-----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, NiVAQfEzQtiN7Q0HfCPAb7/1gB8RCHitXBmCotp6wNzMLp4HrOOx6lTpgu1PP4/m uusCgbCrgJQyo3TPSQLbQg== 0000950124-97-001921.txt : 19970401 0000950124-97-001921.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950124-97-001921 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19961229 FILED AS OF DATE: 19970331 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: 97568538 BUSINESS ADDRESS: STREET 1: 775 CORPORATE WOODS PKWY CITY: VERNON HILLS STATE: IL ZIP: 60061 BUSINESS PHONE: 7082154500 10-K 1 FORM 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 29, 1996. 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 17, 1997 there were 10,545,664 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 $276.2 million. DOCUMENTS INCORPORATED BY REFERENCE Registrant's 1996 Annual Report to Shareholders for the fiscal year ended December 29, 1996 (the "1996 Annual Report"): Parts I, II, and IV. Registrant's definitive Proxy Statement for its 1997 Annual Meeting of Shareholders to be held on May 15, 1997 (the "1997 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. In June of 1995, Scotsman also entered into a joint venture with Shenyang Xinle Precision Machinery Company in Shenyang, China to produce ice machines for the Chinese market. During 1996, Scotsman increased its ownership interest in the joint venture company from 40 to 60 percent. 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, through Castel MAC, and markets, through Castel MAC and Frimont, a limited line of refrigerated cabinets, dough retarders and blast freezers in Europe. 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. Scotsman manufactures and markets niche products through Delfield, including air ventilating equipment, ice cream 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. RECENT ACQUISITION OF KYSOR INDUSTRIAL CORPORATION In March of 1997, the Company completed the acquisition of Kysor Industrial Corporation ("Kysor") a major manufacturer and marketer of refrigerated display cases, commercial refrigeration systems and insulated panels primarily serving the supermarket industry. Prior to the acquisition, Kysor also manufactured and marketed components for the medium and heavy-duty commercial vehicle market through its transportation products group -2- 3 (the "Transportation Products Group"). The Company purchased Kysor's common and preferred stock for an aggregate purchase price of approximately $309 million. Such amount includes the aggregate purchase price paid for all shares of common and preferred stock acquired by the Company (including shares converted into a right to receive cash pursuant to the merger which followed the tender offer for such shares) and for options to acquire shares of common stock, offset by the net amount of a loan repaid by Kysor's employee stock ownership plan on behalf of Kysor. Concurrent with the purchase, Kysor sold all of the assets of its Transportation Products Group to a third party for an aggregate purchase price of $86 million plus the assumption of liabilities related to such assets. The Company retained possession of Kysor's commercial products group through which it manufactures and markets commercial refrigeration products (the "Commercial Products Group"). The method of accounting used for the combination was the purchase method. Goodwill relating to the acquisition of Kysor will be finalized within twelve months of the acquisition date and will be amortized for book purposes over 40 years using the straight-line method. Kysor is headquartered in Cadillac, Michigan. Kysor reported total sales of $381 million in 1996, of which $245 million related to its Commercial Products Group. 1996 STRATEGIC ALLIANCE In August of 1996, the Company acquired 50 percent of the outstanding shares of SAW Technologies Limited, a U.K.-based joint venture company ("SAW"). Aztec Developments Limited ("Aztec") is the other 50 percent shareholder. Under the terms of the joint venture agreement, Aztec sold its technologically advanced beverage dispensing valve, patents, and manufacturing capability to SAW, and the Company contributed capital to SAW. The cost incurred by the Company in 1996 relating to SAW was approximately $2.0 million. PRODUCTS AND DISTRIBUTION Scotsman manufactures refrigeration products that are marketed primarily to the foodservice industry (restaurants, cafeterias, convenience stores and bars), the supermarket and lodging industries, food processors and beverage companies. 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. Through Kysor, Scotsman also manufactures refrigerated display cases, condensing units and insulated panels and doors for refrigerated building systems and walk-in coolers. In addition to commercial refrigeration products, Scotsman 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), 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. 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. -3- 4 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. Scotsman Ice Systems presently has approximately 85 distributors in the United States, and Frimont and Castel MAC combined have approximately 80 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. Scotsman manufactures and markets commercial ice machines and related components through its Italian subsidiaries, Castel MAC and Frimont, under the Icematic trademark and the Scotsman and Simag trademarks, respectively, for sale in Italy 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 three export marketing firms based in the United States and Canada. Scotsman manufactures ice machines for the Chinese market through Shenyang Scotsman-Xinle Refrigeration Equipment Manufacturing Co. Ltd., its Chinese joint venture company. Such products are distributed and sold through the joint venture company's distribution network. 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 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 49 percent, 52 percent, and 57 percent of the Company's sales in fiscal years 1996, 1995 and 1994, respectively. 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, Shelleyglas and Shelleymatic 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. -4- 5 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 South America and Asia through an export agent. Export sales are less than 5 percent of Delfield's total sales. In Europe, Castel MAC manufactures and markets a line of refrigerated cabinets under the Icematic brand name and a line of dough retarders and blast freezers under the Tecnomac brand name, and Frimont markets a line of refrigerators manufactured by Castel MAC under the Scotsman 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 29 percent, 32 percent and 28 percent of Scotsman's sales in fiscal years 1996, 1995 and 1994, 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 icecooled 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 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. SAW is primarily engaged in the design of technologically advanced electronic beverage dispensing valves which, in the future, will be incorporated in Scotsman's drink dispensing equipment. SAW currently manufactures, for a major U.K. bottler, a dispensing product using an electronic valve designed by SAW. Sales of drink dispensing equipment accounted for approximately 19 percent, 12 percent and 12 percent of Scotsman's sales in fiscal years 1996, 1995 and 1994, respectively. -5- 6 KYSOR PRODUCTS. Kysor's principal products are refrigerated display cases, condensing units, and insulated panels and doors for refrigerated building systems and walk-in coolers. The principal markets for Kysor's products include supermarkets, convenience stores, food processors and restaurants in the United States. Refrigerated display cases, refrigerated building systems and sundry food store, food processing and restaurant equipment are sold directly to supermarkets and convenience stores, as well as through independent commercial refrigeration distributors. Kysor also owns 24.255% of the outstanding shares of Austral Refrigeration Pty. Ltd. ("Austral"), which it acquired in February of 1996. Austral is headquartered in Sydney, Australia, and is the parent company of Kysor/Warren Australia Pty. Ltd. ("Kysor-Warren Australia"), which has been a licensee and manufacturer of Kysor refrigerated display cases for over 25 years. Through Kysor-Warren Australia, Kysor manufactures refrigerated display cases which are sold primarily in Australia but also in other Asian markets. Austral also includes other businesses which install and maintain refrigeration products in those same markets. NICHE PRODUCTS. Scotsman also manufactures and markets a line of niche products, primarily through Delfield, including air ventilating equipment under the Air Tech trademark, ice cream dispensing equipment, and iced drink mixing and dispensing machines. Scotsman also manufactures and markets water coolers 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 15, "Geographic Information," in the 1996 Annual Report. ENVIRONMENTAL AND OTHER REGULATORY MATTERS The Company'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. The Company 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. The Company also is, or may be, subject from time to time to claims and litigation arising under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and similar state statutes. The Company has been identified by the United States Environmental Protection Agency, state regulatory agencies or private parties as a potentially responsible party ("PRP") under CERCLA and similar state statutes in connection with a number of hazardous waste sites. Under existing environmental laws, PRPs are jointly and severally responsible for the cost of clean-up and other remedial action at these sites, and each PRP is therefore potentially responsible for the full cost of remediation. As a practical matter, however, costs are generally shared with other PRPs, based on each PRP's relative contribution to the problem. The purchaser of Kysor's Transportation Products Group has, moreover, assumed all environmental liabilities associated with that business in connection with the purchase and sale of the Transportation Products Group, which include liabilities relating to some of the sites for which Kysor has been named as a PRP. Based on the foregoing factors, the relative size of the Company's contribution to the sites for which it has been named as a PRP, currently available information about the cost of remediation at such sites, and the probability that other PRPs, many of which are large, solvent public companies, will pay the costs apportioned to them, the Company does not -6- 7 believe that any liability imposed in connection with such environmental proceedings, either individually or in the aggregate, will have a material adverse effect upon the Company's financial condition or its results of operations. 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 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, and that Hussmann Corporation, a subsidiary of Whitman Corporation, is the leading supplier of supermarket display cases and related equipment in the United States, the primary market in which Kysor competes. 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 achieve cost reductions, as well as develop new products. Scotsman's total research and development expenditures for fiscal years 1996, 1995 and 1994 were approximately $5.6 million, $4.8 million and $5.1 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, plastics, glass, foam insulation, brass, and wood. 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 1996. Delfield, Booth, Whitlenge, Hartek and Kysor 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, Whitlenge, Hartek or Kysor, 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 1996 and 1995 was $24.8 million and $29.3 million, respectively. Scotsman expects that all of the orders in the backlog at the end of fiscal year 1996 will be shipped during 1997. -7- 8 SEASONALITY. The volume of sales for ice machines and drink dispensing equipment sold by Scotsman is somewhat higher in the second and third quarters, corresponding with the major selling season for refrigeration products. Sales of Kysor's refrigeration products are also subject to seasonal fluctuations, with sales being somewhat stronger in the third and weaker in the first quarter. 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. 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, considered individually, is material to its business, with the exception of the Scotsman, Delfield and Kysor trademarks. Scotsman believes it possesses adequate protection with respect to these trademarks. EMPLOYEES. As of December 31, 1996, Scotsman employed approximately 2,250 people, approximately 1,087 of whom were covered by collective bargaining agreements with various labor unions. As a result of the recent acquisition of Kysor, Scotsman currently has 3,855 employees, 1,606 of whom are covered by collective bargaining agreements. Relationships with employees of Scotsman have been satisfactory. ITEM 2. PROPERTIES Scotsman's corporate headquarters and Scotsman Ice Systems division's headquarters are located in 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 square 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 152,000 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, 1998, and December 31, 2006. -8- 9 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 March 24, 2004, through June 24, 2006. 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. Kysor currently owns or leases the following offices and manufacturing facilities:
Location Description Interest - -------- ----------- -------- Cadillac, Michigan Former executive office; Owned in fee simple 23,000 square feet on 102-acre site Conyers, Georgia Plant & office; 480,000 Owned in fee simple square feet on 50-acre site Conyers, Georgia Warehouse; 110,000 square feet Leased Columbus, Georgia Plant & office; 295,826 Owned in fee simple square feet on 22.7-acre site Fort Worth, Texas Plant & office; 118,162 Owned in fee simple square feet on 11-acre site Duncan, Oklahoma (1) Plant, warehouse & office; Owned in fee simple 93,000 square feet on 22.1-acre site Portland, Oregon Plant & office; 84,000 Owned in fee simple square feet on 5.7-acre site Goodyear, Arizona Plant & office; 50,000 Leased square feet on 5.0-acre site South Bend, Indiana Plant & office; 90,000 Owned in fee simple square feet on 4.0-acre site Pyuallup, Washington Plant & office; 40,000 Owned in fee simple square feet on 2.0- acre site Piney Flats, Tennessee Plant & office; 60,000 square feet Leased on 10.0-acre site Des Moines, Iowa Plant, warehouse & office; 93,000 square feet Leased
____________________ (1) Facility is currently leased by Kysor to a third party. -9- 10 Kysor is also constructing a manufacturing facility in Columbus, Georgia, which is expected to be completed in 1997. Scotsman considers the condition of its plants and other properties to be generally good and believes the capacity of its plants, as increased by the plant under construction in Georgia, 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 MANITOWOC PATENT LITIGATION. On September 17, 1996, The Manitowoc Company, Inc. ("Manitowoc") filed a lawsuit against the Company in United States District Court for the Northern District of Illinois, entitled The Manitowoc Company, Inc. v. Scotsman Industries. Inc. In its Complaint, Manitowoc alleges that the Company's CM3 ice machine, a cuber machine introduced by the Company during the first quarter of 1996, infringed two patents owned by Manitowoc relating to a cleaning feature on an ice machine. On January 14, 1997, Manitowoc filed an Amended Complaint in this case, adding a claim that the CM3 machine also infringed a third patent covering an ice machine cleaning feature which the United States Patent and Trademark Office issued to Manitowoc on December 24, 1996. The time for the Company to file its Answer in this case has been extended while the parties have engaged in settlement discussions. The Company has advised Manitowoc that it does not believe the cleaning feature on its CM3 machine infringes any of Manitowoc's patents. In November 1996, the Company nonetheless informed Manitowoc that the Company planned to make a design change to the cleaning feature on its CM3 machine in the interests of attempting to avoid litigation over Manitowoc's patents. Manitowoc responded in December 1996 by offering to dismiss the above- entitled lawsuit if the Company implemented the design change described by the Company, agreed to provide Manitowoc with a sample of the redesigned control board, and agreed to communicate with a particular ice machine customer and the Company's field service force about the operation of the CM3 machine's cleaning system. The Company accepted Manitowoc's settlement proposal in January 1997, subject to certain clarifications. On February 25, 1997, Manitowoc's counsel orally advised counsel for the Company that the sample of the redesigned control board which the Company had provided was acceptable to Manitowoc. The Company has satisfied the remaining conditions of settlement by implementing the design change and sending the communications referenced above to the Company's customer and field service force. Manitowoc has requested that the parties' settlement agreement be formally memorialized in writing before dismissing the case. While no assurances can be given, the Company does not believe that this lawsuit will have a material adverse effect on the financial condition of the Company or its results of operations. 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 two cases filed in Marion County Superior Court, Indianapolis, Indiana, arising out of a fire at the Indianapolis Athletic Club (the "IAC") on February 5, 1992. Those cases are Indianapolis 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 damages for the alleged wrongful death of Mr. Mutz in the fire. The plaintiffs allege, in their actions, that the fire was caused by a refrigerator manufactured by Delfield. Delfield was dismissed as a defendant in both cases, following an investigation of its claim that the refrigerator in the IAC was manufactured, not by Delfield, but by the Delfield Division of Alco Standard Corporation ("Alco") prior to the acquisition of the Delfield Division by DFC Holding Corporation ("DFC") which was, in turn, acquired by Scotsman. Such dismissals -10- 11 were, however, without prejudice to the rights of the plaintiffs to reinstate their claims against Delfield. The plaintiffs in the IAC and the Mutz actions continued to pursue their claims against the Delfield Division of Alco, and the Company has continued to monitor the actions. Alco and the Delfield Division have denied that the refrigerator caused the fire. The suit filed by the IAC was tried in early 1997, and on February 17, 1997, a jury verdict was returned, and judgment was entered, in favor of Alco and the Delfield Division. On March 17, 1997, the IAC filed notice of an appeal of the decision with the Indiana court of appeals. Although the case has not yet been dismissed, Alco and the other defendants in Mutz have agreed to enter into a settlement agreement with the estate of Mr. Mutz resolving all of the claims of the estate against such defendants. Under the terms of the settlement agreement, Alco and/or its insurer have agreed to pay a total of $200,000 as Alco's share of the settlement amount. 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 the action brought by the IAC, and Delfield believes that its insurance should cover any claims that are not covered by Alco's indemnity. Moreover, 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. While no assurances can be given, the Company does not believe that either of the actions arising out of the IAC fire is 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 1996. 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, 53 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.
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NAME AND AGE OFFICE AND EXPERIENCE - ------------ --------------------- Emanuele Lanzani, 62 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, 57 Mr. Faenza is General Manager, Castel MAC, and has held that position since 1986. Richard M. Holden, 46 Mr. Holden is Vice President-Human Resources of the Company and has held that position since January 1990. Donald D. Holmes, 59 Mr. Holmes is Vice President-Finance and Secretary of the Company and has held those positions since April 1989. Christopher D. Hughes, 50 Mr. Hughes is a Vice President of the Company and has held that position since June 1994. He 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. Ludwig H. Klein, 54 Mr. Klein is a Vice President of the Company and has held that position since February 1996. He 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. Gerardo Palmieri, 57 Mr. Palmieri is Director-Sales and Marketing, Frimont, and has held that position since 1980. Randall C. Rossi, 45 Mr. Rossi is a Vice President of the Company and has held that position since January 1995. He 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.
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NAME AND AGE OFFICE AND EXPERIENCE - ------------ --------------------- William J. Rotenberry, 42 Mr. Rotenberry is Vice President - Business Development. He 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, 51 Mr. de St. Paer is a Vice President of the Company and has held that position since April 1994. He 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 1996 Annual Report and in Note 16 of the "Notes to Consolidated Financial Statements" in the 1996 Annual Report is incorporated herein by reference. Non-employee directors of the Company are compensated for their services in the form of shares of the Company's common stock, value $.10 per share (the" Common Stock"). The offer and sale of such shares has not been registered under the Securities Act of 1933, as amended (the "1933 Act"), and is made in reliance upon the private placement exemption under Section 4(2) of the 1933 Act. A total of eight persons have thus far acquired Common Stock under the plan, all of whom have access to full financial and other information about the Company. Under the terms of the directors' compensation plan, non-employee directors of the Company currently receive for their services an annual retainer fee paid in shares of Common Stock with a total market value of approximately $16,000, determined as of the day immediately preceding the date of the annual meeting. Any non-employee director who serves as chairman of the Audit, Compensation, Executive or Governance Committees of the Board of Directors receives, as compensation for those services, additional shares of Common Stock with a total market value of approximately $2,000, determined as of the same valuation date used in determining the number of shares to be granted to the directors as annual retainer fees. All of the shares are issued from treasury stock. Within the last three fiscal years, the Company has issued the following number of shares on the dates indicated:
DATE OF ISSUANCE TOTAL NUMBER OF SHARES AGGREGATE MARKET VALUE ---------------- ---------------------- ---------------------- May 16, 1996 5,965 $119,300 May 18, 1995 6,219 $120,493 June 10, 1994 8,038 $118,561
-13- 14 ITEM 6. SELECTED FINANCIAL DATA The selected financial data contained in the table entitled "Five Year Summary" in the 1996 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 1996 Annual Report are incorporated herein by reference. 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 1996 Annual Report are incorporated herein by reference. The selected financial data contained in the table entitled "Selected Quarterly Financial Data" in the 1996 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 1996. 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 1997 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" in the 1997 Proxy Statement 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 1997 Proxy Statement is incorporated herein by reference. -14- 15 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 1997 Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, 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 4, 1997, appearing in the Company's 1996 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 29, 1996, December 31, 1995, and January 1, 1995. Consolidated Balance Sheet as of December 29, 1996, and December 31, 1995. Consolidated Statement of Cash Flows for each of the three years ended December 29, 1996, December 31, 1995, and January 1, 1995. Consolidated Statement of Shareholders' Equity for each of the three years ended December 29, 1996, December 31, 1995, and January 1, 1995. Notes to Consolidated Financial Statements. Five Year Summary. Selected Quarterly Financial Data (Unaudited). (A)(2) LIST OF FINANCIAL STATEMENT SCHEDULE Report of Independent Public Accountants. II - Valuation and Qualifying Accounts -15- 16 (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. Exhibit 2.1 - Agreement and Plan of Merger, dated as of February 2, 1997, among the Company, K Acquisition Corp., and Kysor Industrial Corporation (incorporated herein by reference from Exhibit (c)(1) to the Company's Tender Offer Statement on Schedule 14D-1, filed with the Commission on February 7, 1997), as amended by the First Amendment to Agreement and Plan of Merger, dated as of March 7, 1997 (incorporated herein by reference to the Company's 8-K, dated March 8, 1997). Exhibit 2.2 - 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. (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1995). Exhibit 2.3 - 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). Exhibit 2.4 - 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 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). -16- 17 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 - Credit Agreement dated March 12, 1997 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. Exhibit 10.5 - Promissory Note in the principal amount of $15,000,000, made as of March 12, 1997 by Scotsman Group Inc. to Comerica Bank, together with the related Reaffirmation of Guaranty and Consent, dated March 12, 1996, by Scotsman Industries, Inc. in favor of Comerica Bank, Guaranty Agreement, dated June 30, 1996, by Scotsman Industries, Inc. in favor of Comerica Bank (incorporated herein to the Company's 10-Q, dated June 30, 1996) and Guaranty by Booth, Inc., DFC Holding Corporation, The Delfield Company and Kysor Industrial Corporation, dated March 12, 1997, in favor of Comerica Bank. Exhibit 10.6 - 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), the Amendment dated April 29, 1994 (incorporated herein by reference to the Company's 10-Q for the quarter ended April 3, 1994), and Amendment No. 7 thereto, dated March 12, 1997, among Scotsman Group Inc., Scotsman Industries, Inc., The Bank of Nova Scotia and The First National Bank of Chicago. Exhibit 10.7 - 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). -17- 18 Exhibit 10.8* - Long-Term Executive Incentive Compensation Plan of Scotsman Industries, Inc., as amended February 13, 1997. Exhibit 10.9* - Scotsman Industries, Inc., Executive Incentive Compensation Program, Plans B-1 (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1995) and AA, A-1 and A-2. Exhibit 10.10* - 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 10.11* - 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 10.12* - 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 10.13* - 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 10.14* - 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 10.15* - Employment Agreement dated October 17, 1996 between Scotsman Group Inc. and Michael de St. Paer. Exhibit 10.16* - Service Agreement dated February 1, 1995, as amended by the Service Agreement Addendum, dated January 31, 1997, between Hartek Beverage Handling GmbH and Ludwig H. Klein. Exhibit 10.17* - 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 10.18* - 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. -18- 19 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 10.19* - 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). Exhibit 10.20* - 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 10.21 - 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 10.22 - 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 10.23 - 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), as amended by First Amendment to the Lease Agreement, dated October 27, 1993, (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 1, 1995) and Second Amendment to the Lease Agreement, dated December 3, 1993, (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 1, 1995). Exhibit 13 - Those portions of Scotsman's 1996 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. -19- 20 Exhibit 23 - Consent of Arthur Andersen LLP. Exhibit 27 - Article 5 Financial Data Schedule for the Fiscal Year Ended December 29, 1996. Exhibit 99 - Cautionary Statements. 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 29, 1996. (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 22 and 23 of this report. -20- 21 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 27, 1997 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 27, 1997 - ---------------------------------- (R.C. Osborne) Chief Executive Officer & Director (Principal Executive Officer) Director /s/ D. C. Clark , Director March 27, 1997 - ---------------------------------- (D.C. Clark) /s/ T. C. Collins , Director March 27, 1997 - ---------------------------------- (T.C. Collins) /s/ F. W. Considine , Director March 27, 1997 - ---------------------------------- (F.W. Considine) /s/ M. O. Diggs, Jr. , Director March 27, 1997 - ---------------------------------- (M.O. Diggs, Jr.) /s/ G. D. Kennedy , Director March 27, 1997 - ---------------------------------- (G.D. Kennedy) /s/ R. G. Rettig , Director March 27, 1997 - ---------------------------------- (R.G. Rettig) /s/ D. D. Holmes , Vice President-Finance and March 27, 1997 - ---------------------------------- Secretary (Principal Financial & (D.D. Holmes) Accounting Officer)
-21- 22 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE 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 1996 Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 4, 1997. 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 Schedule 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 4, 1997 -22- 23 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 --------- -------- ------------ ---------- --------- 1994- Accounts Receivable Reserves $1,548 $ 430 $ 716 $ (398) $2,296 ===== ==== ==== ===== ===== 1995- Accounts Receivable Reserves $2,296 $ 645 $ 572 $ (553) $2,960 ===== ==== ==== ===== ===== 1996- Accounts Receivable Reserves $2,960 $ 435 $(128) $ (489) $2,778 ===== ==== ==== ===== =====
_________________________ (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. -23- 24 EXHIBIT INDEX
Exhibit Page Number Number Description(1) of Exhibit ------ ----------- ---------- 2.1 Agreement and Plan of Merger, dated as of February 2, 1997, among the Company, K Acquisition Corp., and Kysor Industrial Corporation (incorporated herein by reference from Exhibit (c)(1) to the Company's Tender Offer Statement on Schedule 14D-1, filed with the Commission on February 7, 1997), as amended by the First Amendment to Agreement and Plan of Merger, dated as of March 7, 1997 (incorporated herein by reference to the Company's 8-K, dated March 8, 1997). 2.2 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. (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1995). 2.3 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). 2.4 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 herein 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). 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).
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Exhibit Page Number Number Description(1) of Exhibit ------ ----------- ---------- 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 Credit Agreement dated March 12, 1997 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. 10.5 Promissory Note in the principal amount of $15,000,000, made as of March 12, 1997 by Scotsman Group Inc. to Comerica Bank, together with the related Reaffirmation of Guaranty and Consent, dated March 12, 1996, by Scotsman Industries, Inc. in favor of Comerica Bank, Guaranty Agreement, dated June 30, 1996, by Scotsman Industries, Inc. in favor of Comerica Bank (incorporated herein to the Company's 10-Q, dated June 30, 1996) and Guaranty by Booth, Inc., DFC Holding Corporation, The Delfield Company and Kysor Industrial Corporation, dated March 12, 1997, in favor of Comerica Bank.
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Exhibit Page Number Number Description(1) of Exhibit ------ ----------- ---------- 10.6 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), the Amendment dated April 29, 1994 (incorporated herein by reference to the Company's 10-Q for the quarter ended April 3, 1994) , and Amendment No. 7 thereto, dated March 12, 1997, among Scotsman Group Inc., Scotsman Industries, Inc., The Bank of Nova Scotia and The First National Bank of Chicago. 10.7 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). 10.8 Long-Term Executive Incentive Compensation Plan of Scotsman Industries, Inc., as amended February 13, 1997. 10.9 Scotsman Industries, Inc., Executive Incentive Compensation Program, Plans B-1 (incorporated herein by reference to the Company's 10-K for the fiscal year ended December 31, 1995) and AA, A-1 and A-2. 10.10 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). 10.11 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). 10.12 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). 10.13 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). 10.14 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). 10.15 Employment Agreement dated October 17, 1996 between Scotsman Group Inc. and Michael de St. Paer.
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Exhibit Page Number Number Description(1) of Exhibit ------ ----------- ---------- 10.16 Service Agreement dated February 1, 1995, as amended by the Service Agreement Addendum, dated January 31, 1997, between Hartek Beverage Handling GmbH and Ludwig H. Klein. 10.17 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). 10.18 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). 10.19 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). 10.20 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). 10.21 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). 10.22 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).
-27- 28
Exhibit Page Number Number Description(1) of Exhibit ------ ----------- ---------- 10.23 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), as amended by First Amendment to the Lease Agreement, dated October 27, 1993, (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 1, 1995) and Second Amendment to the Lease Agreement, dated December 3, 1993, (incorporated herein by reference to the Company's 10-K for the fiscal year ended January 1, 1995). 13 Those portions of Scotsman's 1996 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 29, 1996. 99 Cautionary Statements. - -------------------
(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. -28- EX-10.4 2 CREDIT AGREEMENT 1 EXHIBIT 10.4 CREDIT AGREEMENT AMONG SCOTSMAN GROUP INC. AND THE OTHER PARTIES NAMED HEREIN, as Borrowers, SCOTSMAN INDUSTRIES, INC., THE LENDERS NAMED HEREIN and THE FIRST NATIONAL BANK OF CHICAGO, as Agent DATED AS OF March 12, 1997 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II THE CREDITS 2.1. Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.2. Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.3. Swing Line Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.3.1 Making of Swing Line Loans . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.3.2 Conversions of and Participations in Swing Line Loans . . . . . . . . . . . 29 2.4. Ratable Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.5. Types of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.6. Fees; Reductions in Aggregate Revolving Loan Commitment . . . . . . . . . . . . . 30 2.7. Minimum Amount of Each Advance . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.8. Optional Principal Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 2.9. Mandatory Prepayments and Commitment Reductions . . . . . . . . . . . . . . . . . 32 2.9.1 Asset Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 2.9.2 Excess Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 2.9.3 Debt and Equity Issuances . . . . . . . . . . . . . . . . . . . . . . . . . 33 2.9.4 Revolving Commitment Reductions . . . . . . . . . . . . . . . . . . . . . . 34 2.9.5 Application of Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . 34 2.9.6 Permitted Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 2.10. Method of Selecting Types and Interest Periods for New Advances . . . . . . . . . 34 2.11. Conversion and Continuation of Outstanding Advances . . . . . . . . . . . . . . . 35 2.12. Changes in Interest Rate, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 36 2.13. Rates Applicable After Default . . . . . . . . . . . . . . . . . . . . . . . . . . 37 2.14. Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 2.15. Notes; Telephonic Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 2.16. Interest Payment Dates; Interest and Fee Basis . . . . . . . . . . . . . . . . . . 39 2.17. Notification by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 2.18. Lending Installations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 2.19. Non-Receipt of Funds by the Agent . . . . . . . . . . . . . . . . . . . . . . . . 39 2.20. Withholding Tax Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 2.21. Agent's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 2.22. Determination, Denomination and Redenomination of Alternative Currency Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 2.23. Facility Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 2.23.1 Issuance of Facility Letters of Credit . . . . . . . . . . . . . . . . . . 41
3 2.23.2 Participating Interests . . . . . . . . . . . . . . . . . . . . . . . . . 42 2.23.3 Facility Letter of Credit Reimbursement Obligations . . . . . . . . . . . 42 2.23.4 Procedure for Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . 44 2.23.5 Nature of the Lenders' Obligations . . . . . . . . . . . . . . . . . . . . 45 2.23.6 Facility Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE III CHANGE IN CIRCUMSTANCES 3.1. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 3.2. Yield Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3.3. Changes in Capital Adequacy Regulations . . . . . . . . . . . . . . . . . . . . . 48 3.4. Availability of Types of Advances . . . . . . . . . . . . . . . . . . . . . . . . 49 3.5. Funding Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 3.6. Lender Statements; Survival of Indemnity . . . . . . . . . . . . . . . . . . . . . 49 3.7. Replacement of Certain Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 3.8. Availability of Alternative Currency . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE IV CONDITIONS PRECEDENT 4.1. Initial Loan and Facility Letter of Credit Issuance . . . . . . . . . . . . . . . 50 4.2. Each Future Advance and Facility Letter of Credit Issuance . . . . . . . . . . . . 54 4.3. Each Advance on the Merger Date . . . . . . . . . . . . . . . . . . . . . . . . . . 54 ARTICLE V REPRESENTATIONS AND WARRANTIES 5.1. Existence and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 5.2. Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 5.3. Compliance with Laws and Contracts . . . . . . . . . . . . . . . . . . . . . . . . 55 5.4. Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 5.5. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 5.6. Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 5.7. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 5.8. Litigation and Contingent Obligations . . . . . . . . . . . . . . . . . . . . . . 57 5.9. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 5.10. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 5.11. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 5.12. Federal Reserve Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 5.13. Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 5.14. Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 5.15. Representations and Warranties Incorporated From Asset Purchase Agreement and Acquisition Agreement . . . . . . . . . . . . . . . . 59 5.16. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 5.17. Ownership of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
iii 4 5.18. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 5.19. Employee Controversies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 5.20. Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 5.21. Acquisition and Asset Purchase Documents . . . . . . . . . . . . . . . . . . . . . 60 5.22. Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 5.23. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 5.24. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 5.25. Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . 62 5.26. Representations in Other Loan Documents True and Correct . . . . . . . . . . . . . . 62 ARTICLE VI COVENANTS 6.1. Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 6.2. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 6.3. Notice of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 6.4. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 6.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 6.6. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 6.7. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 6.8. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 6.9. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 6.10. Capital Stock and Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 6.11. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 6.12. Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 6.13. Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 6.14. Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 6.15. Investments and Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 6.16. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 6.17. Kysor Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 6.18. Lease Rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 6.19. Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 6.20. Amendments to Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 6.21. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 6.22. [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 6.23. Change in Corporate Structure; Fiscal Year . . . . . . . . . . . . . . . . . . . . 72 6.24. Restrictive Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 6.25. Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 6.25.1 Minimum Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . 73 6.25.2 Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . 74 6.25.3 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 6.26. Tax Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 6.27. ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 6.28. Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
iv 5 6.29. Required Hedging Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 6.30. Financial Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 6.31 UK Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 ARTICLE VII DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES 8.1. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 8.2. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 8.3. Preservation of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 8.4. Application of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 ARTICLE IX GENERAL PROVISIONS 9.1. Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 9.2. Governmental Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 9.3. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 9.4. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 9.5. Several Obligations; Benefits of this Agreement . . . . . . . . . . . . . . . . . 81 9.6. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 9.7. Numbers of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 9.8. Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 9.9. Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 9.10. Nonliability of Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 9.11. CHOICE OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 9.12. CONSENT TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 9.13. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 9.14. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 9.15. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 ARTICLE X THE AGENT 10.1. Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 10.2. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 10.3. General Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 10.4. No Responsibility for Loans, Recitals, etc. . . . . . . . . . . . . . . . . . . . 85 10.5. Action on Instructions of Lenders . . . . . . . . . . . . . . . . . . . . . . . . 86 10.6. Employment of Agents and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . 86 10.7. Reliance on Documents; Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 86 10.8. Agent's Reimbursement and Indemnification . . . . . . . . . . . . . . . . . . . . 86 10.9. Rights as a Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
v 6 10.10. Lender Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 10.11. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 10.12. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 ARTICLE XI SETOFF; RATABLE PAYMENTS 11.1. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 11.2. Ratable Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 12.1. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 12.2. Participations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 12.2.1 Permitted Participants; Effect. . . . . . . . . . . . . . . . . . . . . 88 12.2.2 Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 12.2.3 Benefit of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 12.3. Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 12.3.1 Permitted Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . 89 12.3.2 Effect; Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . 89 12.4. Dissemination of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 12.5. Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 ARTICLE XIII NOTICES 13.1. Giving Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 13.2. Change of Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
vi 7 EXHIBITS Exhibit A-1 - Domestic Guaranty Exhibit A-2 - Foreign Guaranty Exhibit B-1 - Revolving Note Exhibit B-2 - Swing Line Note Exhibit B-3 - Term Note Exhibit C-1 - Application and Reimbursement Agreement for Standby Letter of Credit Exhibit C-2 - Application and Reimbursement Agreement for Commercial Letter of Credit Exhibit D - Compliance Certificate Exhibit E - Privity Letter Exhibit F - Assignment and Acceptance Exhibit G - Agreement of Joinder SCHEDULES --------- Schedule 1.1 - Revolving and Term Loan Commitments Schedule 2.10 - Lending Installations Schedule 5.3 - Approvals and Consents Schedule 5.4 - Governmental Consents Schedule 5.5 - Opening Financial Statements Schedule 5.8 - Litigation and Material Contingent Obligations Schedule 5.9 - Subsidiaries Schedule 5.10 - ERISA Schedule 5.17(a) - Owned and Leased Properties Schedule 5.17(b) - Intellectual Property Schedule 5.18 - Indebtedness Schedule 5.22 - Environmental Schedule 5.23 - Insurance Schedule 6.11 - Permitted Existing Indebtedness Schedule 6.15 - Investments Schedule 6.16 - Liens vii 8 CREDIT AGREEMENT This Credit Agreement, dated as of March 12, 1997, is among Scotsman Group Inc., a Delaware corporation, The Delfield Company, a Delaware corporation, Scotsman Drink Limited, a private company limited by shares registered in England, Whitlenge Drink Equipment Limited, a private company limited by shares registered in England, Frimont S.p.A., a societa per azioni incorporated with limited liability in the Republic of Italy, Castel MAC S.p.A., a societa per azioni incorporated with limited liability in the Republic of Italy, and Kysor Industrial Corporation, a Michigan corporation, Scotsman Industries, Inc., a Delaware corporation, the institutions from time to time parties hereto as Lenders and The First National Bank of Chicago, individually and as Agent. RECITALS A. Industries (as this and other capitalized terms used in these recitals are hereinafter defined) is party to the Acquisition Agreement, pursuant to which Acquisition Co., an indirect wholly-owned subsidiary of Industries, is making a cash tender offer for all of the capital stock of Kysor to be followed by a merger of Acquisition Co. with and into Kysor, with Kysor being the surviving corporation in such merger; and B. The Borrowers have requested the Lenders to make financial accommodations to them in the aggregate principal amount of $415,000,000, the proceeds of which will be used (a) to finance the cash payments to be made pursuant to the Acquisition Agreement and to pay related fees and expenses, (b) to refinance certain outstanding Indebtedness of Industries and its Subsidiaries, (c) to finance acquisitions to be made by Industries and its Subsidiaries, all in accordance with the terms and conditions hereof, and (d) for the working capital needs and other general corporate purposes of Group and its Subsidiaries, all in accordance with the terms and conditions hereof. NOW, THEREFORE, in consideration of the mutual covenants and undertakings herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Group, Delfield, Scotsman Drink, Whitlenge, Frimont, Castel MAC, Kysor, Industries, the Lenders and the Agent hereby agree as follows: ARTICLE I DEFINITIONS As used in this Agreement: "Accounts" means all present and future rights of a Person to payment for goods sold or leased or for services rendered, whether or not they have been earned by performance. "Acquisition" means the acquisition by Acquisition Co. of all of the outstanding capital stock of Kysor pursuant to the Acquisition Agreement. 9 "Acquisition Agreement" means that certain Agreement and Plan of Merger dated as of February 2, 1997 among Industries, Acquisition Co. and Kysor as the same may be amended, supplemented or modified in accordance with Section 6.20. "Acquisition Co." means K Acquisition Corp., a Michigan corporation. "Acquisition Documents" means the Acquisition Agreement together with the certificate of ownership and merger filed with the Secretary of State of Michigan to effectuate such merger and the other documents, certificates and agreements delivered in connection therewith. "Additional Borrowing Subsidiary" means any Subsidiary (i) that is a Wholly-Owned Subsidiary of Industries and (ii) as to which each Lender has given its consent pursuant to Section 2.2(d) and as to which an Agreement of Joinder shall have been delivered to the Agent pursuant to Section 2.2(d), duly executed by Group, such Subsidiary and the Agent, prior to the first date on which a Borrowing Notice has been delivered by Group pursuant to Section 2.10 requesting that an Advance be made to such Subsidiary, in form and substance satisfactory to the Agent. "Advance" means a borrowing hereunder consisting of the aggregate amount of the several Loans made on the same Borrowing Date by the Lenders to the same Borrower of the same Type and, in the case of Eurocurrency Advances, denominated in the same Permitted Currency and for the same Interest Period. "Affected Lender" is defined in Section 3.7. "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns ten percent (10%) or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. "Agent" means First Chicago in its capacity as agent for the Lenders pursuant to Article X, and not in its individual capacity as a Lender, and any successor Agent appointed pursuant to Article X. "Aggregate Commitment" means the sum of the Aggregate Revolving Loan Commitment and the Aggregate Term Loan Commitment. "Aggregate Revolving Loan Commitment" means the aggregate of the Revolving Loan Commitments of all of the Lenders having Revolving Loan Commitments, as such amount may be further modified from time to time pursuant to the terms hereof. The initial Aggregate Revolving Loan Commitment is $265,000,000. "Aggregate Term Loan Commitment" means the aggregate of the Term Loan Commitments of all of the Lenders having Term Loan Commitments. The Aggregate Term Loan Commitment is $150,000,000. 2 10 "Agreement" means this Credit Agreement, as it may be amended, modified, supplemented or restated and in effect from time to time. "Agreement Accounting Principles" means generally accepted United States accounting principles as in effect from time to time, applied in a manner consistent with that used in preparing the financial statements referred to in Section 5.5; provided, that for purposes of determining compliance with the financial covenants set forth in Section 6.25, "Agreement Accounting Principles" shall mean such accounting principles as in effect on the date of this Agreement, together with any such other accounting principles which take effect after the date of this Agreement to the extent agreed to by Group and the Required Lenders. "Agreement of Joinder" means an agreement substantially in the form of Exhibit G hereto. "Alternative Currency" shall mean, subject to availability pursuant to Section 3.8 and to the extent freely transferable and convertible into Dollars, the lawful currencies of France, Germany, Italy, Japan, Switzerland, Canada and the United Kingdom and, subject to availability and to the terms and conditions of this Agreement, such other freely transferable and convertible foreign currencies as requested by Group and acceptable to Agent and the Required Lenders, in their reasonable discretion. "Applicable Margin" means, with respect to the Commitment Fee and each Type of Loan described below, the rate of interest per annum shown below for the range of Leverage Ratio specified below:
Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 -------------------------------------------------------------------------------------------------------- Leverage Ratio >= 4.0 >= 3.5< >= 3.0 < >= 2.5 < 3.0 >= 2.0 < 2.5 < 2.0 4.0 3.5 Floating Rate 0.375% 0.250% 0.125% 0% 0% 0% Advances Eurocurrency 1.375% 1.25% 1.125% 0.875% 0.750% 0.50% Advances Commitment Fee 0.35% 0.35% 0.30% 0.25% 0.20% 0.175%
