7. ACCRUED EXPENSES Accrued expenses consisted of the following (in thousands):
Dec. 31, 1995 Jan. 1, 1995 ------------- ------------- Payroll and employee benefits $ 6,394 $ 6,498 Current portion of product warranties 5,994 5,918 Reserve for customer allowances 3,446 3,366 Other current liabilities 18,978 14,542 ------ ------ Total accrued expenses $34,812 $30,324 ======= =======
17 8. LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS Long-term debt and capitalized lease obligations consisted of the following (in thousands):
Dec. 31, Jan. 1, 1995 1995 ------------ ------------ Credit Agreement with floating interest rates; due 1998-2000 $41,765 $ 52,000 11.43% Private Placement Agreement; due 1997-1998 20,000 20,000 Allendale County Industrial Revenue Bonds with floating interest rate; due 2001 9,250 9,250 Town of Covington Industrial Revenue Bonds with floating interest rate; due 2002 - 2006 3,150 3,150 Isabella County Industrial Revenue Bonds with floating interest rate; due 1995 - 2003 500 550 Capital lease obligations with various interest rates; due 1995 - 1998 324 461 ------- -------- Total $74,989 $ 85,411 Current portion 270 250 ------ -------- Long-term portion $74,719 $ 85,161 ======= ========
In April 1994 a new $90 million reducing revolving credit agreement ("Credit Agreement") was established to provide the financing for the cash consideration paid in connection with the acquisitions of Delfield and Whitlenge, the refinancing of the majority of approximately $35 million in existing indebtedness of Delfield and Whitlenge, replacement of letters of credit of approximately $10.1 million, working capital for the Company and its subsidiaries following the acquisitions, and transaction costs associated with the acquisitions. Under the terms of the Credit Agreement, the revolving credit facility reduces by $7 million at the end of years one and two, $12 million at the end of year three and $5 million at the end of years four and five, with the remaining balance due at the end of year six. As of December 31, 1995, of the $83.0 million of credit available under this agreement, $31.1 million was unused. 18 Borrowings under the Credit Agreement will bear interest at a floating rate based upon, at the Company's option, (a) the higher of the agent bank's corporate base rate or the federal funds rate plus 0.5 percent per annum, or (b) the rate offered by the agent bank for deposits in the relevant Eurocurrency, plus an applicable margin. The applicable margin will vary between 0.50 percent and 1.0 percent per annum, depending upon the Company's ratio of earnings before interest, taxes and amortization to total interest. Commitment fees on the Credit Agreement vary from 0.175 percent to 0.25 percent per annum on the unused portion. In 1989 the Company issued $20.0 million of private placement debt held primarily by insurance companies. The Allendale County Industrial Revenue Bonds are secured by a bank letter of credit for $9.6 million. The current cost of the commitment fee on the letter of credit ranges from 0.50 percent to 1.0 percent on outstanding principal and interest depending on the Company's interest coverage ratio as defined in the Credit Agreement as described above. The interest rate applicable to the Allendale County Industrial Revenue Bonds was 5.228 percent and 5.695 percent at December 31, 1995, and January 1, 1995, respectively. Delfield had two industrial revenue bonds outstanding which the Company assumed as of the acquisition in April 1994. One series was issued by the town of Covington, Tennessee and the other was issued by Isabella County, Michigan. The Town of Covington Industrial Revenue Bonds are secured by a building with a net book value of $4.4 million as of December 31, 1995. The Isabella County Industrial Revenue Bonds are secured by a building section with a net book value of $0.8 million as of December 31, 1995. The interest rates for these two industrial revenue bonds as of December 31, 1995, were 5.3125 percent and 6.12 percent, respectively. The Company also has various capital lease obligations which are collateralized by properties and equipment with a net book value of approximately $0.5 million. 19 The weighted average effective interest rate was 7.7 percent at December 31, 1995 and January 1, 1995. Future required maturities of long-term debt and capital leases assuming letters of credit are outstanding at the same level as December 31, 1995, were as follows (in thousands): 1996 $ 270 1997 10,145 1998 10,059 1999 70 2000 41,835 Thereafter 12,610 ------- Total $74,989 =======
The Credit Agreement and private placement agreement contain various financial covenants that, among other things, require the Company to maintain, on a consolidated basis, specified leverage, interest expense coverage and cash flow coverage ratios, and a minimum adjusted consolidated tangible net worth. The Company was in compliance with these covenants as of December 31, 1995. Among other restrictions, one of the Company's covenants has the effect of restricting the amount of the Company's dividends to its shareholders to an amount equal to $2.0 million plus 40 percent of the sum of cumulative net income from May 2, 1994, forward and the net cash proceeds from the issuance of equity securities after April 29, 1994. Under such a covenant, $34.0 million of retained earnings was restricted as of December 31, 1995. The Company is precluded from paying dividends to its shareholders if a default or an event which, but for the lapse of time or giving of notice, or both, would constitute a default under the Credit Agreement has occurred and is continuing or would occur after giving effect to the payment of such dividends. 9. OPERATING LEASES The Company leases certain of its offices, buildings, and machinery and equipment for periods up to 20 years with various renewal options. Rental expense under operating leases was $2.4 million in 1995, $2.0 million in 1994 and $1.4 million in 1993. 20 Future minimum lease commitments under noncancelable operating leases at December 31, 1995, were as follows (in thousands):
