<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission File Number 1-9897
VALLEY FORGE CORPORATION
(Exact name of Registrant as specified in its charter)
GEORGIA 58-0833796
(State of incorporation) (IRS Employer Identification Number)
100 SMITH RANCH ROAD
SUITE 326
SAN RAFAEL, CALIFORNIA 94903
(Address of principal executive offices) (Zip code)
(415) 492-1500
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
SECURITIES EXCHANGE ACT OF 1934:
Name of Each Exchange on
Title of Each Class Which Registered
Common Stock, Par Value $.50
Per Share American Stock Exchange
Indicate by a 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
the Form 10-K. [ ]
Indicate by a 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 [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 1, 1997 was approximately $17,121,000.
The number of shares of Registrant's Common Stock outstanding on March 1, 1997
was 2,675,983.
The Exhibit Index is located on pages 4 and 5.
================================================================================
1 of 48
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
10K 10K/A
Page Page
---- ----
<S> <C> <C> <C>
Part I
Item 1 Business 2-4
Item 2 Properties 4-5
Item 3 Legal Proceedings 5
Item 4 Submission of Matters to a Vote
of Security Holders 5
Part II
Item 5 Market for the Registrant's Common
Stock and Related Stockholder
Matters 5
Item 6 Selected Financial Data 5
Item 7 Management's Discussion and Analysis
of Financial Condition and
Results of Operations 5-7
Item 8 Financial Statements and
Supplementary Data 7
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 7
Part III
Item 10 Director and Officers of the
Registrant 7
Item 11 Executive Compensation 8
Item 12 Security Ownership of Certain
Beneficial Owners and Management 9-10
Item 13 Certain Relationships and Related
Transactions 10
Part IV
Item 14 Exhibits, Financial Statement
Schedules, and Reports on Form
8-K 10 3-5
</TABLE>
2
<PAGE> 3
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Index to Certain Documents
<TABLE>
<CAPTION>
Original 10-K 10-K/A
Page No. Page No.
------------- --------
<S> <C> <C> <C>
(1) Independent Auditor's Report 15
(2) Financial Statements
(a) Consolidated Balance Sheets as of
December 31, 1996 and 1995 17
(b) Consolidated Statements of Income
for the Fiscal Years Ended December
31, 1996, 1995, and 1994 16
(c) Consolidated Statements of
Stockholders' Equity for the Fiscal
Years Ended December 31, 1996, 1995,
and 1994 18
(d) Consolidated Statement of Cash Flows
for the Fiscal Years Ended December
31, 1996, 1995, and 1994 19
(3) Notes to consolidated Financial Statements 20-28
(4) Financial Statement Schedules
II Valuation and Qualifying Accounts
and Reserves for the Fiscal Years
Ended December 31, 1996, 1995, and
1994 32
</TABLE>
All other schedules and notes under Regulation S-X are omitted because
they are either not applicable, not required, or the information called for
therein appears in the consolidated financial statements or the notes thereto.
(b) Reports on Form 8-K
None.
(c) Index to Exhibits
3
<PAGE> 4
<TABLE>
<CAPTION>
Page Number or
Exhibit Incorporated by
Number Description Reference to
- ------ ----------- ------------
<S> <C> <C>
3 Articles of Incorporation
and Bylaws Exhibit 3 to Form
10-K for the year
ended December
31,1985
4 Instruments Defining the Rights of Security Holders,
Including Debentures
4.1 Note Purchase Agreement dated as of May 15, 1994,
among the Registrant and Northwestern National
Life Insurance Company, Bankers Security Life
(formerly The North Atlantic Life Insurance
Company of America), and The Northern Life
Insurance Company 8 - 41
4.2 Amended and Restated Credit Agreement dated
August 31, 1996, between the Registrant and The
Boatmen's National Bank of St. Louis 42 - 48
10 Material Contracts
10.1 Valley Forge Corporation Amended
and Restated 1987 Stock Option Exhibit to
Plan Registration
Statement on
Form S-8, filed
July 2, 1996
(Commission file
No. 33-50250)
11 Computation of Net Income Per Share Exhibit 11 of
10-K for year
ended December
31, 1996
21 Subsidiaries of the Registrant Exhibit 22 of
10-K for year
ended December
31, 1996
23 Consent of Independent Accountants Exhibit 24 of
10-K for year
ended December 31,
1996
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C> <C>
27 Financial Data Schedule Exhibit 27 of 10-K for
year ended December
31, 1996.
</TABLE>
5
<PAGE> 6
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.
VALLEY FORGE CORPORATION
By /s/ Monica J. Burke
------------------------
Monica J. Burke
Vice President Finance
(Principal Financial and
Accounting Officer)
Dated: June 3, 1997
6
<PAGE> 7
EXHIBIT INDEX
<TABLE>
<CAPTION>
10K/A Page
Description Number
----------- ------
<S> <C> <C>
4.1 Note Purchase Agreement dated as of May 15, 1994,
among the Registrant and Northwestern National
Life Insurance Company, Bankers Security Life
(formerly The North Atlantic Life Insurance
Company of America), and The Northern Life
Insurance Company 8 - 41
4.2 Amended and Restated Credit Agreement dated
August 31, 1996, between the Registrant and
The Boatmen's National Bank of St. Louis 42 - 48
</TABLE>
7
<PAGE> 1
- --------------------------------------------------------------------------------
VALLEY FORGE CORPORATION
$11,000,000 8.15% SENIOR NOTES
NOTE PURCHASE AGREEMENT
WITH
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
THE NORTH ATLANTIC LIFE INSURANCE COMPANY OF AMERICA
AND
NORTHERN LIFE INSURANCE COMPANY
DATED AS OF MAY 15, 1994
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Paragraph Page
- --------- ----
<S> <C> <C>
1. Purchase and Sale of Notes........................................... 1
2. Voluntary Prepayments ............................................... 3
3. Representations and warranties....................................... 3
4. Affirmative Covenants............................................... 8
(a) Payment.................................................. 8
(b) Maintenance of Books and Records......................... 8
(c) Inspection of Books and Records.......................... 9
(d) Financial Information.................................... 9
(e) Quarterly Financial Statements........................... 9
(f) Annual Financial Statements.............................. 9
(g) Financial Certification.................................. 10
(h) Copies of Management Letters............................ 10
(i) Copies of Regulatory Reports............................. 11
(j) Corporate Existence ..................................... 11
(k) Compliance............................................... 11
(1) Payment of Taxes and Claims.............................. 11
(m) Maintenance of Properties................................ 12
(n) Insurance................................................ 12
(o) Remuneration............................................. 12
(p) Net Worth................................................ 12
(q) Notice of Default........................................ 12
(r) Exchange of Notes........................................ 12
(s) Reference in Financials.................................. 12
(t) Board of Directors Meetings.............................. 12
(u) Qualified Plans.......................................... 13
(v) President................................................ 13
5. Negative Covenants .............................................. 13
(a) Permitted Debt........................................... 13
(b) Fixed Charges............................................ 15
(c) Permitted Investments ................................... 15
(d) Subordination of Claims.................................. 16
(e) Sale of Assets . . . .................................... 16
(f) Merger and Consolidation................................. 17
(g) Issuances of Capital Stock of Subsidiaries............... 17
(h) Maintenance of Present Business.......................... 18
(i) Transactions with Affiliates............................. 18
(j) Permitted Liens ......................................... 18
(k) Restricted Payments ..................................... 20
6. Conditions Precedent................................................... 20
7. Defaults............................................................... 21
8. Payments on and Registration and Transfer of Notes..................... 23
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
9. Expenses.......................................................... 24
10. Sale of Notes; Amendment and Waiver............................... 24
11. Definitions....................................................... 25
12. Investment Purpose................................................ 29
13. Survival of Representations and Warranties........................ 29
14. Successors and Assigns............................................ 29
15. Notices........................................................... 29
16. Governing Law..................................................... 29
17. Counterparts...................................................... 29
</TABLE>
<TABLE>
<S> <C> <C>
Exhibit A Form of Notes
Exhibit B Subsidiaries
Exhibit C Schedule of Existing Permitted
Indebtedness and Liens
Exhibit D Schedule of Existing Permitted
Investments
Exhibit E Form of Opinion of Company Counsel
Exhibit F Wire Transfer Instructions
</TABLE>
-ii-
<PAGE> 4
VALLEY FORGE CORPORATION
NOTE PURCHASE AGREEMENT
Dated as of May 15, 1994
Northwestern National Life
insurance Company
c/o Washington Square Capital, Inc.
100 Washington Square, Suite 800
Minneapolis, Minnesota 55401-2147
The North Atlantic Life Insurance
Company of America
c/o Washington Square Capital, Inc.
100 Washington Square, Suite 800
Minneapolis, Minnesota 55401-2147
Northern Life Insurance Company
c/o Washington Square Capital, Inc.
100 Washington Square, Suite 800
Minneapolis, Minnesota 55401-2147
Ladies and Gentlemen:
The undersigned, Valley Forge Corporation, a corporation
organized under the laws of the State of Georgia (herein called the "Company"),
hereby confirms its agreements with you as follows. All capitalized terms used
and not otherwise defined herein shall have the meanings set forth in paragraph
11 hereof.
1. Purchase and Sale of Notes.
(a) Subject to the terms and conditions herein, the Company will sell
to each of you on such date on or prior to June 1, 1994 as may be fixed by you
on at least 3 days prior written notice to the Company, or as may be mutually
agreed upon with you (the date of sale being herein called the "Closing Date"),
and each of you will purchase from the Company on the Closing Date, at 100% of
the principal amount thereof, a senior promissory note of the Company (which,
together with any note or notes issued in substitution therefor, are herein
collectively called the Notes and individually called a "Note") dated the
Closing Date.