For the period commencing on the Closing Date and ending on the date which occurs nine (9) days after the Agent receives the financial statements and the related Compliance Certificate required to be delivered pursuant to Section 6.1(b) and Section 6.1(d) with respect to the third Fiscal Quarter of 1997, the Applicable Margin set forth in Level 1 above shall apply to all Advances and Commitment Fees. Thereafter, the Leverage Ratio shall be calculated as of the end of each Fiscal Quarter, commencing with the third Fiscal Quarter of 1997, and shall be reported to the Agent pursuant to a Compliance Certificate executed by an Authorized Officer of Industries and delivered by Industries in accordance with Section 6.1(d) hereof. Not later than five (5) Business Days after 3 11 receipt by the Agent of each Compliance Certificate delivered by Industries in accordance with Section 6.1(d) for each Fiscal Quarter or Fiscal Year, as applicable, the Agent shall determine the Leverage Ratio for the applicable period and shall promptly notify Industries and the Lenders of such determination and of any change in each Applicable Margin resulting therefrom. Each Applicable Margin shall be adjusted (upwards or downwards, as appropriate), if necessary, based on the Leverage Ratio as of the end of the Fiscal Quarter immediately preceding the date of determination. The adjustment, if any, to the Applicable Margin shall be effective as to all Advances and Commitment Fees commencing on the tenth (10th) Business Day after the delivery of such quarterly or annual financial statements delivered in accordance with Sections 6.1(a) and 6.1(b) and such related Compliance Certificate of an Authorized Officer of Industries delivered in accordance with Section 6.1(d) and shall be effective from and including the tenth (10th) Business Day after the date the Agent receives such Compliance Certificate to but excluding the tenth (10th) Business Day after the date on which the next Compliance Certificate is required to be delivered pursuant to Section 6.1(d); provided however, that, in the event that Industries shall fail at any time to furnish to the Lenders such financial statements and any such Compliance Certificate required to be delivered pursuant to Sections 6.1(a), 6.1(b) and 6.1(d), the Applicable Margin set forth in Level 1 above shall apply until the tenth (10th) Business Day after such time as all such financial statements and each such Compliance Certificate are so delivered to the Agent and the Lenders. Each determination of the Leverage Ratio and each Applicable Margin by the Agent in accordance with this definition shall be conclusive and binding on the Borrowers and the Lenders absent manifest error. "Arranger" means First Chicago Capital Markets, Inc. "Article" means an article of this Agreement unless another document is specifically referenced. "Asset Disposition" means any sale, lease or other disposition of any asset of Industries or any Subsidiary in a single transaction or in a series of related transactions, other than (a) the sale of inventory in the ordinary course of business, (b) sales, leases or other dispositions (i) by Industries or any Domestic Subsidiary to Industries or any Wholly-Owned Domestic Subsidiary or (ii) by any Foreign Subsidiary to Industries or any Wholly-Owned Subsidiary, (c) sales, leases or other dispositions of used, worn-out or surplus equipment in the ordinary course of business and (d) other sales, leases and dispositions of any Property in a single transaction or series of related transactions to the extent that (x) the fair market value of the Property transferred in any such single transaction or series of related transactions does not exceed $100,000 and (y) the aggregate fair market value of all such Property transferred after the date hereof does not exceed $2,000,000. "Asset Purchase" means the sale of certain assets of Kysor pursuant to the Asset Purchase Documents. "Asset Purchase Agreement" means that certain Asset Purchase Agreement dated as of February 2, 1997 among Kuhlman Corporation, Transpro Group, Inc., Kysor and certain Subsidiaries of Kysor, as the same may be amended, supplemented or modified after the date hereof in accordance with Section 6.20. 4 12 "Asset Purchase Documents" means the Asset Purchase Agreement and the other documents, certificates and agreements delivered in connection with the Asset Purchase Agreement. "Assignment and Acceptance" is defined in Section 12.3.1. "Authorized Officer" means, with respect to Industries or any Borrower, any of its chief financial officer, chief executive officer or chief operating officer, acting singly. "Available Net Equity Proceeds" is defined in Section 2.9.3. "Bankruptcy Code" means Title 11, United States Code, sections 1 et seq., as the same may be amended or modified from time to time, and any successor thereto or replacement therefor which may be hereafter enacted. "Booth" means Booth, Inc., a Texas corporation. "Borrowers" means, collectively, Group, Delfield, Scotsman Drink, Whitlenge, Frimont, Castel MAC, Kysor and each Additional Borrowing Subsidiary admitted as a borrower hereunder pursuant to Section 2.2(d). "Borrowing Date" means a date on which an Advance is made or a Facility Letter of Credit is issued hereunder. "Borrowing Notice" is defined in Section 2.10. "Bridge Credit Agreement" means that certain Bridge Loan Agreement dated as of March 12, 1997 among Group, Industries, the lenders from time to time party thereto and First Chicago, as Agent, as the same may be amended, restated, supplemented or otherwise modified from time to time with the prior written consent of the Required Lenders. "Bridge Documents" means "Loan Documents" as such term is defined in the Bridge Credit Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time with the prior written consent of the Required Lenders. "Bridge Lenders" means the "Lenders" as defined in the Bridge Credit Agreement. "Bridge Loan" means the "Loan" as defined in the Bridge Credit Agreement. "Bridge Loan Commitment" means, with respect to the initial Bridge Lender, the obligation of such Bridge Lender to make its Bridge Loan pursuant to the terms and conditions of the Bridge Credit Agreement, as such amount may be modified from time to time pursuant to the terms of the Bridge Credit Agreement. The Bridge Loan Commitment is $85,000,000. "Bridge Obligations" means the "Obligations" as such term is defined in the Bridge Credit Agreement. 5 13 "Business Day" means (a) with respect to any borrowing, payment or rate selection of Eurocurrency Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago, New York, London and for currencies other than Eurodollars, the principal financial center of the country in whose currency the Advance is to be funded, for the conduct of substantially all of their commercial lending activities and on which dealings in the relevant Permitted Currency are carried on in the London interbank market, and (b) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago for the conduct of substantially all of their commercial lending activities. "Capital Expenditures" means, without duplication, any expenditures for any purchase or other acquisition for value of any asset that is classified on a consolidated balance sheet of Industries and its Subsidiaries prepared in accordance with Agreement Accounting Principles as a fixed or capital asset, excluding (a) the cost of assets acquired under Capitalized Lease Obligations, (b) expenditures of insurance proceeds to rebuild or replace any asset after a casualty loss, (c) leasehold improvement expenditures for which Industries or a Subsidiary is reimbursed promptly by the lessor and (d) assets acquired pursuant to a merger permitted under Section 6.12 or a Purchase or Investment permitted under Section 6.15. "Capitalized Lease" of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Capitalized Lease Obligations" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Castel MAC" means Castel MAC S.p.A., a societa per azioni incorporated with limited liability in the Republic of Italy. "Change" is defined in Section 3.3. "Change in Control" means (a) the acquisition by any Person, or two or more Persons acting in concert, including without limitation any acquisition effected by means of any transaction contemplated by Section 6.12, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of thirty percent (30%) or more of the outstanding shares of voting stock of Industries or (b) during any period of twenty-five (25) consecutive calendar months, commencing on the date of this Agreement, the ceasing of those individuals (the "Continuing Directors") who (i) were directors of Industries on the first day of each such period or (ii) subsequently became directors of Industries and whose initial election or initial nomination for election subsequent to that date was approved by a majority of the Continuing Directors then on the board of directors of Industries, to constitute a majority of the board of directors of Industries. "Closing Date" means the date on which all conditions precedent to the making of the initial Loans hereunder have occurred and the initial Loans hereunder are made. 6 14 "Closing Transactions" is defined in Section 4.1(e). "Code" means the Internal Revenue Code of 1986, as the same may be amended or modified from time to time and any successor thereto or replacement therefor which may be hereafter enacted. "Commitment" means, for each Lender, collectively, such Lender's Revolving Loan Commitment and Term Loan Commitment. "Commitment Fee" is defined in Section 2.6. "Commitment Sublimit" means, with respect to the Foreign Borrowers, the limitation of $70,000,000 on the principal amount of Loans and Facility Letter of Credit Obligations that may be outstanding in respect of such Foreign Borrowers in the aggregate at any time. "Compliance Certificate" is defined in Section 6.1(d). "Condemnation" is defined in Section 7.8. "Consolidated" or "consolidated", when used in connection with any calculation, means a calculation to be determined on a consolidated basis for Industries and its Subsidiaries in accordance with Agreement Accounting Principles. "Consolidated Current Assets" means, at any time, the current assets other than cash and cash equivalents of Industries and its Subsidiaries at such time determined on a consolidated basis in accordance with Agreement Accounting Principles. "Consolidated Current Liabilities" means, at any time, the current liabilities of Industries and its Subsidiaries at such time other than the current portion of all long-term Indebtedness and any Revolving Loans included in those current liabilities of Industries and its Subsidiaries at such time determined on a consolidated basis in accordance with Agreement Accounting Principles. "Consolidated Income Tax Expense" means, for any period, total income tax expense of Industries and its Subsidiaries, whether paid or accrued, deducted in determining Net Income of Industries and its Subsidiaries on a consolidated basis for such period, all as determined in accordance with Agreement Accounting Principles. "Consolidated Interest Expense" means for any period, total interest expense of Industries and its Subsidiaries, whether paid or accrued, deducted in determining Net Income of Industries and its Subsidiaries on a consolidated basis for such period, all as determined in accordance with Agreement Accounting Principles. "Consolidated Net Worth" means at any date the consolidated stockholders' equity of Industries and its Subsidiaries determined in accordance with Agreement Accounting Principles, without giving effect to any changes in the accumulated translation adjustments account of any such Person (on a cumulative basis) after December 29, 1996. 7 15 "Consolidated Person" means, for the taxable year of reference, each Person which is a member of the affiliated group of Industries if Consolidated returns are or shall be filed for such affiliated group for federal income tax purposes or any combined or unitary group of which Industries or any Subsidiary is a member for state income tax purposes. "Consolidated Total Indebtedness," on any date, means all Indebtedness of Industries and its Subsidiaries (without duplication) described in clauses (a) through (f) of the definition of "Indebtedness" set forth herein. "Consolidated Working Capital" means the excess of Consolidated Current Assets over Consolidated Current Liabilities. "Contingent Obligation" of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract or application for a Letter of Credit, but excluding any endorsements of other items for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with Industries or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. "Conversion/Continuation Notice" is defined in Section 2.11. "Corporate Base Rate" means a rate per annum equal to the corporate base rate of interest announced by First Chicago from time to time, changing when and as said corporate base rate changes. "Current Dollar Equivalent" shall mean at any date, (a) with respect to Advances denominated in Dollars, the principal amount outstanding as of such date and (b) with respect to Advances denominated in an Alternative Currency, the amount of Dollars into which the principal amount of such Advance outstanding as of such date may be converted at the spot rate at which Dollars are offered to the Agent in London for the Alternative Currency in which such Advance is denominated in an amount comparable to the amount of such Advance at approximately 11:00 a.m. (London time) on the second Business Day prior to such date. Determination of the Current Dollar Equivalent of Facility Letter of Credit Obligations shall be made using the procedures set forth above, but based upon the outstanding amount thereof in the Permitted Currency in which such obligations have accrued. 8 16 "Default" means an event described in Article VII. "Delfield" means The Delfield Company, a Delaware corporation. "DFC" means DFC Holding Corporation, a Delaware corporation. "Dollars" and "$" shall mean lawful money of the United States of America. "Dollar Amount" shall mean (a) with respect to each Advance to be made, continued or converted in Dollars, the principal amount thereof and (b) with respect to each Advance to be made, continued or converted in an Alternative Currency, the amount of Dollars into which the principal amount of such Advance may be converted at the spot rate at which Dollars are offered to the Agent in London for the Alternative Currency in which such Advance is to be denominated in an amount comparable to the amount of such Advance at approximately 11:00 a.m. (London time) two (2) Business Days before such Advance is to be made, continued or converted, as the case may be. "Domestic Subsidiary" means a Subsidiary organized under the laws of the United States or any political subdivision or any agency, department or instrumentality thereof. "Domestic Transfer" means any (a) payment of a dividend by any Foreign Subsidiary to Industries or any Domestic Subsidiary, (b) sale, lease or other disposition of Property in which (i) assets are transferred or services are rendered by any Foreign Subsidiary to Industries or any Domestic Subsidiary for less then fair market value or (ii) assets are transferred or services are rendered by Industries or any Domestic Subsidiary to any Foreign Subsidiary for greater than fair market value, (c) any repayment by any Foreign Subsidiary to Industries or any Domestic Subsidiary of any Investment thereby or (d) any sale of assets or stock of any Foreign Subsidiary by Industries or any Domestic Subsidiary. For the purposes of clause (b) of this definition: (x) the fair market value of each sale, lease or other disposition of manufactured products shall be equal to the sum of (i) the variable costs of manufacturing such product (determined in each case in accordance with the methods used as of the date hereof by the Foreign Subsidiaries to determine such variable costs) plus (ii) ten percent (10%) of such variable costs; and (y) any royalty charged by any Foreign Subsidiary to Industries or a Domestic Subsidiary for the use of a trademark, trade name or service mark shall be deemed to have been charged at fair market value. "Double Taxation Treaty" means a treaty by virtue of which a Lender is entitled to receive payments of interest under this Agreement without any deduction or withholding in respect of United Kingdom Taxes. "EBITDA" means, for any period, on a consolidated basis for Industries and its Subsidiaries, the sum of the amounts for such period of (a) Net Income of Industries and its Subsidiaries, plus (b) Consolidated Income Tax Expense, plus (c) Consolidated Interest Expense, plus (d) depreciation expense, plus (e) amortization expense, including amortization of goodwill and other intangible assets, plus (f) other non-cash charges, minus (g) interest income, minus (h) equity in income of Affiliates of Industries or any of its Subsidiaries that are included in the consolidated financial statements of Industries using the equity method of accounting (in the case of clauses (b) through 9 17 (h) above, to the extent reflected in determining Net Income of Industries and its Subsidiaries for such period). "EBITDAR" means, for any period, the sum of (a) EBITDA plus (b) Rentals. "Entitled Person" is defined in Section 2.14(b). "Environmental Laws" is defined in Section 5.22. "Environmental Permits" is defined in Section 5.22. "ERISA" means the Employee Retirement Income Security Act of 1974, as the same may be amended or modified from time to time, and any successor thereto or replacement therefor which may be hereafter enacted. "Eurocurrency Advance" means an Advance in a Permitted Currency which bears interest at the Eurocurrency Rate, including without limitation, Eurodollar Advances. "Eurocurrency Base Rate" means, for any specified Interest Period, the rate of interest per annum determined by the Agent to be the rate at which deposits in the applicable Permitted Currency are offered by the Agent to first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for delivery on such day, in the approximate amount of the Agent's pro-rata share of such Eurocurrency Advance and having a maturity equal to such Interest Period. "Eurocurrency Loan" means a Loan denominated in a Permitted Currency which bears interest at the Eurocurrency Rate, including without limitation, Eurodollar Loans. "Eurocurrency Rate" means, with respect to a Eurocurrency Advance for the relevant Interest Period, the sum of (a) the quotient of (i) the Eurocurrency Base Rate applicable to such Eurocurrency Advance and Interest Period, divided by (ii) either (A) for any Eurodollar Advance, a number equal to one minus the Reserve Requirement (expressed as a decimal) applicable to such Eurocurrency Advance and Interest Period or (B) for any other Eurocurrency Advance, the number one, plus (b) the Applicable Margin. The Eurocurrency Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple. "Eurocurrency Sublimit" means $70,000,000. "Eurodollar Advance" means a Eurocurrency Advance denominated in Dollars. "Eurodollar Loan" means a loan denominated in Dollars which bears interest at the Eurocurrency Rate. "Excess Cash Flow" shall mean, with respect to any fiscal period of Industries and its Subsidiaries, a positive number, if any, equal to (i) Net Income, plus (ii) amortization expense (to the extent deducted in determining such Net Income), plus (iii) depreciation expense (to the extent 10 18 deducted in determining such Net Income), plus (iv) other non-cash charges (to the extent deducted in determining such Net Income), minus (v) any cash dividends paid by Industries permitted to be paid by this Agreement, plus (or minus) (vi) decreases (or increases) in Consolidated Working Capital from the last day of the preceding fiscal period to the last day of such fiscal period (provided that for the Fiscal Year ending December 31, 1997, decreases (or increases) in Consolidated Working Capital shall be measured from the Closing Date using the Opening Financial Statements to December 31, 1997), minus (vii) the aggregate amount actually paid in cash by the Borrower and its Subsidiaries during such fiscal period for Capital Expenditures, minus (viii) all principal repayments and prepayments of the Loans and the Bridge Loans made during such fiscal period (including prepayments made pursuant to Section 2.9.2) provided that repayments or prepayments of Revolving Loans or Swing Line Loans other than pursuant to Section 2.9.4(a) shall not be included in the computation of Excess Cash Flow, minus (ix) all regularly scheduled principal payments made during such fiscal period in respect of other Indebtedness for borrowed money (other than the Loans and the Bridge Loans) to the extent such Indebtedness and payments are permitted to be incurred and made by this Agreement, minus (x) the aggregate amount of cash and cash equivalents on the balance sheet of all of the Foreign Subsidiaries of Industries on a consolidated basis up to $25,000,000 as of the last day of such fiscal period. "Excess Cash Flow Amount" is defined in Section 2.9.2. "Excess Interest" is defined in Section 2.12(b). "Excluded Taxes" is defined in Section 3.1(a). "Existing Letter of Credit" means that certain letter of credit no. 00326192 issued by First Chicago to NBD Bank, N.A., as the beneficiary, for the account of Delfield in connection with a letter of credit issued by NBD Bank, N.A. for the account of Delfield in connection with workers' disability compensation in the State of Michigan. "Facility Letter of Credit" means any letter of credit denominated in Dollars or any Alternative Currency and issued at the request of any Borrower and for the account of such Borrower in accordance with Section 2.23.1, including without limitation the IRB Facility Letter of Credit. "Facility Letter of Credit Obligations" means, as at the time of determination thereof, all liabilities, whether actual or contingent, of the Borrowers with respect to Facility Letters of Credit, including the sum of (a) Facility Letter of Credit Reimbursement Obligations and (b) the aggregate undrawn face amount of outstanding Facility Letters of Credit. "Facility Letter of Credit Reimbursement Obligations" means, at any time, the aggregate (without duplication) of the obligations of the Borrowers to the Lenders, the Issuers and the Agent under all Reimbursement Agreements and otherwise in respect of all unreimbursed payments or disbursements made by the Lenders, the Issuers and/or the Agent under or in respect of draws made under Facility Letters of Credit. "Facility Letter of Credit Sublimit" means $40,000,000. 11 19 "Facility Termination Date" means the later of the Revolving Loan Termination Date or the Term Loan Termination Date. "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago time) on such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by the Agent in its sole discretion. "Financial Contract" means (i) any exchange-traded or over-the-counter futures, forward, swap or option contract or other financial instrument with similar characteristics or (ii) any agreements, devices or arrangements (other than promissory notes based on customary market interest rate indices) providing for payments related to fluctuations of commodity prices, interest rates, exchange rates or forward rates, including, but not limited to, interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants. "Financial Statements" is defined in Section 5.5. "First Chicago" means The First National Bank of Chicago in its individual capacity and its successors. "Fiscal Quarter" means one of the four 13 week (or, with respect to the fourth such period in each Fiscal Year which has 53 weeks, 14 week) accounting periods in each Fiscal Year. "Fiscal Year" means the accounting period ending on the Sunday nearest to December 31 of each year. "Fixed Charge Coverage Ratio" means, as of the last day of any Fiscal Quarter, the ratio of (a) EBITDAR minus Capital Expenditures to (b) Fixed Charges, in each case determined as of the last day of such Fiscal Quarter for the period of four (4) consecutive Fiscal Quarters most recently ended on or prior to such date (except as otherwise provided in Section 6.25.2). "Fixed Charges" means, for any period, without duplication, the sum of (a) Consolidated Interest Expense, plus (b) regularly scheduled principal payments made with respect to the Term Loans and the Revolving Loans (with respect to Revolving Loans, including only such payments made due to scheduled commitment reductions during such period) and regularly scheduled principal payments made with respect to all other Indebtedness of Industries and its Subsidiaries during such period, plus (c) Consolidated Income Tax Expense, plus (d) Rentals, plus (e) cash dividends paid during such period by Industries or any of its Subsidiaries, minus (f) cash dividends received during such period by Industries or any of its Subsidiaries. 12 20 "Floating Rate" means, for any day, a rate of interest per annum equal to the sum of (a) the higher of (i) the Corporate Base Rate for such day, and (ii) the sum of the Federal Funds Effective Rate for such day plus 1/2% per annum plus (b) the Applicable Margin. "Floating Rate Advance" means an Advance in Dollars which bears interest at the Floating Rate. "Foreign Asset" means any Property of Industries or any of its Subsidiaries that is located outside of the United States, or is used or to be used in operations of Industries or any of its Subsidiaries outside of the United States. "Foreign Borrowers" means, at any time, collectively, the Borrowers hereunder which are Foreign Subsidiaries and "Foreign Borrower" means a reference to any one of them. "Foreign Guarantor" means any Foreign Subsidiary which at the relevant time of determination (i) is party to a Guaranty and (ii) is a Wholly-Owned Subsidiary of Industries. "Foreign Person" means a Person organized under the laws of any jurisdiction other than the United States or any political subdivision or any agency, department or instrumentality thereof. "Foreign Plan" means any Plan that is not subject to Title I of ERISA by reason of Section 4(b)(4) of ERISA. "Foreign Subsidiary" means a Subsidiary which is not a Domestic Subsidiary. "Frimont" means Frimont S.p.A., a societa per azioni incorporated with limited liability in the Republic of Italy. "Governmental Agency" means any government (foreign or domestic) or any state or other political subdivision thereof or any governmental body, agency, authority, department or commission (including without limitation any taxing authority or political subdivision) or any instrumentality or officer thereof (including without limitation any court or tribunal) exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any corporation, partnership or other entity directly or indirectly owned or controlled by or subject to the control of any of the foregoing. "Group" means Scotsman Group Inc., a Delaware corporation. "Guaranties" means, collectively, (a) those certain Guaranties in the form of Exhibit A-1 hereto, duly executed and delivered by Industries and each Guarantor which is a Domestic Subsidiary and (b) those certain Guaranties in the form of Exhibit A-2 hereto, duly executed and delivered by each Guarantor which is a Foreign Subsidiary, in each case in favor of the Agent, on behalf of the Lenders, as the same may be amended, restated, supplemented or otherwise modified from time to time. 13 21 "Guarantors" means, collectively, Industries, Group, Delfield, DFC, Scotsman Drink, Whitlenge, Frimont, Castel MAC, Kysor, Booth and the other Persons that execute Guaranties in accordance with Section 6.28 hereof. "Hazardous Materials" is defined in Section 5.22. "Hedging Agreements" means any and all interest rate, exchange rate and commodity price protection agreements, including, without limitation, any interest rate and exchange rate swaps, caps, floors, collars and similar agreements and commodity swaps and commodity options. "HI Indemnity" means that certain Indemnity Agreement dated April 14, 1989 between Group and Household International, Inc. "Indebtedness" of a Person means (without duplication) such Person's (a) obligations for borrowed money, (b) obligations representing the deferred purchase price of Property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (c) obligations, whether or not assumed, secured by Liens (other than Liens described under Section 6.16(a)-(d)) or payable out of the proceeds or production from Property now or hereafter owned or acquired by such Person, (d) obligations which are evidenced by notes, acceptances, or other instruments, (e) Capitalized Lease Obligations, (f) Contingent Obligations, (g) Rate Hedging Obligations and (h) obligations for which such Person is obligated pursuant to or in respect of a Letter of Credit, in each case other than Indemnified Debt. "Indemnified Debt" means all Indebtedness as to which Industries and its Subsidiaries are indemnified against pursuant to the HI Indemnity and as to which any claims for indemnification thereunder are actually paid to such Persons within one (1) year following the making of any claim therefor. "Industries" means Scotsman Industries, Inc., a Delaware corporation. "Intercompany Note" means a revolving note payable on demand executed by a Foreign Subsidiary payable to the order of Group evidencing all Indebtedness owed by such Foreign Subsidiary to Group as required pursuant to Section 6.11(f). "Interest Period" means, with respect to a Eurocurrency Advance, a period of one, two, three or six months commencing on a Business Day selected by Group pursuant to this Agreement; provided, however, that for the first ninety (90) day period after the Closing Date, no Interest Period shall exceed fourteen (14) days in length. Such Interest Period (other than any Interest Period which is fourteen (14) days or less in length) shall end on (but exclude) the day which corresponds numerically to such date one, two, three or six months thereafter; provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day; provided, however, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. 14 22 "Investment" of a Person means any loan, advance (other than commission, travel and similar advances to officers and employees made in the ordinary course of business), extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade), deposit account or contribution of capital by such Person to any other Person or any investment in, or purchase or other acquisition of, the stock, partnership interests, notes, debentures or other securities of any other Person made by such Person. "IRB Facility Letter of Credit" means that certain $9,597,645.82 Letter of Credit issued by First Chicago, as of the date hereof in connection with the $9,250,000 Industrial Revenue Refunding Bonds Series 1988 (King-Seeley Thermos Co. Project), as amended, restated, supplemented or modified from time to time. "IRB Facility Letter of Credit Documents" means the IRB Facility Letter of Credit, that certain Reimbursement Agreement dated as of the date hereof between First Chicago, and Group, as amended, supplemented or modified from time to time, and the other documents and agreements executed in connection therewith. "Issuer" means the Lender which has been requested by Group to act as the issuer of a Facility Letter of Credit. "Judgment Currency" is defined in Section 2.14(b). "Kysor " means Kysor Industrial Corporation, a Michigan corporation. "Lenders" means the lending institutions listed on the signature pages of this Agreement and their respective successors and permitted assigns. "Lending Installation" means, with respect to a Lender or the Agent, any office, branch, subsidiary or affiliate of such Lender or the Agent. "Letter of Credit" of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable. "Leverage Ratio" means, with respect to Industries on a consolidated basis with its Subsidiaries, at any date, the ratio of (a) the Consolidated Total Indebtedness of Industries and its Subsidiaries at such date to (b) EBITDA for the period of four (4) consecutive Fiscal Quarters most recently ended on or prior to such date (except as otherwise provided in Section 6.25.3). "Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, collateral assignment, encumbrance or other security agreement or similar arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). "Loan" means, with respect to a Lender, such Lender's portion of any Advance made pursuant to Section 2.1, 2.2 or Section 2.3, as applicable, and "Loans" means, collectively, with 15 23 respect to the Lenders, all Term Loans, all Revolving Loans and all Swing Line Loans whether made or continued as or converted to Floating Rate Loans or Eurocurrency Loans. "Loan Documents" means this Agreement, the Notes, the Guaranties, the Pledge Agreement, the Reimbursement Agreements, the IRB Facility Letter of Credit Documents, each Agreement of Joinder and the other documents and agreements contemplated hereby and executed by the Borrowers and the Guarantors in favor of the Agent or any Lender or otherwise in connection with any Facility Letter of Credit, as the same may be amended, restated, supplemented or otherwise modified from time to time. "Loan Party" means each of Industries, Group, DFC, Delfield, Scotsman Drink, Whitlenge, Frimont, Castel MAC, Kysor, Booth, each Additional Borrowing Subsidiary and each other Person that executes a Guaranty pursuant to Section 6.28 hereof. "Margin Stock" has the meaning assigned to that term under Regulation U. "Material Adverse Effect" means (a) a material adverse effect on (i) the business, Property, condition (financial or other), performance or results of operations of Industries and its Subsidiaries taken as a whole, (ii) the ability of the Loan Parties, taken as a whole, to repay when due any of their obligations under the Loan Documents, or (iii) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Agent or the Lenders thereunder and (b) a "Material Adverse Effect" as such term is defined in the Bridge Credit Agreement. "Material Foreign Asset" is defined in Section 6.15. "Maximum Rate" is defined in Section 2.12(b). "Merger" means the merger of Acquisition Co. with and into Kysor pursuant to the Acquisition Documents. "Merger Date" means the date on which the Merger shall be consummated. "Multiemployer Plan" means a Plan which is a " multiemployer plan" as defined in Section 4001(a)(3) of ERISA. "Net Available Proceeds" means, with respect to the Transportation Sale or any other Asset Disposition, the sum of cash or readily marketable cash equivalents received (including by way of a cash generating sale or discounting of a note or receivable, but excluding any other consideration received in the form of assumption by the acquiring Person of debt or other obligations relating to the properties or assets so disposed of or received in any other non-cash form) therefrom, whether at the time of such disposition or subsequent thereto, net of all legal, title and recording tax expenses, commissions and other fees and all costs and expenses incurred and all federal, state, local and other taxes required to be accrued as a liability as a consequence of such transactions and of all payments made by Industries or any of its Subsidiaries on any Indebtedness which is secured by such assets pursuant to a permitted Lien upon or with respect to such assets or which must by the terms of such 16 24 Lien, or in order to obtain a necessary consent to such Asset Disposition or by applicable law be repaid out of the proceeds from such Asset Disposition. "Net Debt Proceeds" means all cash proceeds received by Industries or any of its Subsidiaries from the incurrence of, or the issuance of any instruments relating to, any Indebtedness (other than Indebtedness borrowed by the Borrowers under this Agreement or permitted to be borrowed by Industries or any Subsidiary of Industries pursuant to Section 6.11), in each case net of underwriting discounts, commissions and other reasonable costs and expenses directly attributable to such incurrence or issuance. "Net Equity Proceeds" shall mean all cash proceeds received by Industries or any of its Subsidiaries from any capital contribution or the issuance of any common stock, preferred stock, warrant or other equity securities (other than (a) the issuance of common stock, preferred stock, warrants or other equity securities of Industries upon exercise of stock options issued to employees or directors of Industries or any of its Subsidiaries pursuant to an employee stock option plan or other employee compensation plan approved by the Board of Directors of Industries, but only to the extent the cash proceeds from any such issuances of common stock do not exceed $5,000,000 in the aggregate after the Closing Date and (b) any capital contribution by Industries or any of its Subsidiaries to any Subsidiary of Industries, or any issuance of common stock, preferred stock, warrant or other equity security to Industries or any of its Subsidiaries by any Subsidiary of Industries, but only to the extent such capital contribution or issuance is permitted by the terms of this Agreement), net of any brokerage commissions and any other reasonable costs or expenses directly attributable to such issuance. "Net Income" means, for any period, with respect to Industries on a consolidated basis with its Subsidiaries, cumulative net income earned during such period determined in accordance with Agreement Accounting Principles. "Notes" means the Revolving Notes, the Swing Line Notes and the Term Notes. "Notice of Assignment" is defined in Section 12.3.2. "Notice of Issuance" is defined in Section 2.23.4. "Notice of Swing Line Loan" has the meaning provided in Section 2.3.2 hereof. "Obligations" means all unpaid principal of and accrued and unpaid interest on the Notes, the Facility Letter of Credit Obligations and all other liabilities (if any), whether actual or contingent, of the Borrowers with respect to Facility Letters of Credit, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Borrowers to the Lenders or to any Lender, the Agent or any indemnified party hereunder arising under any of the Loan Documents and any Rate Hedging Obligations or foreign exchange contracts of the Borrowers owing to the Agent or any Lender. "Opening Financial Statements" is defined in Section 5.5. 17 25 "Participants" is defined in Section 12.2.1. "Payment Date" means the fifteenth (15th) day of each calendar month. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "Permitted Currencies" shall mean (a) Dollars with respect to Floating Rate Advances and (b) Dollars or any Alternative Currency with respect to Eurocurrency Advances. "Person" means any natural person, corporation, firm, limited liability company, joint venture, partnership, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" means an employee pension benefit plan, as defined in Section 3(2) of ERISA, as to which Industries or any member of the Controlled Group may have any liability. "Pledge Agreement" means that certain Note Pledge Agreement dated as of the date hereof between Group and the Agent, as amended, restated, supplemented or modified from time to time. "Property" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person. "Pro Rata Shares" means: (i) with respect to all payments, computations and determinations relating to the Term Loan Commitment or the Term Loan of any Lender, the percentage obtained by dividing (A) the outstanding principal balance of such Lender's Term Loan (or the amount of such Lender's Term Loan Commitment, if the Term Loans have not been made) by (B) the aggregate outstanding principal balance of the Term Loans (or the Aggregate Term Loan Commitment, if the Term Loans have not been made), (ii) with respect to all payments, computations and determinations relating to the Revolving Loan Commitment or the Revolving Loans of any Lender or such Lender's interest in Facility Letters of Credit or the Swing Line Loans (including without limitation determinations of the commitment fee under Section 2.6), the percentage obtained by dividing (A) such Lender's Revolving Loan Commitment (or the Current Dollar Equivalent of the outstanding principal balance of such Lender's Revolving Loans and all Facility Letter of Credit Obligations in which such Lender has an interest, if the Revolving Loan Commitments have been terminated pursuant to the terms of this Agreement) by (B) the Aggregate Revolving Loan Commitment (or the Current Dollar Equivalent of the aggregate outstanding principal balance of the Revolving Loans and all Facility Letter of Credit Obligations, if the Revolving Loan Commitments have been terminated pursuant to the terms of this Agreement), and (iii) for all determinations of "Required Lenders" pursuant to the definition of such term herein, with respect to each Lender and each Bridge Lender, the percentage 18 26 obtained by dividing (A) the sum of (1) the outstanding principal balance of such Lender's Term Loan (or such Lender's Term Loan Commitment, if the Term Loans have not been made), (2) such Lender's Revolving Loan Commitment (or the Current Dollar Equivalent of the outstanding principal balance of such Lender's Revolving Loans and all Facility Letter of Credit Obligations in which such Lender has an interest, if the Revolving Loan Commitments have been terminated pursuant to the terms of this Agreement) and (3) the outstanding principal balance of such Bridge Lender's Bridge Loans (or such Bridge Lender's Bridge Loan Commitment, if the Bridge Loans have not been made) by (B) the sum of (1) the aggregate outstanding principal balance of the Term Loans (or the Aggregate Term Loan Commitment, if the Term Loans have not been made), (2) the Aggregate Revolving Loan Commitment (or the Current Dollar Equivalent of the aggregate outstanding principal balance of the Revolving Loans and all Facility Letter of Credit Obligations, if the Revolving Loan Commitments have been terminated pursuant to the terms of this Agreement) and (3) the aggregate outstanding principal balance of the Bridge Loans (or the Bridge Loan Commitment, if the Bridge Loans have not been made). (iv) for all other purposes with respect to each Lender, the percentage obtained by dividing (A) the sum of (1) the outstanding principal balance of such Lender's Term Loan (or such Lender's Term Loan Commitment, if the Term Loans have not been made) and (2) such Lender's Revolving Loan Commitment (or the Current Dollar Equivalent of the aggregate outstanding principal balance of such Lender's Revolving Loans and all Facility Letter of Credit Obligations in which such Lender has an interest, if the Revolving Loan Commitments have been terminated pursuant to the terms of this Agreement) by (B) the sum of (1) the aggregate outstanding principal balance of the Term Loans (or the Aggregate Term Loan Commitment, if the Term Loans have not been made) and (2) the Aggregate Revolving Loan Commitment (or the Current Dollar Equivalent of the aggregate outstanding principal balance of the Revolving Loans and all Facility Letter of Credit Obligations, if the Revolving Loan Commitments have been terminated pursuant to the terms of this Agreement). "Purchase" means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which Industries or any of its Subsidiaries (a) acquires any going business or all or substantially all of the assets of any Person or division thereof, whether through purchase of assets, merger or otherwise, or (b) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding partnership interests of a partnership. "Purchasers" is defined in Section 12.3.1. "Qualifying Lender" means a Lender which is: (a) (i) a "bank" within the meaning of Section 840A of the English Income and Corporation Taxes Act 1988; 19 27 (ii) at the time interest is paid, beneficially entitled to that interest and within the charge to UK corporation tax with respect to such interest for the purposes of Section 349(3) of the Income and Corporation Taxes Act 1988; (iii) properly takes any interest received by it in the United Kingdom under this Agreement into account as a trading receipt of such banking business; and (iv) makes and books its Loans to UK Borrowers through a Lending Installation located in the United Kingdom; or (b) a Lender to which a Double Taxation Treaty applies; and for the purposes of this definition, if a Lender is a Qualifying Lender in respect of one or more of its Lending Installations, but not in respect of the Lending Installation which makes and books the Loan in question to a UK Borrower, then such Lender shall not be deemed to be a Qualifying Lender with respect to such Loan; provided, that if any of the acts or regulations referenced in clause (a) is amended or repealed, this definition shall be amended in such manner as the Agent and the Lenders, after consultation with Group, shall determine to be necessary in order to define the persons of the relevant equivalent category. "Rate Hedging Obligations" of a Person means any and all net obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants, and (b) any and all cancellations, buybacks, reversals, terminations or assignments of any of the foregoing, determined with respect to interest rate agreements, by multiplying two percent (2%) of the notional amount thereof times the number of years remaining to maturity. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to depositary institutions. "Regulation G" means Regulation G of the Board of Governors of the Federal Reserve System as from time to time in effect and shall include any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by Persons other than banks, brokers and dealers for the purpose of purchasing or carrying margin stocks applicable to such Persons. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation 20 28 of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to such Persons. "Regulation X" means Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and shall include any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by the specified lenders for the purpose of purchasing or carrying margin stocks applicable to such Persons. "Reimbursement Agreement" means a reimbursement agreement, substantially in such form as the Issuer may employ in the ordinary course of its business, with such modifications thereto as may be agreed upon by the Issuer and Group; provided, however, that in the event of any conflict between the terms of any Reimbursement Agreement and this Agreement, the terms of this Agreement shall control. "Release" is defined in the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. Section Section 39601 et seq. "Rentals" of a Person means the aggregate fixed amounts payable by such Person under any operating lease of Property having an original term (including any required renewals or any renewals at the option of the lessor or lessee) of one year or more. "Replacement Lender" is defined in Section 3.7. "Reportable Event" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within thirty (30) days of the occurrence of such event; provided, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "Required Lenders" means Lenders and Bridge Lenders whose Pro Rata Shares, in the aggregate, are equal to or greater than sixty-six and two-thirds percent (66-2/3%). For the purposes of this definition, in addition to Revolving Loans that are actually outstanding, each Lender with a Revolving Loan Commitment shall be deemed to have outstanding Revolving Loans in an amount equal to its Pro Rata Share of any outstanding Facility Letter of Credit Obligations. "Reserve Requirement" means, with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on "Eurocurrency Liabilities" with a maturity equal to that of such Eurodollar Advance for such Interest Period. "Revolving Loan" is defined in Section 2.2. "Revolving Loan Commitment" means, for each Lender, the obligation of such Lender to make Revolving Loans and to purchase participations in Facility Letters of Credit pursuant to the 21 29 terms and conditions of this Agreement not exceeding the amount set forth on Schedule 1.1 to this Agreement opposite its name thereon, or in the Assignment and Acceptance by which it became a Lender, as such amount may be modified from time to time pursuant to the terms of this Agreement or modified to give effect to any applicable Assignment and Acceptance. "Revolving Loan Obligations" means, at any particular time, the sum of (i) the outstanding principal amount of the Revolving Loans at such time, plus (ii) the outstanding principal amount of the Swing Line Loans at such time, plus (iii) the Facility Letter of Credit Obligations at such time. "Revolving Loan Termination Date" means the earlier of (a) March 12, 2004 and (b) the date of termination of the Commitments pursuant to Section 2.6(b) or Section 8.1. "Revolving Note" means a revolving credit note in substantially the form of Exhibit B-1 hereto, with appropriate insertions, duly executed and delivered to the Agent by each Borrower and payable to the order of a Lender in the amount of its Revolving Loan Commitment, including any amendment, restatement, modification, renewal or replacement of such promissory note and "Revolving Notes" means all such notes collectively. "Risk-Based Capital Guidelines" is defined in Section 3.3. "Scotsman Drink" means Scotsman Drink Limited, a private company limited by shares registered in England. "Section" means a numbered section of this Agreement, unless another document is specifically referenced. "Senior Debt" means any Indebtedness of Industries or any of its Subsidiaries which ranks pari passu to the Indebtedness under the Loan Documents and which is permitted to be incurred pursuant to Section 6.11. "Senior Debt Documents" means all agreements evidencing Senior Debt. "Senior Notes" is defined in Section 4.1(p). "Single Employer Plan" means a Plan subject to Title IV of ERISA maintained by Industries or any member of the Controlled Group for employees of Industries or any member of the Controlled Group, other than a Multiemployer Plan. "Solvent" means, when used with respect to a Person, that (a) the fair saleable value of the assets of such Person is in excess of the total amount of the present value of its liabilities (including for purposes of this definition all liabilities (including loss reserves as determined by Industries), whether or not reflected on a balance sheet prepared in accordance with Agreement Accounting Principles and whether direct or indirect, fixed or contingent, secured or unsecured, disputed or undisputed), (b) such Person is able to pay its debts or obligations in the ordinary course as they mature and (c) such Person does not have unreasonably small capital to carry out its business as conducted and as proposed to be conducted. "Solvency" shall have a correlative meaning. 22 30 "Specified Currency" is defined in Section 2.14(b). "Specified Place" is defined in Section 2.14(b). "Subsidiary" of a Person means (a) any corporation more than fifty percent (50%) of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (b) any partnership, association, joint venture or similar business organization more than fifty percent (50%) of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of Industries. Notwithstanding the foregoing, "Subsidiary" shall not include the joint venture, Shenyang Scotsman-Xinle Refrigeration Manufacturing Co. Ltd., between Group and Xinle Precision Machinery Company entered into for the purpose of producing commercial ice machines for sale in the People's Republic of China (the "Joint Venture"), but only so long as the Joint Venture (together with any Subsidiaries thereof) shall have aggregate assets of less than $10,000,000. "Substantial Annual Portion" means, with respect to the Property of Industries and its Subsidiaries, Property which (a) (as such Property is measured by its book value) represents more than ten percent (10%) of the consolidated assets of Industries and its Subsidiaries, as would be shown in the consolidated financial statements of Industries and its Subsidiaries as at the end of the Fiscal Quarter next preceding the date on which such determination is made, or (b) is responsible for more than ten percent (10%) of the consolidated net sales or of the consolidated Net Income of Industries and its Subsidiaries for the 12-month period ending as of the end of the Fiscal Quarter next preceding the date of determination; provided, that, if the Transportation Sale is consummated on or before the Closing Date or within forty- five (45) days after the Closing Date, then the Property subject to the Transportation Sale shall not be included as Property in determining the Substantial Annual Portion and if the Transportation Sale is not consummated within forty-five days after the Closing Date, then the Property subject to the Transportation Sale shall be included in all determinations of Substantial Annual Portion from and after the last day of such forty-five day period. "Substantial Cumulative Portion" means, with respect to the Property of Industries and its Subsidiaries, Property which (a) (as such Property is measured by its book value) represents more than twenty percent (20%) of the consolidated assets of Industries and its Subsidiaries, as would be shown in the consolidated financial statements of Industries and its Subsidiaries as at the end of the Fiscal Quarter next preceding the date on which determination thereof is made, or (b) is responsible for more than twenty percent (20%) of the consolidated net sales or of the consolidated Net Income of Industries and its Subsidiaries for the period commencing on the Closing Date and ending as of the end of the Fiscal Quarter next preceding the date of determination; provided, that, if the Transportation Sale is consummated on or before the Closing Date or within forty-five (45) days after the Closing Date, then the Property subject to the Transportation Sale shall not be included as Property in determining the Substantial Cumulative Portion and if the Transportation Sale is not consummated within forty-five days after the Closing Date, then the Property subject to the Transportation Sale shall be included in all determinations of Substantial Cumulative Portion from and after the last day of such forty-five day period. 23 31 "Swing Line Commitment" means $20,000,000, as the same may be reduced pursuant to the terms of this Agreement. "Swing Line Lender" means First Chicago. "Swing Line Loan" is defined in Section 2.3.1 hereof. "Swing Line Note" means a promissory note, in substantially the form of Exhibit B-2 hereto, duly executed by each Borrower which is a Domestic Subsidiary and payable to the order of the Swing Line Lender in the amount of the Swing Line Commitment, including any amendment, restatement, modification, renewal or replacement of such Swing Line Note. "Taxes" is defined in Section 3.1(a). "Term Loan" is defined in Section 2.1. "Term Loan Commitment" means, with respect to any Lender, the obligation of such Lender to make its Term Loan pursuant to the terms and conditions of this Agreement, and which shall not exceed the principal amount set forth opposite such Lender's name under the heading "Term Loan Commitment" on Schedule 1.1 hereof opposite its name thereon, or in the Assignment and Acceptance by which it became a Lender, as such amount may be modified from time to time pursuant to the terms of this Agreement or modified to give effect to any applicable Assignment and Acceptance. "Term Loan Termination Date" means March 12, 2004. "Term Note" means a promissory note, in substantially the form of Exhibit B-3 hereto, duly executed by Group and payable to the order of a Lender in the amount of its Term Loan Commitment, including any amendment, restatement, modification, renewal or replacement of such Term Note. "Termination Event" means, with respect to a Plan which is subject to Title IV of ERISA, (a) a Reportable Event, (b) the withdrawal of Industries or any other member of the Controlled Group from such Plan during a plan year in which Industries or any other member of the Controlled Group was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or was deemed such under Section 4062(e) of ERISA, (c) the termination of such Plan, the filing of a notice of intent to terminate such Plan or the treatment of an amendment of such Plan as a termination under Section 4041 of ERISA, (d) the institution by the PBGC of proceedings to terminate such Plan, (e) any event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or appointment of a trustee to administer, such Plan, (f) the partial or complete withdrawal by Industries or any other member of the Controlled Group from a Multiemployer Plan, (g) any event or condition which results in the reorganization or insolvency of a Multiemployer Plan under Sections 4241 or 4245 of ERISA or (h) any event or condition which results in the termination of a Multiemployer Plan under Section 4041A of ERISA or the institution by the PBGC of proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA. 24 32 "Transaction Documents" means the Loan Documents, the Bridge Documents, the Acquisition Documents, the Asset Purchase Documents and all other documents executed in connection with the Transportation Sale. "Transferee" is defined in Section 12.4. "Transportation Sale" means the Asset Purchase or, if the Asset Purchase is not consummated, the sale or other disposition of all of the properties, assets, rights, claims and goodwill relating exclusively to the Business (as defined in the Asset Purchase Agreement). "Type" means, with respect to any Advance, its nature as a Floating Rate Advance or Eurocurrency Advance. "UK Borrower" means any Borrower treated, for the purposes of United Kingdom Taxes and for the purposes of eligibility for benefits under the relevant Double Tax Treaty between the United Kingdom and the country of residence of the relevant Lender, as resident in the United Kingdom. "Unfunded Liability" means the amount (if any) by which the present value of all vested and unvested accrued benefits under a Single Employer Plan exceeds the fair market value of assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans using actuarial assumptions used in determining the Plans' normal cost for purpose of Section 412(b)(2)(A) of the Code. "Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. "WAL" means Whitlenge Acquisition, Ltd., a private company limited by shares registered in England. "Whitlenge" means Whitlenge Drink Equipment Limited, a private company limited by shares registered in England. "Wholly-Owned Subsidiary" of a Person means (a) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (b) any partnership, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. Each accounting term referenced herein shall be determined in accordance with Agreement Accounting Principles as in effect as of the date hereof unless otherwise specified. 25 33 ARTICLE II THE CREDITS 2.1. Term Loan. (a) Subject to the terms and conditions set forth in this Agreement, each Lender having a Term Loan Commitment severally and not jointly agrees to make a single term loan on the Closing Date, in Dollars, to Group in an amount equal to such Lender's Term Loan Commitment (each such term loan a "Term Loan"). The Term Loan of each Lender shall be made by each Lender on the Closing Date simultaneously and ratably in accordance with their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any failure by any other Lender to perform its obligation to make any Term Loan hereunder, nor shall the Term Loan Commitment of any Lender be increased or decreased as a result of any such failure. Any unutilized Term Loan Commitment shall expire simultaneously with the making of the Term Loans on the Closing Date. (b) On the Closing Date, Group shall deliver a Borrowing Notice to the Agent. Such Borrowing Notice shall also specify (i) the aggregate amount of the Term Loans and (ii) instructions for the disbursement of the proceeds of the Term Loans. Subject to the Agent receiving the appropriate Borrowing Notice as required pursuant to Section 2.10, the Term Loans shall initially be Floating Rate Loans or Eurodollar Loans, and thereafter may be continued as Floating Rate Loans or converted in whole or in part into or continued as Eurodollar Loans in the manner provided in Section 2.11 and subject to the other conditions and limitations therein set forth and set forth in this Article II. Any Borrowing Notice given pursuant to this Section 2.1(b) shall be irrevocable. (c) Promptly after the Agent receives the Borrowing Notice under Section 2.1(b) in respect of the Term Loans, the Agent shall notify each Lender of the proposed Term Loan by telex, telecopy, or other similar form of transmission. Each Lender shall deposit an amount equal to its Pro Rata Share of the Term Loans with the Agent at its office in Chicago, Illinois, in immediately available funds, on the Closing Date specified in the Borrowing Notice. Subject to the fulfillment of the conditions precedent set forth in Article IV, the Agent shall make the proceeds of such amounts received by it available to Group at the Agent's office in Chicago, Illinois on such Closing Date and shall disburse such proceeds in accordance with the Group's disbursement instructions set forth in such Borrowing Notice. Any Lender's failure to deposit the amount described above with the Agent on the Closing Date shall not relieve any other Lender of its obligation to make its Term Loans on the Closing Date. (d) (i) The Term Loans shall be repaid in semi-annual installments commencing on December 31, 1997 and continuing thereafter until the Term Loan Termination Date. The installments shall be in the aggregate amounts set forth below on the dates set forth below:
Installment Date Installment Amount ---------------- ------------------------ 12/31/97 $10,000,000 06/30/98 $ 7,500,000 12/31/98 $ 7,500,000 06/30/99 $ 7,500,000
26 34 12/31/99 $ 7,500,000 06/30/00 $12,500,000 12/31/00 $12,500,000 06/30/01 $12,500,000 12/31/01 $12,500,000 06/30/02 $15,000,000 12/31/02 $15,000,000 06/30/03 $15,000,000 Term Loan Termination Date $15,000,000
(ii) Notwithstanding the foregoing clause (i), the final installments shall be in the amount of the then outstanding principal balance of the Term Loan. In addition, the then outstanding principal balance of the Term Loan shall be due and payable on the Term Loan Termination Date. No installment of any Term Loan shall be reborrowed once repaid. (iii) In addition to the scheduled payment on the Term Loan, Group may make the voluntary prepayments described in Section 2.8 and shall make the mandatory prepayments prescribed in Section 2.9, for credit against such scheduled payments on the Term Loans pursuant to Section 2.9. 2.2. Revolving Loans. (a) From and including the Closing Date to but not including the Revolving Loan Termination Date, each Lender having a Revolving Loan Commitment severally and not jointly agrees, subject to the terms and conditions set forth in this Agreement, to make Revolving Loans in any one or more of the Permitted Currencies to the Borrowers from time to time in amounts, based on the Dollar Amount of any Revolving Loans outstanding in Dollars and the Dollar Amount of any Revolving Loans outstanding in Alternative Currencies, not to exceed in the aggregate at any one time outstanding the amount of (i) its Revolving Loan Commitment existing at such time minus (ii) its Pro-Rata Share of Facility Letter of Credit Obligations then outstanding minus (iii) the amount of its Pro Rata Share of Swing Line Loans at such time (each individually, a "Revolving Loan" and collectively, the "Revolving Loans"); provided, that, no Revolving Loan shall be made to any Foreign Borrower hereunder if, after giving effect to all Revolving Loans made to all of the Foreign Borrowers, the aggregate Revolving Loan Obligations of the Foreign Borrowers would exceed the Commitment Sublimit. Subject to the terms of this Agreement, the Borrowers may borrow, repay and reborrow Revolving Loans at any time prior to the Revolving Loan Termination Date. For purposes of this Agreement, Revolving Loans in Alternative Currencies shall be determined, denominated and redenominated as set forth in Section 2.22 hereof. (b) Group hereby agrees that if at any time, after determining the Current Dollar Equivalent thereof, the sum of the aggregate balance of the Revolving Loans made to the Foreign Borrowers plus the aggregate Facility Letter of Credit Obligations owing by all Foreign Borrowers exceeds the Commitment Sublimit, then in any such case, Group shall or shall cause the Foreign Borrowers to repay immediately the outstanding Revolving Loans in an amount as may be necessary to eliminate such excess. Group hereby further agrees that if at any time, after determining the Current Dollar Equivalent thereof, the aggregate balance of the Revolving Loan Obligations exceeds the Aggregate Revolving Loan Commitment, then in any such case, Group shall or shall cause the Borrowers to repay immediately the outstanding Revolving Loans and Swing Line Loans in such 27 35 amount as may be necessary to eliminate any such excess; provided, that if (x) an excess remains after repayment of all outstanding Revolving Loans and Swing Line Loans or (y) the aggregate Facility Letter of Credit Obligations outstanding exceeds the Facility Letter of Credit Sublimit, then Group shall or shall cause the other Borrowers to cash collateralize the Facility Letter of Credit Obligations in such amount as may be necessary to eliminate such excess. Such cash collateralization shall be provided to the Agent, for the benefit of the Lenders, pursuant to documentation in form and substance acceptable to the Agent. (c) The Revolving Loans shall mature, and the outstanding principal amount thereof and the unpaid accrued interest thereon shall be due and payable, on the Revolving Loan Termination Date. (d) Group may at any time make a request to the Agent (on behalf of the Lenders) that any Subsidiary that is a Wholly-Owned Subsidiary of Industries be admitted as a borrower to borrow Revolving Loans under this Agreement. If the Agent and each Lender consent to such request, and in the case of the Lenders, if they notify the Agent in writing of such consent, the Agent may enter into an Agreement of Joinder with Group (for itself and on behalf of the other then existing Borrowers) and such Subsidiary. Upon execution and delivery of such Agreement of Joinder by such Subsidiary, Group and the Agent, subject to the terms thereof and of this Section 2.2(d) and provided such Subsidiary has delivered a Guaranty or an Intercompany Note pursuant to Section 6.28, such Subsidiary shall become a Borrower hereunder and shall become a party to this Agreement. The Agent shall notify each Lender of such request and the execution of such Agreement of Joinder. 2.3. Swing Line Loans. 2.3.1 Making of Swing Line Loans. (a) Subject to the terms and conditions of this Agreement, the Swing Line Lender agrees, at any time and from time to time on and after the Closing Date and prior to the Revolving Loan Termination Date, to make a loan or loans on a revolving basis, in Dollars, each, a "Swing Line Loan") to the Borrowers which are Domestic Subsidiaries, which Swing Line Loans in the aggregate shall not exceed at any time the Swing Line Commitment; provided that no Swing Line Loan shall be made hereunder if, after giving effect to any Swing Line Loan and the use of proceeds thereof, the aggregate outstanding balance of Revolving Loan Obligations would exceed the Aggregate Revolving Loan Commitment. Notwithstanding the foregoing, no Swing Line Loans shall be made hereunder if, after giving effect to any Swing Line Loan and the use of proceeds thereof, the aggregate outstanding principal amount of Swing Line Loans would exceed the Swing Line Commitment, or to the extent that the Swing Line Commitment of the Swing Line Lender would exceed the Revolving Loan Commitment of such Lender at such time. The Swing Line Commitment shall terminate on the Revolving Loan Termination Date without further action being required on the part of the Agent or the Swing Line Lender. No more than five (5) Swing Line Loans shall be outstanding at any time. (b) Swing Line Loans may, subject to the terms of this Agreement, be repaid and reborrowed. All Swing Line Loans shall be made as Floating Rate Loans and shall not be entitled 28 36 to be converted into Eurodollar Loans. Swing Line Loans made on any date shall be in an aggregate minimum amount of $250,000 and integral multiples of $100,000 in excess of that amount. (c) If after giving effect to any assignment pursuant to Section 12.3 or reduction in Revolving Loan Commitments pursuant to the terms of this Agreement, the remaining Commitment of the Swing Line Lender is less than the Swing Line Commitment, the Swing Line Commitment shall be permanently reduced by an amount equal to such difference. (d) Whenever any Borrower which is a Domestic Subsidiary desires to make a borrowing of Swing Line Loans under Section 2.3.1, Group shall give the Agent and the Swing Line Lender (no later than 1:00 p.m. (Chicago time) on the proposed date for such Advance) notice by telephone (confirmed promptly in writing) or notice in writing of such Advance (a "Notice of Swing Line Loan"), which shall be irrevocable and shall specify (i) the aggregate principal amount of the Swing Line Loans to be made pursuant to such Advance, (ii) the date of such Advance (which shall be a Business Day), (iii) the maturity date for such Swing Line Loan (which shall be on demand and in any event no later than seven days after the making thereof or, if earlier, the Revolving Loan Termination Date), (iv) the Borrower (which shall be a Domestic Subsidiary) which is to receive such Advance and the account to which such Advance is to be funded and (v) confirming that such Swing Line Loan shall be a Floating Rate Loan. 2.3.2 Conversions of and Participations in Swing Line Loans. (a) The Swing Line Lender shall, in its sole and absolute discretion, be entitled to require an Advance of Revolving Loans hereunder, the proceeds of which shall be applied to the pro rata prepayment of all Swing Line Loans then outstanding by giving notice (by telephone promptly confirmed in writing or in writing) to the Agent, Group and the Lenders to such effect, which notice shall set forth the aggregate outstanding principal amount of such Swing Line Loans. Upon the giving of such notice, the Borrowers shall be deemed to have timely given a Borrowing Notice to the Agent requesting Revolving Loans which are Floating Rate Loans on the Business Day following such notice, Group shall, on such date, make Revolving Loans which are Floating Rate Loans in the amount of such Swing Line Loans, the proceeds of which shall be applied by the Agent to the prepayment of such Swing Line Loans; provided that for the purposes solely of such Advance the conditions precedent set forth in Section 4.2 shall not be applicable. Unless Group shall have notified the Agent and the Swing Line Lender prior to 11:00 a.m. (Chicago time) on the date which is six days following the date on which any Swing Line Loan has been made by the Swing Line Lender that the Borrowers which are Domestic Subsidiaries intend to reimburse the Swing Line Lender with funds other than the proceeds of Revolving Loans, the Agent shall give such notice on behalf of the Swing Line Lender. (b) Upon the giving of notice to the following effect to the Agent and each Lender by the Swing Line Lender in its sole and absolute discretion, any deemed Borrowing Notice given under this Section 2.3.2 pursuant to which no Advance has been made shall be deemed cancelled and each Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from the Swing Line Lender a participation in Swing Line Loans made by the Swing Line Lender in an aggregate outstanding principal amount equal to such Lender's Pro Rata Share of the aggregate principal amount of such Swing Line Loans, and shall make available to the Swing Line Lender an amount 29 37 equal to its respective participation in the Swing Line Lender's Swing Line Loans in Dollars and immediately available funds, at the office of the Swing Line Lender specified by notice to the Agent and each Lender in such notice, not later than 1:00 p.m. (Chicago time) on the second Business Day after the giving of such notice. In the event that any Lender fails to make available to the Swing Line Lender the amount of such Lender's participation as provided in this Section 2.3.2(b), the Swing Line Lender shall be entitled to recover such amount on demand from such Lender together with interest at the interbank compensation rate set by the Agent for three Business Days and thereafter at the Floating Rate, and the Swing Line Lender shall, until such time as all such amounts have been paid, be deemed to have outstanding a Swing Line Loan in the amount of such unpaid participation for all purposes of this Agreement other than those provisions requiring Lenders to purchase an interest therein. The Swing Line Lender shall distribute to each other Lender which has paid all amounts payable by it under this Section 2.3.2(b) with respect to Swing Line Loans made by the Swing Line Lender such other Lender's Pro Rata Share of all payments received by the Swing Line Lender in respect of such Swing Line Loans when such payments are received. (c) The obligations of the Lenders under Section 2.3.2(b) above shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances including, without limitation, the fact that a Default or Unmatured Default shall have occurred and be continuing or any other circumstance or happening whatsoever. 2.4. Ratable Loans. Each Advance under Section 2.2 shall consist of Revolving Loans made by each Lender ratably in proportion to such Lender's Pro Rata Share. Any reduction in the Aggregate Revolving Loan Commitment shall ratably reduce the Revolving Loan Commitment of each Lender. 2.5. Types of Advances. Subject to the other terms of this Agreement, the Advances may be Floating Rate Advances or Eurocurrency Advances, or a combination thereof, selected by the applicable Borrower in accordance with Sections 2.10 and 2.11; provided, that (a) at the time of the making or continuation of any Eurocurrency Advance, the Current Dollar Equivalent of the aggregate Eurocurrency Advances denominated in Alternative Currencies (after giving effect to such making, conversion or continuation) shall not exceed the Eurocurrency Sublimit and (b) Eurocurrency Advances denominated in an Alternative Currency may be outstanding in not more than six Alternative Currencies at any one time. 2.6. Fees; Reductions in Aggregate Revolving Loan Commitment. (a) Group shall or shall cause the other Borrowers to pay to the Agent for the account of each Lender in accordance with their Pro Rata Share a commitment fee (the "Commitment Fee") for each day accruing at a rate per annum equal to the Applicable Margin (determined for the Commitment Fee in accordance with the definition of Applicable Margin) multiplied by the average daily amount by which (A) the Aggregate Revolving Loan Commitment in effect from time to time exceeds (B) the principal amount of the Revolving Loan Obligations in effect from time to time (based on the Current Dollar Equivalent thereof), from the date hereof to and excluding the Revolving Loan Termination Date, payable quarterly in arrears on the last Business Day of each calendar quarter hereafter and on the Revolving Loan Termination Date. All accrued commitment fees shall be payable on the effective date of any termination of the Agreement made in accordance with the terms hereof of the obligations of the Lenders to make Loans hereunder. 30 38 (b) Group may permanently reduce the Aggregate Revolving Loan Commitment in whole, or in part ratably among the Lenders in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof, upon at least five (5) days' written notice to the Agent, which notice shall specify the amount of any such reduction; provided, however, that the amount of the Aggregate Revolving Loan Commitment may not be reduced below the sum of the Current Dollar Equivalent of Revolving Loans and Swing Line Loan Obligations at any time. Such reductions shall be in addition to reductions occurring pursuant to Section 2.6(c) or Section 2.9. (c) On each date specified below, the Aggregate Revolving Loan Commitment shall be permanently reduced, ratably among the Lenders, by the amount specified for such date below:
Date Reduction Amount -------------- ---------------- December 31, 1998 $10,000,000 December 31, 1999 15,000,000 December 31, 2000 15,000,000 December 31, 2001 15,000,000 December 31, 2002 15,000,000 December 31, 2003 15,000,000 Revolving Loan such Termination Date amount as shall then be outstanding
Concurrently with each such reduction, Group shall, or shall cause the other Borrowers to, make such payments and provide such cash collateralization as may be required by Section 2.2(b). 2.7. Minimum Amount of Each Advance. Each Eurocurrency Advance shall be in the minimum amount having a Dollar Amount of not less than $3,000,000 (and, if in excess thereof, in multiples of $1,000,000), and each Floating Rate Advance shall be in the minimum amount of $5,000,000 (and in multiples of $1,000,000 if in excess thereof); provided, however, that (a) any Floating Rate Advance with respect to a Revolving Loan may be in the amount of the unused Aggregate Revolving Loan Commitment, (b) in no event shall more than twelve (12) Eurocurrency Advances be permitted to be outstanding at any time, (c) subject to the other terms of this Agreement, Eurocurrency Advances in Alternative Currencies may be made or continued in amounts having a Dollar Amount of not less than $1,500,000 (and, if in excess thereof, in multiples of $1,000,000) solely in order to allow the Borrowers to maintain a maximum of two Eurocurrency Advances in Alternative Currencies outstanding at any one time in minimum amounts having Dollar Amounts of not less than $1,500,000 as permitted pursuant to Section 2.8 and (d) the Agent and Group may make immaterial mutually convenient adjustments to the thresholds and multiples set forth above in respect of Eurocurrency Advances denominated in Alternative Currencies. 2.8. Optional Principal Payments. The Borrowers may from time to time pay, without penalty or premium, all outstanding Floating Rate Advances, or, in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Floating Rate Advances upon two Business Days' prior notice to the Agent. Subject to the payment by the Borrowers of breakage costs pursuant to Section 3.5, the Borrowers may from time to time repay or prepay a Eurodollar Advance in full prior to the last day of the applicable 31 39 Interest Period upon at least five (5) days' written notice to the Agent; provided that any such repayment shall be in a minimum amount of $2,000,000 or any integral multiple of $1,000,000 in excess thereof except that Eurocurrency Advances in Alternative Currencies may be repaid in a minimum amount of $1,500,000 or any integral multiple of $1,000,000 in excess thereof solely with respect to the maximum of two Eurocurrency Advances in Alternative Currencies permitted to be borrowed and maintained pursuant to Section 2.7 and this Section 2.8; provided, further, that after giving effect to any such optional prepayment, each outstanding Eurodollar Advance shall be in a minimum amount of $3,000,000 except that the Borrowers in the aggregate may have a maximum of two Eurocurrency Advances in Alternative Currencies outstanding at any one time in minimum amounts having Dollar Amounts of not less than $1,500,000 (and, if in excess thereof, in multiples of $1,000,000). Each voluntary prepayment of a Term Loan shall be applied to the installments of such Term Loan in the inverse order of maturity. 2.9. Mandatory Prepayments and Commitment Reductions. 2.9.1 Asset Dispositions. On each date after the Closing Date on which Industries or any of its Subsidiaries receives any Net Available Proceeds upon any Asset Disposition which (a) on a cumulative basis with all other Asset Dispositions made during the period beginning on the Closing Date and ending on the Facility Termination Date, exceed a Substantial Cumulative Portion (determined as of the date of each Asset Disposition) or (b) on a cumulative basis with all other Asset Dispositions made during the current Fiscal Year, exceed a Substantial Annual Portion (determined as of the date of each Asset Disposition) (other than an Asset Disposition by Industries or by Group which is permitted under Section 6.12 but subject, in the case of the Transportation Sale, to the last proviso at the end of this Section 2.9.1), Group shall prepay or shall cause the other Borrowers to prepay the outstanding Bridge Obligations, the Obligations and Senior Debt in an aggregate amount equal to 100% of the amount of such Net Available Proceeds as follows: first to prepayment of the Bridge Obligations until all such Bridge Obligations have been paid in full and second, to prepayment of the Obligations in accordance with the terms of Section 2.9.5 and to any Senior Debt that remains outstanding (but only to the extent any such Senior Debt requires a prepayment thereof out of Net Available Proceeds) on a ratable basis determined according to the principal amount of the Loans and the Facility Letter of Credit Obligations and the principal amount of such Senior Debt (and premium, if any), in each case outstanding as of such date; provided that any Net Available Proceeds not applied to prepayment of the Senior Debt shall be applied to prepayment of the Obligations in accordance with Section 2.9.5; and provided, further, that to the extent an amount equal to any Net Available Proceeds are applied by Industries or such Subsidiary of Industries within the period from 90 days prior to such Asset Disposition to 180 days after such disposition, to acquire assets of a like kind or nature to those assets disposed of in such Asset Disposition which assets will be used in the business of Industries or any of its Subsidiaries, such Net Available Proceeds shall not be subject to the prepayment provisions of this Section 2.9.1; and provided, further, that if the Transportation Sale is consummated on or prior to the Closing Date or within forty-five (45) days after the Closing Date, then the sale of the Property pursuant to the Transportation Sale shall not be deemed to be an Asset Disposition pursuant to the terms of this Section 2.9.1 and if the Transportation Sale is not consummated within forty-five (45) days after the Closing Date, then the disposition of the Property pursuant to the Transportation Sale shall 32 40 be deemed to be an Asset Disposition pursuant to this Section 2.9.1 and the Net Available Proceeds received by Industries or any of its Subsidiaries from the Transportation Sale shall be applied in accordance with the terms of this Section 2.9. 2.9.2 Excess Cash Flow. On the date Industries is required to deliver the financial statements referred to in Section 6.1(a) for any Fiscal Year, commencing with the Fiscal Year ending on December 31, 1997, if the Leverage Ratio as determined by the Agent as of the end of such Fiscal Year based on such financial statements is greater than or equal to 3.0, Group shall prepay or cause the other Borrowers to prepay the outstanding Bridge Obligations, the Obligations and Senior Debt in an aggregate amount equal to 50% of Excess Cash Flow for such Fiscal Year (the "Excess Cash Flow Amount") as follows: first to prepayment of the Bridge Obligations until all such Bridge Obligations have been paid in full and second, to prepayment of the Obligations in accordance with the terms of Section 2.9.5 and to any Senior Debt that remains outstanding (but only to the extent any such Senior Debt requires a prepayment thereof out of Excess Cash Flow) on a ratable basis determined according to the principal amount of the Loans and the Facility Letter of Credit Obligations and the principal amount of such Senior Debt (and premium, if any), in each case outstanding as of such date; provided that any Excess Cash Flow Amount not applied to prepayment of the Senior Debt shall be applied to prepayment of the Loans in accordance with Section 2.9.5. 2.9.3 Debt and Equity Issuances. On each date after the Closing Date on which Industries or any of its Subsidiaries receives any Net Equity Proceeds or any Net Debt Proceeds, Group shall prepay or shall cause the other Borrowers to prepay the outstanding Bridge Obligations, the Obligations and Senior Debt (a) with respect to Net Equity Proceeds, in an amount equal to 50% of any Net Equity Proceeds received by Industries or any of its Subsidiaries (the "Available Net Equity Proceeds") and (b) with respect to Net Debt Proceeds, in an amount equal to 100% of such Net Debt Proceeds as follows: first to prepayment of the Bridge Obligations until all such Bridge Obligations have been paid in full and second, to prepayment of the Obligations in accordance with the terms of Section 2.9.5 and to any Senior Debt that remains outstanding (but only to the extent any such Senior Debt requires a prepayment thereof out of Available Net Equity Proceeds or Net Debt Proceeds, respectively) on a ratable basis determined according to the principal amount of the Loans and the Facility Letter of Credit Obligations and the principal amount (and premium, if any) of such Senior Debt, in each case outstanding as of such date; provided that any Available Net Equity Proceeds or Net Debt Proceeds not applied to prepayment of the Senior Debt shall be applied to prepayment of the Obligations in accordance with Section 2.9.5. 2.9.4 Revolving Commitment Reductions. (a) On each day on which the Aggregate Revolving Loan Commitment is reduced for any reason, Group shall prepay or shall cause the other Borrowers to prepay, the Revolving Loans and/or the Swing Line Loans to the extent, if any, that the sum of the outstanding principal amount of (i) the Revolving Loans plus (ii) the Swing Line Loans exceeds such reduced Aggregate Revolving Loan Commitment minus the Facility Letter of Credit Obligations at such time. 33 41 (b) Group shall prepay or shall cause the other Borrowers to prepay the Revolving Loans and/or the Swing Line Loans as required pursuant to Section 2.2(b). In addition, to the extent, at any time and for any reason, the Aggregate Revolving Loan Commitment minus the sum of the outstanding aggregate principal amount of (i) the Revolving Loans plus (ii) the Swing Line Loans is less than the Facility Letter of Credit Obligations at such time, Group shall or shall cause the other Borrowers to cash collateralize the Facility Letter of Credit Obligations in such amount as may be necessary to eliminate such excess. Such cash collateralization shall be provided to the Agent, for the benefit of the Lenders, pursuant to documentation in form and substance acceptable to the Agent. 2.9.5 Application of Prepayments. All prepayments of the Loans required by Section 2.9.1 and 2.9.3 shall be applied first, to prepay the outstanding principal amount of the Term Loan until such Term Loan shall have been repaid in full, together with accrued and unpaid interest thereon, second, to prepay the Revolving Loans until such Revolving Loans shall have been repaid in full, together with accrued and unpaid interest thereon, third, to cash collateralize the then outstanding Facility Letters of Credit, and, fourth, to all other outstanding Obligations; provided, that (i) any Revolving Loans repaid pursuant to this Section 2.9.5 may be reborrowed, subject to the other terms of this Agreement and (ii) the amount of any cash collateral paid pursuant to this Section 2.9.5 shall be promptly released so long as no Default or Unmatured Default then exists, in each case only to the extent of the excess of the Aggregate Revolving Loan Commitment then in effect minus the Revolving Loan Obligations then outstanding. All prepayments of the Term Loan shall be applied to the scheduled installments of principal thereof in the inverse order of maturity. 2.9.6 Permitted Transactions. Nothing in this Section 2.9 shall be construed to constitute the Lenders' consent to any transactions referred to in Section 2.9.1 or Section 2.9.3 above which is not expressly permitted by the terms of this Agreement. 2.10. Method of Selecting Types and Interest Periods for New Advances. Group shall select the Type of Advance and, in the case of each Eurocurrency Advance, the Interest Period and Permitted Currency applicable to each Advance from time to time. Group shall give the Agent irrevocable notice (a "Borrowing Notice") not later than 10:00 a.m. (Chicago time) at least one (1) Business Day before the Borrowing Date of each Floating Rate Advance and at least three (3) Business Days before the Borrowing Date for each Eurocurrency Advance, specifying: (a) the Borrowing Date, which shall be a Business Day, of such Advance; (b) the Borrower which is to receive such Advance and the account to which such Advance is to be funded; (c) the aggregate principal amount of such Advance; (d) the Type of Advance selected; and 34 42 (e) in the case of each Eurocurrency Advance, the Interest Period applicable thereto and, with respect to Revolving Loans, the Permitted Currency in which such Advance is to be made. In the case of Eurocurrency Advances (other than Eurodollar Advances), not later than 11:00 a.m. (London time) on the Borrowing Date thereof, each Lender shall make available its Eurocurrency Loan or Eurocurrency Loans, in funds immediately available in London, in (with respect to Revolving Loans) the Permitted Currency selected by Group, from the Lending Installation specified in Schedule 2.10 to the Agent at its London address specified in Schedule 2.10 or at any other Lending Installation of the Agent specified in writing by the Agent to the Lenders. In the case of Floating Rate Advances and Eurodollar Advances, not later than noon (Chicago time) on each Borrowing Date, each Lender shall make available its Loan or Loans, in funds immediately available in Chicago, in Dollars, to the Agent at its Chicago address specified in Schedule 2.10 or at any other Lending Installation of the Agent specified in writing by the Agent to the Lenders. The Agent will make the funds so received from the Lenders available to the applicable Borrower to the account specified in the Borrowing Notice, by 1:00 p.m. (Chicago time), with respect to Floating Rate Advances and Eurodollar Advances, and promptly following the receipt of the related Loan from each Lender, with respect to all other Advances. 2.11. Conversion and Continuation of Outstanding Advances. (a) Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are repaid or converted into Eurodollar Advances. Each Eurodollar Advance shall continue as a Eurodollar Advance until the end of the then applicable Interest Period therefor, at which time such Eurodollar Advance shall be automatically converted into a Floating Rate Advance unless repaid or unless Group shall have given the Agent a Conversion/Continuation Notice requesting that, at the end of such Interest Period, such Eurodollar Advance either continue as a Eurodollar Advance for the same or another Interest Period or be converted into a Floating Rate Advance. Subject to the terms of Sections 2.7 and 3.4, Group may elect from time to time to convert all or any part of an Advance in Dollars of any Type into any other Type or Types of Advances in Dollars. (b) Each Eurocurrency Advance in an Alternative Currency shall continue as such until the end of the then applicable Interest Period therefor, at which time such Eurocurrency Advance shall, unless repaid, automatically be deemed to be continued as a Eurocurrency Advance in the same amount and the same Alternative Currency with an Interest Period of one month (commencing on the last day of the expiring Interest Period) unless Group shall have given the Agent a Conversion/Continuation Notice requesting that, at the end of such Interest Period, such Eurocurrency Advance continue as a Eurocurrency Advance in the same Alternative Currency for the same or another Interest Period. (c) Group shall give the Agent irrevocable notice (a "Conversion/Continuation Notice") of each conversion of an Advance or continuation of a Eurocurrency Advance (as permitted by paragraphs (a) and (b) above) not later than 10:00 a.m. (Chicago time) at least one (1) Business Day, in the case of a conversion into a Floating Rate Advance, or at least three (3) Business Days, in the case of a conversion into or continuation of a Eurocurrency Advance, prior to the date of the requested conversion or continuation, specifying: 35 43 (i) the requested date which shall be a Business Day, of such conversion or continuation; (ii) the aggregate amount, Permitted Currency and Type of the Advance which is to be converted or continued; and (iii) the amount and Type(s) of Advance(s) into which such Advance is to be converted or continued and, in the case of a conversion into or continuation of a Eurocurrency Advance, the duration of the Interest Period applicable thereto. Notwithstanding the provisions of paragraphs (a) and (b) above, no Eurocurrency Advance shall be continued as or converted into a Eurocurrency Advance for a new Interest Period if the Current Dollar Equivalent (determined as of the date of any proposed conversion or continuation thereof) of the aggregate Revolving Loan Obligations to be outstanding after giving effect to such continuation or conversion would exceed the Aggregate Revolving Loan Commitment then in effect. The Borrowers shall reimburse the Agent on demand for any costs incurred by the Agent resulting from the conversion pursuant to this Section 2.11 of Eurocurrency Advances payable in an Alternative Currency to Floating Rate Advances. 2.12. Changes in Interest Rate, etc. (a) Each Floating Rate Advance shall bear interest at the Floating Rate from and including the date of such Advance or the date on which such Advance was converted into a Floating Rate Advance to (but not including) the date on which such Floating Rate Advance is paid or converted to a Eurodollar Advance. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Floating Rate. Each Eurocurrency Advance shall bear interest from and including the first day of the Interest Period applicable thereto to, but not including, the last day of such Interest Period at the Eurocurrency Rate applicable to such Eurocurrency Advance. No Interest Period may end after the Facility Termination Date. The Borrowers shall select Interest Periods so that it is not necessary to repay any portion of a Eurocurrency Advance prior to the last day of the applicable Interest Period in order to make a mandatory repayment required pursuant to Section 2.1, 2.2 or Section 2.9. (b) Notwithstanding any provision to the contrary contained in this Agreement or the other Loan Documents, the Borrowers shall not be required to pay, and neither the Agent nor any Lender shall be permitted to collect, any amount of interest in excess of the maximum amount of interest permitted by law ("Excess Interest"). If any Excess Interest is provided for or determined by a court of competent jurisdiction to have been provided for under this Agreement or in any of the other Loan Documents then in such event: (i) the provisions of this paragraph shall govern and control; (ii) the Borrowers shall not be obligated to pay any Excess Interest; (iii) any Excess Interest that the Agent or any Lender may have received hereunder shall be, at the Agent's option, (A) applied as a credit against the outstanding principal balance of the Obligations or accrued and unpaid interest (not to exceed the maximum amount permitted by law), (B) refunded to the payor thereof, or (C) any combination of the foregoing; (iv) the interest rate(s) provided for herein shall be automatically reduced to the maximum lawful rate allowed from time to time under applicable law (the "Maximum Rate"), and this Agreement and the other Loan Documents shall be deemed to have been and shall be, reformed and modified to reflect such reduction; and (v) the Borrowers shall not 36 44 have any cause of action against the Agent or any Lender for any damages arising out of the payment or collection of any Excess Interest. Notwithstanding the foregoing, if for any period of time interest on any Obligations is calculated at the Maximum Rate rather than the applicable rate under this Agreement, and thereafter such applicable rate becomes less than the Maximum Rate, the rate of interest payable on such Obligations shall remain at the Maximum Rate until each Lender shall have received the amount of interest which such Lender would have received during such period on such Obligations had the rate of interest not been limited to the Maximum Rate during such period. 2.13. Rates Applicable After Default. Notwithstanding anything to the contrary contained in Section 2.7, 2.10 or 2.11, no Advance may be made as, converted into or continued as a Eurocurrency Advance (except with the consent of the Required Lenders) when any Default or Unmatured Default has occurred and is continuing. During the continuance of a Default, each Eurocurrency Advance shall bear interest for the remainder of the applicable interest period at a rate per annum equal to the higher of the rate otherwise applicable to such Advance or the Floating Rate, plus two percent (2.0%) per annum and each Floating Rate Advance shall bear interest at a rate per annum equal to the Floating Rate plus two percent (2.0%) per annum, unless the Lenders shall determine otherwise. The Agent shall give Group notice of any such changes promptly following the effectiveness thereof. 2.14. Method of Payment. (a) All payments of the Obligations hereunder shall be made, without setoff, deduction or counterclaim, in Dollars in immediately available funds to the Agent at the Agent's address specified pursuant to Schedule 2.10 in respect of Advances in Dollars (or, in the case of payments of principal of and interest on Advances denominated in Alternative Currencies, in the Alternative Currency borrowed, at the Agent's address for Advances of Alternative Currencies, as specified in Schedule 2.10), or, subject to Section 3.6, at any other Lending Installation of the Agent specified in writing by the Agent to Group by noon (Chicago time) on the date when due and shall be applied ratably by the Agent among the Lenders. Each payment delivered to the Agent for the account of any Lender shall be delivered promptly by the Agent to such Lender in the same type of funds that the Agent received, at its address for Dollar Advances or for Alternative Currency Advances as specified in Schedule 2.10 or at any other Lending Installation specified in a notice received by the Agent from such Lender. The Agent is hereby authorized to charge the account of Group or any Borrower maintained with First Chicago for each payment of principal, interest and fees as it becomes due hereunder. (b) All payments of principal of and interest on any Advance or of Facility Letter of Credit Reimbursement Obligations or any other Obligations hereunder shall be made by the Borrower responsible therefor in the currency borrowed (the "Specified Currency") in the manner and at the address (the "Specified Place") specified in Section 2.14(a). Payment of the Obligations shall not be discharged by an amount paid in another currency or in another place, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on conversion to the Specified Currency and transferred to the Specified Place under normal banking procedures does not yield the amount of the Specified Currency at the Specified Place due hereunder. If, for the purpose of obtaining judgment in any court, it is necessary to convert a sum due hereunder in the Specified Currency into another currency (the "Judgment Currency"), the rate of exchange which shall be applied shall be that at which in accordance with normal banking procedures the Agent could purchase the Judgment Currency with that amount of the Specified Currency on the Business Day 37 45 next preceding that on which such judgment is rendered. The obligation of each Borrower in respect of any such sum due from it to the Agent or any Lender hereunder (an "Entitled Person") shall, notwithstanding the rate of exchange actually applied in rendering such judgment, be discharged only to the extent that on the Business Day following receipt by such Entitled Person of any sum adjudged to be due hereunder or under the Notes in the Judgment Currency, such Entitled Person may in accordance with normal banking procedures purchase and transfer to the Specified Place the Specified Currency with the amount of the Judgment Currency so adjudged to be due; and each Borrower hereby, as a separate Obligation and notwithstanding any such judgment, agrees to indemnify such Entitled Person against, and to pay such Entitled Person on demand, in the Specified Currency, any difference between the sum originally due to such Entitled Person in the Specified Currency and the amount of the Specified Currency so purchased and transferred. 2.15. Notes; Telephonic Notices. (a) The Borrowers' obligation to pay the principal of, and interest on, each Lender's Loans shall be evidenced by (i) in the case of such Lender's Term Loan, a Term Note duly executed and delivered by Group in a principal amount equal to such Lender's Term Loan with blanks appropriately completed in conformity herewith, (ii) in the case of such Lender's Revolving Loans, a Revolving Note duly executed and delivered by each Borrower in a principal amount equal to such Lender's Revolving Loan Commitment (as adjusted for the Commitment Sublimit for each Foreign Subsidiary), with blanks appropriately completed in conformity herewith and (iii) with respect to the Swing Line Lender, in the case of Swing Line Loans, a Swing Line Note duly executed and delivered by each Borrower which is a Domestic Subsidiary in a principal amount equal to the Swing Line Commitment. Each Note issued to a Lender shall (x) be payable to the order of such Lender, (y) be dated the Closing Date, and (z) mature on the Term Loan Termination Date or the Revolving Loan Termination Date, as the case may be. (b) Each Lender is hereby authorized to record the principal amount of each of its Loans and each repayment on the schedule attached to its Note or otherwise in accordance with its usual practices; provided, however, that neither the failure to so record nor any error in such recordation shall affect any Borrower's obligations under any such Note. Each Borrower hereby authorizes the Lenders and the Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds and each Issuer to issue Facility Letters of Credit for its account where applicable based on telephonic notices made by any person or persons the Agent or any Lender in good faith believes to be an Authorized Officer of such Borrower. Each Borrower agrees to deliver promptly to the Agent a written confirmation, if such confirmation is requested by the Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Agent and the Lenders, the records of the Agent and the Lenders shall govern absent manifest error. 2.16. Interest Payment Dates; Interest and Fee Basis. Interest accrued on each Floating Rate Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof, on any date on which a Floating Rate Advance is permanently prepaid, whether due to acceleration or otherwise, and at maturity. Interest accrued at the Floating Rate on that portion of the outstanding principal amount of any Floating Rate Advance converted into a Eurocurrency Advance on a day other than a Payment Date shall be payable on the next Payment Date. Interest accrued on each Eurocurrency Advance shall be payable in the currency in which such Advance is denominated on the last day of its applicable Interest Period, on any date on which the 38 46 Eurocurrency Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurocurrency Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest accrued on each Eurocurrency Advance and Commitment Fees shall be calculated for actual days elapsed on the basis of a 360-day year (except with respect to Loans denominated in pounds sterling, which shall be calculated for actual days elapsed on the basis of 365-day year). Interest accrued on each Floating Rate Advance shall be calculated for actual days elapsed on the basis of a 365/6-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon (Chicago time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.17. Notification by Agent. Promptly after receipt thereof, the Agent will notify each Lender of the contents of each Aggregate Revolving Loan Commitment reduction notice, Borrowing Notice, Conversion/Continuation Notice, request for a Facility Letter of Credit, Notice of Issuance and repayment notice received by it hereunder. The Agent will notify each Lender and Group of the interest rate applicable to each Eurocurrency Advance promptly upon determination of such interest rate and will give each Lender and Group prompt notice of each change in the Floating Rate. 2.18. Lending Installations. Subject to Section 3.6, each Lender may book its Loans at any Lending Installation selected by such Lender and may change its Lending Installation from time to time; provided, that such Lender shall remain the legal entity exclusively entitled to all rights and responsible for all obligations of a Lender hereunder unless such Lender enters into an assignment in compliance with Section 12.3. All terms of this Agreement shall apply to any such Lending Installation and the Notes shall be deemed held by each Lender for the benefit of such Lending Installation. Subject to Section 3.6, each Lender may, by written or telex notice to the Agent and Group, designate a Lending Installation through which Loans will be made by it and for whose account Loan payments are to be made. 2.19. Non-Receipt of Funds by the Agent. Unless the applicable Borrower or a Lender, as the case may be, notifies the Agent prior to the date on which it is scheduled to make payment to the Agent of (a) in the case of a Lender, the proceeds of a Loan, or (b) in the case of such Borrower, a payment of principal, interest or fees to the Agent for the account of the Lenders, that it does not intend to make such payment, the Agent may assume that such payment has been made. The Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Borrower has not in fact made such payment to the Agent, the Lenders shall, on demand by the Agent, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to (i) the Federal Funds Effective Rate for such day for amounts denominated in or calculated with reference to Dollars and (ii) the Eurocurrency Base Rate for amounts denominated in or calculated with reference to Alternative Currencies. If any Lender has not in fact made such payment to the Agent, such Lender or the Borrowers shall, on demand by the Agent, repay to the Agent the amount so made available together with interest thereon in respect of 39 47 each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to (a) in the case of payment by a Lender, the Federal Funds Effective Rate for such day for amounts denominated in or calculated with reference to Dollars and the Eurocurrency Base Rate for such day for amounts denominated in or calculated with reference to Alternative Currencies, or (b) in the case of payment by the Borrowers, the interest rate applicable to the relevant Loan. 2.20. Withholding Tax Exemption. (a) At least five Business Days prior to the first date on which interest or fees are payable hereunder for the account of any Lender, each Lender that is not incorporated under the laws of the United States of America, or a state thereof, agrees that it will deliver to each of Group and the Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes. Each Lender which so delivers a Form 1001 or 4224 further undertakes to deliver to each of Group and the Agent two additional copies of such form (or a successor form) on or before the date that such form expires (currently, three successive calendar years for Form 1001 and one calendar year for Form 4224) or becomes obsolete or after the occurrence of any event requiring a change in the most recent forms so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by Group or the Agent, in each case certifying that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes, unless an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises Group and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. (b) Each Lender agrees promptly to notify Group if it is not, or ceases to be, a Qualifying Lender. If any Lender (i) is not a Qualifying Lender on the date on which it makes a Loan to a UK Borrower (or, where the Lender would only qualify as a Qualifying Lender by virtue of paragraph (b) of the definition thereof, at the date (the "Critical Date") five (5) business days prior to the date on which such Lender is first entitled to receive any payment from a UK Borrower in respect of a Loan to such UK Borrower) or (ii) ceases to be a Qualifying Lender at any time after the date on which it has made such a Loan or the Critical Date (as the case may be) but prior to the repayment of all amounts in respect of such Loan, otherwise than by reason of any change in law (which term shall include any change in the terms of any relevant Double Taxation Treaty) or in its application or interpretation, such Borrower shall not be liable to pay to such Lender any amount greater than the amount which such Borrower would have been liable to pay to such Lender if such Lender had been a Qualifying Lender or, as the case may be, had not ceased to be a Qualifying Lender. When any Lender is or becomes a Qualifying Lender pursuant to paragraph (b) of the definition of "Qualifying Lender," such Lender hereby undertakes to claim promptly, following the date on which it makes a Loan to a UK Borrower, exemption from United Kingdom withholding tax to which such Lender is entitled by virtue of the relevant Double Taxation Treaty and if such Lender fails promptly to make such claim, any sum due to the Qualifying Lender under this Agreement shall not be increased until such claim has been submitted. Each Borrower undertakes to do all things as shall be reasonably required of it in order to assist any such Lender in claiming such exemption. 40 48 2.21. Agent's Fees. The Borrowers shall pay to the Agent those fees, in addition to the fees referenced in Section 2.6(a), in the amounts and at the times separately agreed to between the Agent and Group pursuant to that certain letter agreement dated January 31, 1997 among the Agent, the Arranger and Group. 2.22. Determination, Denomination and Redenomination of Alternative Currency Advances. Whenever, pursuant to any provision of this Agreement: (a) an Advance is initially funded, as opposed to any continuation or conversion thereof, in an Alternative Currency, the amount to be advanced hereunder will be the equivalent in such Alternative Currency of the Dollar Amount of such Advance; and (b) an existing Advance denominated in an Alternative Currency is to be continued, in whole or in part, the amount of the new Advance shall be continued in the same amount of the same Alternative Currency. 2.23. Facility Letters of Credit. 2.23.1. Issuance of Facility Letters of Credit. (a) On the Closing Date, the Existing Letter of Credit shall be deemed for all purposes of this Agreement to be a Facility Letter of Credit and the Issuing Bank with respect thereto shall be deemed to have sold to each Lender, and each Lender shall be deemed, without further action by any party hereto, to have purchased from such Issuing Bank, a participation interest equal to its Pro Rata Share of the principal amount of the Existing Letter of Credit and the related Facility Letter of Credit Obligations. From and after the date hereof, the Issuer agrees, upon the terms and conditions set forth in this Agreement, to issue at the request of Group and for the account of any Borrower, one or more Facility Letters of Credit; provided, however, that the Issuer shall not be under any obligation to issue, and shall not issue, any Facility Letter of Credit if (i) any order, judgment or decree of any Governmental Agency shall purport by its terms to enjoin or restrain such Issuer from issuing such Facility Letter of Credit, or any law or governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) from any Governmental Agency with jurisdiction over the Issuer shall prohibit, or request that the Issuer refrain from, the issuance of Facility Letters of Credit in particular or shall impose upon the Issuer with respect to any Facility Letter of Credit any restriction or reserve or capital requirement (for which the Issuer is not otherwise compensated) or any unreimbursed loss, cost or expense which was not applicable, in effect as of the date of this Agreement and which the Issuer in good faith deems material to it; (ii) one or more of the conditions to such issuance contained in Section 4.2 is not then satisfied; or (iii) after giving effect to such issuance and after determining the Current Dollar Equivalent thereof, (A) the aggregate outstanding amount of the Facility Letter of Credit Obligations would exceed the Facility Letter of Credit Sublimit, (B) the aggregate balance of the Revolving Loans made to the Foreign Borrowers plus the aggregate Facility Letter of Credit Obligations owing by all Foreign Borrowers would exceed the Commitment Sublimit or, (C) the aggregate balance of the Revolving Loan Obligations would exceed the Aggregate Revolving Loan Commitment; provided, that if any circumstances arise which result in any payment being required or in the unavailability of any Facility Letter of Credit due to any circumstance set 41 49 forth in clause (i) above, then the Issuer shall take such steps as it determines are reasonably available to it to mitigate the effect of such circumstances so long as taking such steps is not disadvantageous to such Lender. (b) In no event shall: (i) the aggregate amount of the Facility Letter of Credit Obligations at any time exceed the Facility Letter of Credit Sublimit; (ii) the sum at any time of (A) the aggregate amount of Revolving Loan Obligations exceed (B) the amount of the Aggregate Revolving Loan Commitment; or (iii) the expiration date of any Facility Letter of Credit (including, without limitation, Facility Letters of Credit issued with an automatic "evergreen" provision providing for renewal absent advance notice by the applicable Borrower or the Issuer), or the date for payment of any draft presented thereunder and accepted by the Issuer, be later than the Revolving Loan Termination Date. 2.23.2. Participating Interests. Immediately upon the issuance by the Issuer of a Facility Letter of Credit in accordance with Section 2.23.4, each Lender shall be deemed to have irrevocably and unconditionally purchased and received from the Issuer, without recourse, representation or warranty, an undivided participation interest equal to its Pro-Rata Share of the principal amount of such Facility Letter of Credit and each draw paid by the Issuer thereunder. Each Lender's obligation to pay its proportionate share of all draws under the Facility Letters of Credit shall be absolute, unconditional and irrevocable and in each case shall be made without counterclaim or set-off by such Lender. 