Operating Leases --------- 1996 $1,600 1997 1,530 1998 1,371 1999 873 2000 919 Thereafter 2,703 ----- Total minimum lease commitments $8,996 =====
10. EMPLOYEE BENEFIT PLANS The Company sponsors defined benefit pension plans for certain salaried and hourly employees. Plans covering salaried employees provide benefits that are based on years of service and compensation. Plans covering hourly employees provide benefits of stated amounts for each year of service. The pension assets are invested in institutional mutual funds which contain both equities and fixed investments. The Company complies with funding requirements under the Employee Retirement Income Security Act. As a result of the spin-off of the Company from Household International, Inc. in 1989, Household became responsible for all domestic salaried pension benefits accrued prior to March 31, 1989. For the years ended December 31, 1995, and January 1, 1995, net periodic pension cost and the funded status of the Company's pension plans presented includes information for The Delfield Company defined benefit pension plan which covers its Mt. Pleasant union hourly employees and the Whitlenge Drink Equipment Limited Retirement Benefit Scheme which covers certain of its salaried employees. The Company adopted a supplemental executive retirement plan ("SERP") for certain employees in 1994. For the years ended on or after January 1, 1995, net periodic pension cost and the funded status of the Company's pension plans presented below includes information for the SERP. 21 Net periodic pension cost (in thousands) included in the Consolidated Statement of Income was $1,154 in 1995, $1,017 in 1994 and $524 in 1993. The components of net periodic pension cost are (in thousands):
For the Fiscal Years Ended ---------------------------------------- Dec. 31, Jan. 1, Jan. 2, 1995 1995 1994 ------------ ------------ ------------ Service cost $ 919 $ 815 $ 442 Interest cost 667 475 175 Actual return on plan assets (797) (213) (116) Net amortization and deferral 365 (60) 23 ----- ----- ---- Net periodic pension cost $1,154 $1,017 $ 524 ===== ===== ====
22 The funded status of the Company's pension plans (in thousands), excluding the Italian and German pension plans, was as follows:
Dec. 31, 1995 Jan. 1, 1995 ---------------------- --------------------- Plan Accumulated Plan Accumulated Assets Benefits Assets Benefits Exceed Exceed Exceed Exceed Accumulated Plan Accumulated Plan Benefits Assets Benefits Assets ----------- --------- ----------- --------- Actuarial present value of: Vested benefits obligation $(1,688) $(5,193) $(2,804) $(2,717) Non-vested benefits obligation - (1,542) (360) (431) ------ ------- ------ ---- Accumulated benefit obligation (1,688) (6,735) (3,164) (3,148) Effects of anticipated future compensation levels (292) (1,607) (1,363) (330) ------ -------- ------ ------ Projected benefit obligation (1,980) (8,342) (4,527) (3,478) Plan assets at fair value 1,772 5,393 3,295 2,154 ----- ----- ------ ------ Projected benefit obligation in excess of plan assets (208) (2,949) (1,232) (1,324) Unrecognized liability (net asset) -- (12) 3 (14) Unrecognized prior service cost -- 1,289 484 841 Unrecognized net (gain) or loss (79) 1 (309) (321) Adjustment required to recognize minimum liability - (482) - (208) ------ ---- ------- ----- Accrued pension cost $ (287) $(2,153) $ (1,054) $(1,026) ====== ====== ====== =====
23 Assumptions used in the actuarial computations were:
Dec. 31, Jan. 1, Jan. 2, 1995 1995 1994 ------------ ------------ ------------ Discount rate 7.5 - 9.0% 8.0 - 9.0% 7.5% Rate of increase in compensation levels 4.0 - 7.0% 4.0 - 7.0% 4.0% Expected long-term rate of return on assets 8.5 - 10.0% 9.0 - 10.0% 8.5%
The Company has pension plans covering employees in its Italian subsidiaries. These plans combine aspects of both government mandated and non-contributory plans. Total pension expense under these plans included in the Consolidated Statement of Income (in thousands) was $888, $785 and $828 in fiscal years 1995, 1994 and 1993, respectively. The unfunded liability for these plans included in the Consolidated Balance Sheet at December 31, 1995, and January 1, 1995, (in thousands) was $4,286 and $4,046, respectively. The Company also has a Hartek pension plan in Germany which covers only a former employee and his spouse. Information for the Hartek pension plan has not been included in the tables presented as the amounts were immaterial as of December 31, 1995. The Company also sponsors defined contribution benefit plans. Participation in one of these plans is available to substantially all domestic employees. Company contributions to these plans are based on either a percentage of employee contributions or a specified amount depending on the provisions of the plan. Total costs incurred under the plans were (in thousands) $568, $643 and $203 for fiscal years 1995, 1994 and 1993, respectively. The Company maintains plans that