The Note to be purchased by Northwestern National Life Insurance
Company ("Northwestern") shall be in the principal amount of $2,000,000, due in
ten consecutive equal annual installments, each in the amount of $181,818, on
the first day of June in each of the years 1996 through 2005, inclusive, and one
final installment equal to the remaining unpaid principal amount of such Note on
June 1, 2006. The Note to be purchased by The North Atlantic Life
-1-
<PAGE> 5
Insurance Company of America ("North Atlantic") shall be in the principal amount
of $1,000,000, due in ten consecutive equal annual installments, each in the
amount of $90,909, on the first day of June in each of the years 1996 through
2005, inclusive, and one final installment equal to the remaining unpaid
principal amount of such Note on June 1,2006. The Note to be purchased by
Northern Life Insurance Company ("Northern") shall be in the principal amount of
$8,000,000, due in ten consecutive equal annual installments, each in the amount
of $727,272, on the first day of June in each of the years 1996 through 2005,
inclusive, and one final installment equal to the remaining unpaid principal
amount of such Note on June 1, 2006.
The Notes shall bear interest at the rate of 8,15% per annum
(computed on the basis of a 360 day year - 30 day month) from the date of the
Notes until payment in full of the principal amount thereof, payable quarterly
in arrears on the first day of each March, June, September and December,
commencing September 1,1994.
The Notes shall be subject to prepayment as herein provided,
shall in all respects be subject to the terms of this Agreement, and shall be
substantially in the form of Exhibit A hereto. The purchase of the $2,000,000
Note by Northwestern, the $1,000,000 Note by North Atlantic and the $8,000,000
Note by Northern shall be separate and several, provided that the Company shall
not be obligated to sell any of the Notes hereunder unless all of the Notes are
purchased.
(b) Notwithstanding the foregoing, if all or any portion of
the principal amount of or interest on any Note shall not be paid when due,
whether by regular installment, upon prepayment, by acceleration, at maturity or
otherwise, such overdue principal and, if so permitted by law, such overdue
interest shall bear interest at a rate per annum equal to the lesser of the
highest rate permitted by law or 10.15% (computed on the basis of a 360 day year
- - 30 day month) from the date on which such payment was due until payment
thereof in full.
(c) You will pay the purchase price of the Notes by wire
transfer of immediately available federal funds to such accounts as shall be
specified by the Company, against delivery to you of the Notes.
(d) Whenever any payment to be made hereunder or under the
Notes shall be stated to be due on a Saturday, Sunday or holiday for banks under
the laws of the State of Minnesota or California, such payment may be made on
the next succeeding business day, and such extension of time shall in such case
be included in the computation of payment of interest on the Notes.
-2-
<PAGE> 6
2. Voluntary Prepayments.
(a) The Company may, at its option, on any date (in the case of a
prepayment in full) or on any interest payment date (in the case of a partial
prepayment), prepay the Notes in whole or in part (but if in part only in the
amount of $100,000 or integral multiples thereof), upon at least 30 days' prior
written notice to the holders of the Notes, and upon payment of a prepayment
premium equal to the excess, if any, of (i) the amount equal to the present
value of all installments of principal and interest which are avoided by such
prepayment, determined by discounting such installments of principal and
interest at a rate per annum equal to .50% plus the Treasury Yield Percentage,
over (ii) the principal amount to be prepaid. In no event shall such prepayment
premium be less than zero.
(b) No partial prepayment shall be made pursuant to paragraph 2(a)
unless (i) at the time of such partial prepayment the Company and its
Subsidiaries on a consolidated basis shall have on hand to make the partial
prepayment excess or surplus funds not required in the conduct of their business
in an amount at least equal to the amount of the partial prepayment, (ii) giving
effect to such partial prepayment, there shall exist no default or Event of
Default hereunder, and (iii) there shall have been delivered to the holders of
the Notes a certificate signed by a responsible officer of the Company to both
such effects.
(c) In the event the Company shall give notice of any prepayment in
accordance with subparagraph (a) above, such notice shall specify the principal
amount of the Notes to be prepaid and the date of the proposed prepayment, and
thereupon such principal amount, together with accrued and unpaid interest
thereon to the prepayment date and together with the applicable premium, if any,
shall become due and payable on the prepayment date. In the event any prepayment
shall be less than the entire unpaid principal amount of the Notes, the amount
of such prepayment shall be applied pro rata on all Notes on the last maturing
required installment or installments of principal in inverse order of their
maturity.
3. Representations and Warranties. The Company represents and warrants
to you as follows:
(a) The Company is a corporation organized and existing and in good
standing under the laws of the state of Georgia, and has corporate power and
authority to own and operate its properties, to carry on its business, and to
enter into and perform its obligations under this Agreement and the Notes. Each
of the Subsidiaries is a corporation organized and existing and in good standing
under the laws of the state of its incorporation, and has corporate power and
authority to own and operate its properties and to carry on its business. Each
of the Company and its Subsidiaries is duly qualified to do business and in good
standing under the laws of each state where the nature of the business conducted
or
-3-
<PAGE> 7
property owned by it requires such qualification. Exhibit B hereto correctly
sets forth the name and state of incorporation of each Subsidiary, and the
percent of the outstanding capital stock of every class of each Subsidiary
directly or indirectly owned by the Company. The Company does not own, directly
or indirectly, more than 1% of the total outstanding capital stock of any class
of any corporation other than the Subsidiaries set forth on Exhibit B hereto.
(b) Neither the execution and delivery by the Company of this Agreement
or the Notes, nor the performance or observance by the Company or any Subsidiary
of any of the terms or conditions of this Agreement or the Notes, will (i)
conflict with, or result in a breach of the terms, conditions or provisions of,
or constitute a default under, or result in any violation of, or result in the
creation of any Lien upon any of the property or assets of the Company or any
Subsidiary pursuant to, the Articles of Incorporation or Bylaws of the Company
or any Subsidiary, or any indenture, contract, agreement, instrument, order,
judgment, decree, statute, law, rule or regulation to which the Company or any
Subsidiary is subject, or (ii) require any registration or filing with, or any
consent or approval of, any federal, state or local governmental agency or
authority.
(c) The execution and delivery by the Company of this Agreement and of
the Notes have been duly authorized by all necessary corporate action of the
Company.
(d) There are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against the Company or any Subsidiary or
any property of the Company or any Subsidiary in any court or before any
federal, state, municipal or other governmental agency (i) seeking to restrain
or prohibit the purchase or sale of the Notes, or (ii) which, if decided
adversely to the Company or said Subsidiary, would have a materially adverse
effect upon the financial condition, properties, business, operations or
prospects of the Company or said Subsidiary; and neither the Company nor any
Subsidiary is in default with respect to any order of any court or governmental
agency.
(e) The Company has furnished to you (i) consolidated balance sheets
and statements of income, stockholders' equity and cash flows of the Company and
its Subsidiaries as of, and for the fiscal year ended, December 31 in each of
the years 1989 through 1993, inclusive, certified by Coopers & Lybrand,
independent certified public accountants, (ii) unaudited consolidating balance
sheets and statements of income of the Company and its Subsidiaries as of, and
for the fiscal year ended, December 31 in each of the years 1989 through 1993,
inclusive, and (iii) unaudited consolidated balance sheets and statements of
income, stockholders' equity and cash flows of the Company and its Subsidiaries
as of, and for the three months ended, March 31, 1993 and March 31, 1994.
-4-
<PAGE> 8
Said financial statements fairly present the financial condition of the
Company and its Subsidiaries at the dates thereof and the results of operations
of the Company and its Subsidiaries for the periods indicated, all in conformity
with generally accepted accounting principles consistently followed through the
periods involved (except that the footnotes required by generally accepted
accounting principles have been omitted from the financial statements referred
to in clauses (ii) and (iii), and except that the financial statements referred
to in clause (iii) are subject to normal year-end audit adjustments). There have
been no material adverse changes in the financial condition, properties,
business, operations or prospects of the Company and its Subsidiaries since the
date of the latest balance sheet referred to,
(f) Each of the Company and its Subsidiaries has good and marketable
title to, or, in the case of leased property, a valid, binding and enforceable
leasehold interest in, all real estate, personal property, equipment,
processes, patents, copyrights, trademarks and other property and assets
necessary to, or used in connection with, its trade or business, including
(excepting as they have been affected by transactions in the ordinary course of
business) the properties and assets reflected in the most recent balance sheet
referred to in subparagraph (e) above. All of the assets of the Company and its
Subsidiaries are free and clear of all Liens (other than Liens permitted by
paragraph 5(j) hereof).
(g) Neither the Company nor any Subsidiary nor any agent acting on the
behalf of the Company or any Subsidiary has offered the Notes, or any part
thereof, or any similar obligation for sale to, or solicited any offers to buy
the Notes, or any part thereof, or any similar obligation from, any person or
persons so as to bring the issue or sale of the Notes within the provisions of
Section 5 of the Securities Act of 1933, as amended, and neither the Company nor
any Subsidiary will sell or offer for sale any note or any similar obligation of
the Company to, or solicit any offer to buy any note or similar obligation of
the Company from, any person or persons so as to bring the issue or sale of the
Notes within the provisions of Section 5 of the Securities Act of 1933, as
amended.
(h) The Company and its Subsidiaries have procured and are now in
possession of all material licenses and permits required by federal, state or
local laws for the operation of the business of the Company and its Subsidiaries
in each jurisdiction wherein the Company or any Subsidiary is now conducting or
proposes to conduct business,
(i) Neither the Company nor any Subsidiary is in default in the payment
of the principal of or interest on any Debt nor is in default under any
instrument or agreement under and subject to which any Debt has been issued,
and no condition or event has occurred under the provisions of any such
instrument or agreement
-5-
<PAGE> 9
which, with or without the giving of notice or the passage of time, or both,
constitutes or would constitute an event of default thereunder.
