As
of April 10, 2007, The Toro Company (“Toro”), Toro Credit Company, a
subsidiary of Toro (“Toro Credit”), Toro Manufacturing LLC, Exmark Manufacturing
Company Incorporated, Toro International Company, Tover Overseas B.V., and
Toro
Factoring Company Limited, each of which is a subsidiary of Toro (collectively,
the “Subsidiary Borrowers” and, collectively with Toro and Toro Credit, the
“Borrowers”), executed and delivered Amendment No.3 to Credit
Agreement, which had an effective date of February 28, 2007 (the “Amendment”),
with certain lenders from time to time party thereto (the “Lenders”), and Bank
of America, N.A., as administrative agent, swing line lender, and L/C issuer
(the “Agent”). The Amendment amends that certain Credit Agreement, dated as of
September 8, 2004 (the “Original Credit Agreement” and, as amended to date, the
“Credit Agreement”), which was previously amended by Amendment No.1 to Credit
Agreement, dated as of October 25, 2005, and Amendment No.2 to Credit Agreement,
dated as of January 10, 2007. A copy of the Original Credit Agreement was
attached as an exhibit to Toro’s Current Report on Form 8-K filed on September
9, 2004.
Pursuant
to the terms of the Amendment, the Lenders agreed to waive any and all defaults,
if any, existing under the Credit Agreement due to the reclassification by
Toro
of certain of its previously issued financial information. Such reclassification
is described in more detail in Toro’s Current Report on Form 8-K/A filed on
February 28, 2007. In addition, the Amendment (i) revised the terms and
conditions of the sale of accounts receivable by Toro and its subsidiaries
that
is permitted under the terms of the Credit Agreement, (ii) released Exmark
Manufacturing Company Incorporated and Toro Manufacturing LLC from their
respective obligations to be jointly liable for the obligations of the other
Borrowers that arise under the Credit Agreement, and (iii) revised the
consolidated total sales revenue covenant requirement so that the consolidated
total sales revenue of Toro and Toro Credit at the end of each fiscal year
may
not be less than 50% of the consolidated total sales revenue of Toro and
its
subsidiaries at such time.
Under
the
Original Credit Agreement, the provisions describing permitted sales of
receivables were tailored to apply to specific accounts receivable
securitization facilities to which Toro and one of its affiliates were then
parties. The Amendment replaced references to such specific accounts receivable
securitization facilities that have since been terminated with more general
language that permits the sale of accounts receivable under certain terms
and
conditions.
Bank
of
America, N.A. and its affiliates have in the past performed, and may in the
future from time to time, perform, investment banking, financial advisory,
lending and/or commercial banking services for Toro and its subsidiaries,
for
which service it has in the past received, and may in the future receive,
customary compensation and reimbursement of expenses.
The
description of the Amendment set forth above is qualified by the Amendment
filed
as Exhibit 10.1 to this Current Report on Form 8-K and is hereby incorporated
herein by this reference.
Section
8 — Other Events
Item
8.01 Other
Events
1. Horsepower
Litigation Update.
In
June
2004, eight individuals who claim to have purchased lawnmowers in Illinois
and
Minnesota filed a lawsuit in Illinois state court against the company and
eight
other defendants alleging that the horsepower labels on the products the
plaintiffs purchased were inaccurate. The complaint, as amended, asserts
violations of the federal Racketeer Influenced and Corrupt Organizations
(RICO)
Act and statutory and common law claims arising from the laws of 48 states.
The
plaintiffs seek certification of a class of all persons in the United States
who, beginning January 1, 1994 through the present purchased a lawnmower
containing a two stroke or four stroke gas combustible engines up to 30
horsepower that was manufactured or sold by the defendants. The amended
complaint seeks an injunction, unspecified compensatory and punitive damages,
treble damages under the RICO Act and attorneys’ fees. In May 2006, the case was
removed to Federal court in the Southern District of Illinois. On March 30,
2007, the court entered an order dismissing plaintiffs’ complaint, subject to
the ability to re-plead certain claims pursuant to a detailed written order
to
follow. We continue to evaluate this lawsuit and are unable to reasonably
estimate the likelihood of loss or the amount or range of potential loss
that
could result from this litigation. Therefore, no accrual has been established
for potential loss in connection with this lawsuit. We are also unable to
assess
at this time whether the lawsuit will have a material adverse effect on our
annual consolidated operating results or financial condition, although an
unfavorable resolution could be material to our consolidated operating results
for a particular period.
2. Textron
litigation
In
July
2005, Textron Innovations Inc., the patent holding company of Textron, Inc.,
filed a lawsuit in Delaware Federal District Court against the company for
patent infringement. Textron alleges that we willfully infringe certain claims
of three Textron patents by selling certain of our Groundsmaster® commercial
mowers. Textron seeks damages for our past sales and an injunction against
future infringement. In August and November 2005, we answered the complaint,
asserting defenses and counterclaims of non-infringement, invalidity and
equitable estoppel. Following the Court’s order in October 2006 construing the
claims of Textron’s patents, discovery in the case was closed in February 2007.
In March 2007, following unsuccessful attempts to mediate the case, we filed
with the United States Patent and Trademark Office to have Textron’s patents
reexamined, and also requested that the Court stay the pending litigation,
which
is scheduled for trial in late June 2007. We continue to evaluate this
lawsuit and are unable to reasonably estimate the likelihood of loss or the
amount or range of potential loss that could result from the litigation.
Therefore, no accrual has been established for potential loss in connection
with
this lawsuit. While we do not believe that the lawsuit will have a material
adverse effect on our consolidated financial condition, an unfavorable
resolution could be material to our consolidated operating results for a
particular period.
Generally,
we cannot be certain that our products or technologies have not infringed,
or in
the future will not infringe, the proprietary rights of others. Any such
infringement could cause third parties to bring claims against us, resulting
in
significant costs, possible damages and substantial uncertainty. We could
also
be forced to develop a non-infringing alternative, which could be costly
and
time-consuming, or acquire a license, which we might not be able to do on
terms
favorable to us, or at all.