2.23.3. Facility Letter of Credit Reimbursement Obligations. (a) Each Borrower agrees to pay to the Issuer of a Facility Letter of Credit with respect to each Facility Letter of Credit issued for the account of such Borrower (i) on each date that any amount is drawn under each Facility Letter of Credit a sum (and interest on such sum as provided in clause (ii) below) equal to the amount so drawn plus all other charges and expenses with respect thereto specified in Section 2.23.6 or in the applicable Reimbursement Agreement and (ii) interest on any and all amounts remaining unpaid under this Section 2.23.3 until payment in full at the Floating Rate plus the margin specified in Section 2.13. Each Borrower agrees to pay to the Issuer the amount of all Facility Letter of Credit Reimbursement Obligations owing in respect of any Facility Letter of Credit issued for the account of such Borrower immediately when due, under all circumstances, including, without limitation, any of the following circumstances: (a) any lack of validity or enforceability of this Agreement or any of the Loan Documents; (b) the existence of any claim, set-off, defense or other right which the applicable Borrower may have at any time against a beneficiary named in a Facility Letter of Credit, any transferee of any Facility Letter of Credit (or any Person for whom any such transferee may be acting), any Lender or any other Person, whether in connection with this Agreement, any Facility Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the applicable Borrower and the beneficiary named in any Facility Letter of Credit); (c) the validity, sufficiency or genuineness of any document which the Issuer has determined in good faith complies on its face with the terms of the applicable Facility Letter of Credit, even if such document should later prove to have been forged, fraudulent, invalid or insufficient in any respect or any statement therein shall have been untrue or inaccurate in any respect; or (d) 42 50 the surrender or impairment of any security for the performance or observance of any of the terms hereof. (b) Notwithstanding any provisions to the contrary in any Reimbursement Agreement, each Borrower agrees to reimburse the Issuer for amounts which the Issuer pays under each Facility Letter of Credit issued for the account of such Borrower no later than the time specified in this Agreement. If the applicable Borrower does not pay any such Facility Letter of Credit Reimbursement Obligations when due, Group and such Borrower shall be deemed to have immediately requested that the Lenders make a Floating Rate Advance under Section 2.2 of this Agreement in a principal amount equal to such unreimbursed Facility Letter of Credit Reimbursement Obligations. The Agent shall promptly notify the Lenders of such deemed request and, without the necessity of compliance with the requirements of Sections 2.7 and 4.2, each Lender shall make available to the Agent its Pro Rata Share of the Revolving Loan in the manner prescribed for Floating Rate Advances. The proceeds of such Revolving Loans shall be paid over by the Agent to the Issuer for the account of the applicable Borrower in satisfaction of such unreimbursed Facility Letter of Credit Reimbursement Obligations, which shall thereupon be deemed satisfied by the proceeds of, and replaced by, such Floating Rate Advance. In the case of any Facility Letter of Credit Obligations arising under a Facility Letter of Credit denominated in an Alternative Currency, the applicable Borrower shall pay to the Issuer the equivalent of the amount paid by the Issuer in Dollars at the rate of exchange then current in Chicago, as reasonably determined by the Issuer. If at any time there is no rate of exchange generally current in Chicago, then the applicable Borrower shall pay the Issuer an amount in Dollars equivalent to the actual cost of settlement. (c) If the Issuer makes a payment on account of any Facility Letter of Credit and is not concurrently reimbursed therefor by the applicable Borrower and if for any reason a Floating Rate Advance may not be made pursuant to paragraph (b) above, then as promptly as practical during normal banking hours on the date of its receipt of such notice or, if not practicable on such date, not later than noon (Chicago time) on the Business Day immediately succeeding such date of notification, each Lender shall deliver to the Agent for the Account of the Issuer, in immediately available funds, the purchase price for such Lender's interest in such unreimbursed Facility Letter of Credit Obligations, which shall be an amount equal to such Lender's Pro-Rata Share of such payment. Each Lender shall, upon demand by the Issuer, pay the Issuer interest on such Lender's Pro-Rata Share of such draw from the date of payment by the Issuer on account of such Facility Letter of Credit until the date of delivery of such funds to the Issuer by such Lender at a rate per annum, computed for actual days elapsed based on a 360-day year, equal to the Federal Funds Effective Rate for such period; provided, that such payments shall be made by the Lenders only in the event and to the extent that the Issuer is not reimbursed in full by the applicable Borrower for interest on the amount of any draw on the Facility Letters of Credit. (d) At any time after the Issuer has made a payment on account of any Facility Letter of Credit and has received from any other Lender such Lender's Pro-Rata Share of such payment, such Issuer shall, forthwith upon its receipt of any reimbursement (in whole or in part) by the applicable Borrower for such payment, or of any other amount from the 43 51 applicable Borrower or any other Person in respect of such payment (including, without limitation, any payment of interest or penalty fees and any payment under any collateral account agreement of the applicable Borrower or any Loan Document but excluding any transfer of funds from any other Lender pursuant to Section 2.23.3(b), transfer to such other Lender such other Lender's ratable share of such reimbursement or other amount; provided, that interest and penalty fees shall accrue for the benefit of such Lender from the time such Issuer has made a payment on account of any Facility Letter of Credit; provided, further, that in the event that the receipt by the Issuer of such reimbursement or other amount is found to have been a transfer in fraud of creditors or a preferential payment under the United States Bankruptcy Code or is otherwise required to be returned, such Lender shall promptly return to the Issuer any portion thereof previously transferred by the Issuer to such Lender, but without interest to the extent that interest is not payable by the Issuer in connection therewith. 2.23.4 Procedure for Issuance. Prior to the issuance of each Facility Letter of Credit, and as a condition of such issuance, the applicable Borrower shall deliver to the Issuer an application and Reimbursement Agreement, substantially in the form of Exhibit C-1 or Exhibit C-2 hereto, as applicable (or in such other form as shall then represent the standard forms of the Issuer and as shall be reasonably acceptable to Group), signed by such Borrower, together with such other documents or items as may be required pursuant to the terms thereof, and the proposed form and content of such Facility Letter of Credit shall be reasonably satisfactory to the Issuer. Each Facility Letter of Credit shall be issued no earlier than two (2) Business Days after delivery of the foregoing documents, which delivery may be by the applicable Borrower to the Issuer by telecopy, telex or other electronic means, followed by delivery of executed originals within five (5) days thereafter. The documents so delivered shall be in compliance with the requirements set forth in Section 2.23.1(b), and shall specify therein (i) the stated amount of the Facility Letter of Credit requested, (ii) the effective date of issuance of such requested Facility Letter of Credit, which shall be a Business Day, (iii) the date on which such requested Facility Letter of Credit is to expire, which shall be a Business Day prior to the Revolving Loan Termination Date, and (iv) the account party for whose benefit the requested Facility Letter of Credit is to be issued, which shall be Group or another Borrower. The delivery of the foregoing documents and information shall constitute a " Notice of Issuance" for purposes of this Agreement. Subject to the terms and conditions of Section 2.23.1 and provided that the applicable conditions set forth in Section 4.2 hereof have been satisfied, the Issuer shall, on the requested date, issue a Facility Letter of Credit on behalf of the applicable Borrower in accordance with the Issuer's usual and customary business practices. In addition, any amendment of an existing Facility Letter of Credit shall be deemed to be an issuance of a new Facility Letter of Credit and shall be subject to the requirements set forth herein pursuant to a form of application acceptable to the Issuer. 2.23.5 Nature of the Lenders' Obligations. (a) As between each Borrower and the Lenders, such Borrower assumes all risks of the acts and omissions of, or misuse of the Facility Letters of Credit by, the respective beneficiaries of the Facility Letters of Credit. In furtherance and not in limitation of the foregoing, the Lenders shall not be responsible for (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document 44 52 submitted by any party in connection with the application for an issuance of a Facility Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Facility Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) the failure of the beneficiary of a Facility Letter of Credit to comply fully with conditions required to be satisfied by any Person other than the Issuer in order to draw upon such Facility Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise; (v) errors in the interpretation of technical terms; (vi) the misapplication by the beneficiary of a Facility Letter of Credit of the proceeds of any drawing under such Facility Letter of Credit; or (vii) any consequences arising from causes beyond control of the Issuer. (b) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the Issuer under or in connection with the Facility Letters of Credit or any related certificates, if taken or omitted in good faith, shall not put the Agent or any Lender under any resulting liability to any Borrower or relieve any Borrower of any of its obligations hereunder to the Issuer or any such Person. 2.23.6 Facility Letter of Credit Fees. Group shall or shall cause the other Borrowers to pay letter of credit fees with respect to each standby Facility Letter of Credit equal to (a) .15% of the face amount of such Facility Letter of Credit, payable to the Issuer upon issuance, and (b) a per annum rate equal to the then effective Applicable Margin for Eurocurrency Loans times the outstanding undrawn face amount of such standby Facility Letter of Credit, payable to the Agent for the account of the Lenders, in each case payable in arrears on the last Business Day of each calendar quarter. In addition to the foregoing, (x) Group shall or shall cause the other Borrowers to pay to the Issuer any other processing, issuance, amendment and other similar fees customarily charged by it in respect of Facility Letters of Credit issued by it, including, without limitation, customary fees charged by it in connection with commercial Facility Letters of Credit, together with the Issuer's out-of-pocket costs of issuing and servicing Facility Letters of Credit, and (y) Group shall or shall cause the other Borrowers to pay to the Agent for the account of the Issuer, upon any transfer of any Facility Letter of Credit by the beneficiary thereof to a new beneficiary, a transfer commission equal to the greater of $100 or .25% of the amount transferred which shall not in any event exceed $750. ARTICLE III CHANGE IN CIRCUMSTANCES 3.1. Taxes. (a) Except as otherwise required by applicable law, all sums payable by any Borrower whether in respect of principal, interest, fees or otherwise shall be paid without deduction for any present and future taxes, levies, assessments, imposts, deductions, charges or withholdings imposed by any country, any Governmental Agency thereof or therein, any jurisdiction from which any or all such payments are made and any political subdivision or taxing authority thereof or 45 53 therein, excluding income and franchise taxes (and deductions and withholdings therefor) imposed on the Agent or any Lender (i) by the jurisdiction under the laws of which the Agent or such Lender is organized or any Governmental Agency or taxing authority thereof or therein, or (ii) by any jurisdiction in which the Agent's or such Lender's Lending Installations are located or any Governmental Agency or taxing authority thereof or therein (such excluded taxes, deductions and withholdings, collectively, "Excluded Taxes", and all such taxes, levies, imposts, deductions, charges and withholdings (including Excluded Taxes), collectively, " Taxes"), which amounts shall be paid by such Borrower as provided in Section 3.1(b). (b) If (i) any Borrower or any other Person is required by law to make any deduction or withholding on account of any Tax (other than Excluded Taxes) or other amount from any sum paid or expressed to be payable by any Borrower to any Lender under this Agreement; or (ii) any party to this Agreement (or any Person on its behalf) other than any Borrower is required by law to make any deduction or withholding from, or (other than on account of any Excluded Tax) any payment on or calculated by reference to the amount of, any such sum received or receivable by any Lender under this Agreement, then, subject to Section 2.20(b): (A) Group shall notify the Agent of any such requirement or any change in any such requirement as soon as any Borrower becomes aware of it; (B) Group shall or shall cause the other Borrowers to pay any such Tax or other amount before the date on which penalties attached thereto become due and payable, such payment to be made (if the liability to pay is imposed on Group or such Borrowers) for its own account or (if that liability is imposed on any other party to this Agreement) on behalf of and in the name of that party; (C) the sum payable by Group or such Borrowers in respect of which the relevant deduction, withholding or payment is required shall (except, in the case of any such payment, to the extent that the amount thereof is not ascertainable when that sum is paid) be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, that party receives on the due date and retains (free from any liability in respect of any such deduction, withholding or payment) a sum equal to that which it would have received and so retained had no such deduction, withholding or payment been required or made; and (D) within thirty (30) days after payment of any sum from which such Borrower is required by law to make any deduction or withholding, and within thirty (30) days after the due date of payment of any Tax or other amount which it is required by clause (B) above to pay, it shall deliver to the Agent all such certified documents and other evidence as to the making of such deduction, withholding or payment as (1) are reasonably satisfactory to other affected parties as proof of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority and (2) are reasonably required by any such party to enable it to claim a tax credit with respect to such deduction, withholding or payment. 3.2. Yield Protection. (a) If, after the date hereof, the adoption of any change in any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether 46 54 or not having the force of law), or any interpretation thereof, or the compliance of any Lender therewith, (i) subjects any Lender or any applicable Lending Installation to any Tax on or from payments due from any Borrower (excluding Excluded Taxes), or changes the basis of taxation of payments to any Lender or Lending Installation in respect of its Loans or its interest in the Facility Letters of Credit or other amounts due it hereunder (excluding Excluded Taxes), or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurocurrency Advances), or (iii) imposes any other condition (except with respect to Excluded Taxes) the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining Loans or issuing Facility Letters of Credit or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with Loans or Facility Letters of Credit, or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of Loans held, or interest received by it thereon, or Facility Letters of Credit issued or participated in by it by an amount reasonably deemed material by such Lender, then, within fifteen (15) days of demand by such Lender, Group shall or shall cause the other Borrowers to pay such Lender that portion of such increased expense incurred or reduction in an amount received which such Lender reasonably determines is attributable to making, funding and maintaining its Loans, its Commitment or its interest in Facility Letters of Credit. (b) In addition to any other amounts payable by the Borrowers hereunder, each Lender may require the relevant Borrower to pay, contemporaneously with each payment of interest on Eurocurrency Advances of such Borrower which are denominated in pounds sterling, additional interest on the related Eurocurrency Loan of such Lender at the percentage calculated from time to time by such Lender to be the percentage required to fully compensate such Lender for all reserve costs, liabilities, expenses and assessments (other than reserve costs, liabilities, expenses and assessments taken into account in determining the interest rate applicable to such Eurocurrency Advance) which have been incurred by such Lender (or its applicable Lending Installation) regarding the making, funding or maintaining of such Eurocurrency Loan (including, without limitation, any and all liquid asset maintenance requirements of the Bank of England). A certificate of any Lender claiming compensation under the preceding sentence, setting forth the additional interest to be paid to it thereunder and setting forth in reasonable detail a reasonable basis therefor, shall be conclusive in the absence of manifest error, and in determining the amount of such interest, such Lender may use any reasonable averaging and attribution methods. Any Lender wishing to require payment of such additional interest (i) shall so notify Group and the Agent, in which case such additional interest on the Eurocurrency Loans of such Lender denominated in pounds sterling shall be payable in pounds sterling to such Lender at the place indicated in such notice with respect to each Interest Period commencing at least five Business Days after the giving of such notice and (ii) shall notify Group at least five Business Days prior to each date on which interest is payable on such Eurocurrency Loans of the amount then due it under this Section 3.2(b). Following Group's request 47 55 made at least two (2) Business Days prior to the delivery of any Borrowing Notice relating thereto, the Agent and the Lenders shall, prior to the making of a proposed Eurocurrency Advance denominated in pounds sterling, provide notice to Group of any such additional interest known at such time to be payable with respect thereto. 3.3. Changes in Capital Adequacy Regulations. If a Lender reasonably determines the amount of capital required or expected to be maintained by such Lender, any applicable Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change, then, within fifteen (15) days of demand by such Lender, Group shall or shall cause the other Borrowers to pay such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender reasonably determines is attributable to this Agreement, its Loans, its interest in Facility Letters of Credit or its obligation to make Loans or to participate in or issue Facility Letters of Credit hereunder (after taking into account such Lender's policies as to capital adequacy). "Change" means (a) any change after the date of this Agreement in the Risk-Based Capital Guidelines, or (b) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "Risk-Based Capital Guidelines" means (a) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (b) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 3.4. Availability of Types of Advances. If any Lender reasonably determines that maintenance of its Eurocurrency Advances at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Required Lenders determine that (a) deposits of a type and maturity appropriate to match fund Eurocurrency Advances are not available, or (b) the interest rate applicable to a Type of Advance does not accurately or fairly reflect the cost of making or maintaining such Advance, then the Agent shall suspend the availability of the affected Type of Advance and (other than for matters described in the foregoing clauses (a) and (b)) require any Eurocurrency Advances of the affected Type to be repaid. 3.5. Funding Indemnification. If any payment of a Eurocurrency Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurocurrency Advance is not made on the date specified by Group for any reason other than default by the Lenders, Group shall or shall cause the other Borrowers to indemnify the Agent and each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain the Eurocurrency Advance. In connection with any assignment by First Chicago of any portion of the Loans or the Revolving Loan Commitment made pursuant to Section 12.3 and made on or prior to the completion of the initial syndication of the Loans and the Revolving Loan Commitments, the Borrowers shall be deemed to have repaid all outstanding Eurocurrency Advances 48 56 as of such date and reborrowed such amount as a Floating Rate Advance and/or Eurocurrency Advance (chosen in accordance with the provisions of Section 2.5) and the indemnification provisions under this Section 3.5 shall apply. 3.6. Lender Statements; Survival of Indemnity. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to the making and repayment of Eurocurrency Advances or take such other steps as it determines are reasonably available to it to reduce any liability of the Borrowers to such Lender under Sections 3.1, 3.2 and 3.3 or to avoid the unavailability of a Type of Advance under Section 3.4, so long as such designation or other step is not disadvantageous to such Lender. Each Lender shall deliver a written statement of such Lender to Group (with a copy to the Agent) as to the amount due, if any, under Sections 3.1, 3.2, 3.3 or 3.5. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Borrowers in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurocurrency Loan shall be calculated as though each Lender funded its Eurocurrency Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurocurrency Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement of any Lender shall be payable on demand after receipt by Group of the written statement. The obligations of the Borrowers under Sections 3.1, 3.2, 3.3 and 3.5 shall survive payment of the Obligations and termination of this Agreement. 3.7. Replacement of Certain Lenders. If a Lender ("Affected Lender") shall have requested compensation from the Borrowers under Sections 3.1, 3.2 or 3.3 to recover Taxes or other additional costs incurred by such Lender which are not being incurred generally by the other Lenders, or delivered a notice pursuant to Section 3.4 claiming that such Lender is unable to extend Eurocurrency Advances to the Borrowers for reasons not generally applicable to the other Lenders, then, in any such case, so long as no Default or Unmatured Default exists, Group may make written demand on such Affected Lender (with a copy to the Agent) for the Affected Lender to assign, and such Affected Lender shall assign pursuant to one or more duly executed assignment and acceptance agreements in substantially the form of Exhibit F thirty (30) Business Days after the date of such demand, to one or more financial institutions that comply with the provisions of Section 12.3 (and that are reasonably acceptable to the Agent) which Group shall have engaged for such purpose ("Replacement Lender"), all of such Affected Lender's rights and obligations under this Agreement and the other Loan Documents (including its Revolving Loan Commitment, all Loans owing to it, all of its participation interests in outstanding Facility Letters of Credit, and its obligation to participate in additional Facility Letters of Credit hereunder) in accordance with Section 12.3. Further, with respect to any such assignment the Affected Lender shall have concurrently received, in cash, all amounts due and owing to such Affected Lender hereunder or under any other Loan Document, including the aggregate outstanding principal amount of the Loans owed to such Lender, together with accrued interest thereon through the date of such assignment from the Replacement Lender, amounts payable under Sections 3.1, 3.2 and 3.3 with respect to such Affected Lender and compensation payable under Section 2.6; provided that upon such Affected Lender's replacement, such Affected Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 3.1, 3.2, 3.3, 3.5 and 9.6 accruing with respect to such Affected Lender prior to the date 49 57 such Affected Lender is replaced, as well as to any fees accrued for its account hereunder prior to being replaced and not yet paid, and shall continue to be obligated under Section 10.8. 3.8. Availability of Alternative Currency. The Lenders shall not be required to make or continue any Advance requested to be made or continued in an Alternative Currency if, at any time prior to making or continuing such Advance, any Lender (after consultation with the Agent) shall determine, in its sole discretion, that (a) deposits in the applicable Alternative Currency in the amounts and maturities required to fund such Advance will not be available to such Lender; (b) a fundamental change has occurred in the foreign exchange or interbank markets with respect to the applicable Alternative Currency (including, without limitation, changes in national or international financial, political or economic conditions or currency exchange rates or exchange controls); or (c) it has become otherwise materially impractical for such Lender to make or continue such Advance in the applicable Alternative Currency. The Agent shall promptly notify Group and each Lender of any such determination. ARTICLE IV CONDITIONS PRECEDENT 4.1. Initial Loan and Facility Letter of Credit Issuance. The Lenders shall not be required to make the initial Advances or issue the initial Facility Letter of Credit hereunder unless the Borrowers have furnished to the Agent with sufficient copies for the Lenders: (a) Good Standing. With respect to Industries and its Domestic Subsidiaries, a certificate of good standing, in each case certified as of a date not more than five (5) Business Days prior to the initial Borrowing Date by the appropriate governmental officer in its jurisdiction of incorporation or formation. (b) Charter, By-Laws and Resolutions. Copies of the charter or equivalent constitutive documents of each Loan Party, together with all amendments through the initial Borrowing Date, certified by an officer or director of such Loan Party to the effect that there have been no changes therein since the date of the most recent certification thereof by the appropriate governmental officer in its respective jurisdiction of incorporation or formation. Copies, certified by an officer or director of each Loan Party as of the initial Borrowing Date, of its by-laws or equivalent constitutive documents (where applicable) and of resolutions of its board of directors and, where required, its shareholders, authorizing the execution, delivery and performance of the Loan Documents to which such Loan Party is a party. (c) Officer's Certificate. A certificate, dated the initial Borrowing Date, executed by an officer of each of Group, Kysor and Industries certifying the resolutions of the board of directors of each of Group, Kysor and Industries, respectively, in each case approving and authorizing the Acquisition and the Asset Purchase. (d) Officer's Certificate. An incumbency certificate, executed by an officer or director of each Loan Party, which shall identify by name and title and bear the signature of the 50 58 officers of such Loan Party authorized to sign the Loan Documents and (with respect to each of Group, Delfield, Scotsman Drink, Whitlenge, Frimont, Castel MAC and Kysor) to make borrowings hereunder, upon which certificate the Agent and the Lenders shall be entitled to rely until informed of any change in writing by such Borrower. (e) Officer's Certificate. A certificate, dated the initial Borrowing Date, signed by an Authorized Officer of Industries, in form and substance satisfactory to the Agent, to the effect that: (i) on the initial Borrowing Date (after giving effect to the consummation of the Acquisition, the making of the Loans hereunder and the making of the Bridge Loan) no Default or Unmatured Default has occurred and is continuing; (ii) no injunction or temporary restraining order which would prohibit the making of the Loans, the making of the Bridge Loan, the consummation of any part of the Acquisition, the Merger, the Asset Purchase or any of the other transactions contemplated by any of the Transaction Documents (collectively the "Closing Transactions"), or other litigation which could reasonably be expected to have a Material Adverse Effect is pending or, to the best of such Person's knowledge, threatened; (iii) all orders, consents, approvals, licenses, authorizations or validations of, or filings, recordings or registrations with, or exemptions by, any governmental or public body or authority, or any subdivision thereof (including, without limitation, all approvals required under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended), required to make or consummate the Closing Transactions have been or, prior to the time required, will have been, obtained, given, filed or taken and are or will be in full force and effect (or the applicable Loan Party has obtained effective judicial relief with respect to the application thereof) and that all applicable waiting periods have expired; (iv) the Transaction Documents are in full force and effect and no material term or condition thereof has been amended, modified or waived after the execution thereof except with the written consent of the Agent; (v) no Loan Party has failed to perform any material obligation or covenant required in connection with any Closing Transaction to be performed or complied with by it on or before the initial Borrowing Date; (vi) each of the representations and warranties set forth in Article V of this Agreement is true and correct on and as of the date hereof; and (vii) since September 29, 1996, no event or change has occurred that has caused or evidences a Material Adverse Effect. (f) Officer's Certificate. A certificate, dated the initial Borrowing Date, signed by an officer of Industries, certifying that no material adverse change has occurred in the business, condition (financial or otherwise), operations, performance or properties of (i) Industries and its Subsidiaries, taken as a whole, from that reflected in Industries' consolidated financial statements dated as of September 29, 1996; (ii) Kysor and its Subsidiaries, taken as a whole, from that reflected in Kysor's consolidated financial statements dated as of September 30, 1996; or (iii) Industries and Kysor and their respective subsidiaries, taken as a whole, on a combined basis after giving effect to the Acquisition, from that reflected in the consolidated opening financial statements (giving effect to the Acquisition) delivered to the Agent prior to the initial Borrowing Date. (g) Legal Opinions. (i) A written opinion of Schiff Hardin & Waite, counsel to Industries and its Subsidiaries, addressed to the Agent and the Lenders in form and substance acceptable to the Agent and its counsel and (ii) written opinions of Wragge & Co., special English counsel to Industries and its Subsidiaries, Besana Studio Legale Associato, special Italian counsel to Industries and its Subsidiaries, and Warner, Norcross & Judd LLP, special Michigan counsel to 51 59 Kysor in each case addressed to the Agent and the Lenders in form and substance acceptable to the Agent and its counsel. (h) Notes. Revolving Notes and Term Notes payable to the order of each of the Lenders duly executed by each Borrower and a Swing Line Note payable to the order of the Swing Line Lender duly executed by each Borrower which is a Domestic Subsidiary. (i) Loan Documents. Executed originals of this Agreement, each of the Guaranties (executed by each Guarantor), the Pledge Agreement and each of the other Loan Documents, which shall be in full force and effect, together with all schedules, exhibits, certificates, instruments, opinions, documents and financial statements required to be delivered pursuant hereto and thereto. (j) Letters of Direction. Written money transfer instructions with respect to the initial Advances and to future Advances in form and substance acceptable to the Agent and its counsel addressed to the Agent and signed by an Authorized Officer, together with such other related money transfer authorizations as the Agent may have reasonably requested. (k) Asset Purchase Documents. An executed copy of the Asset Purchase Agreement, together with a certificate of Industries certifying that (A) the representations and warranties contained in the Asset Purchase Agreement are true and correct in all material respects as of the initial Borrowing Date, (B) all conditions to closing contained in the Asset Purchase Agreement have been satisfied and none of such conditions has been waived and (C) no amendments of any material terms contained in the Asset Purchase Agreement have been made (unless consented to by the Agent). (l) Acquisition Documents. A copy of the Acquisition Documents, together with a certificate of Industries certifying that (A) the representations and warranties contained in the Acquisition Agreement are true and correct in all material respects as of the initial Borrowing Date, (B) all conditions to closing contained in the Acquisition Agreement have been satisfied and none of such conditions has been waived and the Acquisition has been consummated in accordance with the Acquisition Agreement and (C) no amendments of any material terms contained in the Acquisition Agreement have been made (unless consented to by the Agent). (m) Solvency Certificate. A written solvency certificate from the chief financial officer of Industries in form and content satisfactory to the Agent, dated the initial Borrowing Date, with respect to the value, Solvency and other factual information of, or relating to, as the case may be, Industries and its Subsidiaries (including Kysor and its Subsidiaries) on a consolidated basis, both before and after giving effect to all of the Closing Transactions contemplated by the Transaction Documents, and the incurrence of all other Indebtedness of Industries and its Subsidiaries in connection with the Acquisition and the Transportation Sale. (n) Accountants' Letter. A signed letter from Arthur Andersen & Co. in form and substance satisfactory to the Agent acknowledging that the Lenders may rely on current financial statements audited by such firm. 52 60 (o) Opening Financial Statements. (i) Opening consolidated financial statements of Industries and its Subsidiaries as of the Closing Date, dated as of February 18, 1997, giving effect to the Acquisition, certified by the chief financial officer of Industries, which financial statements (A) shall not contain financial information materially less favorable, in the Agent's and the Required Lender's reasonable judgment, than that contained in the projections previously provided to the Agent and (B) shall indicate, together with all other information then available to the Agent, that Industries and its Subsidiaries and Kysor and its Subsidiaries are Solvent and can comply with the financial covenants contained in this Agreement and (ii) such other information as the Agent may reasonably request to confirm the tax, legal and business assumptions made in such financial statements. (p) Evidence of Termination. Evidence of the termination of the commitments of the lenders under, the payment in full of all obligations under and where applicable all liens securing each of (i) the $90,000,000 facility under Group's existing credit agreement, (ii) all existing credit facilities of Kysor and its Subsidiaries and (iii) the $20,000,000 11.43% Senior Notes due May 1, 1998 issued pursuant to those certain Note Purchase Agreements dated as of April 17, 1989 among Industries, Group and the purchasers named therein (the "Senior Notes") and the related Intercreditor Agreement. (q) Existing Letters of Credit. The IRB Facility Letter of Credit shall have been issued concurrently herewith in substitution for the letter of credit previously issued by The Bank of Nova Scotia, Atlanta Agency and that certain $1,300,000 Facility Letter of Credit issued by First Chicago for the benefit of Employers Insurance of Wausau-A Mutual Company shall have been issued concurrently herewith in substitution for that certain letter of credit no. 7524 previously issued by Old Kent Bank and Trust Company. (r) Tender Offer. Evidence, satisfactory to the Agent, that the minimum number of shares required to consummate a merger by any applicable corporate statute, anti-takeover statute, or provision in Group's or Kysor's articles of incorporation, by-laws, or other constitutive documents have been tendered. (s) Closing Date. The Closing Date shall in no event be later than May 31, 1997. (t) Asset Purchase Proceeds. Evidence, satisfactory to the Agent, that Kysor has deposited any proceeds from the Asset Purchase into an account of Kysor with NBD Bank, N.A. and that such amounts have not been withdrawn except to the extent applied to repay existing Indebtedness of Kysor. (u) Other. Such other documents as the Agent, any Lender or their counsel may have reasonably requested. 4.2. Each Future Advance and Facility Letter of Credit Issuance. The Lenders shall not be required to make any Advance or issue any Facility Letter of Credit unless on the applicable Borrowing Date: 53 61 (a) There exists no Default or Unmatured Default and none would result from such Advance or Facility Letter of Credit; (b) The representations and warranties contained in Article V are true and correct in all material respects as of such Borrowing Date; (c) A Borrowing Notice or Notice of Issuance, as applicable, shall have been properly submitted; (d) For the first Advance made hereunder to each Additional Borrowing Subsidiary, an Agreement of Joinder shall have been duly executed and delivered by such Additional Borrowing Subsidiary and Group to the Agent and all of the requirements therein shall have been satisfied; and (e) All legal matters incident to the making of such Advance or issuance of such Facility Letter of Credit shall be reasonably satisfactory to the Lenders and their counsel. 4.3. Each Advance on the Merger Date. The Lenders shall not be required to make any Advance on the Merger Date unless substantially simultaneously therewith, the Merger shall be consummated in accordance with the terms of the Acquisition Agreement. Each Borrowing Notice with respect to each such Advance and Notice of Issuance with respect to each such Facility Letter of Credit shall constitute a representation and warranty by the applicable Borrower that the conditions contained in Section 4.2 have been satisfied. Any Lender may require a duly completed Compliance Certificate as a condition to making an Advance or issuing a Facility Letter of Credit. ARTICLE V REPRESENTATIONS AND WARRANTIES Each of Industries and each Borrower represents and warrants to the Lenders that, both before and after giving effect to the Closing Transactions (except, with respect to Sections 5.8, 5.9, 5.10, 5.17, 5.18 and 5.23, only after giving effect thereto): 5.1. Existence and Standing. Each of Industries and each Domestic Subsidiary which is a corporation (a) is a corporation duly incorporated, validly existing and in good standing under the laws of its respective jurisdiction of incorporation and (b) is duly qualified and in good standing as a foreign corporation (other than the jurisdiction of its incorporation) and is duly authorized to conduct its business in each jurisdiction in which the failure to be so qualified or authorized, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Each Foreign Subsidiary and each Domestic Subsidiary which is a Person other than a corporation (a) is a Person duly formed, validly existing and in good standing under the laws of its jurisdiction of formation and (b) is duly qualified and in good standing and is duly authorized to conduct its business in each United States jurisdiction (other than in the jurisdiction of its formation) in which the failure to be so qualified or authorized could reasonably be expected to have a Material Adverse 54 62 Effect. Each of Industries and each of its Subsidiaries have obtained and hold in full force and effect, all franchises, licenses, permits, certificates, authorizations, qualifications, accreditations, easements, rights of way and other rights, consents and approvals which are necessary for the operation of their respective businesses as presently conducted, except where the failure to obtain and hold the same, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 5.2. Authorization and Validity. Industries and each Subsidiary have all requisite power and authority (corporate and otherwise) and legal right to execute and deliver (or file, as the case may be) each of the Loan Documents and the other Transaction Documents to which it is a party and to perform its obligations thereunder. The execution and delivery (or filing, as the case may be) by Industries and each Subsidiary of the Loan Documents and the other Transaction Documents to which it is a party and the performance of their respective obligations thereunder have been duly authorized by proper proceedings (corporate and otherwise) and the Loan Documents and the other Transaction Documents constitute legal, valid and binding obligations of Industries or such Subsidiary, as applicable, enforceable against Industries or such Subsidiary, as applicable, in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and general principles of equity. 5.3. Compliance with Laws and Contracts. Industries and its Subsidiaries have complied in all material respects with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof, having jurisdiction over the conduct of their respective businesses or the ownership of their respective properties, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. Except as disclosed on Schedule 5.3, neither the execution and delivery by Industries and each Subsidiary of the Loan Documents and the other Transaction Documents to which it is a party, the application of the proceeds of the Loans, the consummation of the Closing Transactions or any other transaction contemplated in the Loan Documents or the other Transaction Documents, nor compliance with the provisions of the Loan Documents or the other Transaction Documents will, or at the relevant time did, (a) violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on Industries or any Subsidiary or Industries' or any Subsidiary's charter, articles or certificate of incorporation or by-laws, (b) violate the provisions of or require the approval or consent of any party to any indenture, instrument or agreement to which Industries or any Subsidiary is a party or is subject, or by which it, or its property, is bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any Lien (other than Liens permitted by the Loan Documents) in, of or on the property of Industries or any Subsidiary pursuant to the terms of any such indenture, instrument or agreement, or (c) require any consent of the stockholders of any Person, except (with respect to any violation or failure described in the foregoing clauses (a), (b) and (c)) for any violation of, or failure to obtain an approval or consent required under, any such indenture, instrument or agreement that could not reasonably be expected to have a Material Adverse Effect. 5.4. Governmental Consents. No order, consent, approval, qualification, license, authorization, or validation of, or filing, recording or registration with, or exemption by, or other action in respect of, any court, governmental or public body or authority, or any subdivision thereof, any securities exchange or other Person is or at the relevant time was required to authorize, or is or 55 63 at the relevant time was required in connection with the execution, delivery, consummation or performance of, or the legality, validity, binding effect or enforceability of, any of the Loan Documents or the Transaction Documents, the application of the proceeds of the Loans or the consummation of the Acquisition, the Merger, the Asset Purchase or any other transaction contemplated in the Loan Documents or the Transaction Documents, except solely with respect to the consummation of the Asset Purchase, the Merger and the Acquisition, such consents, approvals and filings which have already been obtained or made and are in full force and effect. Neither Industries nor any Subsidiary is in default under or in violation of any foreign, federal, state or local law, rule, regulation, order, writ, judgment, injunction, decree or award binding upon or applicable to Industries or such Subsidiary, in each case the consequences of which default or violation could reasonably be expected to have a Material Adverse Effect. The waiting period with respect to the Acquisition under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, has expired. 5.5. Financial Statements. Industries has heretofore furnished to each of the Lenders (a) the audited consolidated financial statements of Industries and its Subsidiaries for the Fiscal Year ended December 31, 1995, (b) the audited consolidated financial statements of Kysor for the year ended December 31, 1995 (collectively, the "Financial Statements"). The pro forma balance sheet and related profit and loss statement (the "Opening Financial Statements") of Industries and its Subsidiaries, giving effect to the Acquisition, on a consolidated basis as of February 18, 1997 is attached hereto as Schedule 5.5. As of the date of this Agreement, the Opening Financial Statements fairly present Industries' and the Subsidiaries' assets, liabilities, financial condition and results of operations on a consolidated basis in accordance with Agreement Accounting Principles, consistently applied, and taking into account the Closing Transactions and the other transactions and actions contemplated by this Agreement, the Loan Documents and the Transaction Documents. Each of the Financial Statements was prepared in accordance with Agreement Accounting Principles and fairly presents the consolidated financial condition and operations of Industries and its Subsidiaries or Kysor and its Subsidiaries, as applicable, at such dates and the consolidated results of their operations for the respective periods then ended (except, in the case of such unaudited statements, for normal year-end audit adjustments). 5.6. Material Adverse Change. No material adverse change in the business, Property, condition (financial or otherwise), performance or results of operations of Industries and its Subsidiaries, taken as a whole, has occurred since September 29, 1996. 5.7. Taxes. Industries and its Subsidiaries have filed or caused to be filed on a timely basis and in correct form all United States federal and applicable foreign, state and local tax returns and all other tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by Industries or any Subsidiary, except (a) such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided in accordance with Agreement Accounting Principles and as to which no Lien exists and (b) where the failure to do so could not reasonably be expected to have a Material Adverse Effect. As of the date hereof, (x) the United States income tax returns of Industries on a consolidated basis have been audited by the Internal Revenue Service through Fiscal Year 1985 and (y) with respect to periods after the date on which the shares of common stock of Industries were distributed to the holders of common stock of Household International, Inc., there are no material pending audits or 56 64 investigations regarding Industries' or its Subsidiaries' federal, foreign, state or local tax returns. No tax liens have been filed and no claims are pending or, to the knowledge of Industries or any Subsidiary, threatened, with respect to any such taxes which could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of Industries and its Subsidiaries in respect of any taxes or other governmental charges are in accordance with Agreement Accounting Principles. 5.8. Litigation and Contingent Obligations. There is no litigation, arbitration, proceeding, inquiry or governmental investigation (including, without limitation, by the Federal Trade Commission) pending or, to the knowledge of any of their officers, threatened against or directly affecting Industries or any Subsidiary or any of their respective properties (a) which could reasonably be expected to have a Material Adverse Effect or to prevent, enjoin or unduly delay the making of the Loans or Advances under this Agreement or (b) which otherwise exists as of the date hereof and which relates to a dollar amount in question of more than $100,000, except (i) any such matter involving either (A) workers compensation or personal injury matters which occur in the ordinary course of business or (B) a product liability claim, as to which, in each such case, Industries or the applicable Subsidiary is fully insured (except as to the payment of any required deductible), and (ii) as set forth on Schedule 5.8. As of the date hereof, neither Industries nor any Subsidiary has any Contingent Obligation relating to an amount in excess of $2,000,000 except as set forth on Schedule 5.8. 5.9. Subsidiaries. Schedule 5.9 hereto contains an organizational chart of all of the existing Subsidiaries (other than Subsidiaries of Kysor) and, to the best knowledge of Industries, all of the Subsidiaries of Kysor, as of the date of this Agreement after giving effect to the Acquisition, setting forth their respective jurisdictions of incorporation or formation and the percentage of their capital stock owned by Industries or Subsidiaries. All of the issued and outstanding shares of capital stock of Industries and of each Subsidiary have been duly authorized and validly issued and are fully paid and non-assessable, and all such shares of each Domestic Subsidiary are free and clear of all Liens. As of the date hereof, neither Industries nor any Subsidiary is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital stock or any convertible securities, rights or options, except as otherwise set forth on Schedule 5.9. 5.10. ERISA. As of the date hereof, except as disclosed on Schedule 5.10, (a) neither Industries nor any other member of the Controlled Group maintains a Single Employer Plan, (b) no Single Employer Plan has any Unfunded Liability, and (c) neither Industries nor any other member of the Controlled Group maintains, or is or has at any time within the immediately preceding six (6) years been obligated to contribute to, any Multiemployer Plan or has incurred, or is reasonably expected to incur, any withdrawal liability to any Multiemployer Plan. Each Plan complies with all applicable requirements of law and regulations, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. Neither Industries nor any member of the Controlled Group has, with respect to any Plan, failed to make any contribution or pay any amount required under Section 412 of the IRC or Section 302 of ERISA or the terms of such Plan. There are no pending or, to the knowledge of Industries or any Subsidiary, threatened claims, actions, investigations or lawsuits against any Plan, any fiduciary thereof, or Industries or any member of the Controlled Group with respect to a Plan, except for such which could not reasonably be expected to have a Material Adverse Effect. As of the date hereof, neither Industries nor any 57 65 member of the Controlled Group has engaged in any prohibited transaction (as defined in Section 4975 of the Code or Section 406 of ERISA) in connection with any Plan which would subject any such Person to any liability which could reasonably be expected to have a Material Adverse Effect. As of the date hereof, except as disclosed on Schedule 5.10, within the last five years neither Industries nor any member of the Controlled Group has engaged in a transaction which resulted in a Single Employer Plan with an Unfunded Liability being transferred out of the Controlled Group. Except as described in Section 5 of Schedule 5.10, as of the date hereof, no Termination Event has occurred or is reasonably expected to occur with respect to any Plan and neither Industries nor any other member of the Controlled Group could reasonably be expected to incur any liability with respect to any of the events described therein. Neither Industries nor any Subsidiary has any liability (contingent or otherwise) with respect to any Foreign Plan that individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. With respect to any Foreign Plan, reasonable reserves have been established to the extent necessary in accordance with prudent business practice. 5.11. Defaults. No Default or Unmatured Default has occurred and is continuing. 5.12. Federal Reserve Regulations. Neither Industries nor any Subsidiary is engaged, directly or indirectly, principally, or as one of its important activities, in the business of extending, or arranging for the extension of, credit for the purpose of purchasing or carrying Margin Stock. No part of the proceeds of any Loan will be used in a manner which would violate, or result in a violation of, Regulation G, Regulation U or Regulation X. Neither the making of any Advance hereunder, the use of the proceeds thereof, nor any other aspect of the financing of the Acquisition and the Merger will violate or be inconsistent with the provisions of Regulation G, Regulation U or Regulation X. Following the application of the proceeds of each Advance, less than 25% of the value (as determined by any reasonable method) of the assets of Industries and its Subsidiaries (on a consolidated and an unconsolidated basis) which are subject to any limitation on sale, pledge, or other restriction hereunder taken as a whole have been, and will continue to be, represented by Margin Stock (other than the stock of Kysor prior to the Merger). 5.13. Investment Company. Neither Industries nor any Subsidiary is, or after giving effect to any Advance will be, an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 5.14. Certain Fees. Each Borrower hereby agrees to indemnify the Agent and the Lenders against and agrees that it will hold each of them harmless from any claim, demand or liability for broker's or finder's fees or commissions alleged to have been incurred by Industries or any Subsidiary in connection with any of the transactions (including, without limitation, the Acquisition and the Merger) contemplated by this Agreement or the Transaction Documents and any expenses (including, without limitation, reasonable attorneys' fees and time charges of attorneys for the Agent or any Lender, which attorneys may be employees of the Agent or any Lender) arising in connection with any such claim, demand or liability. 5.15. Representations and Warranties Incorporated From Asset Purchase Agreement and Acquisition Agreement. Each of the representations and warranties given by Industries or any 58 66 Subsidiary of Industries or of Kysor or any of its Subsidiaries in the Asset Purchase Agreement and the Acquisition Agreement is true and correct in all material aspects as of the date hereof. 5.16. Solvency. As of the date hereof, after giving effect to the consummation of the transactions contemplated by the Loan Documents and the Transaction Documents and the payment of all fees, costs and expenses payable by Industries and its Subsidiaries with respect to the transactions contemplated by the Loan Documents and the Transaction Documents, each of Industries and each Subsidiary is Solvent. 5.17. Ownership of Properties. As of the date hereof, except as set forth on Schedule 5.17(a) hereto, Industries and its Subsidiaries have a subsisting leasehold interest in, or good and marketable title, free of all Liens, other than those permitted by Section 6.16 or by any of the other Loan Documents, to all of the properties and assets reflected in the Financial Statements as being owned by it, except for assets sold, transferred or otherwise disposed of in the ordinary course of business since the date thereof. To the knowledge of Industries and each Subsidiary, there are no actual, threatened or alleged defaults with respect to any leases of real property under which Industries or any Subsidiary is lessee or lessor which could reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 5.17(b), Industries and its Subsidiaries own or possess rights to use all material licenses, patents, patent applications, copyrights, service marks, trademarks and trade names necessary to continue to conduct their business as heretofore conducted, and no such license, patent or trademark, the loss of the rights to or use of which could reasonably be expected to have a Material Adverse Effect, has been declared invalid, been limited by order of any court or by agreement or is the subject of any infringement, interference or similar proceeding or challenge. 5.18. Indebtedness. Attached hereto as Schedule 5.18 is a complete and correct list of all Indebtedness of Industries and its Subsidiaries outstanding as of the date of this Agreement (other than Indebtedness in a principal amount not exceeding $500,000 for a single item of Indebtedness and $2,500,000 in the aggregate for all such Indebtedness listed and other than the Obligations), showing the aggregate principal amount which was outstanding on such date after giving effect to the making of the Loans. 5.19. Employee Controversies. There are no strikes, work stoppages or controversies pending or, to the knowledge of Industries or any Subsidiary, threatened between Industries or any Subsidiary and any of its employees, other than employee grievances arising in the ordinary course of business, which, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 5.20. Material Agreements. Neither Industries nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. Neither Industries nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement to which it is a party, which default could reasonably be expected to have a Material Adverse Effect. 59 67 5.21. Acquisition and Asset Purchase Documents. Industries has delivered to the Agent true, complete and correct copies of the Acquisition Documents and the Asset Purchase Agreement (including all schedules, exhibits, annexes, amendments, supplements and modifications thereto). The Acquisition Documents and the Asset Purchase Agreement as originally executed and delivered by the parties thereto, the material terms of which have not been amended, supplemented or modified without the consent of the Required Lenders. As of the date hereof, neither Industries nor any other party thereto is in default in the performance of or compliance with any provisions thereof. The Acquisition is being consummated in accordance with applicable laws and regulations contemporaneously with the initial Advance. The Acquisition Documents are in form and substance satisfactory for effecting the Merger pursuant to such agreements under the laws of the State of Michigan. 