(j) Each of the Company and its Subsidiaries has filed all federal,
state, local and foreign income tax returns which, to the knowledge of the
Company, are required to be filed, and has paid all taxes shown on said returns
and all assessments received by it to the extent that they have become due. The
federal income tax returns of the Company have been finally determined by the
Internal Revenue Service (or have been closed by applicable statutes of
limitation) for all years prior to and including the year ended December
31, 1989, No claims have been asserted against the Company in respect of federal
income tax returns for any subsequent year.
(k) Neither the Company nor any Subsidiary owns any Margin Stock and
none of the proceeds received by the Company from the sale of the Notes will be
used for the purpose of purchasing or carrying a Margin Stock or for the purpose
of reducing or retiring any Debt which was originally incurred to purchase a
Margin Stock or for any other purpose not permitted by Regulation G (12 CFR Part
207) of the Board of Governors of the Federal Reserve System, as amended from
time to time. The term Margin Stock as used herein shall have the same meaning
as ascribed to that term in Section 207.2(i) of said Regulation G.
(1) Each qualified retirement plan of the Company and each ERISA
Affiliate in which any employees of the Company or any ERISA Affiliate
participate that is subject to any provisions of ERISA (a "Qualified Plan") is
being administered in accordance with the documents and instruments governing
such Qualified Plan, and such documents and instruments are consistent with
those provisions of ERISA which have become effective and operative with respect
to such Qualified Plan as of the date of this Agreement. No such Qualified Plan
has incurred any material "accumulated funding deficiency" within the meaning of
Section 302 of ERISA (whether or not waived), and neither the Company nor any
ERISA Affiliate has incurred any material liability (including any material
contingent liability) to the PBGC in connection with any such Qualified Plan. No
such Qualified Plan nor any trust created thereunder nor any trustee or
administrator thereof has engaged in a "prohibited transaction" within the
meaning of ERISA or Section 4975 of the internal Revenue Code and the issuance
and sale of the Notes as contemplated hereby will not constitute a "prohibited
transaction". No such Qualified Plan nor any trust created thereunder has been
terminated, nor have there been any "reportable events" within the meaning of
Section 4043 of ERISA with respect to any such Qualified Plan, Neither the
Company nor any ERISA Affiliate contributes to or has any employees who are
covered by any "multi-employer plan", as such term is defined in Section 3 (37)
of ERISA, and neither the Company nor any ERISA Affiliate has incurred any
withdrawal liability with respect to any multi-employer plan.
-6-
<PAGE> 10
(m) Each of the Company and its Subsidiaries is in compliance with all
laws, rules and regulations applicable to it (including without limitation those
relating to the environment), a violation of which could have a material adverse
effect on the financial condition, properties, business, operations or prospects
of the Company or any such Subsidiary.
(n) To the knowledge of the Company, there is no contamination of or
other environmental condition with respect to any property presently or formerly
owned, leased or otherwise operated by the Company or any of its Subsidiaries
which could have a material adverse effect on the financial condition,
properties, business, operations or prospects of the Company and its
Subsidiaries, taken as a whole,
To the knowledge of the Company, no real property or other assets
owned, leased or otherwise operated by the Company or any Subsidiary is the
subject of a "Superfund" evaluation conducted by any governmental agency, and
neither the Company nor any Subsidiary has acquired, incurred or assumed,
directly or indirectly, any contingent liability in connection with the release
of any hazardous substance (including without limitation petroleum, its
derivatives or by-products, or other hydrocarbons) into the environment with
respect to its present or former business or property which could have a
material adverse effect on the financial condition, properties, business,
operations or prospects of the Company and its Subsidiaries, taken as a whole.
Except as otherwise specifically set forth in the Modified Phase I/
Phase II Environmental Site Assessment dated May 12, 1994 for the facility
leased by The Guest Company, Inc. ("Guest") located at 48 Elm Street, Meriden,
Connecticut, which was prepared by Wehran Engineering Corporation for the
Company in connection with the proposed acquisition of substantially all of the
assets of Guest referred to in clause (ii) of paragraph 3(o) hereof, a true and
correct copy of which has been delivered to you, neither the Company nor any
Subsidiary has received any material notice, letter, citation, order, warning,
complaint, inquiry, claim or demand from any governmental body that (i) the
Company or any Subsidiary has violated, or is about to violate, any
environmental law, rule or regulation; (ii) there has been a release, or there
is a threat of release, of hazardous substances (including without limitation
petroleum, its derivatives or by-products, or other hydrocarbons) from any of
the present or former property, facilities, equipment or vehicles of the Company
or any Subsidiary; (iii) the Company or any Subsidiary may be or is liable, in
whole or in part, for the costs of cleaning up, remedying or responding to a
release of hazardous substances (including without limitation petroleum, its
derivatives or by-products, or other hydrocarbons); or (iv) any of the property
or assets of the Company or any Subsidiary is subject to a Lien in favor of any
governmental authority for any liability, costs or damages under any
environmental laws, rules or regulations arising from, or securing
-7-
<PAGE> 11
payment of costs incurred by such governmental authority in response to, a
release of a hazardous substance (including without limitation petroleum, its
derivatives or by-products, or other hydrocarbons).
(o) The proceeds from the sale of the Notes will be used by the Company
as follows: (i) approximately $4,300,000 of such proceeds will be used to repay
existing Current Debt of the Company to banks, (ii) approximately $6,500,000 of
such proceeds will be loaned by the Company to one of its Subsidiaries and used
by such Subsidiary to finance the acquisition by it of substantially all of the
assets of Guest, and (iii) the remainder of such proceeds will be used by the
Company and its Subsidiaries for general corporate purposes.
(p) Neither the Company nor any Subsidiary has engaged any broker or
finder in connection with the transaction contemplated by this Agreement.
(q) Neither the Company nor any Subsidiary is an "investment company"
or a company "controlled" by an "investment company" (as each of the quoted
terms is defined or used in the Investment Company Act of 1940, as amended),
(r) None of this Agreement, the financial statements referred to in
paragraph 3(e) hereof or any other document, certificate or instrument delivered
to you on behalf of the Company or any Subsidiary in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading, There is no fact (other than general
economic conditions or facts or information available to the public generally)
that has not been disclosed in writing to you that materially adversely affects
or, as far as the Company can now reasonably foresee, may materially adversely
affect, the financial condition, properties, business, operations or prospects
of the Company or any Subsidiary, or the ability of the Company or any
Subsidiary to perform this Agreement or to pay the principal of or interest on
the Notes and other sums payable under this Agreement when due.
4. Affirmative Covenants. The Company covenants and agrees with you
that, so long as any amount shall remain unpaid on the Notes, it will:
(a) Payment. Duly and punctually pay or cause to be paid the principal
of and interest on the Notes and will duly and punctually perform or cause to be
performed all things on its part or on the part of any of its Subsidiaries to be
done or performed under this Agreement.
(b) Maintenance of Books and Records. At all times keep and cause each
Subsidiary to keep proper books of record and
-8-
<PAGE> 12
account in which full, true and correct entries will be made of its transactions
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved.
(c) Inspection of Books and Records. At all reasonable times and upon
reasonable notice permit and cause each Subsidiary to permit you and your
representatives, at your own expense, to inspect such of its books, records,
properties and operations as you may reasonably request, and to make extracts
from such books and records. You hereby agree that you will not disclose the
information obtained by you in connection with the transaction contemplated by
this Agreement or pursuant to any such inspection to any other person (other
than your attorneys, as necessary, and upon the same undertaking from such
attorneys), except to the extent such information can be shown to be previously
known to you and not obtained by you under a written obligation of
confidentiality, in the public domain or later acquired by you from other
legitimate sources, and except as required by law.
(d) Financial Information. From time to time furnish and cause each
Subsidiary to furnish you with such information and statements as you may
reasonably request concerning its financial condition and results of operations
and concerning performance by it of the covenants and agreements contained in
this Agreement; and in the event that written notice of the occurrence of an
Event of Default under paragraph 7 hereof shall have been given to the Company,
and the Company shall have notified you that such Event of Default has been
corrected, the Company shall, upon your request, for the purpose of showing that
such Event of Default has been corrected, furnish to you a signed copy of an
audit report prepared and certified by an independent certified public
accountant selected by the Company and satisfactory to you, which report shall
include such matters as you may reasonably request, All expenses incurred in
connection with such report shall be borne by the Company. Nothing in this
paragraph 4(d), however, shall diminish, defer, postpone or otherwise limit
the right of the holder of any Note to take any action permitted by paragraph 7
hereof.
(e) Quarterly Financial Statements. Furnish to you, within 45 days
after the close of each of the first three quarterly accounting periods in each
fiscal year of the Company and its Subsidiaries, a balance sheet and statements
of income, stockholders' equity and cash flows reflecting the financial
condition on a consolidated basis of the Company and its Subsidiaries at the end
of such quarterly period and the results of operations on a consolidated basis
of the Company and its Subsidiaries during such period, all in reasonable
detail, and setting forth comparable figures, if any, for the same accounting
period in the preceding fiscal year.