provide certain health care benefits to certain employees retiring from the Company on or after attaining age 55 who have rendered at least 10 years of service to the Company. These plans are unfunded. The Company reserves the right to change or terminate the benefits at any time. 24 Effective January 4, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Post- retirement Benefits Other Than Pensions," ("SFAS 106") on the immediate recognition basis. The standard requires that the expected cost of post-retirement benefits be charged to expense during the years that the employees render service. Previously, the Company recognized these costs on a pay-as-you-go basis. The cumulative effect of this accounting change was to decrease income for the 12 months ended January 2, 1994, by (in thousands) $1,660 ($1,029, or $0.15 per share, after-tax), representing the amount of unfunded obligation measured as of January 4, 1993. Net periodic post-retirement benefit cost for the fiscal years ended December 31, 1995, January 1, 1995, and January 2, 1994, included the following components (in thousands):
Dec. 31, Jan. 1, Jan. 2, 1995 1995 1994 ---- ---- ---- Service cost on benefits earned $132 $161 $108 Interest cost on accumulated post-retirement benefit obligation 139 142 135 Amortization of net loss subsequent to transition - 4 - --- --- ---- Net periodic post-retirement benefit cost $271 $307 $243 === === ===
25 The following table sets forth the status of the plan, reconciled to the accrued post-retirement benefit cost recognized in the Company's balance sheet (in thousands):
Dec. 31, Jan. 1, 1995 1995 ---- ---- Accumulated post-retirement benefit obligation: Retirees $ 820 $ 837 Fully-eligible active plan participants 141 134 Other active plan participants 1,161 1,020 ----- ------ Total $2,122 $1,991 Unrecognized loss (126) (118) ------ ------ Accrued post-retirement benefit cost recognized in the balance sheet $1,996 $1,873 ===== =====
The accumulated post-retirement benefit obligation was determined using a discount rate of 7.5 percent in 1995 and 8.0 percent in 1994. The health care cost trend rates were assumed to be 12.6 percent and 11.3 percent in 1996 and 13.7 percent and 12.0 percent in 1995 for pre-65 and post-65 benefits, respectively, with both rates gradually declining to 5.5 percent and remaining at that level thereafter. Increasing the assumed health care cost trend rate by one percentage point in each year would increase the accumulated post-retirement benefit obligation by approximately (in thousands) $378 for 1995 and $341 for 1994, and the aggregate of the service and interest cost components of net periodic post-retirement benefit cost by approximately (in thousands) $57 for 1995 and $63 for 1994. Effective January 4, 1993, the Company also adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Post-employment Benefits" ("SFAS 112"). The statement requires accrual accounting for benefits provided to former or inactive employees after employment but before retirement. The Company previously accounted for a certain portion of these post-employment benefits on a pay-as-you-go basis. The impact of the change to SFAS 112 was an unfavorable pre-tax amount (in thousands) of $508 ($243 net of tax or $.03 per share) in 1993. Other than the effect of the cumulative catch-up, the impact on pre-tax income of this accounting change for 1993, 1994 and 1995 was not material. 26 11. FAIR VALUE OF FINANCIAL INSTRUMENTS During 1994 the Company adopted Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments," ("SFAS 107") and Statement of Financial Accounting Standards No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments"("SFAS 119"). These statements require certain disclosures about the fair value of financial instruments, including derivative financial instruments, for which it is practicable to estimate fair value. The following methods and assumptions were used to estimate the fair market value of each class of financial instrument for which it is practicable to estimate that value: Cash and Temporary Cash Investments Temporary cash investments consist principally of investments in short-term, interest-bearing instruments. The carrying amount approximates fair market value. Trade Accounts and Notes Receivable and Payable The carrying amount of the Company's trade accounts and notes receivable and payable approximates market value. Long-Term Debt The carrying amount of most of the Company's long-term debt and the Company's short-term debt approximates market value since rates on those debt agreements are variable and are set periodically based on current rates during the year. An exception would be the private placement agreement which has a fixed interest rate of 11.43 percent. The fair value of the private placement agreement was estimated based on the current rates quoted to the Company for debt with the same maturities. 