5.22. Environmental Laws. Except as set forth on Schedule 5.22, there are no claims, investigations, litigation, administrative proceedings, notices, requests for information, pending or, to the knowledge of Industries or any Subsidiary, threatened, or judgments or orders asserting violations of applicable federal, state and local environmental, health and safety statutes, regulations, ordinances, codes, rules, orders, decrees, directives and standards ("Environmental Laws") or relating to any toxic or hazardous waste, substance or chemical or any pollutant, contaminant, chemical or other substance defined or regulated pursuant to any Environmental Law, including, without limitation, asbestos, petroleum, crude oil or any fraction thereof ("Hazardous Materials") asserted against Industries or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect. Neither Industries nor any Subsidiary has caused or permitted any Hazardous Materials to be released, either on or under real property, currently or, to the knowledge of Industries or any Subsidiary, formerly, legally or beneficially owned or operated by Industries or any Subsidiary or on or under real property to which Industries or any of its Subsidiaries transported, arranged for the transport or disposal of, or disposed of Hazardous Materials that in any such event could reasonably be expected to have a Material Adverse Effect. Except as disclosed on Schedule 5.22, no real property currently or, to the knowledge of Industries or any Subsidiary, formerly owned or operated by Industries or any Subsidiary has ever been used as a dump or disposal site or as a treatment or storage site for Hazardous Materials where such use could reasonably be expected to have a Material Adverse Effect. Except as disclosed on Schedule 5.22, Industries and each of its Subsidiaries have obtained and are in compliance with all permits, certificates, licenses, approvals and other authorizations ("Environmental Permits") required for the operation of their business and have filed all required notifications or reports relating to chemical substances, air emissions, effluent discharges and the storage, treatment, transport and disposal of Hazardous Materials except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. No asbestos containing materials, polychlorinated biphenyls or underground storage tanks are or have been located in, on or under real property owned or operated by Industries or any of its Subsidiaries (to the knowledge of Industries and each Subsidiary with respect to any period prior to such Person's ownership of such real property) except those which could not reasonably be expected to have a Material Adverse Effect. There are no Liens arising under any Environmental Law which have attached to real property owned or operated by Industries or any of its Subsidiaries and, to the knowledge of Industries and each Subsidiary, there is no threat to so attach any such Liens thereto. Industries and its Subsidiaries do not have liabilities in the aggregate for all of them with respect to compliance with applicable Environmental Laws and Environmental Permits or related to the generation, treatment, storage, disposal, release, investigation or cleanup of Hazardous Materials that 60 68 could reasonably be expected to have a Material Adverse Effect, and no facts or circumstances exist which could reasonably be expected to give rise to such liabilities with respect to compliance with applicable Environmental Laws and Environmental Permits and the generation, treatment, storage, disposal, release, investigation or cleanup of Hazardous Materials. Neither the compliance by any such Person with applicable Environmental Laws and Environmental Permits nor the generation, treatment, storage, disposal, release, investigation or cleanup of Hazardous Materials will affect the operation and production of Industries and its Subsidiaries in a manner which could reasonably be expected to have a Material Adverse Effect. 5.23. Insurance. As of the date hereof, Schedule 5.23 summarizes in reasonable detail the property and casualty insurance in existence and carried by Industries and its Subsidiaries, and such insurance is adequate to protect Industries and its Subsidiaries. This summary also describes any reserves relating to any self-insurance program that is in effect. 5.24. Disclosure. None of the (a) information, exhibits or reports furnished or to be furnished by Industries or any Subsidiary (other than any Person which became a Subsidiary upon the consummation of the Closing Transactions) to the Agent or to any Lender in connection with the negotiation of the Loan Documents, or (b) representations or warranties of Industries or any such Subsidiary contained in this Agreement, the other Loan Documents, the Transaction Documents or any other document, certificate or written statement furnished to the Agent or the Lenders by or on behalf of Industries or any such Subsidiary for use in connection with the transactions contemplated by this Agreement or the Transaction Documents, as the case may be, contained, contains or will contain (when taken as a whole) any untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading at the time made in light of the circumstances in which the same were made. The pro forma financial information contained in such materials and furnished by Industries or any such Subsidiary is based upon good faith estimates and assumptions believed by Industries to be reasonable at the time made. There is no fact known to Industries or any Subsidiary (except, for the purposes of representations made as of the Closing Date, for any Person which became a Subsidiary upon the consummation of the Closing Transactions), other than matters of a general economic nature, that has had or could reasonably be expected to have a Material Adverse Effect and that has not been disclosed herein or in such other documents, certificates and statements furnished to the Lenders for use in connection with the transactions contemplated by this Agreement. 5.25. Public Utility Holding Company Act. Neither Industries nor any Subsidiary of Industries is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.26. Representations in Other Loan Documents True and Correct. Each of the representations and warranties of each Loan Party contained in the other Loan Documents is true and correct in all material respects. 61 69 ARTICLE VI COVENANTS During the term of this Agreement on and after the Closing Date and so long as any Commitments or any Facility Letters of Credit are outstanding and until all Obligations (other than those Obligations which are expressly stated herein to survive termination of this Agreement which are not then due and payable) have been paid in full, unless the Required Lenders shall otherwise consent in writing: 6.1. Financial Reporting. Industries will maintain or cause to be maintained, for itself and each Subsidiary, a system of accounting established and administered in accordance with generally accepted United States accounting principles, consistently applied, with appropriate records and books of account in which complete entries are to be made reflecting its and their financial transactions, and will furnish to the Lenders: (a) As soon as practicable and in any event on or before the 92nd day after the close of each of its Fiscal Years (or if such ninety-second (92nd) day is not a Business Day, the next following Business Day), the consolidated balance sheet of Industries and its Subsidiaries as at the end of such Fiscal Year and the related consolidated statements of income and consolidated statement of cash flow for such Fiscal Year, in each case setting forth in comparative form the figures for the previous Fiscal Year, together with an audit report certified by Arthur Andersen & Co. or other independent certified public accountants of nationally recognized standing, indicating that such audit was conducted in accordance with generally accepted United States auditing standards and is without qualification with respect to (i) the continuance of each of Industries as a going concern and (ii) departures from generally accepted United States accounting principles other than departures which (A) are immaterial, (B) will not cause the financial statements to fail to meet the requirements of the Securities and Exchange Commission for financial information to be contained or incorporated by reference in registration statements and (C) do not cause the financial statements to fail to accurately reflect the financial condition of Industries and its Subsidiaries on a consolidated basis and without qualification as to scope of examination resulting from the failure of Industries or any Subsidiary to give access to books, records or other information and accompanied by a certificate of such accounting firm stating that in the course of its audit of the financial statements of Industries and its Subsidiaries, such accounting firm has obtained no knowledge of any Default or Unmatured Default, or if, in the opinion of such accounting firm any Default or Unmatured Default shall exist, stating the nature and status thereof. Group shall use its reasonable efforts to cause such accounting firm to deliver a letter, substantially in the form of Exhibit E hereto, upon the delivery of each such audit report which acknowledges that the Lenders are extending credit in primary reliance on such financial statements and authorizes such reliance. (b) As soon as practicable and in any event within forty-seven (47) days after the close of the first three Fiscal Quarters of each of its Fiscal Years, for itself and its Subsidiaries, consolidated unaudited balance sheets as at the close of each such period and consolidated (describing information through the line item indicating operating income) income statements and a consolidated statement of cash flows for the period from the beginning of such Fiscal Year to the end of such Fiscal Quarter, all certified by an Authorized Officer. 62 70 (c) At a meeting with the Lenders which shall occur during the second Fiscal Quarter of each year commencing with Fiscal Year 1998, an analysis of the financial performance of Industries and its Subsidiaries during the previous Fiscal Year and a discussion of expected results of operations of such entities for such Fiscal Year. (d) Together with the financial statements required by clauses (a) and (b) above, a compliance certificate in substantially the form of Exhibit D hereto (a "Compliance Certificate") signed by an Authorized Officer of Industries showing the calculations necessary to determine compliance with this Agreement and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof. (e) As soon as possible and in any event within ten (10) days after receipt by Industries or any of its Subsidiaries, a copy of (i) any notice, claim, complaint or order to the effect that Industries or any of its Subsidiaries is or may be liable to any Person as a result of the release by Industries, any of its Subsidiaries or any other Person of any Hazardous Materials into the environment or requiring that action be taken to respond to or clean up a Release of Hazardous Materials into the environment, and (ii) any notice, complaint or citation alleging any violation of any Environmental Law or Environmental Permit by Industries or any of its Subsidiaries, which in any case references an event described in clause (i) or (ii) above which could reasonably be expected to have a Material Adverse Effect. Within ten days of Industries or any Subsidiary having knowledge of the proposal, enactment or promulgation of any Environmental Law which could reasonably be expected to have a Material Adverse Effect, Industries shall provide the Agent with written notice thereof. (f) Promptly upon the furnishing thereof to the shareholders of Industries, copies of all financial statements, reports and proxy statements so furnished. (g) Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which Industries or any of its Subsidiaries files with the Securities and Exchange Commission. (h) Promptly and in any event within ten (10) days after learning thereof, notification of (i) any tax assessment, demand, notice of proposed deficiency or notice of deficiency received by Industries or any other Consolidated Person or (ii) the filing of any tax Lien or commencement of any judicial proceeding by or against any such Consolidated Person, if any such assessment, demand, notice, Lien or judicial proceeding relates to tax liabilities in excess of ten percent (10%) of the net worth (determined according to generally accepted accounting standards and without reduction for any reserve for such liabilities) of Industries and its Subsidiaries taken as a whole. (i) Promptly after (i) the occurrence thereof, notice of the institution of or any development in any action, suit or proceeding or any governmental investigation or any arbitration, before any court or arbitrator or any governmental or administrative body, agency or official, against Industries, any of its Subsidiaries or any material property of any thereof which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, or (ii) actual 63 71 knowledge thereof, notice of the threat of any such action, suit, proceeding, investigation or arbitration. (j) As soon as possible and in any event within 10 days after Industries or any Subsidiary knows that any Termination Event has occurred with respect to any Plan, a statement, signed by an Authorized Officer of Industries, describing said Termination Event and the action which Industries or such Subsidiary proposes to take with respect thereto. (k) Such other information (including non-financial information) as the Agent or any Lender may from time to time reasonably request. 6.2. Use of Proceeds. Industries will, and will cause each Subsidiary to, use the proceeds of the Revolving Loans and the Term Loans to provide funds for the Acquisition and the Merger and the payment of related fees and expenses and to refinance certain outstanding Indebtedness of Industries and its Subsidiaries and Kysor and its Subsidiaries. Industries will, and will cause each Subsidiary to, in addition to the uses set forth in the immediately preceding sentence, use the proceeds of the Revolving Loans to make Purchases permitted by Section 6.15, to meet the working capital needs of Group and its Subsidiaries and for general corporate purposes. Industries will not, nor will it permit any Subsidiary to, use any of the proceeds of the Advances (a) to purchase or carry any Margin Stock in violation of Regulation U or Regulation G or (b) in connection with a transaction that has not been approved by the board of directors (or other governing body, if applicable) of the Person which is the subject of such Purchase. Industries will not, nor will it permit any Subsidiary to, own any Margin Stock (other than the stock of Kysor prior to the Merger) to the extent the value of all Margin Stock of Industries and its Subsidiaries would equal or exceed 25% of the value (as determined by any reasonable method) of the assets of Industries and its Subsidiaries (on a consolidated and an unconsolidated basis). 6.3. Notice of Default. Industries will, and will cause each Subsidiary to, give prompt notice in writing to the Lenders of the occurrence of any Default or Unmatured Default (and the action which Industries proposes to take with respect thereto) and of any other development, financial or otherwise (other than general economic conditions), which could reasonably be expected to have a Material Adverse Effect. 6.4. Conduct of Business. Industries will, and will cause each Subsidiary (a) to engage in substantially the same fields of enterprise as it is presently conducted, (b) to do all things necessary to remain duly organized, validly existing and in good standing in its jurisdiction of incorporation and (c) to maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted except with respect to the foregoing clause (c) where the failure to maintain such authority could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; provided, that the existence of any Subsidiary which is not a Borrower with outstanding Loans hereunder may be terminated if such termination (a) is in the best interest of Industries and its Subsidiaries, as determined in the good faith judgment of Industries, and (b) could not reasonably be expected to have a Material Adverse Effect. 64 72 6.5. Taxes. Except where the failure to do so could not reasonably be expected to have a Material Adverse Effect, Industries will, and will cause each Subsidiary to, timely file complete and correct United States federal and applicable foreign, state and local tax returns required by applicable law and pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside. 6.6. Insurance. Industries will, and will cause each Subsidiary to, maintain with financially sound and reputable insurance companies insurance on all their Property in such amounts and covering such risks as is consistent with sound business practice, and Industries will furnish to the Agent and any Lender upon request full information as to the insurance carried. 6.7. Compliance with Laws. Industries will, and will cause each Subsidiary to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject, the failure to comply with which could reasonably be expected to have a Material Adverse Effect. 6.8. Maintenance of Properties. Industries will, and will cause each Subsidiary to, do all things necessary to maintain, preserve, protect and keep its Property in good repair, working order and condition in accordance with its customary practices. 6.9. Inspection. Industries will, and will cause each Subsidiary to, permit the Agent and the Lenders, by their respective representatives and agents, to inspect any of the Property, corporate books and financial records of Industries and each Subsidiary, to examine and make copies of the books of accounts and other financial records of Industries and each Subsidiary, and to discuss the affairs, finances and accounts of Industries and each Subsidiary with, and to be advised as to the same by, their respective officers at such reasonable times and intervals as the Lenders may designate with reasonable notice. 6.10. Capital Stock and Dividends. If a Default or an Unmatured Default has occurred and is continuing or would occur after giving effect thereto, Industries will not, nor will it permit any Subsidiary to, (a) declare or pay any dividends on its capital stock or make any other distribution on account of its capital stock other than (i) dividends payable in its own capital stock, (ii) dividends payable by any Foreign Subsidiary or any Domestic Subsidiary to Group or to any Wholly-Owned Subsidiary of Group which is a Domestic Subsidiary, and (iii) dividends payable by any Foreign Subsidiary to any Wholly-Owned Subsidiary which is a Foreign Subsidiary or (b) redeem, repurchase or otherwise acquire or retire any of its capital stock (or any warrants, rights or options to acquire such capital stock) at any time outstanding; provided, that in no event (regardless of whether a Default or Unmatured Default has occurred or is continuing) shall (x) Group pay dividends to Industries in excess of such amount as may be required by Industries to pay (A) dividends to its stockholders which have been declared prior to the occurrence of any such Default or Unmatured Default in accordance with all applicable laws and (B) reasonable expenses in accordance with past practices, except that Group may pay Industries any dividend required to consummate the Closing Transactions or (y) Industries or any Domestic Subsidiary pay dividends to any Foreign Subsidiary; provided, further, that notwithstanding clause (a) above, (1) Industries may pay any dividend to its stockholders which has been declared prior to the occurrence of any 65 73 such Default or Unmatured Default in accordance with all applicable laws and with clause (a) above and (2) each Subsidiary may pay any dividend which is necessary to allow the payment of dividends under clause (1). 6.11. Indebtedness. Industries will not, nor will it permit any Subsidiary to, create, incur or suffer to exist any Indebtedness, except: (a) the Loans and the Obligations owing with respect to Facility Letters of Credit; (b) Indebtedness (including commitments therefor) existing on the date hereof and described in Schedule 6.11 hereto; (c) Rate Hedging Obligations related to the Loans and required pursuant to Section 6.29; (d) Rate Hedging Obligations pursuant to Hedging Agreements permitted pursuant to Section 6.30; (e) extensions, renewals, refundings and refinancings of the Indebtedness described in clause (b) above, so long as the aggregate principal amount of such Indebtedness after giving effect thereto does not exceed the aggregate principal amount outstanding as of the date hereof; (f) Indebtedness of (i) Industries to any Subsidiary provided that any such Indebtedness is subordinated to the Obligations on subordination terms satisfactory to the Agent, (ii) any Subsidiary to any other Subsidiary and (iii) any Subsidiary to Industries; provided, that, in each case, (A) such Indebtedness is permitted as an Investment pursuant to Section 6.15(c) and (B) to the extent any such Indebtedness is Indebtedness of a Foreign Subsidiary which is not a Foreign Guarantor and such Foreign Subsidiary is required to deliver an Intercompany Note to Group pursuant to Section 6.28, all such Indebtedness incurred by such Foreign Subsidiary pursuant to clause (f)(ii) above shall be incurred and owing by such Foreign Subsidiary in favor of and to Group and all such Indebtedness shall be evidenced by an Intercompany Note; (g) additional Indebtedness of Industries and its Subsidiaries (i) which is not described in clause (d) above and (ii) with an aggregate principal amount at any time outstanding not to exceed the lesser of (A) forty percent (40%) of the Consolidated Net Worth (as of the last day of the Fiscal Quarter immediately preceding any date of determination) of Industries and its Subsidiaries and (B) $100,000,000; and (h) Indebtedness incurred pursuant to the Bridge Documents in a maximum principal amount not in excess of $85,000,000. 6.12. Merger. Industries will not, nor will it permit any Subsidiary to, merge or consolidate with or into or sell, assign, lease, transfer or otherwise dispose of all or substantially all of its assets to any other Person other than the dissolution of a Subsidiary in accordance with Section 6.4 and other than in connection with the Merger and the Asset Purchase; provided, that Industries 66 74 or any Subsidiary may enter into any merger or consolidation with or sell all or substantially all of its assets to, a corporation organized under the laws of any state of the United States or, with respect to any Foreign Subsidiary, a comparable entity organized elsewhere, so long as (a) any entity with or into which any such Person which is a Loan Party is being merged or consolidated or to which all or substantially all of its assets are being sold assumes the Obligations of such Loan Party under the Loan Documents by written instrument reasonably acceptable in form and substance to the Required Lenders (and with respect to any Borrower, all of the Lenders), (b) no Default or Unmatured Default has occurred and is continuing or would occur after giving effect thereto, including without limitation any Default or Unmatured Default under Section 7.11, (c) Group has provided the Lenders with pro forma financial statements giving effect thereto which evidence compliance with Section 6.25 hereof for the remaining term of this Agreement, (d) the entity with or into which Industries or such Subsidiary is being merged or consolidated or to which all or substantially all of the assets of Industries or such Subsidiary are being sold is in substantially the same or a similar type of business as Industries or such Subsidiary and (e) such transaction is not the type of transaction described in Section 6.2(b); provided, that the requirements set forth in clauses (c) and (d) above need not be satisfied in respect of any such consolidation or merger with or sale, assignment, lease or other disposition to Industries or any Subsidiary. 6.13. Sale of Assets. Industries will not, nor will it permit any Subsidiary to, make an Asset Disposition of any Property, except for (a) an Asset Disposition by Industries or Group which is permitted under Section 6.12, (b) sales of Margin Stock to the extent that the value of such Margin Stock of Industries and its Subsidiaries when taken together with all other Margin Stock of Industries and its Subsidiaries exceeds 25% of the value (determined by any reasonable method) of the total assets of Industries and its Subsidiaries subject to this Section 6.13 and (c) Asset Dispositions of Property that, together with all other Property previously subject to an Asset Disposition made in accordance with this Section 6.13 since the date hereof, does not constitute a Substantial Cumulative Portion of the Property of Industries and its Subsidiaries taken as a whole (determined as of the date of any proposed disposition), in each case so long as no Default or Unmatured Default has occurred and is continuing or would occur after giving effect thereto; provided, that in no event may (x) Industries or any Domestic Subsidiary make any Asset Disposition to any Foreign Subsidiary which is not a Foreign Guarantor for consideration less than the fair market value of the Property subject to such Asset Disposition, or (y) any Foreign Subsidiary which is not a Foreign Guarantor make any Asset Disposition to Industries or any Domestic Subsidiary for consideration that is greater than the fair market value of such Property subject to such Asset Disposition or (z) Industries or any Subsidiary sell or otherwise dispose of any Accounts, notes receivable or accounts receivable, with or without recourse, except sales or other dispositions of such Property to Affiliates made in accordance with Section 6.19; provided further that for the purposes of the foregoing clauses (x) and (y): (1) the fair market value of each sale, lease or other disposition of manufactured products shall be equal to the sum of (A) the variable costs of manufacturing such product (determined in each case in accordance with the methods used as of the date hereof by Industries and its Domestic Subsidiaries to determine such variable costs) plus (B) ten percent (10%) of such variable costs; and (2) any royalty charged by Industries or any Domestic Subsidiary to a Foreign Subsidiary for the use of any trademark, trade name or service mark shall be deemed to have been charged at fair market value. 67 75 6.14. Sale and Leaseback. Industries will not, nor will it permit any Subsidiary to, sell or transfer any of its Property with a fair market value in excess of $2,000,000 in the aggregate after the date hereof in order to concurrently or subsequently lease as lessee such or similar Property. 6.15. Investments and Purchases. Industries will not, nor will it permit any Subsidiary to, make or suffer to exist any Investments (including, without limitation, loans and advances to Industries or any Subsidiary, and other Investments in Subsidiaries), or commitments therefor, or to create any Subsidiary or to become or remain a partner in any partnership or joint venture, or to make any Purchases of any Person or, with respect to Industries or any Domestic Subsidiary, make any purchase or other acquisition in any one transaction or series of related transactions of any Foreign Assets that individually or in the aggregate would be material to the business, operations, Property or financial condition of Industries or any of its Subsidiaries ("Material Foreign Assets"), except: (a) (i) Investments in existence on the date hereof in Subsidiaries and (ii) other Investments in existence on the date hereof and described in Schedule 6.15 hereto; (b) Purchases by Industries or any Subsidiary, so long as (i) no Default or Unmatured Default has occurred and is continuing or would occur after giving effect thereto, (ii) Group has provided the Lenders with pro forma financial statements giving effect thereto which evidence compliance with Section 6.25 for the remaining term of this Agreement, (iii) the entity being acquired is in substantially the same or a similar type of business as Industries and its Subsidiaries and (iv) such transaction is not the type of transaction described in Section 6.2(b); (c) Additional Investments by Industries or any of its Subsidiaries in Industries or any Wholly-Owned Subsidiary of Industries and the creation of new Subsidiaries by Industries or any Subsidiary; provided that Industries shall and shall cause its Subsidiaries (including any newly formed Subsidiary) to comply with the other provisions of this Agreement in connection with any such Investment including without limitation the provisions of Section 6.28; (d) Investments in commercial paper maturing in 270 days or less from the date of issuance which, at the time of acquisition, is rated at least A-1 by Standard & Poor's Ratings Group ("S&P") or at least P-1 by Moody's Investors Service, Inc. ("Moody's"), or the equivalent thereof; (e) Investments in direct obligations of the United States of America or, with respect to the Foreign Subsidiaries, of the central government of the applicable jurisdiction, or any agency thereof, maturing in twelve months or less from the date of acquisition thereof and which are backed by the full faith and credit of the United States of America or such other applicable jurisdiction, as aforesaid, provided that such direct obligations of any central government other than the United States of America or of any agency of any central government other than the United States of America have implied ratings of at least A-1 by S&P or P-1 by Moody's, or the equivalent thereof, at the time of the acquisition of such obligations by Industries or any Subsidiary; (f) Investments in certificates of deposit maturing within one year from the date of origin, bankers' acceptances, repurchase agreements or other similar instruments issued by (i) any 68 76 Lender or (ii) any other bank or trust company organized under the laws of the United States or any state thereof with capital, surplus and undivided profits aggregating at least $100,000,000 and whose commercial paper (or that of its parent corporation) is rated at least A-1 by S&P or at least P-1 by Moody's, or the equivalent thereof at the time of such Investment; (g) Investments in certificates of deposit maturing within one year from the date of origin, issued by a bank or trust company organized under the laws of any jurisdiction other than that of the United States of America or any state thereof and whose short-term debt rating at the time of such Investment is rated at least A-1 by S&P or at least P-1 by Moody's or the equivalent thereof by another comparable rating service; (h) Temporary advances to officers and employees of Industries or any Subsidiary for travel and other business expenses in the ordinary course of business; (i) Loans to officers and employees of Industries or any Subsidiary, including but not limited to loans for relocation expenses, in an aggregate amount (including unpaid principal and accrued interest) not to exceed $2,000,000 at any one time outstanding; (j) Investments in the ordinary course of business made in order to hedge the exposure of Industries or any Subsidiary to fluctuations in foreign currencies in which Industries or any Subsidiary has currency exposure in the ordinary course of business; (k) Investments in demand deposit accounts maintained in the ordinary course of business; (l) Investments in any fund or other pooling arrangement which holds at least ninety percent (90%) of its assets in the investments itemized in (d) through (g) above; (m) purchases or other acquisitions by Industries or any Domestic Subsidiary of Material Foreign Assets; and (n) Investments not otherwise permitted by subsections (a) through (m) of this Section 6.15 in an aggregate outstanding amount not to exceed at any one time ten percent (10%) of the Consolidated Net Worth, determined as of the last day of the Fiscal Quarter immediately preceding any date of determination; provided, however, in any such case, (x) no such Investment, Purchase or purchase or other acquisition may be made if (after giving effect to any such Investment, Purchase or purchase or other acquisition) the sum of the aggregate amount of (i) Investments in Foreign Subsidiaries, (ii) Investments in other Foreign Persons, (iii) Purchases of assets not located in the United States, (iv) Purchases of securities or other equity interests of a Foreign Person and (v) purchases or other acquisitions by Industries or any Domestic Subsidiary of Material Foreign Assets, made by Industries or any of its Subsidiaries from and after the Closing Date would in the aggregate exceed twenty-five percent (25%) of the total assets of Industries and its Subsidiaries on a consolidated basis, determined in accordance with Agreement Accounting Principles as of the date of such proposed Investment, Purchase or other purchase or acquisition, as the case may be, and (y) no 69 77 Subsidiary shall make any payment to Industries which constitutes an Investment unless such payment is required (i) to pay any dividend permitted under clause (1) of the second proviso of Section 6.10 or (ii) to effect any transaction otherwise expressly permitted hereunder. 6.16. Liens. Industries will not, nor will it permit any Subsidiary to, create, incur, or suffer to exist any Lien in, of or on the Property of Industries or any of its Subsidiaries (including without limitation the stock of any Subsidiary), except: (a) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with generally accepted principles of accounting shall have been set aside on its books; (b) Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than ninety (90) days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on its books; (c) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation; (d) Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of Industries or any of its Subsidiaries; (e) Liens existing on the date hereof and described in Schedule 6.16 hereto and Liens arising out of any transaction contemplated by Section 6.11(e) as long as no additional Property becomes subject to any such replacement Lien; (f) Liens arising under the Pledge Agreement; (g) Liens arising under any Reimbursement Agreement; (h) additional Liens securing Indebtedness permitted under Section 6.11(g) but only to the extent that such Liens secure such Indebtedness in a maximum principal amount not in excess of twenty-five percent (25%) of the aggregate amount of Indebtedness permitted to be outstanding pursuant to Section 6.11(g); (i) Liens on Property of Industries and its Subsidiaries securing Indebtedness permitted under Section 6.11(h), provided that all Obligations are secured by a Lien on such Property that is equal and ratable with such other Lien; and (j) Liens on Margin Stock, if and to the extent that the value of such Margin Stock of Industries and its Subsidiaries when taken together with all other Margin Stock of Industries 70 78 and its Subsidiaries exceeds 25% of the value (determined by any reasonable method) of the total assets of Industries and its Subsidiaries subject to this Section 6.16. 6.17. Kysor Merger. Industries and its Subsidiaries will use their best efforts to cause the Merger to be consummated in accordance with the Acquisition Agreement at the earliest practicable time. 6.18. Lease Rentals. Industries will not, nor will it permit any Subsidiary to, create, incur or suffer to exist obligations for Rentals in excess of $10,000,000 during any one Fiscal Year on a non-cumulative basis in the aggregate for Industries and its Subsidiaries. 6.19. Affiliates. Industries will not, and will not permit any Subsidiary to, enter into any transaction (including, without limitation, the purchase or sale of any Property or service) with, or make any payment or transfer to, any Affiliate except in the ordinary course of business and pursuant to the reasonable requirements of Industries' or such Subsidiary's business and upon fair and reasonable terms no less favorable to Industries or such Subsidiary than Industries or such Subsidiary would obtain in a comparable arms' length transaction; provided, that the foregoing provisions of this Section 6.19 shall not prohibit (i) the declaration or payment of any lawful dividend or other payment ratably in respect of all of its capital stock of the relevant class, (ii) Industries or any Domestic Subsidiary from selling, leasing or otherwise transferring Property or rendering services to a Foreign Guarantor for other than fair market value, (iii) any Foreign Guarantor from selling, leasing or otherwise transferring Property or rendering services to Industries or any Domestic Subsidiary for other than fair market value or (iv) any Wholly-Owned Subsidiary which is a Domestic Subsidiary of Industries from entering into any such transaction with or making any such payment or transfer to any other Wholly-Owned Subsidiary which is a Domestic Subsidiary of Industries; provided, further, that for purposes of the foregoing clauses (ii) and (iii): (a) the fair market value of each sale, lease or other disposition of manufactured products shall be equal to the sum of (1) the variable costs of manufacturing such product (determined in each case in accordance with the methods used as of the date hereof by Industries and its Domestic Subsidiaries to determine such variable costs) plus (2) ten percent (10%) of such variable costs; (b) any royalty charged by Industries or any Domestic Subsidiary to a Foreign Subsidiary for the use of any trademark, trade name or service mark shall be deemed to have been charged at fair market value; and (c) any routine management services rendered in the ordinary course of business by Industries or any Domestic Subsidiary to any Foreign Subsidiary shall be deemed to have been rendered at fair market value. 6.20. Amendments to Agreements. Industries will not, and will not permit any Subsidiary to, amend, waive or modify or terminate any material provision of any Asset Purchase Document or Acquisition Document. 6.21. Environmental Matters. Industries shall and shall cause each of its Subsidiaries to (a) at all times comply in all material respects with all applicable Environmental Laws and (b) promptly take any and all remedial actions required under applicable Environmental Laws in response to the presence, storage, use, disposal, transportation or Release of any Hazardous Materials on, under or about any real property owned, leased or operated by Industries or any of its Subsidiaries, except in any case where the failure to do so could not reasonably be expected to have a Material Adverse Effect. In the event that Industries or any Subsidiary undertakes any remedial 71 79 action with respect to any Hazardous Material on, under or about any real property, Industries or such Subsidiary shall conduct and complete such remedial action in material compliance with all applicable Environmental Laws and in accordance with the applicable policies, orders and directives of all foreign federal, state and local governmental authorities, except where the failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. If the Agent or any Lender at any time has a reasonable basis to believe that there may be a material violation of any Environmental Law by Industries or any of its Subsidiaries, or any material liability arising thereunder or related to a Release of Hazardous Materials on any real property owned, leased or operated by Industries or any of its Subsidiaries or a Release on real property adjacent to such real property, then Industries shall, upon the reasonable request of the Agent, provide the Agent with all such reports, certificates, engineering studies and other written material or data as the Agent or any Lender may reasonably request. 6.22. [Intentionally Omitted]. 6.23. Change in Corporate Structure; Fiscal Year. Industries shall not, nor shall it permit any Subsidiary to, (a) permit any amendment or modification to be made to its charter or certificate or articles of incorporation or by-laws which could reasonably be expected to have a Material Adverse Effect (provided that Group shall notify the Agent of any other amendment or modification thereto which could reasonably be expected to have an adverse effect on any Loan Party's ability to perform any of its obligations under any Loan Document as soon as practicable thereafter) or (b) have a fiscal year which ends on any date other than the Sunday nearest to December 31 of each year; provided, that (x) any Person acquired by Industries or any Subsidiary may maintain the fiscal year which it employed prior to such Purchase (a) during such period as may be reasonably necessary to complete the conversion of such fiscal year to a fiscal year ending on the Sunday nearest to December 31 and (b) so long as the maintenance of such fiscal year would not materially affect the information included in any of the financial statements required to be delivered by Industries pursuant hereto and (y) any Person which becomes a Subsidiary as a result of the Closing Transactions and which has a fiscal year-end other then that described in clause (b) above may maintain such fiscal year-end. 6.24. Restrictive Agreements. Industries shall not, nor shall it permit any Subsidiary to, enter into, assume or suffer to exist, any agreement with any Person, other than the Loan Documents and the Bridge Documents, which prohibits or limits the ability of Industries or any Subsidiary to (a) enter into amendments, modifications or waivers of the Loan Documents or the Bridge Documents, (b) pay dividends or make other distributions or pay any Indebtedness owed to Industries or any Subsidiary, (c) make any Investment in Industries or any Subsidiary, (d) transfer any of its properties or assets to Industries or any Subsidiary or (e) create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired as security for the obligations of Industries under the Loan Documents and the Bridge Loan Documents; provided that the foregoing shall not apply to (i) restrictions in effect on the date of this Agreement contained in agreements governing Indebtedness outstanding on the date of this Agreement (or in the case of Indebtedness of a Person which hereafter becomes a Subsidiary, outstanding on the date such Person becomes a Subsidiary and not created in contemplation of that event) and, if such Indebtedness is renewed, extended or refinanced, restrictions in the agreements governing the renewed, extended or refinancing Indebtedness (as successive renewals, extensions 72 80 and refinancings thereof) if such restrictions are no more restrictive in any material respect than those contained in the agreements governing the Indebtedness being renewed, extended or refinanced, (ii) restrictions contained in agreements governing Indebtedness incurred pursuant to Section 6.11(c), (d), (g) and (h) provided that such restrictions are no more restrictive in any material respect than those contained in the Loan Documents or the Bridge Loan Documents, (iii) customary non-assignment provisions in leases, licenses and other contracts and (iv) restrictions in agreements establishing consensual Liens permitted under Section 6.16 with respect to the assets subject to such Liens. 6.25. Financial Covenants. Subject to normal year-end and closing audit adjustments for calculations or determinations made in accordance with Agreement Accounting Principles prior to the end of its fiscal year, Industries on a consolidated basis with its Subsidiaries shall: 6.25.1. Minimum Consolidated Net Worth. At all times measured as of the end of each Fiscal Quarter commencing with the first Fiscal Quarter ending after the Closing Date, maintain a Consolidated Net Worth equal to or greater than (a) $120,000,000 plus (b) sixty percent (60%) of the cumulative Net Income of Industries and its Subsidiaries for the period beginning on December 30, 1996 and ending on the last day of the Fiscal Quarter immediately preceding the date of measurement, plus (c) sixty percent (60%) of the net cash proceeds received after the date hereof by Industries or any Subsidiary from the issuance of any equity security to any Person other than Industries or any Subsidiary. 6.25.2. Fixed Charge Coverage Ratio. At all times after the date hereof, measured as of the end of each Fiscal Quarter (commencing June 29, 1997) for the period of four Fiscal Quarters then ended, maintain a Fixed Charge Coverage Ratio for the period of four Fiscal Quarters ending as of such date of (a) for all Fiscal Quarters ending in 1997, not less 1.0 to 1 and (b) for all Fiscal Quarters ending after December 31, 1997, not less than 1.05 to 1; provided, however, for the first three of such calculations made after the date of this Agreement, such calculations shall be done based upon the period commencing on the first day of the second Fiscal Quarter of 1997 and ending with the quarterly period then ended; provided, further that in no event shall any calculation of Fixed Charges include the prepayment of the Senior Notes on or about the Closing Date. 6.25.3 Leverage Ratio. At all times after the date hereof, measured as of the end of each Fiscal Quarter (commencing June 29, 1997) for the period of four Fiscal Quarters then ended, maintain a Leverage Ratio of not more than the following during each of the following periods; provided, however (i) for the period ending on the last day of the second Fiscal Quarter of 1997, EBITDA will be the product of (A) actual EBITDA for the second Fiscal Quarter, multiplied by (B) 4, (ii) for the period ending on the last day of the third Fiscal Quarter of 1997, EBITDA will be the product of (A) actual EBITDA for the period from the first day of the second Fiscal Quarter of 1997 to the last day of the third Fiscal Quarter of 1997, multiplied by (B) 2, and (iii) for the period ending on the last day of the fourth Fiscal Quarter of 1997, EBITDA will be the product of (A) actual EBITDA for the period from the first day of the second Fiscal Quarter of 1997 to the last day of the fourth Fiscal Quarter of 1997 multiplied by (B) 4/3: 73 81
Period Ratio ------ ----- Second, Third and Fourth Fiscal Quarters 4.25:1.0 of 1997 First, Second, Third and Fourth Fiscal 4.00:1.0 Quarters of 1998 First, Second, Third and Fourth Fiscal 3.75:1.0 Quarters of 1999 First, Second and Third Fiscal Quarters of 3.50:1.0 2000 Fourth Fiscal Quarter of 2000 and first 3.25:1.0 three Fiscal Quarters of 2001 Fourth Fiscal Quarter of 2001 and each 3.00:1.0 Fiscal Quarter thereafter
6.26. Tax Consolidation. Industries will not and will not permit any of its Subsidiaries to (a) file or consent to the filing of any consolidated, combined or unitary income tax return with any Person other than Industries and its Subsidiaries or (b) except for the Tax Sharing Agreement dated as of March 15, 1989 with Household International, Inc., enter into a tax sharing agreement or similar arrangement with any Person that is not a Subsidiary, except in any case as required by applicable law. 6.27. ERISA Compliance. With respect to any Plan, neither Industries nor any Subsidiary shall: (a) engage in any "prohibited transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) for which a civil penalty pursuant to Section 502(i) of ERISA or a tax pursuant to Section 4975 of the Code in excess of $1,000,000 is or could reasonably be expected to be imposed; (b) incur any "accumulated funding deficiency" (as such term is defined in Section 302 of ERISA) in excess of $1,000,000, whether or not waived, or permit any Unfunded Liability with respect to any Single Employer Plan, to exceed the greater of $1,000,000 or 10% of the present value of all vested and unvested accrued benefits under such Single Employer Plan at any time or $5,000,000 in the aggregate for all Single Employer Plans; (c) permit the occurrence of any Termination Event which results in or could reasonably be expected to result in a liability to the Borrower or any other member of the Controlled Group in excess of $1,000,000; 74 82 (d) fail to make any contribution or payment to any Multiemployer Plan which Industries or any other member of the Controlled Group may be required to make under any agreement relating to such Multiemployer Plan or any law pertaining thereto which results in or could reasonably be expected to result in a liability in excess of $1,000,000; (e) permit the establishment or amendment of any Plan or fail to comply with the applicable provisions of ERISA and the Code with respect to any Plan which could result in liability to Industries or any other member of the Controlled Group which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; or (f) incur or permit to exist any liability with respect to Foreign Plans which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 6.28. Guaranties. Industries shall cause each of its Subsidiaries in existence as of the Closing Date and each Subsidiary newly acquired or formed by Industries or any Subsidiary of Industries after the Closing Date to (a) with respect to any such existing, newly formed or acquired Subsidiary which is a Domestic Subsidiary, duly execute and deliver a Guaranty substantially in the form of Exhibit A-1 hereto and (b) with respect to any such existing, newly formed or acquired Subsidiary which is a Foreign Subsidiary, duly execute and deliver a Guaranty substantially in the form of Exhibit A-2 hereto or, if Industries and its Subsidiaries determine in their reasonable judgment that either (i) Industries and its Subsidiaries on a consolidated basis would suffer material adverse tax consequences as a direct result of such Foreign Subsidiary entering into such Guaranty or (ii) that execution and delivery of such Guaranty by such Foreign Subsidiary would be illegal under the laws of the jurisdiction of organization of such Foreign Subsidiary, then such Foreign Subsidiary shall execute an Intercompany Note in favor of Group to be pledged pursuant to the Pledge Agreement, except that (A) with the prior written consent of the Required Lenders, such consent not to unreasonably be withheld, any Subsidiary created in connection with a joint venture between Industries or any Subsidiary and an unaffiliated third party shall not be required by this Section 6.28 to execute a Guaranty or revolving note, (B) any Subsidiary with assets less than or equal to $15,000,000 (a "Non-Guarantor Subsidiary") shall not be required by this Section 6.28 to execute a Guaranty or an Intercompany Note; provided, that, if at any time, the sum of the assets of all Non-Guarantor Subsidiaries shall exceed, in the aggregate, $55,000,000, Industries shall cause all such Subsidiaries which are Non-Guarantor Subsidiaries promptly after the time at which such excess arises or is created to execute a Guaranty or Intercompany Note in accordance with the requirements of this Section 6.28 and (C) neither Beleggingsmaatschappij Interrub B.V., a Subsidiary organized under the laws of the Netherlands ("PFIC") nor WAL shall be required by this Section 6.28 to execute a Guaranty or an Intercompany Note so long as PFIC and WAL, respectively, do not engage in any activity other than those incidental to its acting as a holding company, do not incur, assume or become liable with respect to any Indebtedness and do not own or hold any assets other than stock of other Subsidiaries (and immaterial assets incidental to such purpose) and so long as no Investment is made in PFIC or WAL and no assets are transferred to PFIC or WAL, in any case by Industries or any of its Subsidiaries after the date hereof; provided, further, that if any Guarantor shall cease to be a Subsidiary as a result of any transaction permitted hereby, then so long as no Default shall have occurred and be continuing, such Guarantor shall be released from its Obligations under the applicable Guaranty promptly following the request of Group and any notes of such Guarantor pledged for the benefit of the Lenders shall be concurrently released. 75 83 6.29. Required Hedging Agreements. Within ninety (90) days after the Closing Date, Industries will enter into, and will thereafter maintain, one or more Hedging Agreements, with one or more Lenders on terms acceptable to the Agent in its reasonable discretion, by which Industries and its Subsidiaries are protected against increases in interest rates from and after the date of such contracts on a notional amount of at least $150,000,000, for a period of at least three (3) years. 6.30. Financial Contracts. Industries will not, nor will it permit any Subsidiary to, enter into or remain liable upon any Financial Contract, except Hedging Agreements required under Section 6.29 and other Hedging Agreements pursuant to which Industries and its Subsidiaries have hedged their reasonably estimated interest rate, exchange rate or commodity price exposure. 6.31. UK Filing. Industries shall or shall cause its Subsidiaries to present the Credit Agreement for registration pursuant to Section 395 of the Companies Act of 1985 in England not later than 21 days after the Closing Date on a "fail safe" basis in accordance with normal practices in England. ARTICLE VII DEFAULTS The occurrence of any one or more of the following events shall constitute a Default: 7.1. Any representation or warranty made or deemed made by or on behalf of Industries or any of its Subsidiaries to the Lenders or the Agent under or in connection with this Agreement, any Loan, any Note, or any certificate or other document delivered in connection with this Agreement or any other Loan Document shall be false in any material respect on the date as of which made. 7.2. Nonpayment of (a) principal of any Note when due, or (b) interest upon any Note or any commitment fee or other fee or obligations under any of the Loan Documents within five days after the same becomes due. 7.3. The breach by any Borrower of any of the terms or provisions of Section 6.2 or Sections 6.10 through 6.31. 7.4. The breach by any Borrower (other than a breach which constitutes a Default under Section 7.1, 7.2 or 7.3) of any of the terms or provisions of this Agreement which is not remedied within five days after written notice from the Agent or any Lender. 7.5. The default by Industries or any of its Subsidiaries in the performance of any term, provision or condition contained in any agreement or agreements under which any Indebtedness aggregating in excess of $10,000,000 was created or is governed, or the occurrence of any other event or existence of any other condition, the effect of any of which is to cause, or to permit the holder or holders of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity (other than a default under an obligation or condition owed to or for the benefit of any Lender or Affiliate thereof restricting the sale, pledge or other disposition by Industries or any of its 76 84 Subsidiaries of Margin Stock); or any such Indebtedness of Industries or any of its Subsidiaries shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment and other than as a result of a default under an obligation or condition owed to or for the benefit of any Lender or Affiliate thereof restricting the sale, pledge or other disposition by Industries or any of its Subsidiaries of Margin Stock) prior to the stated maturity thereof; or Industries or any of its Subsidiaries shall become unable, not pay, or admit in writing its inability to pay, its debts generally as they become due. 7.6. Industries or any of its Subsidiaries shall (a) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (b) make an assignment for the benefit of creditors, (c) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any Substantial Portion of its Property, (d) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (e) take any corporate action to authorize or effect any of the foregoing actions set forth in this Section 7.6, or (f) fail to contest in good faith any appointment or proceeding described in Section 7.7. 7.7. Without the application, approval or consent of Industries or any of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar official shall be appointed for Industries or any of its Subsidiaries or any Substantial Portion of its Property, or a proceeding described in Section 7.6(d) shall be instituted against Industries or any of its Subsidiaries and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of thirty consecutive days. 7.8. Any court, government or governmental agency shall condemn, seize or otherwise appropriate, or take custody or control of (each a "Condemnation"), all or any portion of the Property of Industries and its Subsidiaries without paying fair consideration therefor which, when taken together with all other Property of Industries and its Subsidiaries so condemned, seized, appropriated, or taken custody or control of, during the twelve-month period ending with the month in which any such Condemnation occurs, constitutes a Substantial Portion. 