(f) Annual Financial Statements. Furnish to you, as soon as available,
but in any event within 105 days after the close
-9-
<PAGE> 13
of each fiscal year of the Company, (i) duplicate signed copies of an audit
report prepared and certified (without qualification as to the scope of the
audit) by Coopers & Lybrand or another nationally recognized independent
certified public accounting firm, which report (A) shall include a balance
sheet of the Company and its Subsidiaries on a consolidated basis as at the end
of such year and consolidated statements of income, stockholders' equity and
cash flows of the Company and its Subsidiaries reflecting the operations during
said year, all in reasonable detail and setting forth comparable figures for the
preceding fiscal year, (B) shall state that such financial statements present
fairly, in all material respects, the consolidated financial position and
results of operations and cash flows of the Company and its Subsidiaries as of
the dates thereof and for the periods covered thereby, and have been examined in
accordance with generally accepted auditing standards, and (C) shall be
accompanied by a statement by such accounting firm certifying that in making the
examination upon which such report was based, no information came to its
attention which to its knowledge constituted a default under this Agreement or
specifying any such default, and (ii) an internally prepared balance sheet and
statement of income reflecting the financial condition on a consolidating basis
of the Company and its Subsidiaries at the end of such year and the results of
operations on a consolidating basis of the Company and its Subsidiaries during
such year, all in reasonable detail and setting forth comparable figures, if
any, for the preceding fiscal year.
(g) Financial Certification. At the time of the delivery to you of the
reports referred to in paragraphs 4(e) and 4(f) hereof, deliver to you a
certificate signed by its chief financial officer (i) certifying that such
officer has reviewed the provisions of this Agreement and stating, in such
officer's opinion, if such be the fact, that the Company and its Subsidiaries
have not been and are not in default as to any of the provisions contained in
this Agreement, or, in the event that the Company or any of its Subsidiaries is
or was in default, setting forth the details of such default, and (ii)
certifying that the financial statements referred to in paragraph 4(e) or
4(f)(ii) hereof which are simultaneously delivered with such certificate have
been prepared in accordance with generally accepted accounting principles
(subject, in the case of the financial statements referred to in paragraph 4(e)
or 4(f)(ii), to the omission of the footnotes required by generally accepted
accounting principles and, in the case of the financial statements referred to
in paragraph 4(e) to normal year-end audit adjustments). Such certificate
shall set forth the computations upon which such officer based the conclusion
that the Company and its Subsidiaries are and have been in compliance with
paragraphs 4(p) and 5(a), (b), (c), (e), (f), (j) and (k) hereof, to the
extent computations are necessary to establish compliance with such paragraphs.
(h) Copies of Management Letters. Promptly furnish to you as soon as
available copies of all management letters or
-10-
<PAGE> 14
similar documents submitted to the Company by independent certified public
accountants in connection with each annual and any interim audit of the accounts
of the Company or of the Company and any of its Subsidiaries.
(i) Copies of Regulatory Reports. Furnish to you, within 15 days
after transmittal or filing thereof by the Company, copies of all proxy
statements, notices and reports which the Company sends to its stockholders, and
copies of all registration statements (without exhibits) and all reports which
the Company files with the Securities and Exchange Commission.
(j) Corporate Existence. Maintain and cause each Subsidiary to maintain
its corporate existence in good standing (except that the corporate existence of
the Company or any Subsidiary may be terminated pursuant to a merger or
consolidation permitted under paragraph 5(f) of this Agreement, and except that
the corporate existence of any Subsidiary may be terminated if the Board of
Directors determines in good faith that the discontinuance of the corporate
existence of such Subsidiary is desirable and would not have a material adverse
effect on the financial condition, properties, business, operations or prospects
of the Company and its Subsidiaries, taken as a whole, and all of the property
and assets of such Subsidiary remaining after payment or provision for payment
of all debts, obligations and liabilities of such Subsidiary are transferred to
the Company and such Subsidiary's other shareholders, if any, by way of dividend
or liquidating distribution in accordance with applicable corporate law).
(k) Compliance. Comply and cause each Subsidiary to comply in all
material respects with all applicable laws, rules and regulations of the United
States and of each state thereof and of each political subdivision thereof and
of any and all other governmental authorities.
(1) Payment of Taxes and Claims. Pay and cause each Subsidiary to pay
when due (i) all real and personal property taxes, assessments and charges and
all franchise, income, unemployment, old age benefit, withholding, sales and
other taxes assessed against it, or payable by it, and (ii) all claims or
demands of materialmen, mechanics, carriers, warehousemen, landlords and other
like persons which, if unpaid, might result in the creation of a Lien against
any property of the Company or such Subsidiary; provided, however, that the
Company or such Subsidiary shall have the right to contest in good faith, by
appropriate proceedings promptly initiated and diligently conducted (which
effectively stay the forfeiture or sale of any property of the Company or such
Subsidiary or any material interference with the use thereof by the Company or
such Subsidiary), the validity, amount or imposition of any such tax,
assessment, charge, claim or demand and upon such good faith contest to delay or
refuse payment thereof, if such reserve or other appropriate provision, if any,
as
-11-
<PAGE> 15
shall be required by generally accepted accounting principles shall have been
made therefor.
(m) Maintenance of Properties. Maintain and cause each Subsidiary to
maintain and keep its properties in good repair, working order and condition,
subject to normal wear and tear, and from time to time make all needful and
proper repairs, renewals and replacements so that the business carried on in
connection therewith may be properly and advantageously conducted at all times.
(n) Insurance. Maintain and cause each Subsidiary to maintain insurance
of such types, in such amounts and with such insurance companies as shall be
consistent with sound business practice.
(o) Remuneration. Pay and cause each Subsidiary to pay compensation,
whether by way of salaries, bonuses, participations in pension or profit sharing
plans, or fees under management contracts or for professional services, to any
of its officers, directors, employees or stockholders only in amounts which are
not in excess of reasonable compensation paid for similar services by similar
businesses.
(p) Net Worth. At all times maintain Consolidated Net Worth in an
amount not less than $18,000,000.
(q) Notice of Default. Give you prompt notice in writing of any
condition or event which constitutes an Event of Default under paragraph 7
hereof or which, with the giving of notice or the passage of time, or both,
would constitute such an Event of Default.
(r) Exchange of Notes. At any time, at its expense at your written
request and upon surrender of any Note or Notes for such purpose, issue new
Notes in exchange therefor in such denominations of at least $500,000 as shall
be specified by you, in an aggregate principal amount equal to the then unpaid
principal amount of the Note or Notes surrendered and substantially in the form
of Exhibit A hereto with appropriate insertions and variations, and bearing
interest from the date to which interest has been paid on the Note or Notes
surrendered.
(s) Reference in Financials. Include, or cause to be included, a
reference to the Notes and to this Agreement in all financial statements of the
Company and its Subsidiaries for periods ending after the Closing Date which are
furnished to stockholders, financial reporting services, creditors and
prospective creditors.
(t) Board of Directors Meetings. If and so long as an Event of Default
has occurred and is continuing, notify you of all regular or special meetings of
the Board of Directors of the
-12-
<PAGE> 16
Company and afford you or your representative the right and opportunity to
attend any and all such meetings.
(u) Qualified Plans. Cause each Qualified Plan and the documents and
instruments governing each Qualified Plan to be conformed to when necessary, and
to be administered in a manner consistent with those provisions of ERISA which
may, from time to time, become effective and operative with respect to such
Qualified Plan; and, if requested by you in writing from time to time, furnish
to you a copy of any annual report with respect to each such Qualified Plan that
the Company files with the Internal Revenue Service pursuant to ERISA. The
Company will not, and will not permit any ERISA Affiliate to, (i) engage in any
"prohibited transaction", (ii) incur any "accumulated funding deficiency",
whether or not waived, or (iii) terminate any Qualified Plan in a manner which
could result in the imposition of a Lien on any property of the Company or any
ERISA Affiliate.
(v) President. Give you notice within 10 days after David R. Brining
ceases to be President of the Company active in its daily management.
5. Negative Covenants. The Company covenants and agrees with you that
without your prior written consent, so long as any amount shall remain unpaid on
the Notes, it will not and will not permit any Subsidiary to:
(a) Permitted Debt. Borrow money, issue evidences of Debt or create,
assume, guaranty, become contingently liable for or suffer to exist any Debt in
addition to the Notes, except:
(i) subject to the last sentence of this paragraph 5(a), Funded Debt of
the Company or any Subsidiary incurred in connection with the acquisition after
the Closing Date of machinery and equipment used in the business of the Company
or such Subsidiary and not held as inventory for sale or lease, which Funded
Debt is secured by conditional sales contracts, title retention agreements,
leases which, according to generally accepted accounting principles, are
required to be capitalized or other purchase money security interests, provided
that the Funded Debt secured by any such security interest shall not exceed the
cost to the Company or such Subsidiary of the assets acquired subject thereto
and such security interest shall not encumber any property of the Company or
such Subsidiary other than the assets acquired subject thereto;
(ii) Current Debt of the Company, which Current Debt is unsecured,
provided that the Company shall at no time be liable for any Current Debt unless
there shall have been a period of at least 30 consecutive days during the 12
months immediately preceding such time when the sum of
23
-13-
<PAGE> 17
Consolidated Current Debt and Consolidated Funded Debt shall not have exceeded
45% of Consolidated Capitalization;
(iii) Current Debt of Multiplex Technologies, Inc. ("Multiplex") to
banks, provided that the outstanding principal amount of such Current Debt shall
at no time exceed $250,000, and further provided that Multiplex shall at no
time be liable for Current Debt incurred under such credit facility unless there
shall have been a period of at least 30 consecutive days during the 12 months
immediately preceding such time when the sum of Consolidated Current Debt and
Consolidated Funded Debt shall not exceed 45% of Consolidated Capitalization;
(iv) subject to the last sentence of this paragraph 5 (a) Funded Debt
of Gits Manufacturing Company, Inc. ("Gits Manufacturing") to financial
institutions in an aggregate original principal amount not to exceed $600,000,
the proceeds of which Funded Debt are used solely to expand the manufacturing
facility of Gits Manufacturing located in Creston, Iowa and to acquire certain
machinery and equipment for use at such expanded facility (the property and
assets so constructed or acquired being herein collectively called the "Creston
Facility"), provided that such Funded Debt shall be repaid in accordance with
its terms with no extension, renewal or other modification;
(v) Debt of Marine Industries Company, Inc. ("Marine Industries") to
financial institutions in an aggregate original principal amount not to exceed
$2,750,000 (and the guaranty by the Company of such Debt), the proceeds of which
Debt are used solely to construct a new manufacturing and distribution facility
for Marine Industries and American Foreign Industries, Inc. ("AFI") located in
Napa, California and to acquire certain machinery and equipment for use at such
new facility (the property and assets so constructed or acquired being herein
collectively called the "Napa Facility"), provided that such Debt shall be
repaid in accordance with its terms with no extension, renewal or other
modification;
(vi) existing Funded Debt of the Company and its Subsidiaries set forth
in Exhibit C hereto, provided that all such Funded Debt shall be repaid in
accordance with its terms with no extension, renewal or other modification;
(vii) Debt of any Consolidated Subsidiary to the Company or another
Consolidated Subsidiary, provided that such Debt shall be evidenced by a note
(unless such Debt is incurred by a Wholly-Owned Subsidiary, in which case
-14-
<PAGE> 18
such Debt may be evidenced solely on the consolidated books and records
of Company) and shall constitute a general obligation of such
Consolidated Subsidiary, which shall not be subordinated to any other
obligations of such Consolidated Subsidiary; and
(viii) subject to the last sentence of this paragraph 5(a), other
Funded Debt of the Company,
Notwithstanding anything to the contrary stated herein, at no time
shall the Company or any Subsidiary incur, create, assume or otherwise become
liable for any Funded Debt (including, without limitation, Funded Debt otherwise
permitted by clauses (i), (iv) and (viii) hereof, but excluding Debt permitted
by clause (v) hereof to the extent such Debt constitutes Funded Debt) if,
immediately after giving effect thereto and to any concurrent transactions,
Consolidated Funded Debt shall exceed 45% of Consolidated Capitalization.