27 Letters of Credit As collateral for the Company's industrial revenue bonds and for certain of its insurance programs, the Company had a total of $10.1 million of letters of credit outstanding as of December 31, 1995. The Company pays letter of credit fees to its bank group that range from 0.50 to 1.0 percent based upon the Company's interest coverage ratio as defined in the Credit Agreement. It is the Company's opinion that the replacement costs for such letters of credit would not significantly vary from the present fee structure. No material loss is anticipated due to nonperformance by counterparties to these agreements. Swap Agreements and Forward Contracts Effective May 1994 the Company entered into two interest rate swap agreements to reduce the impact of changes in interest rates on its domestic floating-rate long-term debt. Both of the interest rate swap agreements had a notional principal amount of $10 million and interest payable was at a fixed rate of 5.64 percent and 6.33 percent, respectively. In return for both of these agreements, the Company will receive floating rate interest payments based on three-month London Interbank Offered Rate. These agreements will expire in May 1997. These two swap agreements are accounted for as hedges. As of January 1, 1995, the Company had a forward exchange contract outstanding to hedge an intercompany note receivable that the Company had with its United Kingdom subsidiary. The Company had no material forward exchange contracts outstanding as of December 31, 1995. The fair value of interest rate swaps is the estimated amount that the Company would receive or pay to terminate the agreements as of the balance sheet date. 28 The estimated fair value of the Company's financial instruments at December 31, 1995, (in thousands) was as follows:
Carrying Fair Amount Value --------- ------- Assets: Cash and temporary cash investments $15,808 $15,808 Trade accounts and notes receivable 54,500 54,500 Liabilities: Short-term debt 12,767 12,767 Trade accounts payable 24,174 24,174 Long-term debt 74,665 76,675 Interest rate swap agreements -- 176
The estimated fair value of the Company's financial instruments at January 1, 1995, (in thousands) was as follows:
Carrying Fair Amount Value --------- ------- Assets: Cash and temporary cash investments $ 9,770 $ 9,770 Trade accounts and notes receivable 50,102 50,102 Liabilities: Short-term debt 2,780 2,780 Trade accounts payable 24,290 24,290 Long-term debt 84,950 86,277 Interest rate swap agreements -- (866) Forward exchange contract -- 350
12. INCOME TAXES Effective January 4, 1993, the Company changed its method of accounting for income taxes as a result of the required adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires a change in accounting for income taxes to an asset and liability approach. The cumulative effect of this change in 1993 was a favorable impact of $1.3 million, or $.19 per share. 29 In accordance with SFAS 109, net deferred tax assets and liabilities related to different tax jurisdictions are not offset in the Company's balance sheet. The components of the consolidated net deferred tax assets and liabilities as of December 31, 1995, and January 1, 1995, were as follows (in thousands):
Dec. 31, 1995 Jan. 1, 1995 Gross deferred tax assets: Tax credits due to Italian reorganization $ 556 $ 681 Warranty accruals 2,907 2,883 Reserve for Delfield and Whitlenge 1,055 - Reserve for Hartek 1,091 - Reserve for bad debts 797 787 Inventory reserves 754 876 Reserve for post-retirement medical costs 791 743 Tax benefit of German net operating loss carry forwards 4,851 - Other 2,989 3,099 ------- ------ Total gross deferred tax assets 15,791 9,069 ------- ------ Valuation allowance (4,991) (189) ------- ------ Total deferred tax assets $ 10,800 $ 8,880 ======= ====== Gross deferred tax liabilities: Properties and equipment $(5,702) $(4,984) Inventory related items (909) (157) Simag goodwill amortization (1,186) (895) Other (1,157) (1,407) ------ ------ Total gross deferred tax liabilities $(8,954) $(7,443) ======= ======
Deferred taxes reflected in the accompanying balance sheets as of December 31, 1995, and January 1, 1995, were as follows (in thousands):
Dec. 31, 1995 Jan. 1, 1995 ------------- ------------ Current portion of deferred tax asset $5,690 $ 4,642 Noncurrent portion of deferred 22 - tax asset Current portion of deferred tax liability (52) (288) Noncurrent portion of deferred tax liability (3,814) (2,917) ------ ------ Net deferred tax asset $ 1,846 $ 1,437 ====== ======
30 The valuation allowance as of December 31, 1995, includes $4.9 million to entirely offset the tax asset established for Hartek pre- acquisition net operating loss carry forwards which might not be realized due to the terms of the purchase agreement of Hartek (see note 16) which requires substantial repayment to the seller if utilized and due to a pending decision of the Supreme Tax Court in Germany which may result in such carry forwards being not utilizable by the Company. The valuation allowance also includes $0.1 million to partially offset the tax asset in Italy relating to a prior-year reorganization of one of the Company's Italian subsidiaries. The Company established this reserve for the Italian tax asset due to the limited carry forward life of net operating losses in Italy. The provision (benefit) for income taxes consisted of the following (in thousands):
For the Fiscal Years Ended ---------------------------------------- Dec. 31, Jan. 1, Jan. 2, 1995 1995 1994 ------------ ------------ ------------ United States: Current $ 7,431 $ 7,300 $ 4,209 Deferred 855 (746) (327) ------- ------ ------ 8,286 6,554 3,882 ------- ------ ----- Foreign: Current 3,605 2,412 2,055 Deferred 829 1,047 52 ------ ------ ------ 4,434 3,459 2,107 ------ ------ ------ Provision for income taxes $ 12,720 $ 10,013 $ 5,989 ====== ====== ======
31 The provision (benefit) for deferred income taxes included the following (in thousands):