7.9. Industries or any of its Subsidiaries shall fail within thirty days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $500,000 (or multiple judgments or orders for the payment of an aggregate amount in excess of $2,000,000), which is not stayed on appeal or otherwise being appropriately contested in good faith. 7.10. Industries or any of its Subsidiaries shall be the subject of any proceeding or investigation pertaining to the discovery of any Hazardous Materials on the leased or owned property of Industries or any of its Subsidiaries, the release by Industries or any of its Subsidiaries or any other Person of any Hazardous Materials into the environment, or any violation of any Environmental Law or Environmental Permit, which, in either case, has had a Material Adverse Effect. 77 85 7.11. Any Change in Control shall occur. 7.12. The occurrence of any "default", as defined in any Loan Document (other than this Agreement or the Notes) or the breach of any material term or provision of any Loan Document (other than this Agreement or the Notes), which default or breach continues beyond any period of grace therein provided. 7.13. Any Guaranty or the Pledge Agreement shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of any Guaranty or the Pledge Agreement, or any Guarantor shall fail to comply with any of the terms or provisions of any Guaranty to which it is a party, or Group shall fail to comply with any of the terms or provisions of the Pledge Agreement or any Guarantor denies that it has any further liability under the Guaranty to which it is a party, or gives notice to such effect. ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES 8.1. Acceleration. If any Default described in Section 7.6 or 7.7 occurs with respect to any Borrower, Industries or any other Guarantor, the obligations of the Lenders to make Loans or to issue Facility Letters of Credit hereunder shall automatically terminate (whereupon the Commitments and the Swing Line Commitment shall terminate immediately) and the Obligations shall immediately become due and payable without any election or action on the part of the Agent or any Lender. If any other Default occurs, the Required Lenders (or the Agent with the consent of the Required Lenders) may terminate or suspend the obligations of the Lenders to make Loans or to issue Facility Letters of Credit hereunder (whereupon the Commitments and the Swing Line Commitment shall terminate immediately), or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which each Borrower hereby expressly waives and whether or not any beneficiary of any Facility Letter of Credit or any transferee thereof shall have presented, or is permitted at such time to present, the drafts and other documents required under any Facility Letter of Credit. In addition to the foregoing, following a Default under Section 7.2, so long as any Facility Letter of Credit has not been fully drawn and has not been cancelled or expired, upon written demand by the Agent, the Borrowers shall deposit and maintain with the Agent an account with cash in an amount equal to the aggregate undrawn face amount of all outstanding Facility Letters of Credit issued by the Issuers and all fees and other amounts due or which may become due with respect thereto. The Borrowers shall have no control over funds in such cash deposit account, which shall be non-interest bearing. Such funds shall be promptly transferred by the Agent to the applicable Issuer to reimburse it for drafts drawn under the Facility Letters of Credit. Such funds, if any, remaining in such cash deposit account following the payments of all Obligations in full shall be promptly paid over to the Borrowers. If, within thirty (30) days after acceleration of the maturity of the Obligations or termination of the obligations of the Lenders to make Loans and issue Facility Letters of Credit hereunder as a result of any Default (other than any Default as described in Section 7.6 or 7.7 with respect to any 78 86 Borrower) and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) shall so direct, the Agent shall, by notice to Group, rescind and annul such acceleration and/or termination. 8.2. Amendments. Subject to the provisions of this Article VIII, the Required Lenders (or the Agent with the consent in writing of the Required Lenders) and the Borrowers may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Borrowers hereunder or waiving any Default hereunder; provided, however, that no such supplemental agreement shall, without the consent of each Lender affected thereby and each Bridge Lender: (a) Extend the final maturity of any Loan or Note or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest or fees thereon; (b) Reduce the percentage specified in the definition of Required Lenders; (c) Reduce the amount or extend the payment date for the mandatory payments required under Section 2.1 or 2.9, or increase the amount of the Commitment of any Lender hereunder, or permit any Borrower to assign its rights under this Agreement; (d) Extend the Revolving Loan Termination Date or the Term Loan Termination Date; (e) Amend this Section 8.2; (f) Release any Guarantor from a Guaranty or terminate the Pledge Agreement or release any note pledged thereunder; (g) Consent to any assignment by any Borrower of the Obligations; or (h) Increase the maximum drawable amount or extend the expiration date of any outstanding Facility Letter of Credit (except as expressly permitted by its terms) or reduce the principal amount of or extend the time of payment of any Facility Letter of Credit Reimbursement Obligation or fee associated with any Facility Letter of Credit. No amendment of any provision of this Agreement relating to the Agent shall be effective without the written consent of the Agent. The Agent may waive payment of the fee required under Section 12.3.2 without obtaining the consent of any other party to this Agreement. 8.3. Preservation of Rights. No delay or omission of the Lenders or the Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Loan notwithstanding the existence of a Default or the inability of a Borrower to satisfy the conditions precedent to such Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents 79 87 whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.2, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Agent and the Lenders until the Obligations have been paid in full. 8.4. Application of Funds. Any amounts received by the Agent or any Lender after a Default has occurred and is continuing shall be applied by the Agent to payment of the Obligations hereunder and the Bridge Obligations unless a court of competent jurisdiction or, with respect to clauses (b) and (c), the Required Lenders shall otherwise direct: (a) FIRST, to all reasonable costs and expenses of the Agent, the Lenders and the Bridge Lenders incurred in connection with the collection and enforcement of the Obligations hereunder and the Bridge Obligations on a pro rata basis, together with interest at the Default Rate on such costs, expenses and liabilities and on all advances made by the Agent, any Lender or any Bridge Lender from the date any such cost, expense or liability is due, owing or unpaid or any such advance is made, in each case until paid in full; (b) SECOND, to payment of that portion of the Obligations hereunder and the Bridge Obligations on a pro rata basis, in each case constituting accrued and unpaid interest and fees, together with interest owing thereon until paid in full; (c) THIRD, to payment of the principal of the Obligations hereunder and the Bridge Obligations on a pro rata basis, and net termination amounts payable in respect of the Rate Hedging Obligations owing to the Lenders or the Bridge Lenders or any Lender or any Bridge Lender, together with interest on such unpaid principal and net termination amounts until paid in full; and (d) FOURTH, the balance, if any, after all of the Obligations hereunder and the Bridge Obligations have been satisfied, shall be remitted as required by law. ARTICLE IX GENERAL PROVISIONS 9.1. Survival of Representations. All representations and warranties of the Borrowers contained in this Agreement or of Industries or any Subsidiary contained in any Loan Document shall survive delivery of the Notes and the making of the Loans herein contemplated. 9.2. Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to any Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation. 9.3. Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 80 88 9.4. Entire Agreement. The Loan Documents embody the entire agreement and understanding among the Borrowers, the Agent and the Lenders and supersede all prior agreements and understandings among the Borrowers, the Agent and the Lenders relating to the subject matter thereof other than the fee letter dated January 31, 1997 among First Chicago, Group and the Arranger. 9.5. Several Obligations; Benefits of this Agreement. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns. 9.6. Expenses; Indemnification. (a) Industries and each Borrower shall reimburse the Agent for any reasonable costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees and time charges of attorneys for the Agent, which attorneys may be employees of the Agent) paid or incurred by the Agent in connection with the preparation, negotiation, execution, delivery, review, amendment, modification, syndication and administration of the Loan Documents. Industries and each Borrower also agrees to reimburse the Agent and the Lenders for any reasonable costs, internal charges and out-of-pocket expenses (including attorneys' fees and time charges of attorneys for the Agent and the Lenders, which attorneys may be employees of the Agent or the Lenders) paid or incurred by the Agent or any Lender in connection with the collection and enforcement of the Loan Documents. Industries and each Borrower further agrees to indemnify the Agent, the Arranger and each Lender, its directors, officers and employees against all losses, injuries, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all court costs, attorneys' fees, expenses of litigation or preparation therefor whether or not the Agent, the Arranger or any Lender is a party thereto) (collectively, "Indemnified Expenses") which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents or the Transaction Documents, the transactions contemplated hereby or thereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder, unless it is determined by a judgment of a court that is binding on the Agent, the Arranger or such Lender, final and not subject to review on appeal, that such losses were solely the result of acts or omissions on the part of the Agent, the Arranger or such Lender, as the case may be, constituting gross negligence, willful misconduct or knowing violations of law. The obligations of Industries and each Borrower under this Section shall survive the termination of this Agreement. (b) Each Borrower shall indemnify, pay and hold the Agent and each Lender harmless from and against any and all Indemnified Expenses incurred or suffered by or asserted against the Agent or such Lender by reason of any violation of any applicable Environmental Law for which Industries or any of its Subsidiaries is liable or which is related to any real estate owned, leased or operated by Industries or any of its Subsidiaries, or by reason of the imposition of any governmental lien for the recovery of environmental cleanup or response costs expended by reason of any such violation, or by reason of any breach of any representation, warranty or affirmative or negative covenant of this Agreement, including, without limitation, by reason of any matter disclosed in Schedule 5.22 hereto, unless it is determined by a judgment of a court that is binding on the Agent or such Lender, final and not subject to review on appeal, that such losses were solely the result of 81 89 acts or omissions on the part of the Agent or such Lender, as the case may be, constituting gross negligence, willful misconduct or knowing violations of law; provided, however, that, to the extent that Industries or any of its Subsidiaries is strictly liable under any such statute, order or regulation, the Borrowers' obligation to the Agent and each Lender under this indemnity shall likewise be without regard to fault on the part of Industries or any of its Subsidiaries with respect to the violation of law which results in liability to the Agent or any Lender. The provisions of and undertakings and indemnification set out in this Section 9.6(b) shall survive the termination of this Agreement and the payment and satisfaction of the Obligations, and shall continue to be the liability, obligation and indemnification of each Borrower, binding upon such Borrower. (c) Industries and each Borrower agrees not to settle any claim, litigation or proceeding relating to this transaction (whether or not the Agent, the Arranger or any Lender is a party thereto) unless such settlement releases all indemnified Persons hereunder from any and all liability in respect of such transaction. 9.7. Numbers of Documents. All statements, notices, closing documents, and requests hereunder shall be furnished to the Agent with sufficient counterparts so that the Agent may furnish one to each of the Lenders. 9.8. Accounting. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with Agreement Accounting Principles. 9.9. Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.10. Nonliability of Lenders. The relationship between the Borrowers and the Lenders and the Agent shall be solely that of borrower and lender. Neither the Agent nor any Lender shall have any fiduciary responsibilities to any Borrower. Neither the Agent nor any Lender undertakes any responsibility to any Borrower to review or inform such Borrower of any matter in connection with any phase of such Borrower's business or operations. Each Borrower shall rely entirely upon its own judgment with respect to its business, and any review, inspection or supervision of, or information supplied to any Borrower by the Agent or the Lenders is for the protection of the Agent and the Lenders and neither any Borrower nor any other Person is entitled to rely thereon. Each Borrower (a) agrees that neither the Agent nor any Lender shall have liability to such Borrower (whether sounding in tort, contract or otherwise) for losses suffered by such Borrower in connection with, arising out of, or in any way related to, the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined by a judgment of a court that is binding on the Agent or such Lender, final and not subject to review on appeal, that such losses were solely the result of acts or omissions on the part of the Agent or such Lender, as the case may be, constituting gross negligence, willful misconduct or knowing violations of law, and (b) waives, releases and agrees not to sue upon any claim against the Agent or any Lender (whether sounding in tort, contract or otherwise) except a 82 90 claim based upon gross negligence, willful misconduct or knowing violations of law. Whether or not such damages are related to a claim that is subject to the waiver effected above and whether or not such waiver is effective, none of the Agent, the Arranger nor any Lender shall have any liability with respect to, and each Borrower hereby waives, releases and agrees not to sue for, any special, indirect or consequential damages on any theory of liability suffered by such Borrower in connection with, arising out of, or in any way related to the transactions contemplated or the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined by a judgment of a court that is binding on the Agent or such Lender, as the case may be, final and not subject to review on appeal, that such damages were solely the result of acts or omissions on the part of the Agent or such Lender, as the case may be, constituting gross negligence, willful misconduct or knowing violations of law. 9.11. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS, WITHOUT REGARD TO CONFLICT OF LAWS PROVISIONS, OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 9.12. CONSENT TO JURISDICTION. EACH OF INDUSTRIES AND EACH BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND EACH OF INDUSTRIES AND EACH BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. EACH BORROWER HEREBY IRREVOCABLY DESIGNATES AND APPOINTS INDUSTRIES, CURRENTLY LOCATED AT 775 CORPORATE WOODS PARKWAY, VERNON HILLS, ILLINOIS 60061 AS ITS ATTORNEY-IN-FACT AND AGENT TO RECEIVE ON BEHALF OF SUCH BORROWER SERVICE OF PROCESS OR OTHER LEGAL SUMMONS FOR PURPOSES OF ANY SUCH ACTION OR PROCEEDING. AS AN ALTERNATIVE METHOD OF SERVICE, EACH BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH BORROWER AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW OR IN THE AGREEMENT OF JOINDER EXECUTED BY SUCH SUBSIDIARY, IF APPLICABLE. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST INDUSTRIES OR ANY BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY INDUSTRIES OR ANY BORROWER AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS; 83 91 PROVIDED, THAT SUCH PROCEEDINGS MAY BE BROUGHT IN OTHER COURTS IF JURISDICTION MAY NOT BE OBTAINED IN A COURT IN CHICAGO, ILLINOIS. 9.13. WAIVER OF JURY TRIAL. INDUSTRIES, EACH BORROWER, THE AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. 9.14. Disclosure. Each Borrower and each Lender hereby (a) acknowledge and agree that First Chicago and/or its Affiliates from time to time may hold other investments in, make other loans to or have other relationships with Industries and its Subsidiaries, including, without limitation, in connection with any interest rate hedging instruments or agreements or swap transactions, and (b) waive any liability of First Chicago or such Affiliate in connection with the transaction contemplated hereby to Industries or any of its Subsidiaries or any Lender, respectively, arising out of or resulting from such investments, loans or relationships other than liabilities arising out of the gross negligence, willful misconduct or knowing violation of law by First Chicago or its Affiliates. 9.15. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by each Borrower, the Agent and the Lenders and each party has notified the Agent by telex or telephone, that it has taken such action. ARTICLE X THE AGENT 10.1. Appointment. First Chicago is hereby appointed Agent hereunder and under each other Loan Document, and each of the Lenders authorizes the Agent to act as the agent of such Lender. The Agent agrees to act as such upon the express conditions contained in this Article X. The Agent shall not have a fiduciary relationship in respect of any Lender by reason of this Agreement. 10.2. Powers. The Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder, except any action specifically provided by the Loan Documents to be taken by the Agent. 10.3. General Immunity. Neither the Agent nor any of its directors, officers, agents or employees shall be liable to any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except for its or their own gross negligence or willful misconduct. 84 92 10.4. No Responsibility for Loans, Recitals, etc. Neither the Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (a) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder, (b) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, (c) the satisfaction of any condition specified in Article IV, except receipt of items required to be delivered to the Agent and not waived at closing, or (d) the validity, effectiveness or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith. 10.5. Action on Instructions of Lenders. The Agent shall in all cases be fully protected by the Lenders in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders and on all holders of Notes. The Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. 10.6. Employment of Agents and Counsel. The Agent may execute any of its duties as Agent hereunder and under any other Loan Document by or through employees, agents and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder and under any other Loan Document. 10.7. Reliance on Documents; Counsel. The Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Agent, which counsel may be employees of the Agent. 10.8. Agent's Reimbursement and Indemnification. The Lenders agree to reimburse and indemnify the Agent ratably in proportion to their respective Commitments (a) for any amounts not reimbursed by the Borrowers for which the Agent is entitled to reimbursement by the Borrowers under the Loan Documents, (b) for any other expenses incurred by the Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents, and (c) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby, or the enforcement of any of the terms thereof or of any such other documents; provided, that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Agent. The obligations of the Lenders under this Section 10.8 shall survive payment of the Obligations and termination of this Agreement. 85 93 10.9. Rights as a Lender. In the event the Agent is a Lender, the Agent shall have the same rights and powers hereunder and under any other Loan Document as any Lender and may exercise the same as though it were not the Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is a Lender, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with Industries or any of its Subsidiaries in which Industries or such Subsidiary is not restricted hereby from engaging with any other Person. The Agent, in its individual capacity, is not obligated to remain a Lender. 10.10. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements prepared by Industries and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. 10.11. Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and Group, and the Agent may be removed at any time with or without cause by written notice received by the Agent from the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty days after the retiring Agent's giving notice of resignation, then the retiring Agent may appoint a successor Agent. Such successor Agent shall be a commercial bank having capital and retained earnings of at least $50,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Agent, and the retiring or removed Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents. After any retiring or removed Agent's resignation or removal hereunder as Agent, the provisions of this Article X shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent hereunder and under the other Loan Documents. 10.12. Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Unmatured Default hereunder unless the Agent has received notice from a Lender or any Borrower referring to this Agreement describing such Default or Unmatured Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give prompt notice thereof to the Lenders. Subject to the provisions of Section 10.5, the Agent shall take any action of the type specified in this Agreement with respect to such Default or Unmatured Default as shall be reasonably directed by the Required Lenders (or, if so required by Section 8.2, by all Lenders); provided, that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Unmatured Default as the Agent shall determine is in the best interests of the Lenders. 86 94 ARTICLE XI SETOFF; RATABLE PAYMENTS 11.1. Setoff. In addition to, and without limitation of, any rights of the Lenders under applicable law, if any Borrower becomes insolvent, however evidenced, or any Default occurs, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender to or for the credit or account of any Borrower may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part hereof, shall then be due. 11.2. Ratable Payments. If any Lender, whether by setoff or otherwise, has payment made to it upon its Loans (other than payments received pursuant to Section 3.1, 3.2 or 3.4) in a greater proportion than its Pro-Rata Share of such Loans, such Lender agrees, promptly upon demand, to purchase a portion of the Loans held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of Loans. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Loans. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. If an amount to be setoff is to be applied to Indebtedness of any Borrower to a Lender, other than Indebtedness evidenced by any of the Notes held by such Lender, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness evidenced by such Notes. ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 12.1. Successors and Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrowers and the Lenders and their respective successors and assigns, except that (a) no Borrower shall have the right to assign its rights or obligations under the Loan Documents, and (b) any assignment by any Lender must be made in compliance with Section 12.3. Notwithstanding clause (b) of this Section, any Lender may at any time, without the consent of the Borrowers or the Agent, assign all or any portion of its rights under this Agreement and its Notes to a Federal Reserve Bank; provided, however, that no such assignment to a Federal Reserve Bank shall release the transferor Lender from its obligations hereunder. The Agent and the Borrowers may treat the payee of any Note as the owner thereof for all purposes hereof unless and until such payee complies with Section 12.3 in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Agent and Group. Any assignee or transferee of a Note agrees by acceptance thereof to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the holder of any Note, shall be 87 95 conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor. 12.2. Participations. 12.2.1. Permitted Participants; Effect. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities (" Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the holder of any such Note for all purposes under the Loan Documents, all amounts payable by the Borrowers under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrowers and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. Each Lender shall notify Group of each sale to a Participant (other than an Affiliate or another Lender); provided, that any failure to give any such notice shall not give rise to any liability hereunder. 12.2.2. Voting Rights. Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver which effects any of the modifications referenced in clauses (a) through (g) of Section 8.2. 12.2.3. Benefit of Setoff. Each Borrower agrees that each Participant shall be deemed to have the right of setoff provided in Section 11.1 in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents; provided, that each Lender shall retain the right of setoff provided in Section 11.1 with respect to the amount of participating interests sold to each Participant. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.1, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.2 as if each Participant were a Lender. 12.3. Assignments. 12.3.1. Permitted Assignments. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks or other entities (" Purchasers") all or any part of its rights and obligations under the Loan Documents in an amount equal to or greater than $5,000,000; provided that if such Purchaser is a Lender immediately prior to such assignment, no such minimum amount shall apply to such assignment. Such assignment shall be substantially in the form of Exhibit F hereto (an "Assignment and Acceptance") or in such other form as may be agreed to by the parties 88 96 thereto. The consent of Group (unless a Default shall have occurred and then be continuing) and the Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender or an Affiliate thereof. Such consent shall not be unreasonably withheld. 12.3.2. Effect; Effective Date. Upon (a) delivery to the Agent of a notice of assignment, substantially in the form attached as Exhibit I to Exhibit F hereto (a "Notice of Assignment"), together with any consents required by Section 12.3.1, and (b) payment of a $3,500 fee to the Agent for processing such assignment (which fee shall be the sole responsibility of the assigning Lender or the Purchaser), such assignment shall become effective on the effective date specified in such Notice of Assignment. On and after the effective date of such assignment, (a) such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and (b) the transferor Lender shall be released with respect to the percentage of the Aggregate Commitment and Loans assigned to such Purchaser without any further consent or action by the Borrowers, the Lenders or the Agent. Upon the consummation of any assignment to a Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Agent and the Borrowers shall make appropriate arrangements so that replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their Commitment, as adjusted pursuant to such assignment. 12.4. Dissemination of Information. Each Borrower authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in such Lender's possession concerning the creditworthiness of the Borrower and its Subsidiaries. Each of the Agent and each Lender agree that (a) it will keep all of the information obtained by it from or on behalf of any Loan Party ("Information") confidential and, without Group's prior written consent, it will not disclose any Information except (i) to its directors, employees, auditors or counsel (collectively, "Representatives") to whom it is necessary to show the Information, each of which shall be informed of the confidential nature of the Information; (ii) in any statement or testimony pursuant to a subpoena or order by any court, governmental body or other agency asserting jurisdiction over it, or as otherwise may be required by law (provided that Group shall be given prior notice of the disclosure permitted by clause (ii) unless such notice is prohibited by any subpoena, order or law); and (iii) upon the request or demand of any regulatory agency or authority having jurisdiction over it; and (b) it will use the Information only for the purposes of exercising its rights and remedies under this Agreement and the other Loan Documents. Notwithstanding the foregoing, the restrictions contained in the preceding sentence shall not apply to Information which (a) is or becomes generally available to the public other than as a result of a disclosure by the Agent, any Lender or any of their respective representatives; (b) becomes available to the Agent or any Lender on a non-confidential basis from a source other than Group or another Loan Party; or (c) was known to the Agent or a Lender on a non-confidential basis prior to its disclosure to it by or on behalf of Group or any other Loan Party. 89 97 12.5. Tax Treatment. If any interest in any Loan Document is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 2.20. ARTICLE XIII NOTICES 13.1. Giving Notice. Except as otherwise permitted by Section 2.15 with respect to borrowing notices, all notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing, by facsimile, first class U.S. mail or overnight courier and addressed or delivered to such party at its address set forth below its signature hereto or with respect to each of the Additional Borrowing Subsidiaries, in its Agreement of Joinder, or at such other address as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with first class postage prepaid, return receipt requested, shall be deemed given three (3) Business Days after deposit in the U.S. mail; any notice, if transmitted by facsimile, shall be deemed given when transmitted; and any notice given by overnight courier shall be deemed given when received by the addressee. Wherever under this Agreement or under any other Loan Document any certificate or other writing is given by any director, officer or employee of Industries or any Subsidiary, such certificate or other writing shall be delivered by such director, officer or employee on behalf of Industries or such Subsidiary in his or her capacity as a director, officer or employee and not in his or her individual capacity. 13.2. Change of Address. Any Borrower, the Agent and any Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto. [signature pages to follow] 90 98 IN WITNESS WHEREOF, Group, Delfield, Scotsman Drink, Whitlenge, Frimont, Castel MAC, Industries, the Lenders and the Agent have executed this Agreement as of the date first above written. SCOTSMAN GROUP INC. By:/s/ D. D. Holmes ---------------------------------------- Print Name:D. D. Holmes ---------------------------------- Title:Vice President - Finance ---------------------------------- Address: 775 Corporate Woods Parkway Vernon Hills, Illinois 60061 Attn: Donald D. Holmes Telecopy: (847) 634-8823 Telephone: (847) 215-4447 THE DELFIELD COMPANY By:/s/ D. D. Holmes ---------------------------------------- Print Name:D. D. Holmes ---------------------------------- Title:Vice President ---------------------------------- Address: 775 Corporate Woods Parkway Vernon Hills, Illinois 60061 Attn: Donald D. Holmes Telecopy: (847) 634-8823 Telephone: (847) 215-4447 99 SCOTSMAN DRINK LIMITED By:/s/ D. D. Holmes ---------------------------------------- Print Name:D. D. Holmes ----------------------------- Title:Director ---------------------------------- Address: 775 Corporate Woods Parkway Vernon Hills, Illinois 60061 Attn: Donald D. Holmes Telecopy: (847) 634-8823 Telephone: (847) 215-4447 WHITLENGE DRINK EQUIPMENT LIMITED By:/s/ D. D. Holmes ---------------------------------------- Print Name:D. D. Holmes ----------------------------- Title:Director ---------------------------------- Address: 775 Corporate Woods Parkway Vernon Hills, Illinois 60061 Attn: Donald D. Holmes Telecopy: (847) 634-8823 Telephone: (847) 215-4447 100 FRIMONT S.P.A By:/s/ D. D. Holmes ---------------------------------------- Print Name:D. D. Holmes ----------------------------- Title:Director ---------------------------------- Address: 775 Corporate Woods Parkway Vernon Hills, Illinois 60061 Attn: Donald D. Holmes Telecopy: (847) 634-8823 Telephone: (847) 215-4447 CASTEL MAC S.P.A. By:/s/ D. D. Holmes --------------------------------------- Print Name:D. D. Holmes ---------------------------- Title:Director --------------------------------- Address: 775 Corporate Woods Parkway Vernon Hills, Illinois 60061 Attn: Donald D. Holmes Telecopy: (847) 634-8823 Telephone: (847) 215-4447 101 KYSOR INDUSTRIAL CORPORATION By:/s/ R. C. Osborne --------------------------------------- Print Name:R. C. Osborne ---------------------------- Title: --------------------------------- Address: Attn: Telecopy: Telephone: The undersigned is executing this Agreement only for purposes of Articles V, VI, IX and XIII of this Agreement: SCOTSMAN INDUSTRIES, INC. By:/s/ D. D. Holmes --------------------------------------- Print Name:D. D. Holmes ---------------------------- Title:Vice President - Finance --------------------------------- Address: 775 Corporate Woods Parkway Vernon Hills, Illinois 60061 Attn: Donald D. Homes Telecopy: (847) 634-8823 Telephone: (847) 215-4447 102 Commitments: $415,000,000 THE FIRST NATIONAL BANK OF CHICAGO, Individually and as Agent By:/s/ Julia Bristow --------------------------------------- Print Name:Julia Bristow ---------------------------- Title:Vice President --------------------------------- Address: One First National Plaza Chicago, Illinois 60670 Attn: Julia Bristow Telecopy: (312) 732-1117 Telephone: (312) 732-5927 EX-10.5 3 PROMISSORY NOTE 1 EXHIBIT 10.5 TAX I.D. NO. 36-3635935 PROMISSORY NOTE $15,000,000.00 Detroit, Michigan March 12, 1997 On or before March 12, 1998, FOR VALUE RECEIVED, the undersigned, SCOTSMAN GROUP INC., a Delaware corporation (herein called "Maker") promises to pay to the order of COMERICA BANK, a Michigan banking corporation (herein called "Bank"), at the principal office of Bank at Detroit, Michigan in lawful currency of the United States of America, FIFTEEN MILLION DOLLARS ($15,000,000.00) 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. 2 This Note replaces the two Promissory Notes dated June 30, 1996 by Maker payable to Bank in the principal amounts of $5,000,000 and $6,000,000. 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. Revolving Credit Agreement dated as of March 12, 1997, among Maker, certain affiliates of Maker, The First National Bank or 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 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: Vice President-Finance ---------------------- 3 EXHIBIT "A" REQUEST FOR ADVANCE TO: COMERICA BANK (the "Bank") The undersigned hereby requests an advance, or confirms such a request made by telephone, under the Fifteen Million Dollar ($15,000,000.00) Promissory Note dated March 12, 1997, 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 March 12, 1997, 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 REAFFIRMATION OF GUARANTY AND CONSENT The UNDERSIGNED has previously executed a Guaranty Agreement dated June 30, 1996 (the "Guaranty") in favor of COMERICA BANK (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 Notes dated June 30, 1996 in the principal sum of $5,000,000 and $6,000,000, respectively, payable to the order of Lender with interest as therein described, with the entire unpaid principal balance and accrued interest due on June 30, 1997 (the "Revolving Notes") evidencing an $11,000,000 guidance line of credit (the "Revolving Loans") 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 Loans from $11,000,000 to $15,000,000 and extend the maturity date thereof to March 12, 1998, which would require the Borrower to execute a new Promissory Note in the principal sum of $15,000,000 payable to the order of Lender with interest as therein described and with a maturity date of March 12, 1998 (the "New Note"). The undersigned has reviewed the New Note and fully understands its terms and provisions. To induce Lender to increase the Revolving Loan to $15,000,000 and extend the maturity date thereof to March 12, 1998 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 Note; 3. The liability of the undersigned to the Lender under the Guaranty shall in no way he affected, modified, altered, or discharged in any fashion by the Borrower's execution, delivery or performance of the New Note; 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 any and all such claims, defenses, offsets and counterclaims, whether known or unknown, are forever waived and released, 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 to Lender in accordance with the terms 5 of the Guaranty, including without limitation, the indebtedness evidenced by the New Note, and all extensions, renewals, modifications, and refinancings thereof. Dated: March 12, 1997 WITNESSES: SCOTSMAN INDUSTRIES, INC. /s/ R. C. Osborne By: /s/ D. D. Holmes ---------------------------- ------------------- Its: Vice President ------------------- 6 GUARANTY (Unlimited) This Guaranty is executed and delivered an March 12, 1997, by the undersigned (collectively "Guarantor") whose address is 775 Corporate Woods Parkway, Vernon Hills, Illinois, to COMERICA BANK, a Michigan banking corporation ("Bank") of Detroit, Michigan. WHEREAS, SCOTSMAN GROUP, INC., a Delaware corporation, whose address is 775 Corporate Woods Parkway, Vernon Hills, Illinois ("Borrower") desires to enter into one or more banking transactions with and thereby become obligated to Bank, for the payment of one or more Liabilities, as defined below, from time to time, though it may not be continuously, and/or to obtain other credit accommodations from Bank from time to time; and WHEREAS, Guarantor desire(s) to see the success of, and/or receive(s) direct and/or indirect benefits from the Borrower as general or limited partner, shareholder, subsidiary, affiliate or otherwise. NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which is hereby acknowledged, and to induce Bank to enter into banking transactions with or otherwise make credit accommodations in favor of the Borrower, the GUARANTOR HEREBY UNCONDITIONALLY AND ABSOLUTELY GUARANTEES TO BANK the prompt payment when due, whether at maturity or on any accelerated or extended payment date or otherwise, of any and all Liabilities, until such Liabilities are fully paid and satisfied as to principal, interest and other sums due and payable thereunder. "Liabilities" shall mean all indebtedness and obligations of Borrower ("Borrower" wherever used herein shall include any partnership, firm, corporation, or other organization or entity succeeding in whole or substantial part whether immediately or otherwise to the business and/or property with or without the liabilities of the above named Borrower) to Bank whatsoever, present or future, direct or indirect, absolute or contingent, now or hereafter existing or arising, due or to become due, howsoever arising or evidenced, including, but not limited to, any borrowings of Borrower evidenced by Borrower's promissory notes, obligations under reimbursement or letter of credit agreements naming Borrower as account party, and obligations of Borrower on any note, draft or other instrument, whether or not negotiable in form, upon which Borrower is primarily or secondarily liable, which may be paid, accepted, purchased or discounted by Bank, whether or not such indebtedness or obligation is known to Guarantor now or at the time such indebtedness or obligation is incurred, and all amendments, renewals or extensions, in whole or in part, of any such indebtedness or obligations. Guarantor shall also pay, on demand, any and all expenses (including without limitation reasonable attorneys fees) which may be incurred or paid by Bank in preserving, protecting or enforcing any of its rights or remedies in connection with or collecting against Guarantor under, this Guaranty (Collection Costs"). 7 Guarantor further agrees as follows: 1. Absolute and Unconditional Obligation. This Guaranty is a guaranty of payment and not of collection. The obligation of the Guarantor under this Guaranty (the "Obligation") shall be absolute and primary, and complete and binding as to each Guarantor and subject to no condition whatever, precedent or otherwise, irrespective of the validity, regularity or enforceability of any of the Liabilities, the absence of any action to enforce the same, any waiver or consent with respect thereto, or any failure or delay in the enforcement thereof. Notice of acceptance hereof or action in reliance hereon shall not be required. Bank shall be under no obligation to give Guarantor notice of Borrower's incurring future Liabilities to Bank or amendments, renewals or extensions of any Liabilities, or any other fact or matter pertaining to Borrower. Nor shall the Obligation be affected by the bankruptcy, insolvency, incompetence or death, or any change in ownership or control, of the Borrower, or of any other party. The Obligation shall be independent of and in addition to any similar obligation or other liability of the Guarantor to Bank. 2. Waiver. Guarantor waives presentment, demand, protest, notice of protest or dishonor, diligence in collecting the Liabilities, any requirement first to proceed against the Borrower or against any guarantor or other party, or to exhaust any security for the performance of any of the Liabilities. Any collateral or other security of Borrower or any other party or any guaranty or other obligation of any party which Bank now or subsequently holds may be released or otherwise dealt with by Bank in all respects as though this Guaranty were not in existence and the Obligation shall be in no way affected thereby, Guarantor hereby waiving and foregoing all rights in respect of any action, or failure to act, by Bank regarding such collateral or other security. 3. Continuing Obligation. The Obligation shall be continuing and, irrespective of any statute of limitations otherwise applicable, shall cover all Liabilities incurred by Borrower before any revocation of this Guaranty becomes effective as provided below (and shall also include Liabilities of the Borrower incurred after such revocation pursuant to any agreement to lend, whether optional or obligatory, existing at the date of revocation), and as to any Liabilities so incurred, shall continue until the same are fully paid and satisfied. The bankruptcy or insolvency of any Guarantor or revocation by any Guarantor shall not affect the Obligation of any others, but such others shall continue to be liable for the Liabilities (including future Liabilities) as though such bankrupt, insolvent or revoking party had not been a party hereto. Bank may, if it so desires (but shall not be obligated to do so), file a claim under this Guaranty in any such bankruptcy or insolvency proceeding, provided that the continuance of the Obligation in accordance with this Guaranty shall not be affected thereby. The Obligation shall also survive the death of any or all of the undersigned and shall be binding upon the estate of any deceased party and upon any surviving party for all Liabilities (including future Liabilities), the same as if such death had not occurred. Bank shall be under no duty to the estate or to any survivor or to any other Guarantor, to present any claim based on this Guaranty against the estate of any deceased party. 8 4. Revocation. Guarantor (or any of them) may revoke this Guaranty only as herein provided, and not otherwise. Revocation shall be in writing signed by the revoking party, or, if deceased, by the personal representative of such party, and shall be delivered to the President, Secretary, or any Vice President of Bank in person at Bank, and shall become effective at the opening of business on the day next succeeding the delivery thereof. Any such revocation shall have prospective effect only, from and after the effective date of revocation, and shall not terminate or otherwise affect the Obligation of the revoking party existing prior to the effective date of revocation. 5. Subrogation. Guarantor expressly waives any claim for reimbursement, contribution, indemnity, or subrogation which the Guarantor may have or obtain against the Borrower by reason of payment by the Guarantor of any of the Liabilities. In the event of the liquidation, reorganization or bankruptcy of Borrower (whether voluntary or involuntary) or in the event that Borrower shall make an arrangement or composition with its creditors or become subject to any receivership or other insolvency proceedings, Bank shall be entitled to receive all dividends or other payments with respect to the Liabilities until its claims have been paid in full, and Guarantor shall continue to be liable to Bank to the extent provided herein for any balance of the Liabilities which may be owing to Bank. If any amount shall be paid to or received by Guarantor on account of any subrogation rights arising at any time when all Liabilities shall not have been paid and discharged in full, such amount shall be held in trust by Guarantor for the benefit of Bank and shall forthwith be paid to Bank to be credited and applied against the Obligation. 6. Continued Effectiveness or Reinstatement. Notwithstanding any prior revocation, termination or discharge hereof, the effectiveness of this Guaranty shall continue to be reinstated, as the case may be, in the event that (a) any payment received or credit given by Bank in respect of the Liabilities is returned, disgorged or rescinded as an avoidable preference, impermissible setoff, fraudulent conveyance or otherwise under any applicable state or federal law, including, without limitation, laws pertaining to bankruptcy or insolvency, in which case this Guaranty shall thereafter be enforceable against Guarantor as if such returned, disgorged or rescinded payment or credit had not been received or given by Bank, and whether or not Bank relied upon such payment or credit or changed its position as a consequence thereof; or (b) any liability is imposed, or sought to be imposed, against Bank relating to the environmental condition of, or the present of hazardous or toxic substances on, in or about, any property mortgaged to Bank by the Borrower, Guarantor or any other party as collateral (in whole or in part) for any of the Liabilities, whether such condition is known or unknown, now exists or subsequently arises (excluding only conditions which arise after any acquisition by Bank of any such property, by foreclosure, in lieu of foreclosure or otherwise, due to the wrongful act or omission of Bank), in which case this Guaranty shall thereafter be enforceable against Guarantor to the extent of all liability, costs and expenses (including reasonable attorneys fees) incurred by Bank as the direct or indirect result of any such environmental condition or hazardous or toxic substances. For purposes of this Guaranty, "environmental condition" includes, without limitation, conditions existing with respect to the surface or ground water, drinking water supply, land surface or subsurface strata and the ambient air; and "hazardous or toxic substances" shall include any and 9 all substances now or subsequently determined by any federal, state or local authority to be hazardous or toxic, or otherwise regulated by any such authority. 7. Joint and Several Guaranty. If signed by more than one Guarantor, the obligation of the undersigned shall be joint and several, and, as used herein, "Guarantor" shall refer to the undersigned collectively, and to either or any of them. Bank, in its sole discretion, may release any one or more of the undersigned with or without consideration, and may fail or elect not to prove a claim against the estate of any bankrupt, insolvent, incompetent or deceased Guarantor, without reducing or otherwise affecting the liability of any other Guarantor. 8. General. This Guaranty may not be amended except by express writing instrument executed by Guarantor and Bank, and no waiver by any party shall be effective unless given in writing by such party. The rights and remedies provided for in this Guaranty are cumulative, and nothing herein shall limit any right or remedy granted Bank by other instrument or by law. If any term or provision of this Guaranty or its application to any circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Guaranty, or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Guaranty shall be valid and enforceable to the fullest extent permitted by law. Captions have been used in this Guaranty for convenience of reference only, and shall not be given substantive effect. This Guaranty shall be governed by and construed in accordance with the laws of the State of Michigan. 10 This Guaranty has been duly executed and delivered as of the date set forth above. Witnesses: BOOTH, INC. R. C. Osborne By: /s/ D. D. Holmes - ------------------------- -------------------------- Its: Vice President - ------------------------- -------------------------- DFC HOLDING CORPORATION By: /s/ D. D. Holmes -------------------------- Its: Vice President -------------------------- THE DELFIELD COMPANY By: /s/ D. D. Holmes -------------------------- Its: Vice President -------------------------- KYSOR INDUSTRIAL CORPORATION By: /s/ D. D. Holmes -------------------------- Its: Vice President -------------------------- Accepted by: COMERICA BANK, a Michigan banking corporation By: /s/ Gregory N. Block --------------------- Its: Vice President --------------------- EX-10.6 4 AMEND NO. 7 TO REIMBURSEMENT AGREEMENT 1 EXHIBIT 10.6 AMENDMENT NO. 7 TO REIMBURSEMENT AGREEMENT This Amendment No. 7 to Reimbursement Agreement (this "Amendment") is made effective as of March 12, 1997 and is by and among Scotsman Group Inc., a Delaware corporation ("Scotsman Group"), Scotsman Industries, Inc., a Delaware corporation and the parent of Scotsman Group ("Scotsman Industries"), The First National Bank of Chicago (the "Bank"), and The Bank of Nova Scotia ("BNS") for the purpose of evidencing the replacement of BNS by the Bank under the Reimbursement Agreement (as defined below) . WITNESSETH: WHEREAS, Scotsman Group, Scotsman Industries and BNS are parties to a Reimbursement Agreement dated as of March 1, 1988, as amended (the "Reimbursement Agreement"), pursuant to which Scotsman Group has agreed to reimburse BNS for certain payments made by BNS in connection with an irrevocable letter of credit issued by BNS to provide funds for the payment when due of all principal of, and premium and interest on (or, in certain circumstances, the purchase price of) $9,250,000 aggregate principal amount of Industrial Revenue Refunding Bonds Series 1988 (King-Seeley Thermos Co. Project) (the "Bonds") issued by Allendale County, South Carolina (the "Issuer"); and WHEREAS, the Bank will issue a Substitute Letter of Credit (as defined in the Reimbursement Agreement) under the Indenture of Trust dated as of March 1, 1988, between the Issuer and Fleet National Bank, as trustee; and 2 WHEREAS, Scotsman Group agrees to reimburse the Bank for payments made under such Substitute Letter of Credit in accordance with the terms of the Reimbursement Agreement, as amended by this Amendment; and WHEREAS, Scotsman Group, Scotsman Industries and BNS desire to amend the Reimbursement Agreement as hereinafter set forth; NOW THEREFORE, the parties agree as follows: Section 1. Amendment to Reimbursement Agreement. The Reimbursement Agreement is, as of the effective date of this Amendment, amended as follows: (i) (a) The definition of "Bank" is deleted from ARTICLE I of the Reimbursement Agreement in its entirety and replaced with the following: "Bank" means The First National Bank of Chicago. (b) The definition of "Credit Agreement" is deleted from ARTICLE I of the Reimbursement Agreement in its entirety and replaced with the following: "Credit Agreement" means that certain Credit Agreement dated as of March 12, 1997 among Scotsman Group Inc. and certain affiliates thereof, Scotsman Industries, Inc., the financial institutions named therein, and The First National Bank of Chicago, as Agent, as amended, restated, supplemented or modified from time to time. (ii) Paragraph (c) of Section 2.1 of the Reimbursement Agreement is deleted in its entirety and replaced with the following: c. Extensions of Letter of Credit At any time prior to November 1 of each year, the Borrower may request that the Bank extend the Stated Expiration Date. If the Bank, in its sole discretion exercisable no later than sixty (60) days after receiving such request, agrees to extend the Stated Expiration Date as requested by the Borrower, the Bank shall do so by delivering the notice of extension attached to the Letter of Credit to the Borrower and the Trustee. Upon the delivery of the aforesaid notice of 2 3 extension, the Stated Expiration Date shall be deemed to have been automatically extended for a one-year period from the then Stated Expiration Date. Each such extension shall, except as otherwise expressly provided in an amendment to this Agreement, be on the same terms and conditions as those set forth in this Agreement. (iii) Paragraph (f) of Section 6.1 of the Reimbursement Agreement is deleted in its entirety. (iv) Exhibit I to the Reimbursement Agreement is deleted in its entirety and there is inserted in its place the Form of Letter of Credit of the Bank attached to this Amendment as Exhibit A. Section 2. Assignment. As of the date hereof, BNS, without any representation, warranty or liability whatsoever, hereby irrevocably conveys, assigns and transfers to the Bank all of its right, title and interest under the Reimbursement Agreement and the Bank hereby irrevocably accepts such assignment from BNS on and as of the date hereof. Section 3. Reaffirmation. Each of Scotsman Group and Scotsman Industries hereby (i) acknowledges that the Bank is hereby made a party to the Reimbursement Agreement and (ii) reaffirms that its obligations under the Reimbursement Agreement continue in full force and effect (x) with respect to the Reimbursement Agreement and (y) as to the Bank as if the Bank were an original party thereto. Section 4. Representations and Warranties of Scotsman Group and Scotsman Industries. Scotsman Group and Scotsman Industries represent and warrant that the execution, delivery and performance by Scotsman Group and Scotsman Industries, respectively, of this Amendment have been duly authorized by all corporate action and that this Amendment is a legal, valid and binding obligation of Scotsman Group and Scotsman Industries, respectively, enforceable 3 4 against them in accordance with its terms, except as enforcement may be subject to (i) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally and (ii) general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law). Section 5. Additional Indemnification. In addition to any payments which may be due from time to time pursuant to Section 8.4 of the Reimbursement Agreement, each of Scotsman Group and Scotsman Industries agrees to pay any amounts which may be payable to the Bank in connection with the transactions contemplated by the Reimbursement Agreement, as amended hereby, pursuant to Section 9.6 of the Credit Agreement, which Section 9.6 (together with all related definitions), is incorporated by reference herein and made a part hereof. Section 6. Reference to and Effect on the Reimbursement Agreement. (a) Upon the effectiveness of this Agreement, on and after the date hereof each reference in the Reimbursement Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import shall mean and be a reference to the Reimbursement Agreement as amended. (b) Except as specifically amended, the Reimbursement Agreement shall remain in full force and effect. Section 7. Governing Law. This Amendment shall be governed by and construed in accordance with the internal laws of the State of Illinois (without regard to conflicts of laws provisions thereof). Section 8. Headings. Section headings in this Amendment are included for convenience of reference only and shall not constitute a part of this Amendment for any other purposes. 