(b) Fixed Charges. Permit, as of the end of each fiscal quarter of the
Company, Consolidated Net Income Available for Fixed Charges for the
twelve-month period ended on such date to be less than 175% of Fixed Charges for
such twelve-month period.
(c) Permitted Investments. Purchase or permit to exist investments in
stock or securities of, or make or permit to exist loans or advances to, or
other investments in, any person, firm or corporation (including without
limitation investments in or loans or advances to any corporation proposed to be
acquired or created as a Subsidiary), except:
(i) investments in obligations issued or guaranteed by the United
States government or any agency thereof maturing within three years
from the date of acquisition thereof;
(ii) investments in municipal securities maturing within three years
from the date of acquisition thereof, which municipal securities are
rated in one of the top two rating classifications by at least one
recognized national rating service,, such as Moody's Investor Service
or Standard & Poor's;
(iii) investments in certificates of deposit, time, deposits or
banker's acceptances issued by any financial institutions which are
rated in one of the top two rating classifications by at least one
recognized national rating service, such as Moody's Investor Service,
Standard & Poor's or Thomson Bank Watch;
(iv) existing equity investments by the Company in its Subsidiaries and
other existing investments set forth in Exhibit D hereto;
-15-
<PAGE> 19
(v) advances to its officers and employees in the ordinary
course of business in an amount not to exceed $200,000 in the aggregate
at any time outstanding or $100,000 at any time outstanding to any one
officer or employee, which advances shall be evidenced by notes;
(vi) equity investments of the Company or any Subsidiary in
corporations to be acquired, which corporations, immediately following
the making of such investments, will become Consolidated Subsidiaries,
provided that the aggregate amount of all such equity investments made
during any period of 12 consecutive months shall not exceed 10% of
Consolidated Assets determined as of the end of the most recently
completed fiscal quarter of the Company occurring during such 12-month
period (notwithstanding the foregoing, for so long as David R. Brining
remains the President of the Company active in its daily management,
the Company or any Subsidiary may make, during any period of 12
consecutive months, equity investments of the type described above, the
aggregate amount of which exceed 10% of Consolidated Assets determined
as of the end of the most recently completed fiscal quarter of the
Company occurring during such 12-month period, provided that the
aggregate amount of such investments made during any period of 12
consecutive months shall in no event exceed 16% of Consolidated Assets
determined as of the end of the most recently completed fiscal quarter
of the Company occurring during such 12-month period, and no such
investments shall thereafter be made by the Company or any Subsidiary
in the immediately succeeding 12-month period); and
(vii) loans to Consolidated Subsidiaries evidenced by notes
(unless such loans are to Wholly-Owned Subsidiaries, in which case such
loans may be evidenced solely on the consolidated books and records of
the Company) and constituting general obligations of such Consolidated
Subsidiaries, provided such obligations shall not be subordinated to
any other obligations of such Consolidated Subsidiaries.
(d) Subordination of Claims. Subordinate or permit to be subordinated
any claim against, or obligation of, another person, firm or corporation held or
owned by it to any other claim against, or obligation of, such other person,
firm or corporation.
(e) Sale of Assets. Sell, lease or otherwise dispose of any of its
assets (including without limitation any shares of capital stock of any
Subsidiary), provided that (i) the Company or any Subsidiary may sell inventory
in the ordinary course of business, (ii) any Subsidiary may sell, lease or
otherwise dispose of any or all of its assets to the Company or another
Consolidated
-16-
<PAGE> 20
Subsidiary, (iii) the Company or any Subsidiary may sell, lease or otherwise
dispose of obsolete, worn out or no longer useful machinery and equipment, (iv)
Marine Industries may sell the Napa Facility, as long as such sale is made
within 180 days after completion of construction and/or acquisition of such
facility and such facility is leased back by Marine Industries and AFI
simultaneously with such sale, (v) the Company or any Subsidiary may sell any
assets as long as (A) the full proceeds of such sale, after payment of all
existing Debt of the Company or any of its Subsidiaries secured by such assets,
are used to repay, simultaneously and on a pro rata basis, the Company's other
existing Senior Debt to financial institutions (including without limitation
the Notes) within 180 days after the consummation of such sale, (B) each of the
conditions to prepayment of the Notes set forth in paragraph 2(b) hereof are
satisfied with respect to such repayment, and (C) the repayment of the Notes is
made in accordance with the provisions of paragraphs 2(a) and 2(c) hereof, and
(vi) the Company or any Subsidiary may sell, lease or otherwise dispose of
assets during any fiscal year as long as the aggregate net book value of all
assets sold, leased or otherwise disposed of in reliance on this clause (vi)
during such fiscal year is less than 10% of Consolidated Assets determined as of
the end of the immediately preceding fiscal year.
(f) Merger and Consolidation. Merge or consolidate with or into any
corporation or other entity (regardless of whether it is the surviving
corporation), provided that (i) any Subsidiary may be merged or consolidated
with or into the Company (if the Company is the surviving corporation) or with
or into another Consolidated Subsidiary and (ii) the Company may merge or
consolidate with or into any corporation if (A) the surviving corporation (if
other than the Company) is incorporated under the laws of a state or
commonwealth of the United States and expressly assumes the obligations of the
Company under this Agreement and the Notes pursuant to an agreement in form and
substance satisfactory to you, and (B) immediately following such merger or
consolidation, and after giving effect thereto, (1) no Event of Default exists
hereunder and no condition or event exists which, with the giving of notice or
the passage of time, or both, would constitute an Event of Default hereunder,
(2) the surviving corporation would be permitted, pursuant to paragraph 5(a)
(viii) hereof, to incur at least $1 of additional Funded Debt, and (3) the
Consolidated Net Worth of the surviving corporation and its subsidiaries would
be no less than the Consolidated Net Worth of the Company and its Subsidiaries
immediately prior to such merger or consolidation.
(g) Issuances of Capital Stock of Subsidiaries. Issue shares of capital
stock of any Subsidiary to any Person other than the Company or another
Consolidated Subsidiary, provided that any Subsidiary may issue shares of its
capital stock to its employees as long as, immediately following such issuance,
such Subsidiary would continue to be a Consolidated Subsidiary (or, in the case
of
-17-
<PAGE> 21
Multiplex, would continue to have at least 60% of its Voting Stock of every
class owned directly or indirectly by the Company).
(h) Maintenance of Present Business. Substantially alter the nature of
the business in which the Company and its Subsidiaries, when taken as a whole,
are engaged from that of the manufacture and distribution of recreational and
industrial products, or purchase or invest, directly or indirectly, in any
substantial amount of assets or property other than assets or property useful
and to be used in any such business,
(i) Transactions with Affiliates. Except on terms no less favorable to
the Company or such Subsidiary than would be obtainable if no such relationship
existed, purchase, acquire or lease any property from, or sell, transfer or
lease any property to, or otherwise deal with: (i) any other Subsidiary or (ii)
any director, officer or employee of the Company or any Subsidiary or (iii) any
entity which, or any person who, either individually or together with his
spouse, his lineal descendants and ascendants and brothers and sisters by blood
or adoption or spouses of such descendants, ascendants, brothers and sisters,
directly or indirectly beneficially owns 5% or more of the voting stock of the
Company or (iv) any company in which any person or entity described above
directly or indirectly owns a 5% or greater equity interest.