For the Fiscal Years Ended ---------------------------------------- Dec. 31, Jan. 1, Jan. 2, 1995 1995 1994 ------------ ------------ ------------ Amortization of of Italian reorganization benefits $ 122 $ 535 $ 507 Depreciation 307 203 43 Reserve for Glenco-Star disposition 249 56 (108) Reserve for swap loss -- 38 143 Warranty reserve (33) (304) (553) Inventory adjustments 913 (95) (619) Reserve for relocation of Crystal Tips -- 167 673 Valuation allowance reduction (51) (117) (157) Other, net 177 (182) (204) ------ ----- ------- Total $ 1,684 $ 301 $ (275) ------ ----- -----
Income before income taxes from foreign operations was $8.9 million in 1995, $6.9 million in 1994 and $3.4 million in 1993. The differences between the Company's effective tax rate and the statutory federal income tax rate were as follows:
For the Fiscal Years Ended -------------------------------------- Dec. 31, Jan. 1, Jan. 2, 1995 1995 1994 ------------ ------------ ------------ Statutory federal income tax rate 35.0% 35.0% 34.0% Increase in rate resulting from: State and local income taxes, net of federal tax benefit 2.9 2.7 3.1 Foreign tax effect 4.9 4.9 7.0 Other 2.4 1.3% 0.7 ---- ----- ----- 45.2% 43.9% 44.8% ---- ----- -----
In accordance with the Company's accounting policy, provision for U.S. income taxes has not been made on $28.7 million of undistributed earnings of foreign subsidiaries at December 31, 1995. 32 13. STOCK OPTIONS AND DEFERRED COMPENSATION The Company has a long-term executive incentive program which provides for granting key employees options to purchase the Company's common stock. Under the program, options are exercisable at a rate set by the Compensation Committee of the Board of Directors of the Company. To date, options have been exercisable in cumulative annual increments of 25 percent commencing one year after the date of grant. The option price per share is not less than the fair market value of one share on the date of the grant. An option may not be exercisable after more than ten years and one day from the date of the grant. On August 11, 1994, the Board of Directors adopted, subject to shareholder approval at the 1995 Annual Meeting of Shareholders, the Non-Employee Directors Stock Option Plan. The plan provides for (a) an automatic award of options to purchase shares of the Company's common stock to non-employee directors as of the effective date of the plan, (b) automatic awards to non-employee directors who are elected or appointed to the Board of Directors after the effective date and (c) automatic annual awards thereafter. The options will vest 100 percent on the date preceding the first annual meeting of shareholders following the date of the grant of the options. The option price per share may not be less than the fair market value of one share on the date of the grant. An option may not be exercisable after more than ten years and one day from the date of the grant. The Non-Employee Directors Stock Option Plan was approved by the shareholders at the 1995 Annual Meeting of Shareholders. Accordingly, each of the seven non-employee directors of the Company was deemed to have been granted an option to purchase 2,000 shares of the Company's common stock as of August 11, 1994, the effective date of the plan. The following table has been restated to reflect this grant of a total of 14,000 shares in 1994. 33 Information with respect to the plans is as follows:
Option Option Price Shares Range Per Share ------ --------------- Outstanding at Jan. 3, 1993 425,344 $ 7.25 - $12.88 Granted 77,250 $11.19 Exercised (9,888) $ 7.25 - $12.88 Forfeited (20,820) $ 7.25 - $12.88 ------- ------------- Outstanding at Jan. 2, 1994 471,886 $ 7.25 - $12.88 Granted 70,550 $15.13 - $16.50 Exercised (51,656) $ 7.25 - $12.88 Forfeited (18,195) $ 7.25 - $16.50 ------- ------------- Outstanding at Jan. 1, 1995 472,585 $ 7.25 - $16.50 Granted 79,400 $18.06 - $19.44 Exercised (23,835) $ 7.25 - $16.50 Forfeited (3,500) $ 9.06 - $18.06 ------- ------------- Outstanding at Dec. 31, 1995 524,650 $7.25 - $19.44 Exercisable at Dec. 31, 1995 356,568 $7.25 - $16.50 ------- --------------
The Company issued from treasury 6,219, 8,038 and 7,282 shares of common stock in fiscal years 1995, 1994 and 1993, respectively, as annual Board of Directors fees. Costs relating to these fees (in thousands) of $129, $99 and $91 were recorded in fiscal years 1995, 1994 and 1993, respectively. 34 14. ACQUISITION OF SIMAG The Company's Frimont, S.p.A. subsidiary acquired on January 8, 1993, the assets of Simag, an ice machine manufacturer located in Milan, Italy. The method of accounting used for the combination was the purchase method. The results of Simag are included in the income statement for the Company beginning after January 8, 1993. Simag was acquired for $5.5 million and no shares of stock were or will be issued as a result of this acquisition. Goodwill of $4.4 million resulting from the Simag acquisition will be amortized for book purposes over 40 years using the straight-line method. No contingent payments, options or commitments were specified in the acquisition agreement of Simag. This acquisition did not have a material effect on the Company's results of operations. 