4 5 IN WITNESS WHEREOF, the parties to this Amendment have caused it to be executed by their duly authorized representative officers as of the date first above written. SCOTSMAN INDUSTRIES, INC. SCOTSMAN GROUP INC. By: /s/ R.C. Osborne By: /s/ R.C. Osborne -------------------------------- ---------------------------- Title: President & CEO Title: President ----------------------------- ------------------------- THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Julia A. Bristow -------------------------------- Title: Vice President ----------------------------- THE BANK OF NOVA SCOTIA By: /s/ F.C.H. Ashby -------------------------------- Title: Senior Manager Loan Operations ----------------------------- EX-10.8 5 LONG-TERM EXECUTIVE COMP. PLAN 1 EXHIBIT 10.8 SCOTSMAN INDUSTRIES, INC. LONG-TERM EXECUTIVE INCENTIVE COMPENSATION PLAN (As Amended February 13, 1997) 1. Purpose The purpose of the Long-Term Executive Incentive Compensation Plan (the "Plan") is to further the long-term growth of Scotsman Industries, Inc. (the "Company") and its divisions and subsidiaries by strengthening the ability of the Company to attract and retain key employees and to provide additional motivation and incentives for the performance of key employees. 2. Administration The Plan shall be administered by the Compensation Committee of the Company's Board of Directors (the "Committee"). The Committee shall consist of at least two such Directors as the Board may from time to time designate. Membership on the Committee shall be limited to members of the Board of Directors who meet the definitions of a "non-employee director" under Rule 16b-3 under Section 16 of the Securities Exchange Act of 1934, as amended, and an "outside director" under Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder. The Committee shall have such powers to administer the Plan as are delegated to it by the Plan or the Board of Directors, including the power to interpret the Plan and any agreements executed thereunder, to prescribe rules and regulations relating to the Plan, and to make all other determinations necessary or advisable for administering the Plan. 3. Grant of Awards; Shares Subject to Plan (a) The Committee may grant any type of award permitted under the terms of the Plan (all such awards in the aggregate being hereinafter referred to as "Awards"). Only employees of the Company and its divisions and subsidiaries may be selected by the Committee for Awards under the Plan. (b) The maximum number of shares of Common Stock of the Company that may be issued under the Plan is 1,000,000, all of which shares may be made subject to Options. The Common Stock issued pursuant to the Plan may consist of authorized and unissued shares of the Company's Common Stock or Common Stock held in the Company's treasury. If any Award granted under the Plan shall terminate or lapse for any reason, any shares of Common Stock subject to such Award shall again be available for the grant of an Award. (c) In the event of corporate changes affecting the Company's Common Stock or this Plan or Awards granted thereunder (including without limiting the generality of the foregoing, stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations, or other relevant changes in capitalization), the Board of Directors or the Committee shall make appropriate adjustments in price, number and kind of shares of Common Stock or other consideration subject to such Awards or in the terms of such Awards, which it deems equitable to prevent dilution or enlargement of rights under the Awards. In addition, the Board of Directors or the Committee may from time to time equitably change the aggregate number or remaining number or kind of shares which may be issued under the Plan to reflect any such corporate changes. 2 4. Options (a) The Committee may grant any type of statutory or non-statutory Option to purchase shares of the Company's Common Stock as is permitted by law at the time the Option is granted. The term of each Option shall not be more than ten years and one day from the date of grant and may be exercised at the rate set by the Committee. (b) The per share purchase price of the Company's Common Stock which may be acquired pursuant to an Option shall be at least 100% of the fair market value of one share of Common Stock of the Company on the date on which the Option is granted. Within this limitation such price shall be determined by the Committee. (c) Notwithstanding sub-section (b) above, the Compensation Committee in its discretion and for Options granted on or prior to April 20, 1989 may grant Options with a per share purchase price less than 100% of the fair market value of one share of the Company's Common stock on the date on which the Option is granted; however, the Compensation Committee may only grant Options pursuant to this sub-section (c) to former employees of Household Manufacturing, Inc. or its subsidiaries who have forfeited or will be forfeiting employee stock options previously granted by Household International, Inc. as a result of termination of employment. The exercise price for Options granted pursuant to this sub-section (c) at less than fair market value on the date of grant will be determined by the Compensation Committee based on the appreciation in value of Household International, Inc. employee stock options being forfeited. No Option shall be granted to an employee pursuant to this sub-section (c) unless such employee has agreed to forfeit any remaining rights such employee may have in options granted by Household International, Inc. (d) Payment for shares purchased upon the exercise of an Option shall be made in cash or, in the discretion of the Committee and subject to such rules as it may adopt, in shares of Common Stock of the Company valued at the then fair market of such shares or by a combination of cash and shares of Common Stock. (e) The Committee may, in its discretion and subject to such rules as it may adopt, permit an optionee to satisfy, in whole or in part, withholding tax obligations incurred in connection with the exercise of an Option: (1) by electing to have the Company withhold shares of the Company's Common Stock (otherwise deliverable to the optionee) in payment for such withholding tax obligation or (2) by delivering shares of the Company's Common stock owned by such holder in payment for such withholding tax obligation. 5. Stock Appreciation Rights (a) The Committee may grant stock appreciation rights ("SARs") in tandem with the grant of an Option under the Plan or with respect to a previously granted Option under the Plan. In either case the number of shares in respect of which SARs are granted by the Committee shall not be greater than the number of shares subject to the related Option. In exchange for the surrender in whole or in part of the right to exercise the related Option, such SAR shall entitle the employee to payment of an amount equal to the appreciation in value of the surrendered Options (the excess of the fair market value of such Stock subject to Options at the time of surrender over their aggregate option price). An SAR granted pursuant to this subsection (a) shall be 2 3 exercisable to the extent and only to the extent that the related Option is exercisable, but if an SAR is granted with respect to a previously-granted Option, the SAR will not be exercisable for a period of twelve months from the date of grant of such SAR. No such SAR shall be exercisable except upon surrender of the related Option, and to the extent such Option is surrendered, the shares covered by such Option shall again be available for purposes of the Plan to the extent that payment of such SAR is not made in shares of Common Stock of the Company. The exercise of any Option shall result in the cancellation of any related SAR. (b) The Committee may also grant units of SARs on a stand-alone basis which are not issued in tandem with Options. The term of each such SAR shall not be more than ten years from the date of grant and may be exercised at the rate set by the Committee; provided, however, that no such SAR shall be exercised less than one year from the date of grant. The "base price" of each unit of a "stand-alone" SAR shall be at least 100% of the fair market value of one share of Common Stock of the Company on the date on which such SAR is granted. Within this limitation the base price shall be determined by the Committee. Each unit of a "stand-alone" SAR entitles the holder, upon exercise, to payment of an amount equal to the difference between the base price of such SAR unit and the fair market value on the date of exercise of a share of Common Stock of the Company. (c) At the discretion of the Committee, payment upon exercise of SARs may be made in cash, in shares of Common Stock of the Company valued at their fair market value as of the date of exercise of the SAR, or partly in cash and partly in shares of Common Stock of the Company. (d) The Committee may establish a maximum appreciation value payable under an SAR. 6. Transfer of Options and Stock Appreciation Rights; Exercise of Options and Stock Appreciation Rights Following Termination of Employment (a) Options and SARs may not be transferred except by will or the laws of descent and distribution, and during the lifetime of the holder may be exercised only by him. If the holder of an Option or SAR shall cease to be an employee of the Company, a division, or a subsidiary, and unless otherwise provided by the Committee or as provided for in Section 8, all rights under such Option or SAR shall, subject to sub-section (b), terminate, as set forth below: (i) in the event of termination of a holder who is retirement-eligible under the terms of a pension plan of the Company or a subsidiary, the Option or SAR may be exercised within three years of the date of termination of employment (ii) in the event of termination of employment due to permanent and total disability of a holder who is not retirement-eligible under the terms of a pension plan of the Company or a subsidiary, the Option or SAR may be exercised within twelve months following the date of such termination of employment. (iii) in the event of death during employment, the Option or SAR may be exercised by the executor, administrator, or other personal representative of the holder within three years succeeding death if such holder was retirement-eligible under the terms of a pension plan of the Company or a subsidiary, or twelve months if such holder was not retirement-eligible under the terms of a pension plan of the Company or a subsidiary. (iv) in the event of termination of employment other than as set forth in subsections (i), (ii) or (iii) above, the Option or SAR may be exercised within three months following the date of termination. 3 4 (v) in the event of death of a holder of an Option or SAR following termination of employment, the Option or SAR may be exercised by the executor, administrator, or other personal representative of the holder, notwithstanding the time period specified in (i), (ii), (iii) or (iv) above, within (a) twelve months following death or (b) the remainder of the period in which the holder was entitled to exercise the Option or SAR, whichever period is longer. If the Committee determines that the termination is for cause, the Option or SAR will not under any circumstances be exercisable following termination of employment. (b) Notwithstanding the provisions of sub-section (a), an Option or SAR may not be exercised pursuant to this Section after the expiration of the term of such Option or SAR and may be exercised only to the extent that the holder is entitled to exercise such Option or SAR on the date of termination of employment. 7. Restricted Stock and Restricted Stock Rights (a) The Committee from time to time may grant shares of Common Stock of the Company to any employee selected by the Committee, subject to the forfeiture of such stock to the Company if such employee fails to remain an employee of the Company or a division, or any subsidiary for the period of time established by the Committee ("Restricted Stock"). The Committee may also grant Restricted Stock Rights ("RSRs") to any employee selected by the Committee, which would entitle such employee to receive a stated number of shares of Common Stock of the Company, subject to forfeiture of such RSRs if such employee fails to remain continuously an employee of the Company, a division, or any subsidiary for the period of time established by the Committee. (b) Restricted Stock and RSRs shall be subject to the following restrictions and limitations: (i) Restricted Stock and RSRs may not be transferred except by will or the laws of descent and distribution; (ii) Except as otherwise provided in Paragraphs (d) and (e) of this Section 7, or as provided in Section 8, Restricted Stock and RSRs and the shares subject to such RSRs shall be forfeited and all rights of a grantee of such Restricted Stock and RSRs and shares subject to RSRs shall terminate without any payment of consideration by the Company if the employee fails to remain continuously as an employee of the Company, a division, or any subsidiary for the period of time established by the Committee (the "Restricted Period"). A grantee shall not be deemed to have terminated his period of continuous employment with the Company, a division, or any subsidiary if he leaves the employ of the Company or any subsidiary for immediate reemployment with the Company, a division, or any subsidiary. (c) A holder of RSRs shall not be entitled to any of the rights of a holder of the Common Stock with respect to the shares subject to such RSRs prior to the issuance of such shares pursuant to the Plan. At the Committee's discretion, during the Restricted Period, for each share subject to RSRs, the Company may pay the holder an amount in cash equal to the cash dividend declared on a share of Common Stock of the Company during the Restricted Period on or about the date the Company pays such dividend to its stockholders of record. 4 5 (d) The Committee in its sole discretion may accelerate the termination of the Restricted Period with respect to any Restricted Stock and RSRs. (e) In the event that the employment of a holder terminates by reason of death or permanent and total disability, (i) a holder of Restricted Stock shall be entitled to have the risk of forfeiture removed from the number of shares of Restricted Stock multiplied by a fraction (x) the numerator of which shall be the number of full months between the date of grant of such Restricted Stock and the date of such termination of employment, and (y) the denominator of which shall be the number of full months in the Restricted Period; and (ii) a holder of RSRs shall be entitled to receive the number of shares subject to such RSRs multiplied by a fraction (x) the numerator of which shall be the number of full months between the date of such RSRs and the date of such termination of employment, and (y) the denominator of which shall be the number of full months in the Restricted Period; provided, however, that any fractional share shall not be awarded. A holder of Restricted Stock or RSRs whose employment terminates for reasons other than those listed in this paragraph will forfeit his rights under any outstanding shares of Restricted Stock or RSRs. This automatic forfeiture may be waived in whole or in part by the Committee in its sole discretion. (f) When a grantee shall be entitled to receive shares pursuant to RSRs, the Company shall issue the appropriate number of shares registered in the name of the grantee. 8. Change in Control The following provisions shall apply in the event of a "Change in Control": (a) In the event of a Change in Control, as defined in this Section 8: (i) any SARs outstanding for at least 6 months and any options not previously exercisable and vested shall become fully exercisable and vested; (ii) the restrictions applicable to any Restricted Stock shall lapse and such Restricted Stock shall be deemed fully vested; and (iii) each holder of RSRs shall be entitled to receive the number of shares subject to such RSRs. (b) For purpose of this Section 8, "Change in Control" means: (1) the acquisition by any individual, entity or group (a "Person"), including any "person" within the meaning of Sections 13(d) (3) or 14(d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 20% or more of either (i) the then outstanding shares of Common Stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of a conversion or exchange privilege in respect of outstanding convertible or exchangeable securities), (B) any acquisition by the Company, (C) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the 5 6 Company or (D) any acquisition by any corporation pursuant to a reorganization, merger or consolidation involving the Company, if immediately after such reorganization, merger or consolidation, each of the conditions described in clauses (i), (ii) and (iii) of subsection (3) of this Section 8(b) shall be satisfied; and provided further that, for purposes of clause (B), if any Person (other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company shall become the beneficial owner of 20% or more of the Outstanding Company Common Stock or 20% or more of the Outstanding Company Voting Securities by reason of an acquisition by the Company and such person shall, after such acquisition by the Company, become the beneficial owner of any additional shares of the Outstanding Company Common Stock or any additional Outstanding Company Voting Securities and such beneficial ownership is publicly announced, such additional beneficial ownership shall constitute a Change in Control; (2) individuals who, as of October 25, 1991, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided, however, that any individual who becomes a director of the Company subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed to have been a member of the Incumbent Board; and provided further, that no individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall be deemed to have been a member of the Incumbent Board; (3) approval by the stockholders of the Company of a reorganization, merger or consolidation unless, in any such case, immediately after such reorganization, merger or consolidation, (i) more than 60% of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and more than 60% of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals or entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation and in substantially the same proportions relative to each other as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or the corporation resulting from such reorganization, merger or consolidation (or any corporation controlled by the Company) and any Person which beneficially owned, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of such corporation or 20% or more of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such reorganization, merger or consolidation; or (4) approval by the stockholders of the Company of (i) a plan of complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of 6 7 the Company other than to a corporation with respect to which, immediately after such sale or other disposition, (A) more than 60% of the then outstanding shares of common stock thereof and more than 60% of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition and in substantially the same proportions relative to each other as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (other than the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or such corporation (or any corporation controlled by the Company) and any Person which beneficially owned) immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be, beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock thereof or 20% or more of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors thereof were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition. 9. Amendment and Termination of the Plan The Board of Directors or the Committee may amend the Plan or any Award granted thereunder at any time, except that the Board of Directors or the Committee may not, except as permitted by Section 3(c), (i) without stockholder approval, increase the number of shares of Common Stock of the Company which may be issued pursuant to the Plan, change the purchase price of an Option or base price of a "stand-alone" SAR, or make any other amendment to the Plan which is required by law to be approved by the stockholders of the Company; (ii) amend an Award granted thereunder in a manner materially and adversely affecting the rights of the holder thereof without such holder's consent. The Board of Directors may terminate the Plan at any time, but such termination shall not affect Awards previously granted under the Plan. 7 EX-10.9 6 EXECUTIVE COMPENSATION PLAN 1 EXHIBIT 10.9 February 18, 1997 SCOTSMAN INDUSTRIES, INC. 1997 EXECUTIVE INCENTIVE COMPENSATION PROGRAM PLAN A-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, 1997 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 Executive Incentive Compensation Program Plan A-1 Page 2 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 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 Executive Incentive Compensation Program Plan A-1 Page 3 3. Computation of Bonus (a) The actual bonus earned shall consist of three parts. Part I is discretionary subject to a maximum of 21.0%; Part II is the percentage of the Net Operating Income objective earned subject to a maximum bonus of 18.0%, the percentage of the ROI objective earned subject to a maximum bonus of 12.0% and the percentage of the Working Capital to Sales objective earned subject to a maximum of 12.0%. Part III is the percentage of the Corporate Net Operating Income objective earned subject to a maximum bonus of 3.0%, the percentage of the Corporate Earnings Per Share objective earned subject to a maximum bonus of 2.0% and the percentage of the Corporate Cash Flow objective earned subject to a maximum bonus of 2.0%. 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 10.5% 15.7% 21.0% Part II - Division Team Results Net Operating Income 0 9.0% 13.5% 18.0% Return on Investment 0 6.0% 9.0% 12.0% Working Capital to Sales 0 6.0% 9.0% 12.0% Part III - Corporate Team Results Net Operating Income 0 1.5% 2.3% 3.0% Earnings Per Share 0 1.0% 1.5% 2.0% Cash Flow 0 1.0% 1.5% 2.0% --- ----- ----- ----- Total 0 35.0% 52.5% 70.0% === ===== ===== =====
The bonus percentages under Parts II and III for attainment of objectives between any of the levels will be calculated on a pro rata basis. 4 Executive Incentive Compensation Program Plan A-1 Page 4 (b) The discretionary bonus earned by each participant shall vary from zero to a maximum of 21.0%. 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 for each Division will be established by the Committee in the local currency of the participant's Division. (d) The Net Operating Income, Earnings Per Share and Cash Flow objectives for Scotsman Industries will be established by the Committee in U.S. dollars. (e) 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 70.0% 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. 5 Executive Incentive Compensation Program Plan A-1 Page 5 (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) Corporate Net Operating Income shall be reported consolidated profit before taxes on income 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. (f) Corporate Earnings Per Share shall be reported consolidated net income divided by fully-diluted weighted average Common shares outstanding, as determined in accordance with generally accepted accounting principles, adjusted to eliminate extraordinary gains and losses as determined by the Committee. 6 Executive Incentive Compensation Program Plan A-1 Page 6 (g) Division Working Capital to Sales shall be the percentage of the monthly average of the reported division working capital to the annual sales of the 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 (average of 13 monthly balances), adjusted to eliminate extraordinary gains and losses determined by the Committee. (h) Cash Flow shall be consolidated cash flow before acquisitions and divestitures for the year. 7 February 18, 1997 SCOTSMAN INDUSTRIES, INC. 1997 EXECUTIVE INCENTIVE COMPENSATION PROGRAM PLAN A-2 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, 1997 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. 8 Executive Incentive Compensation Program Plan A-2 Page 2 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 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. 9 Executive Incentive Compensation Program Plan A-2 Page 3 3. Computation of Bonus (a) The actual bonus earned shall consist of two parts. Part I is discretionary subject to a maximum of 21.0%; Part II is the percentage of the Net Operating Income objective earned subject to a maximum bonus of 21.0%, the percentage of the Earnings Per Share objective earned subject to a maximum bonus of 14.0% and the percentage of the Cash Flow objective earned subject to a maximum bonus of 14.0%. 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 10.5% 15.7% 21.0% Part II - Team Results Net Operating Income 0 10.5% 15.8% 21.0% Earnings Per Share 0 7.0% 10.5% 14.0% Cash Flow 0 7.0% 10.5% 14.0% -- ----- ----- ----- Total 0 35.0% 52.5% 70.0% == ===== ===== =====
The bonus percentage under Part II for attainment of objectives between any of the levels will be calculated on a pro rata basis. (b) The discretionary bonus earned by each participant shall vary from zero to a maximum of 21.0%. 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, Earnings Per Share and Cash Flow objectives for Scotsman Industries 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 70% of the participant's bonus base. 10 Executive Incentive Compensation Program Plan A-2 Page 4 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) Net Operating Income shall be reported consolidated profit before taxes on income, 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. (d) Corporate Earnings Per Share shall be reported consolidated net income divided by fully-diluted weighted average common shares outstanding, as determined in accordance with generally accepted accounting principles, adjusted to eliminate extraordinary gains and losses as determined by the Committee. (e) Cash Flow shall be consolidated cash flow before acquisitions and divestitures for the year. 11 February 18, 1997 SCOTSMAN INDUSTRIES, INC. 1997 EXECUTIVE INCENTIVE COMPENSATION PROGRAM PLAN AA 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, 1997 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. 12 Executive Incentive Compensation Program Plan AA Page 2 (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 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. 13 Executive Incentive Compensation Program Plan AA Page 3 3. Computation of Bonus (a) The actual bonus earned shall consist of two parts. Part I is discretionary subject to a maximum of 36.0%; Part II is the percentage of the Net Operating Income objective earned subject to a maximum bonus of 36.0%, the percentage of the Earnings Per Share objective earned subject to a maximum bonus of 24.0% and the percentage of the Cash Flow objective earned subject to a maximum bonus of 24.0%. 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 18.0% 27.0% 36.0% Part II - Team Results Net Operating Income 0 18.0% 27.0% 36.0% Earnings Per Share 0 12.0% 18.0% 24.0% Cash Flow 0 12.0% 18.0% 24.0% -- ----- ----- ------ Total 0 60.0% 90.0% 120.0% == ===== ===== ======
The bonus percentage under Part II for attainment of objectives between any three of these levels will be calculated on a pro rata basis. (b) The discretionary bonus earned by each participant shall vary from zero to a maximum of 36.0%. 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, Earnings Per Share and Cash Flow objectives for Scotsman Industries will be established by the Committee in U.S. dollars. 14 Executive Incentive Compensation Program PlanAA Page 4 (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 120% 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) Net Operating Income shall be reported consolidated income before taxes on income, 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. (d) Corporate Earnings Per Share shall be reported consolidated net income divided by fully-diluted weighted average common shares outstanding, as determined in accordance with general accepted accounting principles, adjusted to eliminate extraordinary gains and losses as determined by the Committee. (e) Cash Flow shall be consolidated cash flow before acquisitions and divestitures for the year. EX-10.15 7 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.15 775 Corporate Woods Parkway Vernon Hills, Illinois 60061-3112 (847) 215-4500 SCOTSMAN Fax (847) 634-8823 - -------------------------------------------------------------------------------- I N D U S T R I E S October 17, 1996 Mr. Michael de St. Paer Whitlenge Drink Equipment, Ltd. Chanel Way - Halesowen Industrial Park Halesowen, West Midlands U.K. B628SE RE: EMPLOYMENT AGREEMENT Dear Mike: 1. This letter confirms your employment by SCOTSMAN GROUP, INC. ("the Company") as Managing Director, Whitlenge Drink Equipment. In that capacity you are entitled to the following: a. An annual salary of British Pounds .82,000; b. Benefits as described in, and in accordance with, the Company's benefit plans; and c. An annual par bonus equal to 30% of your annual salary. The amount of bonus that you actually receive, if any, will depend on the achievement of corporate and your individual goals. 2. During your employment with the Company, you will devote your full time and energies to the faithful and diligent performance of the duties inherent in, and implied by, your executive position. 3. In consideration of your having accepted employment with the Company, it is mutually agreed that: a. In the event your employment with the company is terminated by the Company during the period covered by this agreement for any reason other than: 2 i. willful and deliberate misconduct; or ii. inability, for reasons of disability, reasonably to perform your duties for 6 consecutive calendar months; or b. In the event you resign your position with the Company during the period covered by this agreement because: i. you are assigned to a position of lesser rank or status; or ii. your annual salary, annual par bonus or your benefits are reduced; or iii. you are reassigned to a geographical area more than 50 miles from your present residence; the Company shall be required, and hereby agrees, to continue paying your then annual salary, to pay your then annual bonus at par level and to provide all pension, profit sharing, deferred compensation, medical and life insurance benefits under the Company's benefit plans, or the economic equivalent thereof, for a period of twelve (12) months from the date of such termination or resignation. If, pursuant to the terms of a benefit plan, a benefit would be earned or accrued during such 12 month period but would be payable on a deferred basis (were you to be employed during such 12 month period) the benefit similarly shall be deferred hereunder; provided, however, that the Company reserves the right to pay the present value of such benefit to you in cash at the end of such 12 month period. 4. You are not required to mitigate the amount of any payments to be made by the Company pursuant to this Agreement by seeking other employment, or otherwise, nor shall the amount of any payments provided for in this Agreement be reduced by any compensation earned by you as the result of self-employment or your employment by another employer after the date of termination of your employment with the Company. 5. If a dispute arises regarding the termination of your employment or the interpretation or enforcement of this Agreement and you obtain a final judgment in your favor form a court of competent jurisdiction from which no appeal may be taken, whether because the time to do so has expired or otherwise, or your claim is settled by the Company prior to the rendering of such a judgement, all reasonable legal and other professional fees and expenses incurred by you in 3 Michael de St. Paer October 17, 1996 - Page 3 contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided for in this Agreement or in otherwise pursuing your claim will be promptly paid by the Company with interest thereon at the highest statutory rate of your state of domicile for interest on judgements against private parties from the date of payment thereof by you to the date of reimbursement to you by the Company. 6. This agreement shall commence on October 16, 1996 and will continue in effect for one full calendar year, the last day which shall be October 15, 1997. However, at the end of such year and, if extended, at the end of each additional year thereafter, the term of this Agreement shall be extended automatically for one additional year, unless the Compensation Committee of the Board of Directors delivers written notice three months prior to the end of such term, or extended term, to you, that this Agreement will not be extended. In such case, this Agreement will terminate at the end of the term, or extended term, then in progress. If the foregoing terms and provisions are acceptable to you, please sign where indicated on the enclosed copy of this Agreement and return it to me. we look forward to your many contributions to the success of SCOTSMAN GROUP, INC. Sincerely, SCOTSMAN GROUP, INC. By /s/ R. C. Osborne ---------------------------------------------- ACCEPTED AND AGREED to the date first above set forth. /s/ M. de St. Paer - ------------------------------------------------- Employee EX-10.16 8 SERVICE AGREEMENT 1 EXHIBIT 10.16 UNOFFICIAL TRANSLATION SERVICE AGREEMENT BETWEEN HARTEK BEVERAGE HANDLING GMBH, Otto Hahn-Str. 4, 42477 Radevormwald (the Company) represented by its sole shareholder HARTEK BEVERAGE HANDLING B.V., the Netherlands. AND MR. LUDWIG HELMUT KLEIN, Amorsbrunnerstr. 27, 63916 Amorbach (the Managing Director). IT IS HEREBY AGREED AS FOLLOWS: SECTION 1 JOB DESCRIPTION AND DUTIES 1. The Managing Director shall have overall control of the Company. To the extent that there are other managing directors, they shall be bound by his directions. 2. The Managing Director shall represent the Company alone. 3. The Managing Director shall fulfill his position as employer within the meaning of the employment and social law. 4. The Managing Director shall make available to the Company his entire knowledge and ability and his full working capacity. He shall fulfill his office with the care of a reasonable manager and shall observe the law, the Articles of Association, and the resolutions of the shareholders and of the advisory board. 5. The Managing Director can be released from the restrictions of Section 181 BGB from time to time by the meeting of the advisory committee or the shareholders. 2 SECTION 2 REMUNERATION 1. The Managing Director shall receive as payment for his services an annual salary of DM 270,000. The annual salary shall be paid at the end of each calendar month in twelve equal installments net of all deductions required by law (Twelve month salary). 2. The Company shall pay the Managing Director's contributions to his pension-, health-, unemployment- and private nurse insurances to the value of 50% of the maximum contributions permissible under law. 3. In addition, the Company shall conclude an accident insurance policy in favour of the Managing Director for the duration of his contract with the following cover: in the event of death DM 500,000 in the event of invalidity DM 1,000,000 4. The Company shall continue with the life insurance policy (No. 191537100 with Allianz Lebensversicherung) which was signed by his previous employer. The annual premiums shall not, however, exceed DM 3,000. 5. The Managing Director shall receive a bonus of 5% of the annual net profit (after business taxes and before any taxes on income and before the allocation to retained earnings (reserves). 6. With effect from 1 January 1996 the Company shall increase the salary in line with the Retail Price Index (Lebenshaltungskosten-Index aller privaten Haushalte) calculated by the Federal Statistical Office, in each case, for the previous calendar year. SECTION 3 OTHER BENEFITS 1. The Company shall provide the Managing Director with a company car, of a model appropriate to his position, for the duration of this contract, and the Company shall bear the costs for operation and maintenance (maximum purchase price 100,000). 3 2. The Managing Director shall also be entitled to an office telephone at his private address, and the Company shall bear the costs for operation and maintenance. 3. The Managing Director may use the company car for private purposes, in particular also for return trips to his family home and for holiday use. The Managing Director is also allowed to use the office telephone within reason for private purposes. Any income tax payable as a result of the provision of these payments-in-kind shall be borne by the Managing Director. 4. The reimbursement of expenses which the Managing Director incurs in carrying out his activities under this agreement, including any travel and hotel expenses, shall be paid in accordance with the relevant legal regulations. 5. The Company shall also assume the costs incurred for the provision of appropriate accommodation for the Managing Director at, or in the vicinity of, his place of work for a maximum amount of DM 15,000 per annum from the beginning of the service agreement. SECTION 4 WORKING HOURS AND HOLIDAY 1. The Managing Director is not restricted to fixed working hours. However, he shall make his services available to the Company at all times when and to the extent that it benefits the Company. 2. The Managing Director shall receive thirty days paid holiday. On deciding when to take his holiday, the requirements of the Company shall be taken into account. SECTION 5 PAYMENT OF SALARY ON ILLNESS AND DEATH 1. If the Managing Director is temporarily unable to work due to illness or for any other reason beyond his control, then the Company shall continue the monthly payments under Section 2(1) above for the duration of a maximum of six months. Page 3 4 2. The Company may take into account any payments made by third parties, for example arising from compulsory insurance claims, to the extent that these are meant for the maintenance of the Managing Director. The Managing Director shall inform the Company of any such claims without further request. Payments which the Managing Director has a right to receive as a result of payments he himself has made in excess of the above mentioned participation in the health insurance, are not to be taken into account. 3. If the Managing Director shall die within the duration of this agreement then his widow shall have a right to receive payments in accordance with Section 2 above for the month of his death and for the following three months. SECTION 6 NON-COMPETITION For the duration of this contract the Managing Director shall have neither a direct nor an indirect participation in an undertaking with whom the Company is in direct competition or with whom the Company has business interests, and the Managing Director shall neither advise nor support such an undertaking in any manner, whether directly or indirectly. SECTION 7 CONFIDENTIALITY The Managing Director shall not disclose any Company matters to any third parties. This duty shall continue on termination of this agreement with the Company. SECTION 8 COMPANY RECORDS On termination of the agreement the Managing Director shall return to the company all documents, certificates, records, notes, drafts, sketches or any carbon or other copies, without further request. The Managing Director shall not have any legal right to keep any of the above records. SECTION 9 DURATION OF THE CONTRACT 1. This agreement commences on 1 February 1995. Page 4 5 2. The contractual relationship expires on 31 January 1997. It shall be extended by two years automatically, unless six months notice to 31 January 1997 or to the end of the following two-year period has been given. SECTION 10 MISCELLANEOUS PROVISIONS 1. No oral agreements have been made. 2. Any variations or additions to this agreement shall be made in writing. 3. If a provision of this agreement is or shall become invalid, in whole or in part, the validity of the other provisions shall not be affected. The invalid provisions shall be amended or supplemented in such a way that it shall achieve the intended economic purpose. The same shall apply if, in performing the agreement, it becomes apparent that there is a matter not regulated by the agreement which requires supplementary provision. 4. This contract is subject to the jurisdiction of the courts of Dusseldorf. Radevormwald, dated ____________. - ---------------------------------------- ----------------------------- Signed for and on behalf of Signed by the HARTEK Beverage Handling GmbH Managing Director by the sole shareholder Ludwig H. Klein HARTEK BEVERAGE HANDLING, B.V. Page 5 6 SERVICE AGREEMENT ADDENDUM It is hereby agreed that the Service Agreement commencing on February 1, 1995 between Hartek Beverage Handling GmbH and Mr. Ludwig Helmut Klein be modified and amended as follows: SECTION 2.1 The amount of the annual salary shall be changed to DM275,000. SECTION 2.5 The paragraph is hereby deleted in its entirety and replaced as follows: "The Managing Director shall receive a bonus equal to 30% of the Annual Salary. In addition, the Managing Director shall be eligible to receive a discretionary bonus of up to 20% of his Annual Salary, the amount of such discretionary bonus to be determined solely by the President of Scotsman Industries. These bonuses shall be payable after the close of the 1997 business year and as soon as administratively practicable." SECTION 2.6 The date shall be changed from January 1, 1996 to January 1, 1997. SECTION 9.2 The expiration date shall change to January 31, 1998. The automatic extension provision is hereby deleted. Dated:January 31, 1997 ----------------------- Signed and agreed to: /s/ R. C. Osborne /s/ Ludwig H. Klein - ------------------------ ---------------------- On behalf of Hartek Ludwig H. Klein Beverage Handling GmbH Managing Director EX-13 9 ANNUAL REPORT 1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company's financial condition and results of operation should be read in conjunction with the Company's audited consolidated financial statements and notes thereto. In addition to historical information, the following management's discussion and analysis of financial condition and results of operations contains forward looking statements that involve risks and uncertainties. The Company's actual results could differ significantly from those anticipated as a result of unforeseen factors. For a discussion of certain factors that could cause actual results to differ from those anticipated, see the Cautionary Statements included in Exhibit 99 to the Company's Annual Report on Form 10-K. RECENT DEVELOPMENT In March of 1997 the Company completed the acquisition of Kysor Industrial Corporation ("Kysor"), a major manufacturer and marketer of refrigerated display cases, commercial refrigeration systems and insulated panels primarily serving the supermarket industry. The Company purchased Kysor's common and preferred stock (hereinafter referred to as the "Acquisition") for an aggregate purchase price of $309 million. Concurrent with the purchase, the Company sold Kysor's Transportation Products Group to a third party for an aggregate purchase price of $86 million plus the assumption of certain liabilities. The Company retained possession of Kysor's Commercial Products Group. The Acquisition, after giving effect to the divestiture of the Transportation Products Group and other acquisition related transactions, was financed through a $415 million loan facility between the Company and the First National Bank of Chicago (the "FNBC Facility"). The FNBC Facility consists of a $150 million seven-year term loan and a $265 million seven-year revolving loan facility, both with an initial interest rate of 1.375 percent above Eurocurrency rates. The interest rates on both facilities adjust based on a certain ratio tied to the strength of the Company's balance sheet. The FNBC Facility requires that a notional amount of $150 million be hedged for three years. In addition to financing the Acquisition, proceeds from the FNBC Facility were used to repay existing debt, including borrowings under an earlier $90 million reducing credit facility with a group of banks ("old credit facility") and a $20 million private placement of debt, and will be used to pay expenses associated with the acquisition. The prepayment of the private placement debt resulted in a pre-tax charge of $0.8 million in the first quarter of 1997. Due to the significance of the Acquisition to the Company, the Company's future operating results and capital structure will be materially different from, and will not be comparable to, prior periods. For fiscal year 1996, Kysor's sales of commercial refrigeration products were $245.1 million, which when combined with the comparable period for the Company would have resulted in pro forma combined sales of $601.4 million, a 69 percent increase over the Company's reported 1996 sales. The Company's operating income in 1997 is expected to increase significantly as a result of the Acquisition and associated benefits, while amortization of goodwill and interest expense also are expected to increase significantly. Management currently expects that the Acquisition will not be dilutive to the Company's earnings per share in 1997. 2 RESULTS OF OPERATIONS YEAR ENDED DECEMBER 29, 1996 ("1996"), COMPARED WITH YEAR ENDED DECEMBER 31, 1995 ("1995") The Company experienced strong operating results in 1996 compared with 1995. Sales increased in many of the Company's businesses and operating income as a percentage of sales increased as well. These positive operating results were largely attributable to the inclusion of a full year's operations of Hartek Beverage Handling GmbH ("Hartek"), which was purchased by the Company on December 31, 1995, strong growth at Whitlenge Drink Equipment Limited ("Whitlenge"), solid sales gains from the Company's European ice machine businesses and a continued emphasis on cost containment. The Company's total sales increased by $32.1 million, or 10 percent, to a record $356.4 million in 1996 from $324.3 million in 1995. Ice machine sales, which represented 49 percent of total sales of the Company in 1996, increased by $6.5 million, or 4 percent, to $176.0 million in 1996 from $169.5 million in 1995 primarily due to 15 percent growth in sales from European operations while domestic sales of ice machines remained relatively constant. Food preparation and storage equipment sales, which represented 29 percent of total sales of the Company in 1996, remained constant compared to 1995, reflecting a decline in European bakery equipment sales and a modest increase in sales of food preparation equipment by The Delfield Company ("Delfield"), which were limited by a slowing of the domestic market for such products. Sales in this product category are expected to increase in 1997 due to Delfield's designation by Boston Market as sole supplier of serving line equipment and certain related products. Drink dispensing equipment sales, which represented 19 percent of total sales of the Company in 1996, increased by $27.6 million, or 69 percent, to $67.6 million in 1996 from $40.0 million in 1995, driven primarily by the inclusion of the operating results of Hartek and growth of 24 percent at Whitlenge due to increasing their export sales and a strong domestic beer market in the United Kingdom. Niche products sales, which represented 3 percent of total company sales in 1996, decreased by $2.3 million, or 21 percent, to $9.2 million in 1996 from $11.5 million in 1995, driven primarily by a lower volume of certain contract products and ventilation equipment. The Company's gross profit increased by $10.5 million, or 12 percent, to $98.4 million in 1996 from $87.9 million in 1995. The Company's gross profit margin increased to 27.6 percent of total sales in 1996 from 27.1 percent of total sales in 1995 due to selling price increases in certain products, moderating material costs and the impact of higher sales in relation to a base of certain fixed production costs. These gains were partially offset by higher production costs at Delfield due to inefficiencies incurred while implementing process improvements and organizational changes in anticipation of future growth requirements. 3 Selling and administrative expenses increased $4.7 million, or 9 percent, to $58.1 million in 1996 from $53.4 million in 1995. Although selling and administrative expenses increased due to the inclusion of Hartek, selling and administrative expenses as a percentage of total sales of the Company declined to 16.3 percent in 1996 from 16.5 percent in 1995, primarily due to higher overall sales and lower advertising costs. Income from operations increased by $5.8 million, or 17 percent, to $40.3 million in 1996 from $34.5 million in 1995 primarily due to increased sales with higher associated gross margins and the continued benefit of cost containment plans initiated during 1996 and in prior years. Net interest expense decreased by $1.0 million, or 17 percent, to $5.3 million in 1996 from $6.3 million in 1995 primarily due to the Company's lower average debt levels and a favorable interest rate environment. Income taxes increased by $3.7 million to $16.4 million in 1996 from $12.7 million in 1995 due to higher income from operations and a higher effective tax rate. The Company's tax rate increased to 47.0 percent in 1996 from 45.2 percent in 1995 primarily due to the higher percentages of sales generated from foreign operations with higher relative tax rates. Overall, net income increased by $3.2 million, or 21 percent, to $18.6 million in 1996 from $15.4 million in 1995. On a fully-diluted basis, earnings per share increased by $0.28, or 19 percent, to $1.73 in 1996 from $1.45 in 1995. Of note, the effects of fluctuations in currency exchange rates on the Company's results of operations were immaterial. 4 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 China 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 the 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. 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 with 43.9 percent in 1994, reflects a greater proportion of income from the Company's higher-taxed Italian subsidiaries. 5 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. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company's liquidity requirements have arisen primarily from the need to fund its working capital, capital expenditures, acquisitions and interest expense, including fixed obligations associated with debt or lease obligations. The Company has met these liquidity requirements through use of funds generated from operations, along with financing through various sources. The Company expects to continue to generate significant cash flow from operations, which will be used to run the Company's businesses and fund further growth. Increased levels of working capital, capital expenditures and interest expense associated with the Acquisition are not expected to adversely impact the Company's liquidity and access to capital. The Company expects its needs, including those associated with the Acquisition, to be satisfied from operating activities and borrowings available under its existing loan facilities, including the FNBC Facility. Subsequent to the Acquisition, the Company's total debt will increase by approximately $293.4 million to approximately $370.0 million from $76.6 million at December 29, 1996, and the Company's total debt to book capitalization will increase to approximately 74 percent from 37 percent at December 29, 1996. The Company generated cash from operating activities of $23.5 million in 1996, which was identical to the cash generated from operating activities in 1995. Net income plus depreciation and amortization increased by $4.4 million, or 19 percent, to $27.4 million in 1996 from $23.0 million in 1995. Accounts receivable, excluding the effects of changes in exchange rates, increased by $3.3 million compared with year-end 1995 due to strong sales growth in many of the Company's businesses along with the impact of extended payment programs in certain of the Company's businesses. Inventories, excluding the effect of changes in exchange rates, declined $0.2 million, which reflects an improvement in the inventory turnover ratio. Trade accounts payable and other liabilities decreased by $1.9 million, excluding the effects of changes in exchange rates, primarily due to payment of acquisition costs. Capital expenditures, including those funded through capital leases, decreased $0.4 million, or 6 percent, to $6.2 million in 1996 from $6.6 million in 1995. Capital expenditures in 1996 were made primarily to fund productivity improvements, new product tooling, and maintenance and replacement items. Capital expenditures for the Company's current operations (excluding Kysor) are expected to increase moderately in 1997. In 1996 the Company acquired 50 percent of the outstanding shares of newly formed SAW Technologies Limited ("SAW") with Aztec Developments Limited ("Aztec") as the other 50 percent shareholder in the U.K.-based joint venture company. Under the terms of the joint venture agreement, Aztec sold its technologically advanced beverage dispensing valve, patents and manufacturing capability to SAW and the Company contributed capital to SAW. The cost incurred by the Company in 1996 relating to SAW was approximately $2.0 million. The Company also increased its investment in the joint venture in China at a 6 cost of $0.4 million during 1996. The Company financed these capital contributions to the joint ventures through its old credit facility. Cash and cash equivalents, which consist primarily of cash held by foreign subsidiaries, increased by $0.7 million to $16.5 million at December 29, 1996, from $15.8 million at December 31, 1995. Long-term debt and capital leases outstanding decreased by $4.5 million to $70.5 million at December 29, 1996, from $75.0 million at December 31, 1995. Of this amount, $35.5 million consisted of borrowings issued under the Company's old credit facility. In addition, as of December 29, 1996, the Company also had $20.0 million of outstanding indebtedness under a private placement agreement and $12.9 million in industrial revenue bonds. As of December 29, 1996, the Company was subject to various covenants as part of its outstanding indebtedness including a covenant which had the effect of restricting the amount of the Company's dividends to its shareholders. Under such a covenant, $45.4 million of retained earnings were restricted as of December 29, 1996. The Company was in compliance with these covenants related to its long-term debt as of December 29, 1996. The interest rates under the old credit facility were floating and the interest rate on the private placement was fixed at 11.43 percent. The interest rates on the industrial revenue bonds are floating. The Company also has entered into certain interest rate swap agreements pertaining to certain of its indebtedness to reduce the impact of changes in interest rates. Total debt, including capitalized leases, decreased by $11.2 million to $76.6 million at December 29, 1996, from $87.8 million at December 31, 1995. Correspondingly, the Company's debt to book capitalization ratio decreased to 37 percent at December 29, 1996, from 44 percent at December 31, 1995. Since its first quarter as a publicly-held company, the Company has paid a quarterly dividend of $0.025 per share. The continuation, amount and timing of this dividend will be determined by the Board of Directors and may change as conditions warrant. 7 Scotsman Industries, Inc. Consolidated Statement of Income (Amounts in thousands, except per-share data) For the Fiscal Years Ended
Dec. 29, Dec. 31, Jan. 1, 1996 1995 1995 Net sales $356,373 $324,291 $266,632 Cost of sales 257,942 236,402 190,518 -------- -------- -------- Gross profit 98,431 87,889 76,114 Selling and administrative expenses 58,135 53,435 47,900 -------- -------- -------- Income from operations 40,296 34,454 28,214 Interest expense, net 5,279 6,326 5,416 -------- -------- -------- Income before income taxes 35,017 28,128 22,798 Income taxes 16,449 12,720 10,013 -------- -------- -------- Net income $ 18,568 $ 15,408 $ 12,785 Preferred stock dividends 813 1,240 885 -------- -------- -------- Net income available to common shareholders $ 17,755 $ 14,168 $ 11,900 ======== ======== ======== Net income per share: Primary $ 1.85 $ 1.58 $ 1.49 -------- -------- -------- Fully diluted $ 1.73 $ 1.45 $ 1.35 -------- -------- -------- The accompanying notes to consolidated financial statements are an integral part of this statement.