(j) Permitted Liens. Create, assume or suffer to exist any Lien of any
kind upon any of its property or assets (including without limitation any shares
of capital stock of any Subsidiary), whether now owned or hereafter acquired,
except:
(i) Liens securing Funded Debt permitted by paragraph 5(a)(i)
hereof;
(ii) presently existing Liens described in Exhibit C hereto
securing Funded Debt permitted by paragraph 5(a)(vi) hereof;
(iii) Liens for taxes and assessments not yet due or which are
being contested in accordance with the terms of paragraph 4(l) hereof;
(iv) Liens imposed by law in favor of materialmen, mechanics,
carriers, warehousemen, landlords and other like persons for sums not
yet due or which are being contested in accordance with the terms of
paragraph 4 (1) hereof;
(v) judgment and other similar Liens arising in connection with
court proceedings, provided that the claims secured thereby are being
contested in good faith, by appropriate proceedings promptly initiated
and diligently conducted which effectively stay the execution or other
enforcement of such Liens, and provided further
-18-
<PAGE> 22
that such reserve or other appropriate provision, if any, as shall be
required by generally accepted accounting principles shall have been
made therefor;
(vi) encroachments from or onto real property, discrepancies or
conflicts in boundary lines and other similar questions of survey with
respect to real property that do not in the aggregate materially
detract from the value of such real property or materially impair the
use thereof in the operation of the business conducted thereon;
(vii) other Liens incidental to the conduct of its business or
the ownership of its property which were not incurred in connection
with the borrowing of money or the obtaining of advances or credit and
which do not in the aggregate materially detract from the value of the
property subject thereto or materially impair the use thereof in the
operation of its business;
(viii) Liens existing on property and assets of a Consolidated
Subsidiary securing Debt of said Consolidated Subsidiary permitted by
paragraph 5(a)(vii) hereof;
(ix) Liens existing immediately prior to acquisition on
property or assets acquired by the Company, which Liens secure Funded
Debt permitted by paragraph 5(a)(viii) hereof, provided that no such
Lien shall have been placed on said property or assets in contemplation
of the same being acquired by the Company;
(x) Liens on the property and assets of Multiplex securing the
Current Debt of Multiplex permitted by paragraph 5(a)(iii) hereof;
(xi) Liens on the Creston Facility securing the Funded Debt of
Gits Manufacturing permitted by paragraph 5(a)(iv) hereof;
(xii) Liens on the Napa Facility securing the Debt of Marine
Industries permitted by paragraph 5(a)(v) hereof; and
(xiii) other Liens securing Funded Debt of the Company
permitted by paragraph 5(a)(viii) hereof, which Funded Debt, together
with any other Debt of the Company or any of its Subsidiaries secured
by Liens permitted under clause (i)), (ii), (ix), (x), (xi) or (xii)
hereof, does not at any time exceed 10% of Consolidated Net Worth.
-19-
<PAGE> 23
(k) Restricted Payments. Declare or make any Restricted Payments, except
that (i) any Subsidiary may make Restricted Payments to the Company or another
Consolidated Subsidiary, (ii) the Company may pay dividends on its capital stock
in shares of such capital stock or in options, warrants or other rights to
acquire shares of such capital stock, (iii) the Company may pay cash in
settlement of any fractional interests which may arise as a result of any
payment of a dividend on its capital stock permitted by clause (ii) above or any
split (not including a reverse split) of its capital stock, (iv) the Company may
redeem shares of its capital stock solely in exchange for other shares of its
capital stock or solely out of the net cash proceeds realized by the Company
from the issuance of shares of its capital stock after the Closing Date, and (v)
the Company or any Subsidiary may make other Restricted Payments which, at the
time of declaration thereof, together with all other Restricted Payments made
by the Company and its Subsidiaries in reliance on this clause (v) after
December 31, 1992, do not exceed in the aggregate 40% of Cumulative Consolidated
Net Income, if, immediately after giving effect to said Restricted Payments, (A)
no Event of Default exists hereunder and no condition or event exists which,
with the giving of notice or the passage of time, or both, would constitute an
Event of Default hereunder, and (B) the Company would be permitted, pursuant to
paragraph 5(a)(viii) hereof, to incur at least $1 of additional Funded Debt.
6. Conditions Precedent. Your obligation to purchase the Notes, as
provided in paragraph 1 hereof, shall be subject to the accuracy of all of the
representations herein contained and to the satisfaction, on or before the
Closing Date, of the following conditions.
(a) You shall have received from Husch Eppenberger, counsel for the
Company, and/or such local California counsel as shall be reasonably acceptable
to you, a favorable opinion or opinions in form and substance satisfactory to
you as to all matters specified in Exhibit E hereto and such other matters
incident to the transaction herein contemplated as you may reasonably request.
(b) You shall have received from your counsel, Faegre & Benson, a
favorable opinion in form and substance satisfactory to you, as to such matters
incident to the transaction herein contemplated as you may reasonably request.
(c) The representations and warranties contained in paragraph 3 hereof
shall be true and correct as of the Closing Date (after giving effect to the
transactions contemplated hereby, including without limitation those
contemplated by paragraph 3(o) hereof); there shall exist as of the Closing
Date (after giving effect to the transactions contemplated hereby, including
without limitation those contemplated by paragraph 3(o) hereof) no Event of
Default hereunder and no condition or event which, with the passage
-20-
<PAGE> 24
of time or the giving of notice, or both, would constitute such an Event of
Default; and the Company shall have delivered to you a certificate signed by a
responsible officer of the Company to such effects.
(d) All proceedings to be taken in connection with the transaction
contemplated by this Agreement and all documents incident thereto shall be
satisfactory in form and substance to you and your counsel, and you shall have
received copies of all documents which you may reasonably request at least five
days prior to the Closing Date.
(e) There shall have occurred no material adverse change from the date
of the most recent balance sheet referred to in paragraph 3(e) above in the
financial condition, properties, business, operations or prospects of the
Company or any Subsidiary, nor shall a material action, suit or proceeding be
pending or, to the knowledge of the Company, threatened against the Company or
any Subsidiary.
(f) You shall have received Uniform Commercial Code searches against
the Company and its Subsidiaries from their respective principal places of
business and such other jurisdictions as you may reasonably request, as of a
date no more than 15 days prior to the Closing Date, certified by a reporting
service satisfactory to you and disclosing no Liens other than those permitted
under paragraph 5(j) hereof.
(g) You shall have received evidence reasonably satisfactory to you
that Guest has entered into an agreement with one of the Company's Subsidiaries
providing for the acquisition by such Subsidiary of substantially all of the
assets of Guest, that all of the conditions to the closing of such acquisition
have been satisfied or waived by the appropriate parties, and that the Company
shall be prepared to cause such acquisition (together with the Current Debt
repayment contemplated by clause (i) of paragraph 3(o) of this Agreement) to be
consummated immediately following the purchase of the Notes.
7. Defaults. If one or more Events of Default shall occur, that is to
say, if
(a) default shall be made in the punctual payment of the principal of
or premium, if any, on any of the Notes or any installment thereof when due,
whether by regular installment, upon prepayment, by acceleration, at maturity or
otherwise; or
(b) default shall be made in the punctual payment of any interest on
any of the Notes when due, and such default shall have continued for a period of
five business days; or
(c) there shall occur any Event of Default under and as defined in that
certain Note Purchase Agreement among the Company,
-21-
<PAGE> 25
Northwestern, North Atlantic and CU Life Insurance Company of New York dated as
of August 15, 1986, as amended; or
(d) the Company or any Subsidiary defaults beyond any period of grace
provided with respect thereto in any payment of principal of or interest on any
other Debt the outstanding principal amount of which exceeds $500,000, or in the
performance of any other agreement, term or condition contained in any agreement
under which any such Debt is created, or if an event of default (including,
without limitation, a cross default) exists under and as defined in any
agreement under which any such Debt is created, if the effect of such default or
event of default is to cause, or permit the holder or holders of such Debt (or a
trustee on behalf of such holder or holders) to cause, such Debt to become due
prior to its stated maturity, or if any of the above occur at any time with
respect to any Debts the aggregate outstanding principal amount of which exceeds
$500,000; or
(e) an order for relief shall be entered in any Federal Bankruptcy
proceeding in which the Company or any Material Subsidiary is the debtor; or
bankruptcy, receivership, insolvency, reorganization, relief, dissolution,
liquidation or other similar proceedings shall be instituted by or against the
Company or any Material Subsidiary or all or any part of the property of the
Company or any Material Subsidiary under the Federal Bankruptcy Code or any
other law of the United States or any bankruptcy or insolvency law of any state
of competent jurisdiction unless, if such proceedings are instituted against the
Company or any Material Subsidiary, such proceedings are dismissed and
discharged within 60 days after they are instituted; or
(f) the Company or any Material Subsidiary shall cease doing business
as a going concern (except in connection with a termination of corporate
existence of such Material Subsidiary permitted under paragraph 4(i) hereof or a
merger or consolidation in which the Company or such Material Subsidiary is not
the surviving corporation permitted under paragraph 5(f) hereof), make an
assignment for the benefit of creditors, admit in writing its inability to pay
its Debts as they become due, or if a trustee, receiver or liquidator shall be
appointed for the Company or any Material Subsidiary or for any substantial
portion of the assets of the Company or any Material Subsidiary and such
appointment shall not be vacated within 60 days; or
(g) default shall be made in the performance or observance of any
covenant contained in paragraph 5 of this Agreement; or
(h) default shall be made in the performance or observance of any other
of the terms, covenants or conditions of this Agreement and such default shall
continue for a period of thirty days after written notice thereof shall have
been given by you to the Company; or
-22-
<PAGE> 26
(i) any representation or warranty contained in this Agreement or in
any other document supplied to you by the Company in connection with the
transaction contemplated by this Agreement proves to be false in any material
respect as of the time made; or
(j) any final judgments or orders for the payment of money in excess of
$300,000 in the aggregate shall be rendered against the Company or any
Subsidiary which are not stayed, bonded, vacated, paid or discharged within ten
days after the date such judgments or orders are required to be paid,
then the holder or holders of at least two-thirds of the aggregate principal
amount of the Notes may at its or their option, by notice in writing to the
Company, declare all of the Notes to be forthwith due and payable and thereupon
all of the Notes shall immediately be and become due and payable, together with
interest accrued thereon and the premium specified below (provided that if an
Event of Default results from the filing of a voluntary or involuntary petition
in any bankruptcy proceeding in which the Company or any Material Subsidiary is
the debtor, the Notes thereupon shall immediately become due and payable, with
interest accrued thereon and the premium specified below, without any notice
from the holders of the Notes or otherwise), and the holder or holders of the
Notes may take any action or proceeding at law or in equity which it or they
deem advisable for the protection of its or their interests to collect and
enforce payment, and the Company shall pay all expenses, court costs and
reasonable attorneys' fees incurred in connection with or arising out of any
default or Event of Default hereunder. The premium payable with respect to the
Notes in the event the Notes become immediately due and payable pursuant to this
paragraph 7 shall be computed in the same manner as the premium for voluntary
prepayments specified in paragraph 2(a) hereof (whether or not voluntary
prepayment would then be permitted by paragraph 2).