15. ACQUISITION OF DELFIELD AND WHITLENGE On April 29, 1994, the Company completed the acquisition of The Delfield Company and Whitlenge Drink Equipment Limited for approximately $69.3 million in a combination of cash, preferred stock and common stock. The cash outlay was offset by cash on the books of the acquired businesses at closing of $3.9 million. Scotsman shareholders approved the issuance of common and preferred stock related to the acquisition at a special shareholders meeting on April 28, 1994. The method of accounting used for the combination was the purchase method. The initial amount of goodwill allocated to Delfield and Whitlenge was $73.7 million and is being amortized over 40 years using the straight-line method. The acquisition price included: (a) $30.4 million in cash, (b) 1.2 million shares of common stock (with a market value of approximately $16.5 million on the acquisition date) and (c) 2.0 million shares of Series A $0.62 cumulative convertible preferred stock with an aggregate liquidation preference of $22.5 million which are convertible into 1,525,393 shares of common stock. Also, the acquisition price of $69.3 million was increased by $12.1 million to include 667,000 shares of additional common stock based upon the businesses of Delfield and Whitlenge meeting a specified level of earnings before interest, income taxes, depreciation and amortization in fiscal year 1994. These additional shares were issued subsequent to January 1, 1995. In addition, Scotsman also assumed Delfield and Whitlenge debt of approximately $35 million which was substantially repaid on the acquisition date. (See Note 8.) The results of Delfield and Whitlenge are included in the income statements for the Company beginning after April 29, 1994. 35 Delfield, headquartered in Mt. Pleasant, Michigan, manufactures and sells refrigerated foodservice equipment, primarily in the United States. Whitlenge, located near Birmingham, England, manufactures and sells drink dispensing equipment in Western Europe. The accompanying unaudited condensed pro forma income statement information is presented to illustrate the effect of certain events on the historical income statement information of the Company as if the acquisitions of Delfield and Whitlenge had occurred as of the first day of each period presented. The pro forma information includes assumptions and estimates and is not necessarily indicative of the results of operations of the Company as they may be in the future or as they might have been had the transaction occurred as discussed above. The unaudited condensed pro forma income statement information should be read in conjunction with the historical condensed financial statements and notes thereto of the Company appearing elsewhere herein. (Amounts in thousands, except per-share data) PRO FORMA (Unaudited)
Twelve Months Ended Jan. 1, 1995 Jan. 2, 1994 Net sales $304,144 $278,557 Net income before extraordinary item and cumulative effect of accounting changes 13,547 10,010 Net income per share before extraordinary item and cumulative effect of accounting changes (a) $ 1.28 $ 0.96 Average number of common shares outstanding (b) 10,570 10,393
(a) Pro forma net income per share includes the dilutive effect of the 667,000 additional shares of common stock which were contingently issuable as described above. 36 (b) Pro forma weighted average number of common shares outstanding consists of the following: For all periods presented, Scotsman common stock and common stock equivalents before the impact of the issuance of the additional 1.2 million shares in April 1994, the full-year impact of the additional 1.2 million common shares, 1,525,393 common stock equivalents for the convertible preferred shares outstanding, and the 667,000 contingently issuable shares of common stock. The computation for the 12 months ended January 2, 1994, does not include the dilutive effect of stock options outstanding as that effect is immaterial. 16. ACQUISITION OF HARTEK The Company's Scotsman Group Inc. subsidiary acquired on December 31, 1995, the stock of Hartek Beverage Handling GmbH and the stock of Hartek Awagem Vertriebsges. m.b.H. ("Hartek"), a beverage dispensing manufacturer and a small distributor of Hartek and other products located in Radevormwald, Germany and Vienna, Austria, respectively. The combined Hartek businesses had 1995 annual sales of approximately $24 million. The method of accounting used for the combination was the purchase method. The results of the Hartek businesses have not been included in the income statements of the Company since these businesses were acquired on December 31, 1995. The two Hartek entities were acquired for $4.8 million, subject to adjustment based on the terms of the purchase agreement, and no shares of stock were or will be issued as a result of these acquisitions. The cash outlay was offset by cash on the books of Hartek at closing of $3.3 million. Goodwill of $1.9 million has been recorded and will be finalized within 12 months of the acquisition. The preliminary amount of goodwill from these acquisitions will be amortized for book purposes over 40 years using the straight-line method. Under the terms of the agreement governing the purchase of the Hartek businesses, the Company is required to pay to the seller 75 percent of any tax loss carry forwards used in reduction of taxable profits in the next three calendar years which were available to Hartek as of December 31, 1995, not to exceed an amount of 2.2 million Deutsche marks or, as of December 31, 1995, approximately $1.5 million. In addition, Scotsman also assumed Hartek debt of approximately $6.4 million. 37 Pro forma unaudited 1995 net sales of the Company, as if Hartek were acquired on the first day of fiscal year 1995 would have been $349 million. Pro forma information relating to net income and earnings per share has not been presented as the pro forma impact of those numbers on the Company's results was not material. Pro forma information includes assumptions and estimates and is not necessarily indicative of the results of operations of the Company as they may be in the future or as they might have been had the transaction occurred as discussed above. 