8 Scotsman Industries, Inc. Consolidated Balance Sheet (Amounts in thousands)
Dec. 29, Dec. 31, 1996 1995 Assets Current Assets: Cash and temporary cash investments $ 16,501 $ 15,808 Trade accounts and notes receivable, net of allowances of $2,778 in 1996 and $2,960 in 1995 58,734 54,500 Inventories 52,530 52,251 Deferred income taxes 4,708 5,690 Other current assets 5,101 3,093 -------- -------- Total current assets 137,574 131,342 Properties and equipment, net 46,659 46,373 Goodwill, net 94,975 94,732 Other noncurrent assets 4,056 3,496 -------- -------- Total assets $283,264 $275,943 ======== ======== Liabilities and Shareholders' Equity Current Liabilities: Short-term debt and current maturities of capitalized lease obligations and long-term debt $ 16,317 $ 13,037 Trade accounts payable 22,344 24,174 Accrued income taxes 6,302 4,491 Accrued expenses 33,290 34,812 -------- -------- Total current liabilities 78,253 76,514 Long-term debt and capitalized lease obligations 60,289 74,719 Deferred income taxes 3,710 3,814 Other noncurrent liabilities 9,300 8,577 -------- -------- Total liabilities 151,552 163,624 Shareholders' Equity: Common stock, $.10 par value, authorized 50,000,000 shares; issued 10,729,513 shares and 9,153,014 shares, respectively 1,073 915 Preferred stock, $1.00 par value, authorized 10,000,000 shares; issued 0 shares and 1,999,992 shares, respectively -- 2,000 Additional paid in capital 73,053 70,514 Retained earnings 62,036 45,232 Deferred compensation and unrecognized pension cost (117) (88) Foreign currency translation adjustments (2,877) (4,911) Less: Common stock held in treasury; 187,049 and 188,040 shares, respectively (1,456) (1,343) -------- -------- Total shareholders' equity 131,712 112,319 -------- -------- Total liabilities and shareholders' equity $283,264 $275,943 ======== ======== The accompanying notes to consolidated financial statements are an integral part of this statement.
9 Scotsman Industries, Inc. Consolidated Statement of Cash Flows (Amounts in thousands)
For the Fiscal Years Ended Dec. 29, Dec.31, Jan. 1, 1996 1995 1995 Cash flows from operating activities: Net income $ 18,568 $ 15,408 $ 12,785 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,870 7,594 6,019 Loss (gain) on property dispositions (82) (39) 45 Change in assets and liabilities: Trade accounts receivable (3,310) (2,607) (7,779) Inventories 237 2,006 (3,815) Trade accounts payable and other liabilities (1,877) (2,074) 10,290 Other, net 1,101 3,162 (1,369) -------- -------- -------- Net cash provided by operating activities 23,507 23,450 16,176 Cash flows from investing activities: Investment in properties and equipment (6,195) (6,513) (5,434) Proceeds from dispositions of properties and equipment 230 215 34 Acquisition of Delfield and Whitlenge -- -- (28,689) Investment in U.K. joint venture (2,024) -- -- Investment in China joint venture, net (399) (665) -- Acquisition of Hartek (991) (1,491) -- -------- -------- -------- Net cash used in investing activities (9,379) (8,454) (34,089) Cash flows from financing and capital activities: Short-term debt, net (6,524) 3,616 (74) Issuance of long-term debt 16,074 17,806 63,000 Principal payments under long-term debt and capitalized leases (21,128) (28,071) (42,831) Dividends paid to shareholders (2,035) (2,118) (1,339) -------- -------- -------- Net cash provided by (used in) financing and capital activities (13,613) (8,767) 18,756 Effect of exchange rate changes on cash and temporary cash investments 178 (191) 465 -------- -------- -------- Net increase in cash and temporary cash investments 693 6,038 1,308 Cash and temporary cash investments at beginning of year 15,808 9,770 8,462 -------- -------- -------- Cash and temporary cash investments at end of year $ 16,501 $15,808 $ 9,770 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 6,812 $ 7,431 $ 4,566 ======== ======== ======== Income taxes $ 14,957 $ 10,992 $ 10,685 ======== ======== ======== Supplemental schedule of noncash investing and financing activities: Investment in properties and equipment through issuance of capitalized lease obligations $ (42) $ (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. 10 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 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 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 Net income -- -- -- -- 18,568 -- -- -- 18,568
11
Foreign Treasury Common Preferred Additional Currency Stock Stock Stock Paid in Retained Translatio Treasury Number Par Value Par Value Capital Earnings Other (a) Adjustment Stock Total -------- --------- --------- ---------- -------- --------- ---------- -------- ------- Foreign currency translation adjustments -- -- -- -- -- -- 2,034 -- 2,034 Issuance of deferred compensation (5,965) -- -- 119 -- (119) -- -- -- Amortization of deferred compensation -- -- -- -- -- 120 -- -- 120 Dividends declared to common shareholders -- -- -- -- (951) -- -- -- (951) Dividends declared to preferred shareholders -- -- -- -- (813) -- -- -- (813) Conversion of preferred stock into common stock -- 153 (2,000) 1,847 -- -- -- -- -- Stock options exercised 4,974 5 -- 573 -- -- -- (113) 465 Unrecognized pension cost -- -- -- -- -- (30) -- -- (30) -------- ------ ------ -------- ------- ----- ------- ------- -------- Balance at December 29, 1996 187,049 $1,073 $ -- $ 73,053 $62,036 $(117) $(2,877) $(1,456) $131,712 ======== ====== ====== ======== ======= ===== ======= ======= ========
(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. 12 SCOTSMAN INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation The consolidated financial statements include the accounts of Scotsman Industries, Inc. ("Scotsman" or "the Company") 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 1996. 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 1996, 1995 and 1994 had 52 weeks. Cash Management The Company considers all highly liquid investments with original maturities of three months or less to be temporary cash investments. Temporary cash investments, primarily Eurodollar deposits or repurchase agreements with maturities of 90 days or less, are carried at cost, which approximates market. Interest income (in thousands) included in interest expense, net was $791, $633 and $277 for fiscal years 1996, 1995 and 1994, respectively. 13 Trade Accounts and Notes Receivable Trade accounts and notes receivable at December 29, 1996, and December 31, 1995, included notes of $7.5 million and $7.3 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 $2.5 million, $2.4 million and $1.5 million for the fiscal years 1996, 1995 and 1994, respectively. At December 29, 1996, and December 31, 1995, accumulated amortization was $8.0 million and $5.4 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. 14 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 1996, 1995 and 1994 were $5.6 million, $4.8 million and $5.1 million, respectively. Foreign Currency Translation The Company has foreign subsidiaries located in Italy, Germany, Austria, China 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. 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. 15 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 and additional paid in capital. 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. The financial statement effect of this new standard is limited to additional required footnote disclosure in 1996 which is provided in Note 12. 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. INVENTORIES Inventories consisted of the following (in thousands):
Dec. 29, 1996 Dec. 31, 1995 Finished goods $23,207 $21,604 Work-in-process 9,052 8,023 Raw materials 20,271 22,624 ------- ------- Total inventories $52,530 $52,251 ======= =======
Approximately $7.0 million and $7.5 million of total Company inventories were valued on the LIFO method in fiscal 1996 and 1995, respectively. In 1996 there were reductions in levels of inventory valued on LIFO which reduced cost of sales by $0.1 million. If inventories valued on the LIFO method had been valued using the FIFO method, they would have been $3.9 million and $4.1 million higher at December 29, 1996, and December 31, 1995, respectively. 16 3. PROPERTIES AND EQUIPMENT Properties and equipment consisted of assets owned and leased under capital lease arrangements as follows (in thousands):
Dec. 29, 1996 Dec. 31, 1995 ------------- ------------- Owned: Land $ 1,966 $ 1,995 Buildings and leasehold improvements 28,521 28,046 Machinery, fixtures and equipment 54,564 49,294 Accumulated depreciation and amortization (43,000) (37,949) -------- -------- Owned, net 42,051 41,386 -------- -------- Leased: Buildings and leasehold improvements 5,141 5,029 Machinery, fixtures and 1,121 1,540 equipment Accumulated depreciation and amortization (1,654) (1,582) -------- -------- Leased, net 4,608 4,987 -------- -------- Properties and equipment, net $ 46,659 $ 46,373 ======== ========
4. SHORT-TERM DEBT Short-term debt (in thousands) at December 29, 1996, and December 31, 1995, was $6,115 and $12,767, 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 29, 1996, and December 31, 1995, was 6.1 percent and 7.3 percent, respectively. Average borrowings (in thousands) and the related weighted average interest rates were as follows:
1996 1995 ---- ---- Bank and other borrowings $4,888 $2,463 Weighted average interest rate 6.4% 7.9% ====== ======
The maximum aggregate short-term debt outstanding (in thousands) at the end of any month during fiscal years 1996 and 1995 was $11,109 and $12,767, respectively. 17 5. LINES OF CREDIT The Company maintains various credit agreements which are used primarily to fund the Company's working capital needs. At December 29, 1996, these agreements (in thousands) included foreign and domestic lines of credit of $18,472 and $11,000, respectively. Lines of credit are reviewed annually, with amounts borrowed under lines of credit included in short-term debt. At December 29, 1996, foreign and domestic lines of credit not in use were (in thousands) $18,216 and $5,141, 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. 6. ACCRUED EXPENSES Accrued expenses consisted of the following (in thousands):
Dec. 29, 1996 Dec. 31, 1995 ------------- ------------- Payroll and employee benefits $ 7,818 $ 6,394 Current portion of product warranties 6,673 5,994 Reserve for customer allowances 4,264 3,446 Other current liabilities 14,535 18,978 ------- ------- Total accrued expenses $33,290 $34,812 ======= =======
18 7. LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS Long-term debt and capitalized lease obligations consisted of the following (in thousands):
Dec. 29, Dec. 31, 1996 1995 -------- -------- Credit Agreement with floating interest rates; due 2000 $35,473 $41,765 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 1996 - 2003 450 500 Foreign borrowings with various interest rates; due 1997 - 2011 2,047 - Capital lease obligations with various interest rates; due 1996 - 1998 121 324 ------- ------- Total $70,491 $74,989 Current portion 10,202 270 ------- ------- Long-term portion $60,289 $74,719 ======= =======
In April 1994 a $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 29, 1996, of the $76.0 million of credit available under this agreement, $30.4 million was unused. 19 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 varies 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. As of December 29, 1996, interest rates under the Credit Agreement ranged from approximately 6.1 percent for Eurodollar loans to approximately 6.9 percent for borrowings denominated in pounds sterling. 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 4.21 percent and 5.23 percent at December 29, 1996, and December 31, 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 29, 1996. The Isabella County Industrial Revenue Bonds are secured by a building section with a net book value of $0.8 million as of December 29, 1996. The interest rates for these two industrial revenue bonds as of December 29, 1996, were 5.16 percent and 5.94 percent, respectively. The interest rates for these two industrial revenue bonds as of December 31, 1995, were 5.31 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 $0.2 million. 20 The weighted average effective interest rate was 7.5 percent and 7.7 percent at December 29, 1996, and December 31, 1995, respectively. Future required maturities of long-term debt and capital leases assuming letters of credit are outstanding at the same level as December 29, 1996, were as follows (in thousands):
1997 $10,202 1998 10,710 1999 415 2000 35,888 2001 9,320 Thereafter 3,956 ------- Total $70,491 =======
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 29, 1996. 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, $45.4 million of retained earnings was restricted as of December 29, 1996. 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. 8. OPERATING LEASES The Company leases certain of its offices, buildings, and machinery and equipment for periods up to 10 years with various renewal options. Rental expense under operating leases was $2.5 million in 1996, $2.4 million in 1995 and $2.0 million in 1994. 21 Future minimum lease commitments under noncancelable operating leases with initial lease terms greater than one year at December 29, 1996, were as follows (in thousands): 1997 $1,584 1998 1,390 1999 979 2000 1,019 2001 1,000 Thereafter 1,955 Total minimum lease ------ commitments $7,927 ======
9. 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. ("Household") in 1989, Household became responsible for all domestic salaried pension benefits accrued prior to March 31, 1989. The Company adopted a supplemental executive retirement plan ("SERP") for certain employees in 1994. Net periodic pension cost included in the Consolidated Statement of Income was as follows (in thousands):
For the Fiscal Years Ended ------------------------------------ Dec. 29, Dec. 31, Jan. 1 1996 1995 1995 --------- ---------- ------------ Service cost $1,141 $ 919 $ 815 Interest cost 790 667 475 Actual return on plan assets (1,050) (797) (213) Net amortization and deferral 519 365 (60) Net periodic ------ ------ ------ pension cost $1,400 $1,154 $1,017 ====== ====== ======
22 The funded status of the Company's pension plans (in thousands), excluding the Italian and German pension plans, was as follows:
Dec. 29, 1996 Dec. 31, 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 $(4,425) $(4,435) $(1,688) $(5,193) Non-vested benefits obligation (419) (586) -- (1,542) Accumulated ------- ------- ------- ------- benefit obligation (4,844) (5,021) (1,688) (6,735) Effects of anticipated future compensation levels (1,838) (612) (292) (1,607) Projected ------- ------- ------- ------- benefit obligation (6,682) (5,633) (1,980) (8,342) Plan assets at fair value 5,115 3,771 1,772 5,393 Projected ------- ------- ------- ------- benefit obligation in excess of plan assets (1,567) (1,862) (208) (2,949) Unrecognized net asset -- (9) -- (12) Unrecognized prior service cost 464 835 -- 1,289 Unrecognized net (gain) or loss (396) 74 (79) 1 Adjustment required to recognize minimum liability -- (344) -- (482) Accrued ------- ------- ------- ------- pension cost $(1,499) $(1,306) $ (287) $(2,153) ======= ======= ======= =======
23
Assumptions used in the actuarial computations were: Dec. 29, Dec. 31, Jan. 1, 1996 1995 1995 -------- -------- ------- Discount rate 7.5 - 9.0% 7.5 - 9.0% 8.0 - 9.0% Rate of increase in compensation levels 4.0 - 7.0% 4.0 - 7.0% 4.0 - 7.0% Expected long-term rate of return on assets 8.5 - 10.0% 8.5 - 10.0% 9.0 - 10.0%
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 $895, $888, and $785 in fiscal years 1996, 1995 and 1994, respectively. The unfunded liability for these plans included in the Consolidated Balance Sheet at December 29, 1996, and December 31, 1995, (in thousands) was $4,578 and $4,286, 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 29, 1996. 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) $742, $568, and $643 for fiscal years 1996, 1995 and 1994, 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 Net periodic post-retirement benefit cost for the fiscal years ended December 29, 1996, December 31, 1995, and January 1, 1995, included the following components (in thousands):
Dec. 29, Dec. 31, Jan. 1, 1996 1995 1995 ---- ---- ---- Service cost on benefits earned $146 $132 $161 Interest cost on accumulated post-retirement benefit obligation 148 139 142 Amortization of net loss subsequent to transition - - 4 --- --- ---- Net periodic post-retirement benefit cost $294 $271 $307 ==== ==== ====
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. 29, Dec. 31, 1996 1995 ---- ---- Accumulated post-retirement benefit obligation: Retirees $ 755 $ 820 Fully-eligible active plan participants 171 141 Other active plan participants 1,110 1,161 ------ ------ Total $2,036 $2,122 Unrecognized net (loss) gain 64 (126) Accrued post-retirement ------ ------ benefit cost recognized in the balance sheet $2,100 $1,996 ====== ======
Assumptions used in the actuarial computations were:
1996 1995 ------ ------ Discount rate 7.5% 7.5% Projected health care cost trend rates: Pre-65 benefits 8.5% 12.6% Post-65 benefits 8.5% 11.3% Ultimate health care cost trend rates: Pre-65 benefits 5.0% 5.5% Post-65 benefits 5.0% 5.5%
25 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) $360 for 1996 and $378 for 1995, and the aggregate of the service and interest cost components of net periodic post-retirement benefit cost by approximately (in thousands) $64 for 1996, $57 for 1995 and $63 for 1994. 10. 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. 26 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 29, 1996. 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. The Company had a forward exchange contract outstanding as of December 29, 1996, to hedge exposure relating to an intercompany transaction. The Company had no forward exchange contracts outstanding as of December 31, 1995. The fair value of interest rate swaps and forward exchange contracts is the estimated amount that the Company would receive or pay to terminate the agreements as of the balance sheet date. 27 The estimated fair value of the Company's financial instruments at December 29, 1996, (in thousands) was as follows:
Carrying Fair Amount Value ------- ------- Assets: Cash and temporary cash investments $16,501 $16,501 Trade accounts and notes receivable 58,734 58,734 Forward exchange contract -- 229 Liabilities: Short-term debt 6,115 6,115 Trade accounts payable 22,344 22,344 Long-term debt 70,370 71,535 Interest rate swap agreements -- 44
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
28 11. INCOME TAXES The components of the consolidated net deferred tax assets and liabilities as of December 29, 1996, and December 31, 1995, were as follows (in thousands):
Dec. 29, Dec. 31, 1996 1995 Gross deferred tax assets: Tax credits due to Italian reorganization $ 530 $ 556 Warranty accruals 3,110 2,907 Reserve for Delfield and Whitlenge 291 1,055 Hartek reserve 461 1,091 Receivable allowances 812 797 Inventory reserves 720 754 Reserve for post-retirement medical costs 823 791 Tax benefit of German net operating loss carry forwards 3,562 4,851 Other 3,502 2,989 -------- -------- Total gross deferred tax assets 13,811 15,791 Valuation allowance (3,681) (4,991) -------- -------- Total deferred tax assets $ 10,130 $ 10,800 ======== ======== Gross deferred tax liabilities: Properties and equipment $ (6,102) $ (5,702) Inventory related items (180) (909) Simag goodwill amortization (1,611) (1,186) Other (1,239) (1,157) -------- -------- Total gross deferred tax liabilities $ (9,132) $ (8,954) ======== ========
Deferred taxes reflected in the accompanying balance sheets as of December 29, 1996, and December 31, 1995, were as follows (in thousands):
Dec. 29, Dec. 31, 1996 1995 -------- -------- Current portion of deferred tax asset $ 4,708 $ 5,690 Noncurrent portion of deferred tax asset (included in other noncurrent assets) - 22 Current portion of deferred tax liability (included in accrued expenses) - (52) Noncurrent portion of deferred tax liability (3,710) (3,814) -------- --------
29 The valuation allowance as of December 29, 1996, includes $3.6 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 14) 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 German net operating loss carry forwards, if realized, will result in a reduction of goodwill and the benefit of utilizing the net operating loss carry forwards will not flow through the income statement. 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. 29, Dec. 31, Jan. 1, 1996 1995 1995 ------------- --------- ------------ United States: Current $ 7,518 $ 7,431 $ 7,300 Deferred 837 855 (746) ------- ------- ------- 8,355 8,286 6,554 ------- ------- ------- Foreign: Current 7,407 3,605 2,412 Deferred 687 829 1,047 ------- ------- ------- 8,094 4,434 3,459 Provision for ------- ------- ------- income taxes $16,449 $12,720 $10,013 ======= ======= =======
30 The provision (benefit) for deferred income taxes included the following (in thousands):
For the Fiscal Years Ended --------------------------------- Dec. 29, Dec. 31, Jan. 1, 1996 1995 1995 ------- -------- -------- Amortization of of Italian reorganization benefits $ 58 $ 122 $ 535 Depreciation 458 307 203 Reserve for Glenco-Star disposition -- 249 56 Reserve for swap loss -- -- 38 Warranty reserve (311) (33) (304) Inventory adjustments (732) 913 (95) Reserve for relocation of Crystal Tips -- -- 167 Valuation allowance changes (27) (51) (117) Reserve for Delfield and Whitlenge 727 -- -- Utilization of German net operating loss carry forwards 952 -- -- Other, net 399 177 (182) ------- ------ ------- Total $ 1,524 $1,684 $ 301 ======= ====== =======
Income before income taxes from foreign operations was $15.7 million in 1996, $8.9 million in 1995, and $6.9 million in 1994. 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. 29, Dec. 31, Jan. 1, 1996 1995 1995 --------- ---------- --------- Statutory federal income tax rate 35.0% 35.0% 35.0% Increase in rate resulting from: State and local income taxes, net of federal tax benefit 1.7 2.9 2.7 Foreign tax effect 7.6 4.9 4.9 Other 2.7 2.4 1.3 ---- ---- ---- 47.0% 45.2% 43.9% ==== ==== ====
31 In accordance with the Company's accounting policy, provision for U.S. income taxes has not been made on $38.6 million of undistributed earnings of foreign subsidiaries at December 29, 1996. 12. STOCK-BASED COMPENSATION PLANS 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 10 years and one day from the date of the grant. In August 1994 the Board of Directors adopted, subject to shareholder approval, the Non-Employee Directors Stock Option Plan. The plan was approved by the shareholders at the 1995 Annual Meeting of Shareholders. 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 10 years and one day from the date of the grant. 32 The Company accounts for these plans under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with FASB Statement No. 123 ("SFAS 123"), the Company's net income and earnings per share would have been reduced to the following pro forma amounts:
1996 1995 ---- ----- Net income: As reported $18,568 $15,408 Pro forma 18,306 15,281 Primary net income per share: As reported $1.85 $1.58 Pro forma $1.82 $1.56 Fully-diluted net income per share: As reported $1.73 $1.45 Pro forma $1.71 $1.43
A summary of the status of the Company's two stock option plans at December 29, 1996, December 31, 1995, and January 1, 1995, and changes during the years then ended is presented in the following table:
1996 1995 1994 ----------------- ----------------- ------------- Weighted Weighted Weighted Average Average Average Shares Exercise Shares Exercise Shares Exercise (000) Price (000) Price (000) Price Outstanding at beginning of year 525 $12 473 $10 472 $ 9 Granted 92 18 79 18 71 16 Exercised (51) 10 (24) 9 (52) 9 Forfeited (6) 17 (3) 16 (18) 11 ---- --- --- Outstanding at end of year 560 13 525 12 473 10 ---- --- --- Exercisable at end of year 377 10 357 10 294 9 Weighted average fair value of options granted during the year $9.74 $10.73 --
33 The following table summarizes information about stock options outstanding at December 29, 1996:
Options Outstanding Options Exercisable ------------------------ ------------------- Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Outstanding Contractual Exercise Exercisable Exercise Prices at 12/29/96 Life(years) Price at 12/29/96 Price $ 7 to $ 9 224,187 3.2 $ 8 224,187 $ 8 $11 to $15 121,300 3.8 $12 104,645 $12 $16 to $20 214,675 8.2 $18 48,525 $18 ------- ------- $ 7 to $20 560,162 4.3 $13 377,357 $10 ======= =======
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1996 and 1995, respectively: risk-free interest rates of 5.93 percent and 7.56 percent for the executive options and 6.86 percent and 6.77 percent for the Non-Employee Directors Plan options; expected dividend yields of 0.60 percent for the executive plan options for both years and 0.50 percent for the Non-Employee Directors plan options for both years; expected lives of 10.01 for both plans in both years; and expected volatility of 36.60 percent for both plans in both years. The Company issued from treasury 5,965, 6,219, and 8,038 shares of common stock in fiscal years 1996, 1995 and 1994, respectively, as annual Board of Directors fees. Costs relating to these fees (in thousands) of $120, $129, and $99 were recorded in fiscal years 1996, 1995 and 1994, respectively. 13. 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. 34 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 were convertible into 1,525,393 shares of common stock. (If such conversion had taken place on January 1, 1996, primary earnings per share would have been $1.73.) All the cumulative convertible preferred stock was converted to common stock during 1996. 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 7.) The results of Delfield and Whitlenge are included in the income statements for the Company beginning after April 29, 1994. 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 the 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. 35 (Amounts in thousands, except per-share data)
PRO FORMA (Unaudited) Twelve Months Ended Jan. 1, 1995 Net sales $304,144 Net income 13,547 Net income per share, fully diluted $ 1.28
14. 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., a beverage dispensing manufacturer and a small distributor of Hartek and other products located in Radevormwald, Germany and Vienna, Austria, respectively (collectively, "Hartek"). Hartek 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 been included in the income statements for the Company beginning on the date of acquisition, December 31, 1995. Hartek was acquired for an initial cost of $5.8 million, including acquisition costs. No shares of stock were or will be issued as a result of these acquisitions. The cash outlay was partially offset by cash on the books of Hartek at closing of $3.3 million. Goodwill of $1.9 million has been recorded as of December 29, 1996. The amount of goodwill from this acquisition 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 the actual amount of any tax saving realized by Hartek in respect of each of its financial years 1996 through 1998 through the use of the amount of any tax loss carry forward available to Hartek as of December 31, 1995, in reduction of taxable profits for those financial years 1996 through 1998. This additional consideration is not to exceed an amount of 2.2 million deutsche marks or, as of December 29, 1996, approximately $1.4 million. In addition, at the date of acquisition, Scotsman also assumed Hartek debt of approximately $6.4 million. 36 Pro forma unaudited 1995 net sales of the Company, as if Hartek were acquired on the first day of the 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. 15. GEOGRAPHIC INFORMATION The Company's geographic data, based on the locations of operations, are as follows (in thousands):
For the Fiscal Years Ended Dec. 29, Dec. 31, Jan. 1, 1996 1995 1995 Sales to unaffiliated customers: United States $235,302 $239,110 $201,746 Europe 121,071 85,181 64,886 -------- -------- -------- Total $356,373 $324,291 $266,632 ======== ======== ======== Operating profit: United States $ 24,248 $ 25,309 $ 20,773 Europe 16,048 9,145 7,441 -------- -------- -------- Total $ 40,296 $ 34,454 $ 28,214 ======== ======== ======== Identifiable assets: United States $181,259 $181,994 $172,608 Europe 102,005 93,949 72,183 -------- -------- -------- Total $283,264 $275,943 $244,791 ======== ======== ========
Export sales from the United States were less than 10 percent of consolidated net sales for all years presented. 37 16. SUBSEQUENT EVENT (UNAUDITED) In March of 1997 the Company completed the acquisition of Kysor Industrial Corporation ("Kysor"), a major manufacturer and marketer of refrigerated display cases, commercial refrigeration systems and insulated panels primarily serving the supermarket industry. The Company purchased Kysor's common and preferred stock (hereinafter referred to as the "Acquisition") for an aggregate purchase price of $309 million. Concurrent with the purchase, the Company sold Kysor's Transportation Products Group to a third party for an aggregate purchase price of $86 million plus assumption of certain liabilities. The Company retained possession of Kysor's Commercial Products Group. Goodwill relating to the acquisition of Kysor will be finalized within 12 months of the acquisition date and will be amortized for book purposes over 40 years using the straight-line method. Kysor, headquartered in Cadillac, Michigan, reported total sales in 1996 of $381 million, of which $245 million related to commercial refrigeration products. The acquisition of Kysor, after giving effect to the divestiture of the Transportation Products Group and other acquisition related transactions, was financed through a $415 million loan facility between the Company and the First National Bank of Chicago (the "FNBC Facility"). The FNBC Facility consists of a $150 million seven-year term loan and a $265 million seven-year revolving loan facility, both with an initial interest rate of 1.375 percent above Eurocurrency rates. The interest rates on both facilities adjust based on a certain ratio tied to the strength of the Company's balance sheet. The agreement governing the FNBC Facility includes various financial covenants. One of those covenants has the effect of restricting the amount of the Company's dividends to its shareholders by requiring the Company to maintain consolidated stockholders' equity of at least $120 million (without giving effect to the cumulative effect of future changes in accumulated translation adjustments), plus 60 percent of (i) the cumulative net income of the Company from December 30, 1996, forward and (ii) the net cash proceeds from any future issuance of equity securities by the Company after the closing of the FNBC Facility. At December 29, 1996, consolidated stockholders' equity of the Company was $131.7 million. The Company is also precluded from paying dividends to its shareholders (other than dividends payable in its own capital stock) if a default or an unmatured default under the agreement has occurred and is continuing or would occur after giving effect to the payment of such dividends. 38 The FNBC Facility requires that a notional amount of $150 million be hedged to reduce interest rate exposure for three years. In addition to financing the Kysor acquisition, proceeds of the FNBC Facility will be used to pay expenses associated with this acquisition and were used to repay existing long-term debt, including the $90.0 million reducing credit agreement and the $20.0 million private placement agreement. 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 29, 1996, and December 31, 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 29, 1996. 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 29, 1996, and December 31, 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 1996, in conformity with generally accepted accounting principles. Arthur Andersen LLP Chicago, Illinois February 4, 1997 39 Scotsman Industries, Inc. Five Year Summary (Amounts in thousands, except per-share data)
For the Fiscal Years Ended Dec. 29, Dec. 31, Jan. 1, Jan. 2, Jan. 3, 1996 (a) 1995 (b) 1995 (c) 1994 1993 Net sales $356,373 $324,291 $266,632 $163,952 $168,674 Income before income taxes 35,017 28,128 22,798 13,371 10,185 Net income 18,568 15,408 12,785 7,411 6,392 Net income per share, fully diluted (d) 1.73 1.45 1.35 1.06 0.90 Total assets (e) 283,264 275,943 244,791 103,173 96,103 Long-term debt and capitalized lease obligations, excluding current portion (e) 60,289 74,719 85,161 29,469 29,589 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 29, 1996, includes balance sheet information and the results of Hartek which was acquired on December 31, 1995. (b) The information for the fiscal year ended December 31, 1995, includes balance sheet information for Hartek which was acquired on December 31, 1995. (c) 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. (d) The calculation of net income per share for the fiscal years 1996, 1995, 1994, 1993, and 1992 was based on 10,728,188, 10,649,763, 9,488,965, 7,000,651, and 7,096,976 weighted average shares of common stock, respectively. The calculation of fully-diluted net income per share for the fiscal years ended January 1, 1995, December 31, 1995, and December 29, 1996, 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 40 Scotsman Industries, Inc. Selected Quarterly Financial Data (Unaudited) (Amounts in thousands, except per-share data)
Fiscal year 1996 Fiscal year 1995 -------------------------------------------- --------------------------------------------- For The Three Months Ended Dec. 29, Sept. 29, June 30, Mar. 31, Dec. 31, Oct. 1, July 2, Apr. 2, 1996 1996 1996 1996 1995 1995 1995 1995 Net sales $ 73,653 $ 92,764 $104,423 $ 85,533 $ 70,779 $ 87,075 $ 90,363 $ 76,074 Cost of sales 55,692 66,558 73,562 62,130 52,709 63,348 64,471 55,874 -------- -------- -------- -------- -------- -------- -------- -------- Gross profit 17,961 26,206 30,861 23,403 18,070 23,727 25,892 20,200 Selling and administrative expenses 13,063 14,195 15,854 15,023 13,506 13,079 13,627 13,223 -------- -------- -------- -------- -------- -------- -------- -------- Income from operations 4,898 12,011 15,007 8,380 4,564 10,648 12,265 6,977 Interest expense, net 1,120 1,322 1,422 1,415 1,366 1,639 1,744 1,577 -------- -------- -------- -------- -------- -------- -------- -------- Income before income taxes 3,778 10,689 13,585 6,965 3,198 9,009 10,521 5,400 Income taxes 1,677 4,906 6,520 3,346 1,259 4,099 4,792 2,570 -------- -------- -------- -------- -------- -------- -------- -------- Net income $ 2,101 $ 5,783 $ 7,065 $ 3,619 $ 1,939 $ 4,910 $ 5,729 $ 2,830 ======== ======== ======== ======== ======== ======== ======== ======== Net income per share (a): Primary $ 0.20 $ 0.58 $ 0.73 $ 0.36 $ 0.18 $ 0.50 $ 0.59 $ 0.29 ======== ======== ======== ======== ======== ======== ======== ======== Fully diluted $ 0.20 $ 0.54 $ 0.66 $ 0.34 $ 0.18 $ 0.46 $ 0.54 $ 0.27 ======== ======== ======== ======== ======== ======== ======== ======== Weighted average common shares outstanding: Primary 10,475,223 9,474,377 9,315,726 9,140,363 9,111,889 9,129,549 9,128,141 8,565,289 Fully diluted 10,761,585 10,730,902 10,701,692 10,669,965 10,650,140 10,654,786 10,653,582 10,640,578
41 (a) Net income per share on a primary basis was computed to be net income after preferred stock dividends. 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 were 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. Common Stock Scotsman Industries, Inc. common stock is listed on the New York Stock Exchange. The common stock ticker symbol is SCT.
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 Dividends 1996 High Low Last Declared 1st Quarter 18 17 17 7/8 $0.025 2nd Quarter 21 17 7/8 20 1/8 $0.025 3rd Quarter 24 19 1/2 22 7/8 $0.025 4th Quarter 24 7/8 22 3/4 23 3/4 $0.025 ------ Total dividends declared $0.100 Shares outstanding at December 29, 1996 10,542,464 Shareholders of record at December 29, 1996 4,559
EX-21 10 LIST OF SUBSIDIARIES 1 EXHIBIT 21 LIST OF SUBSIDIARIES OF THE REGISTRANT
Jurisdiction of Incorporation OTHER NAMES UNDER WHICH NAME OF SUBSIDIARY or Organization SUBSIDIARY DOES BUSINESS ------------------ --------------- ------------------------ Scotsman Group Inc. Delaware Scotsman Scotsman Commercial Ice Systems, Inc. Scotsman Ice Systems Scotsman of Los Angeles Beleggingsmaatschappij Interrub B.V. Netherlands None Booth, Inc. Texas Crystal Tips Castel MAC, S.p.A. Italy None Charles Needham Industries, Inc. Michigan None Charles Needham Industries LP Delaware Limited Partnership Kysor/Needham DFC Holding Corporation Delaware None The Delfield Company Delaware None Frimont, S.p.A. Italy None Hartek Awagem Vertriebsges m.b.H. Austria None Hartek Beverage Handling GmbH Germany None Kysor/Bangor, Inc. Michigan None Kysor Business Trust Delaware Business Trust None Kysor CNI, Inc. Michigan None Kysor Industrial Corporation Michigan Kysor/Warren Kysor/Kalt, Inc. Michigan None Kysor/Warren de Mexico Mexico None S. De R.L. De C.V. Kysor Worldwide Corp. Barbados None Scotsman Drink Limited England None
2
Jurisdiction of Incorporation OTHER NAMES UNDER WHICH NAME OF SUBSIDIARY or Organization SUBSIDIARY DOES BUSINESS ------------------ --------------- ------------------------ Scotsman Group FSC, Inc. Barbados None Shenyang Scotsman-Xinle China None Refrigeration Equipment Manufacturing Co. Ltd. (60% owned) Whitlenge Acquisition Limited England None Whitlenge Drink Equipment Limited England None
EX-23 11 CONSENT OF ARTHUR ANDERSON 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 27, 1997 EX-27 12 FDS
5 This schedule contains summary financial information extracted from Scotsman Industries, Inc. Consolidated Balance Sheet as of December 29, 1996 and Scotsman Industries, Inc. Consolidated Statement of Income for the Twelve Months Ended December 29, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-29-1996 JAN-01-1996 DEC-29-1996 16,501 0 58,734 2,778 52,530 137,574 46,659 44,654 283,264 78,253 60,289 0 0 1,073 130,639 283,264 356,373 356,373 257,942 257,942 0 0 5,279 35,017 16,449 18,568 0 0 0 18,568 1.85 1.73
EX-99 13 CAUTIONARY STATEMENT 1 EXHIBIT 99 SCOTSMAN INDUSTRIES, INC. CAUTIONARY STATEMENTS Information provided by the Company from time to time, either orally or in writing, may contain certain "forward looking" information, as that term is defined in the Private Securities Litigation Reform Act of 1995 (the "Act"). Consistent with the Act, such forward-looking information may include information relating to such matters as sales, income, earnings per share, return on equity, capital expenditures, dividends, capital structure, cash flow, debt to capitalization ratios, internal growth rates, future economic performance, management's plans and objectives for future operations, or the assumptions relating to, or underlying, any such forward-looking information. The cautionary statements set forth below are being made pursuant to the provisions of the Act and with the intention of obtaining the benefits of the "safe harbor" provisions of the Act. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and that actual results may differ materially from those expressed in, or implied by, the forward-looking statements as a result of various factors, including but not limited to the following: 1. The Company's performance should be expected to be affected by the strength or weakness of the various economies in which the Company markets its products, primarily in the United States and Western Europe, but also in the Far East. The relative strength or weakness of these economies may affect the rate at which new hotels, restaurants, fast food outlets, supermarkets or other facilities with a need for the Company's products are built, and the rate at which other potential commercial customers replace or upgrade ice machines, beverage dispensing systems, food preparation and storage equipment, refrigerated display cases, walk-in cold rooms, and insulated panels already in use, thus affecting the demand for the Company's products. 2. Sales of a significant proportion of the Company's products can be negatively impacted by abnormal weather conditions during different seasons and quarters of the year. 3. Underutilization of the Company's facilities may occur as a result of failure to meet anticipated sales volumes. Such underutilization, which results in excess capacity costs, may significantly affect the Company's operating results. 4. The Company's ability to realize operating profits is dependent on its ability to timely manufacture, source and deliver products which may be sold for a profit. Labor difficulties, delays in delivery or increased prices of raw materials and purchased components, scheduling and transportation difficulties, management dislocations and delays in development and manufacture of new products can negatively affect operating profits. 5. The Company's results of operations can be negatively impacted by product liability or other lawsuits and/or by warranty claims or other returns of goods. 6. The Company manufactures some of its products in the United Kingdom, Italy and Germany and sells its products throughout Western Europe and the Middle and Far East. Currency devaluations and unfavorable changes in foreign country monetary and tax policies and other changes in the regulatory climate in foreign countries could materially affect the Company's profitability and the Company's plans to grow its international businesses. 2 7. Although no single customer accounts for more than 10% of the Company's consolidated net sales, the volume of sales of the Company's drink dispensing equipment, food preparation and storage equipment, refrigerated display cases, walk-in cold rooms and insulated panels may be affected, from time to time, by changes in the buying patterns of certain large customers as a result of internal cost-control measures adopted by such customers, changes in the strategic plans of such customers, or other factors. 8. The Company'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. The Company also is, or may be, subject from time to time to claims and litigation arising under the Comprehensive Environmental Response, Compensation and Liability Act and similar state statutes. The Company 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. -----END PRIVACY-ENHANCED MESSAGE-----