8. Payments on and Registration and Transfer of Notes. The Company
agrees that it will make payment of the principal of and the interest and
premium, if any, on the Notes by wire transfer of immediately available Federal
funds, with sufficient information to identify the source and application of
funds, to your accounts listed on Exhibit F hereto, without presentment of the
Notes and without the rendering of any bills therefor. The Company shall keep at
its principal office a register in which the Company shall provide for the
registration of the Notes and of transfers of the Notes (the "Note Register") .
Upon surrender of a Note for transfer at the office of the Company, the Company
shall execute and deliver, in the name of the designated transferee, a new Note
in a principal amount equal to the unpaid principal amount of, and dated the
date to which interest has been paid on, the Note so surrendered. When a Note
shall be presented or surrendered for transfer it shall be duly endorsed, or be
accompanied by a written instrument of transfer duly executed, by the holder
thereof or its attorney duly authorized in writing. The Company may treat the
-23-
<PAGE> 27
person in whose name a Note is registered on the Note Register as the owner of
said Note for the purpose of receiving payment of principal of and interest and
premium, if any, on said Note and for all other purposes and the Company shall
not be affected by notice to the contrary. Notwithstanding anything to the
contrary stated herein, without the consent of the Company, no holder of a Note
may transfer such Note to any person other than an insurance company, bank,
savings and loan association, trust company, investment company, employee
pension plan, mutual fund or other institutional investor or financial
institution.
9. Expenses. The Company agrees, whether or not the purchase of the
Notes herein contemplated shall be consummated, to pay and save you harmless
against liability for the payment of all out-of-pocket expenses arising in
connection with the transactions contemplated hereby including without
limitation any documentary stamps and recording fees which may be determined to
be due and payable with respect to the execution and delivery of the Notes, and
the reasonable fees and expenses of your counsel. The Company also agrees to
pay, and to save you harmless against liability for the payment of, the
reasonable fees and expenses of your counsel in connection with any
documentation and related services arising after the Closing Date in connection
with the preparation of waivers or amendments of any provisions of this
Agreement or the Notes. In addition, the Company agrees, whether or not the
purchase of the Notes herein contemplated shall be consummated, to pay, and to
save you harmless against, all brokerage or finders fees, if any, incurred in
connection with the transaction contemplated by this Agreement.
10. Sale-of Notes; Amendment and Waiver.
(a) In the event that you shall transfer the Notes or any part thereof,
all notices, certificates, requests, statements and other documents required or
permitted to be delivered to you by any provision hereof shall also be delivered
to each other registered holder of any Note, except that financial statements
and other documents provided for in paragraphs 4(e) and 4(f) hereof need not be
delivered to any holder holding less than 10% of the aggregate principal amount
of Notes from time to time outstanding, other than each of you and any other
holder who, subsequent to the Closing Date, purchases 100%, of the then
outstanding principal amount of any Note originally issued to any of you
hereunder.
(b) All interest payments and payments or prepayments of principal
shall be made and applied pro rata on all Notes outstanding in accordance with
the respective unpaid principal amounts thereof.
(c) The registered holder or holders of at least two-thirds of the
aggregate principal amount of Notes at the time outstanding may by written
agreement with the Company amend this Agreement or waive any provision hereof,
and any consent, notice or
-24-
<PAGE> 28
demand required or permitted to be given by you by any provision hereof shall be
sufficient if given by the holder or holders of at least two-thirds of the
aggregate principal amount of Notes at the time outstanding, except that,
without the written consent of the holder or holders of all Notes at the time
outstanding, no amendment to or waiver of this Agreement shall extend the
maturity of any Note, or reduce the rate of interest or any premium payable with
respect to any Note, or affect the amount of any required prepayments, or reduce
the proportion of the aggregate outstanding principal amount of the Notes
required with respect to any amendment, waiver, consent, notice or demand.
11. Definitions. For purposes of this Agreement the following terms
shall have the following meanings:
"Consolidated Assets" shall mean the book value of all assets of the
Company and its Subsidiaries on a consolidated basis, determined in accordance
with generally accepted accounting principles consistent with those followed in
preparation of the financial statements referred to in paragraph 3(e) hereof.
"Consolidated Capitalization" shall mean the sum of (i) Consolidated
Funded Debt, plus (ii) Consolidated Net Worth.
"Consolidated Current Debt" shall mean Current Debt of the Company and
its Subsidiaries on a consolidated basis.
"Consolidated Funded Debt" shall mean Funded Debt of the Company and
its Subsidiaries on a consolidated basis.
"Consolidated Net Income" and "Consolidated Net Loss" shall mean the
net after-tax income or loss, as the case may be, of the Company and its
Subsidiaries on a consolidated basis determined in accordance with generally
accepted accounting principles consistent with those followed in preparation of
the financial statements referred to in paragraph 3(e) hereof, but excluding
the following:
(i) proceeds of life insurance policies,
(ii) gains or losses (net of any tax effect) arising from the sale or
other disposition of any assets which do not constitute current assets,
(iii) gains or losses resulting from any write-up or write-down of
assets,
(iv) gains or losses resulting from the reversal of any contingency
reserves not created during the applicable period,
(v) extraordinary gains or losses,
-25-
<PAGE> 29
(vi) any amount representing interests in net losses or undistributed
net earnings of any other person or entity in which the Company or any
Subsidiary has an ownership interest,
(vii) any earnings, prior to the date of acquisition, of any other
entity (including without limitation any Subsidiary) acquired by the Company
or any Subsidiary in any manner,
(viii) in the case of a successor to the Company by consolidation or
merger, any earnings of such successor corporation prior to such
consolidation or merger, and
(ix) any deferred credit (or amortization of a deferred credit) arising
from the acquisition by the Company or any Subsidiary in any manner of any
other entity.
"Consolidated Net Income Available for Fixed Charges" shall mean, for
any period, Consolidated Net Income for such period, plus (i) all income taxes
deducted in computing Consolidated Net Income for such period, and (ii) all
Fixed Charges deducted in computing Consolidated Net Income for such period.
"Consolidated Net Worth" shall mean the stockholders' equity of the
Company and its Subsidiaries on a consolidated basis determined in accordance
with generally accepted accounting principles consistent with those followed in
preparation of the financial statements referred to in paragraph 3(e) hereof.
"Consolidated Subsidiary" or "Consolidated Subsidiaries" shall mean
(i) Multiplex and (ii) any corporation at least 80% of the outstanding Voting
Stock of every class of which the Company now directly or indirectly owns or
shall hereafter directly or indirectly acquire (as long as all such Voting Stock
not directly or indirectly owned or acquired by the Company is held by one or
more employees of such corporation or their permitted transferees) .
"Cumulative Consolidated Net Income" shall mean the excess, if any, of:
(i) the sum of (A) Consolidated Net Income, if any, for each completed
fiscal year of the Company commencing after December 31, 1992 and (B)
Consolidated Net Income, if any, for any completed fiscal quarter ending
after the last day of the most recently completed fiscal year of the
Company; over
(ii) the sum of (A) Consolidated Net Loss, if any, for each completed
fiscal year of the Company commencing after December 31, 1992 and (B)
Consolidated Net Loss, if any, for any completed fiscal quarter ending after
the
-26-
<PAGE> 30
last day of the most recently completed fiscal year of the Company.
"Current Debt" shall mean all Debt other than Funded Debt.
"Debt" or "Debts" shall mean (i) indebtedness for borrowed money or for
the deferred purchase price of property or services, and (ii) obligations under
leases which are required, in accordance with generally accepted accounting
principles, to be recorded as capital leases.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974
and the regulations adopted pursuant thereto.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which, together with the Company, would be deemed to be a single
employer within the meaning of Section 4001(b)(1) of ERISA.
"Fixed Charges" shall mean, for any period, all interest expense on
Debt and all rental expense on leases deducted in computing Consolidated Net
Income for such period, determined in accordance with generally accepted
accounting principles consistent with those followed in preparation of the
financial statements referred to in paragraph 3(e).
"Funded Debt" shall mean any Debt which has a stated final maturity of
more than one year from the date of its creation or which may be renewed at the
option of the obligor for a period or periods aggregating more than one year
from the date of its creation (including the current portion thereof), including
without limitation the Notes.
"Lien" or "Liens" shall mean any mortgage, pledge, security interest,
lien, charge, hypothecation, attachment, encumbrance or other arrangement having
the practical effect of the foregoing, whether presently effective, springing,
conditional or contingent, including the interest of a vendor or lessor under
any conditional sales agreement, capital lease, purchase money agreement or
other title retention agreement.
"Material Subsidiary" or "Material Subsidiaries" shall mean all
Subsidiaries other than Cruising Equipment Company.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
under ERISA, or any successor thereto.