17. CONTINGENCIES On March 26, 1993, Remcor Products Company ("Remcor") filed a lawsuit against the Company's subsidiary, Scotsman Group Inc. ("SGI"), and Scotsman Group's subsidiary, Booth, Inc. ("Booth"), in the United States District Court for the Northern District of Illinois. In its Complaint, Remcor alleged that certain ice/drink dispensers made and sold by SGI and Booth infringe a patent owned by Remcor relating to a cold plate system. On May 19, 1995, SGI, Booth and Remcor entered into a settlement agreement resolving the lawsuit, and on May 25, 1995, the United States District Court for the Northern District of Illinois entered an order dismissing, with prejudice, the claims filed in this case. Under the terms of the settlement agreement, SGI and Booth may continue to manufacture and sell ice-beverage dispensers employing their current design pursuant to a license included in the settlement agreement. While the settlement agreement provides that the financial terms of the settlement are confidential, the amount paid to Remcor was within the reserve previously established by the Company in connection with the lawsuit. 38 18. GEOGRAPHIC INFORMATION The Company's geographic data, based on the locations of operations, are as follows (in thousands):
For the Fiscal Years Ended Dec. 31, Jan. 1, Jan. 2, 1995 1995 1994 Sales to unaffiliated customers: United States $239,110 $201,746 $119,127 Europe 85,181 64,886 44,825 ------- ------- ------- Total $324,291 $266,632 $163,952 ======= ======= ======= Operating profit: United States $ 25,309 $ 20,773 $ 13,450 Europe 9,145 7,441 4,156 ------- ------- ------- Total $ 34,454 $ 28,214 $ 17,606 ======= ======= ======= Identifiable assets: United States $181,994 $172,608 $ 66,069 Europe 93,949 72,183 37,104 ------- ------- ------- Total $275,943 $244,791 $103,173 ======= ======= =======
Export sales from the United States were less than 10 percent of consolidated net sales for all years presented. 39 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Scotsman Industries, Inc.: We have audited the accompanying consolidated balance sheet of Scotsman Industries, Inc. (a Delaware Corporation) and subsidiaries as of December 31, 1995, and January 1, 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Scotsman Industries, Inc. and subsidiaries as of December 31, 1995, and January 1, 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 10 and Note 12 to the consolidated financial statements, the Company changed its methods of accounting for post-retirement benefits other than pensions, post-employment expenses and income taxes effective January 4, 1993. Arthur Andersen LLP Chicago, Illinois February 7, 1996 40 Scotsman Industries, Inc. Selected Quarterly Financial Data (Unaudited) (Amounts in thousands, except per-share data)
Fiscal year 1995 Fiscal year 1994 (a) -------------------------------------------- -------------------------------------------- For The Three Months Ended Dec. 31, Oct. 1, July 2, Apr. 2, Jan. 1, Oct. 2, July 3, Apr. 3, 1995 1995 1995 1995 1995 1994 1994 1994 Net sales $ 70,779 $ 87,075 $ 90,363 $ 76,074 $ 66,565 $ 86,282 $ 75,799 $ 37,986 Cost of sales 52,709 63,348 64,471 55,874 49,677 61,125 52,916 26,800 -------- -------- -------- -------- -------- -------- -------- -------- Gross profit 18,070 23,727 25,892 20,200 16,888 25,157 22,883 11,186 Selling and administrative expenses 13,506 13,079 13,627 13,223 12,660 15,064 12,700 7,476 -------- -------- -------- -------- -------- -------- -------- -------- Income from operations 4,564 10,648 12,265 6,977 4,228 10,093 10,183 3,710 Interest expense, net 1,366 1,639 1,744 1,577 1,495 1,615 1,399 907 -------- -------- -------- -------- -------- -------- -------- -------- Income before income taxes 3,198 9,009 10,521 5,400 2,733 8,478 8,784 2,803 Income taxes 1,259 4,099 4,792 2,570 1,043 3,799 3,912 1,259 -------- -------- -------- -------- -------- -------- -------- -------- Net income $ 1,939 $ 4,910 $ 5,729 $ 2,830 $ 1,690 $ 4,679 $ 4,872 $ 1,544 ======== ======== ======== ======== ======== ======== ======== ======== Net income per share (b): Primary $ 0.18 $ 0.50 $ 0.59 $ 0.29 $ 0.16 $ 0.52 $ 0.58 $ 0.22 ======== ======== ======== ======== ======== ======== ======== ======== Fully diluted $ 0.18 $ 0.46 $ 0.54 $ 0.27 $ 0.16 $ 0.44 $ 0.51 $ 0.22 ======== ======== ======== ======== ======== ======== ======== ======== Weighted average common shares outstanding: Primary 9,111,889 9,129,549 9,128,141 8,565,289 8,397,481 8,379,719 8,010,699 7,136,085 Fully diluted 10,650,140 10,654,786 10,653,582 10,640,578 10,595,294 10,583,355 9,601,544 --
41 (a) The results for fiscal year 1994 included the results of Delfield and Whitlenge subsequent to their acquisitions on April 29, 1994. (b) For quarters during 1994 and 1995 the dilutive effect of stock options outstanding was included in the weighted average common shares outstanding. For quarters ending subsequent to April 29, 1994, net income per share on a primary basis was computed to be net income after preferred stock dividends. For quarters ending subsequent to April 29, 1994, fully-diluted net income per share was based on net income before preferred stock dividends and the number of shares assumed the conversion of convertible preferred stock from the date of issue and also included the dilutive impact, as if issuance had occurred on the acquisition date, of contingent shares that have been distributed to the sellers of Delfield and Whitlenge subsequent to January 1, 1995, based on those businesses having achieved a specified combined level of earnings during fiscal year 1994. 42 Scotsman Industries, Inc. Five Year Summary (Amounts in thousands, except per-share data)
For the Fiscal Years Ended Dec. 31, Jan. 1, Jan. 2, Jan. 3, Dec. 29, 1995(a) 1995 (b) 1994 1993 1991 (c) Net sales $324,291 $266,632 $163,952 $168,674 $164,126 Income before income taxes 28,128 22,798 13,371 10,185 936 Net income (loss) 15,408 12,785 7,411 6,392 (1,674) Net income (loss) per share: fully diluted (d) 1.45 1.35 1.06 0.90 (0.24) Total assets (e) 275,943 244,791 103,173 96,103 112,808 Long-term debt and capitalized lease obligations, excluding current portion (e) 74,719 85,161 29,469 29,589 29,807 Cash dividends declared per common share $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10 ======== ======== ======== ======== ========
(a) The information for the fiscal year ended December 31, 1995, includes balance sheet information for the Hartek businesses which were acquired on December 31, 1995. (b) The results for the fiscal year ended January 1, 1995, include the results from Delfield and Whitlenge as of the date of their acquisitions, April 29, 1994. (c) The results for the fiscal year ended December 29, 1991, included a $1.0 million after-tax loss recognized from the sale of assets of the Halsey Taylor business in July 1991 and a $5.0 million after-tax reserve established for the then planned disposition of the Glenco-Star division. Net income on an unaudited pro forma basis for the fiscal year ended December 29, 1991, adjusted to exclude the losses of $6.0 million described above and the results of operations of Glenco-Star and Halsey Taylor, would have been $5.6 million, or $.79 per share. Pro forma results are based on assumptions and estimates and are not necessarily indicative of the results of the Company as they might have been had the transaction occurred as discussed above. (d) The calculation of net income per share for the fiscal years 1995, 1994, 1993, 1992 and 1991 was based on 10,649,763, 9,488,965, 7,000,651, 7,096,976 and 7,098,968 weighted average shares of common stock, respectively. The calculation of fully-diluted net income per share for the fiscal years ended January 1, 1995, and December 31, 1995, is based on net income before preferred stock dividends. The number of shares assumes conversion of convertible preferred stock from the date of issue and also includes the dilutive impact, as if issuance had occurred on the acquisition date, of contingent shares which were subsequently distributed to the sellers of Delfield and Whitlenge based on those businesses having achieved a specified combined level of earnings during fiscal year 1994, and also includes the dilutive impact of common stock options outstanding. The net income per-share calculation for fiscal years ended prior to January 1, 1995, did not reflect the dilutive effect of stock options outstanding as the dilutive effect was immaterial. (e) At year end 43 Scotsman Industries, Inc. Common Stock Scotsman Industries, Inc. common stock is listed on the New York Stock Exchange. The common stock ticker symbol is SCT.
Dividends 1994 High Low Last Declared 1st Quarter 16 7/8 14 14 3/8 $0.025 2nd Quarter 15 13 13 1/4 $0.025 3rd Quarter 16 1/2 13 3/8 16 3/8 $0.025 4th Quarter 18 1/4 15 3/8 17 1/8 $0.025 -------- Total dividends declared $0.100 Shares outstanding at January 1, 1995 8,267,938 Shareholders of record at January 1, 1995 5,321
Dividends 1995 High Low Last Declared 1st Quarter 18 5/8 16 7/8 18 1/2 $0.025 2nd Quarter 19 3/4 17 18 1/2 $0.025 3rd Quarter 20 15 1/8 16 3/8 $0.025 4th Quarter 17 3/4 16 17 5/8 $0.025 -------- Total dividends declared $0.100 Shares outstanding at December 31, 1995 8,964,974 Shareholders of record at December 31, 1995 4,800
EX-21 6 LIST OF SUBSIDIARIES 1 EXHIBIT 21 LIST OF SUBSIDIARIES OF THE REGISTRANT
JURISDICTION OF OTHER NAMES UNDER WHICH NAME OF SUBSIDIARY INCORPORATION SUBSIDIARY DOES BUSINESS - ------------------ --------------- ------------------------ Scotsman Group Inc. Delaware Scotsman Scotsman Commercial Ice Systems, Inc. Scotsman Ice Systems Scotsman of Los Angeles Booth, Inc. Texas Crystal Tips Castel MAC, S.p.A. Italy None DFC Holding Corporation Delaware None The Delfield Company Delaware None Hartek Awagem Vertriebsges m.b.H. Austria None Hartek Beverage Handling GmbH Germany None Frimont, S.p.A. Italy None Scotsman Drink Equipment Limited England None Whitlenge Acquisition Limited England None Whitlenge Drink Equipment Limited England None Whitlenge Drink Equipment, N.V. Belgium None
EX-23 7 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in, or incorporated by reference to, this Form 10-K into the Company's previously filed Registration Statements, File Nos. 33-35870, 33-35871, 33-53482, 33-57219, 33-56353, 33-59397 and 33-60377. ARTHUR ANDERSEN LLP Chicago, Illinois March 25, 1996 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SCOTSMAN INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 AND SCOTSMAN INDUSTRIES, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 12-MOS DEC-31-1995 JAN-02-1995 DEC-31-1995 15,808 0 54,500 2,960 52,251 131,342 46,373 39,531 275,943 76,514 74,719 915 0 2,000 109,404 275,943 324,291 324,291 236,402 236,402 0 0 6,326 28,128 12,720 15,408 0 0 0 15,408 1.58 1.45
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