"Restricted Payments" shall mean any payment in cash, property or other
assets upon or in respect of any shares of any class of capital stock of the
Company or any Subsidiary, including without limitation payments as dividends,
payments for the purpose of purchasing, redeeming or otherwise retiring any such
shares of
-27-
<PAGE> 31
capital stock (including in the term "capital stock" any warrant or option to
purchase any such shares of capital stock) and any other distributions in
respect of any such shares of capital stock.
"Senior Debt" shall mean the Notes and all other Debt which has not
been made expressly subordinate in right of payment to the Notes.
"Subsidiary" or "Subsidiaries" shall mean the corporations listed in
Exhibit B hereto, together with any other Consolidated Subsidiaries which the
Company shall hereafter directly or indirectly acquire.
"Treasury Yield Percentage" shall mean the yield, as reported by
Bloomberg Financial Markets, determined as of 10:00 a.m. Minneapolis, Minnesota
time on the second business day prior to the date fixed for prepayment, of those
actively traded "On The Run" United States Treasury securities having a
then-remaining maturity equal to the Weighted Average Life to Maturity of the
regularly scheduled installments of principal that are avoided by the
prepayment, provided that if such Weighted Average Life to Maturity is not equal
to the then-remaining maturity of an actively traded "On The Run" United States
Treasury security, such yield shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the yields, as reported
by Bloomberg Financial Markets, of actively traded "On The Run" United States
Treasury securities having a then-remaining maturity closest to such Weighted
Average Life to Maturity. If such market data for any reason ceases to be
available through Bloomberg Financial Markets, you may, in your reasonable
discretion, select any other publicly available source of similar market data.
For purposes hereof, "On The Run" United States Treasury securities refers to
those United States Treasury securities which are most recently auctioned as of
the date in question.
"Voting Stock" shall mean any capital stock entitled to vote in the
election of directors (other than shares so entitled to vote upon failure to pay
dividends thereon or other contingencies).
"Weighted Average Life to Maturity" of any regularly scheduled
installments of principal that are avoided by a prepayment, as at the time of
the determination thereof, shall mean the number of years obtained by dividing
the then remaining dollar-years of such installments of principal by the total
amount of such installments of principal. The term "remaining dollar-years" of
any installments of principal means the amount obtained by (i) multiplying the
amount of each such installment by the number of years (calculated to the
nearest one-twelfth) which will elapse between the time in question and the
scheduled due date of such installment, and (ii) totaling all of the products
obtained in clause (i).
-28-
<PAGE> 32
"Wholly-Owned Subsidiary" or "Wholly-Owned Subsidiaries" shall mean any
corporation 100% of the outstanding Voting Stock of every class of which the
Company now directly or indirectly owns or shall hereafter directly or
indirectly acquire.
12. Investment Purpose. Each of you separately and severally represent
to the Company that (i) the acquisition by you of the Note payable to you or
your registered assigns will be for investment and not with a view to resale in
connection with any distribution thereof and (ii) you are acquiring the Note to
be acquired by you hereunder for your own account or for one or more separate
accounts maintained by you; it being understood, however, that the disposition
of your property shall at all times be within your control. You hereby agree
that the Notes shall not be transferable by you except (i) pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
(ii) pursuant to Rule 144, or any successor rule, under the Securities Act of
1933, as amended, or (iii) upon receipt by the Company of an opinion of Faegre &
Benson, or such other counsel as shall be reasonably acceptable to counsel for
the Company, to the effect that such transfer is exempt from the registration
and prospectus delivery requirements of the Securities Act of 1933, as amended,
and all applicable state securities laws.
13. Survival of Representations and Warranties. All representations and
warranties contained herein or made in writing by the Company in connection
herewith shall survive the execution and delivery of this Agreement and of the
Notes.
14. Successors and Assigns. All covenants and agreements contained in
this Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not.
15. Notices. All communications provided for hereunder shall be sent by
first class mail and, if to you, addressed to you in the manner in which this
Agreement is addressed, and if to the Company, addressed to Valley Forge
Corporation, 100 Smith Ranch Road, Suite 326, San Rafael, California, 94903
Attention: President, or to such other address with respect to any party as said
party shall notify the others in writing.
16. Governing Law. This Agreement is intended to be performed in the
State of Minnesota, and shall be construed and enforced in accordance with the
laws of such State.
17. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be an original, but all of which shall
constitute but one agreement.
-29-
<PAGE> 33
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
undersigned, whereupon this letter shall become a binding agreement among you
and the undersigned.
Very truly yours,
VALLEY FORGE CORPORATION
(Seal) By /s/ David R. Brining
--------------------------------
David R. Brining
Its President
AND /s/ Monica J. Burke
-------------------------------
Monica J. Burke
Its Vice President, Finance
-30-
<PAGE> 34
The foregoing Agreement is accepted
as of the date first above written
NORTHWESTERN NATIONAL LIFE
INSURANCE COMPANY
BY /s/ [ILLEGIBLE]
--------------------------------
THE NORTH ATLANTIC LIFE
INSURANCE COMPANY OF AMERICA
BY /s/ [ILLEGIBLE]
--------------------------------
NORTHERN LIFE INSURANCE COMPANY
BY /s/ [ILLEGIBLE]
--------------------------------
-31-
<PAGE> 1
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AGREEMENT made and entered into as of this 31st day of August, 1996 by
and between VALLEY FORGE CORPORATION, a Georgia corporation (hereinafter called
the "Borrower"), and THE BOATMEN'S NATIONAL BANK OF ST. LOUIS (hereinafter
called the "Bank").
WITNESSETH THAT:
WHEREAS, Borrower and Bank previously entered into a Credit Agreement
dated June 15, 1995 (as thereafter amended from time to time referred to herein
as the "Credit Agreement") whereby Borrower obtained a term loan from Bank in
the principal amount of $3,500,000.00 ("Term Loan") and a revolving loan in the
amount of $6,000,000.00 ("Revolving Loan");
WHEREAS, the Revolving Loan is scheduled to mature on August 31, 1996
and Borrower has requested that Bank renew this loan to extend the maturity
thereof to June 30, 1997;
WHEREAS, the Borrower also desires to borrow additional funds from the
Bank in one or more advances, an aggregate sum not to exceed $3,000,000.00
(hereinafter the "Advanceable Loan"); and
WHEREAS, the Bank is willing to agree to the Borrowers requests,
subject to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto hereby agree as follows:
The Credit Agreement is hereby amended and restated in its entirety to
read as follows:
SECTION 1: DEFINITIONS
"Capital Lease" means any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
generally accepted accounting principles to be capitalized on a balance sheet of
the lessee.
"Consolidated Current Assets" shall mean, as of the date of any
determination thereof, all cash, accounts receivable (excepting investments in
or monies due from any affiliate), and inventory of the Borrower and its
Consolidated Subsidiaries and any other assets which would be shown as "current
assets" on financial statements prepared in accordance with generally accepted
accounting principles consistently applied.
"Consolidated Current Liabilities" means, as of the date of any
determination thereof, all accounts payable, all liabilities for borrowed money
which are payable on demand or within one year from their creation (excluding
amounts due within such period on Long Term Debts of the Borrower or any of its
Consolidated Subsidiaries) and all liabilities which would be shown as "current
liabilities" on financial statements prepared in accordance with generally
accepted accounting principles consistently applied; provided, however, for
these purposes the obligations of Borrower with respect to the Loans shall not
constitute "current liabilities."
"Consolidated Debt" means at any time the Debt of the Borrower and its
Consolidated Subsidiaries for such period as reported in the Borrower's
consolidated financial statements for such period.
"Consolidated Subsidiary" of any Person means at any date any
Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements as of such date.
"Consolidated Subordinated Debt" means Debt of the Borrower which, by
its express written terms, is subordinated in right of payment and priority to
the Obligations.
"Consolidated Tangible Capital Funds" means at any time the sum of (i)
Consolidated Subordinated Debt plus (ii) the amount of share capital of all
classes of the Borrowers stock, plus (iii) the amount of retained earnings and
surplus whether capital or earned or additional paid in surplus (or, in the case
of a deficit, minus the amount of such deficit) of the Borrower, each to be
determined in accordance with generally accepted
<PAGE> 2
accounting principles consistently applied, minus, all treasury stock and
goodwill.
"Credit" shall mean the Term Loan, Advanceable Loan and the Revolving
Loan.
"Debt" of any Person means, at any date, without duplication, (a) all
obligations of such Person and its Consolidated Subsidiaries for borrowed money,
(b) all obligations of such Person and its Consolidated Subsidiaries evidenced
by bonds, debentures, notes or other similar instruments, (c) all obligations of
such Person and its Consolidated Subsidiaries to pay the deferred purchase
price of property or services, except trade accounts payable arising in the
ordinary course of business, (d) all obligations of such Person and its
Consolidated Subsidiaries under Capital Leases, (e) all contingent or
non-contingent obligations of such Person and its Consolidated Subsidiaries to
reimburse any Person in respect of amounts paid or payable (currently or in the
future, on a contingent or non-contingent basis) under a letter of credit or
similar instrument in excess of $500,000.00, (f) all debt of others secured by a
Lien on any asset of such Person or a Consolidated Subsidiary, whether or not
such Debt is assumed by such Person or such Consolidated Subsidiary, and (g) all
debt of others Guaranteed by Such Person or a Consolidated Subsidiary.
"Documents" shall have the meaning set forth in Section 5.3.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
"Long Term Debt" means Debt properly classified as long-term pursuant
to generally accepted accounting principles consistently applied.
"Notes" shall mean the Term Note, Advanceable Note and the Revolving
Note.
"Obligations" means all obligations and liabilities of the Borrower to
the Bank howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing, or due or to become due,
under or in connection with this Agreement or the Notes.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Plan" shall mean at any time an employee pension benefit plan which is
covered by Title IV of the Employee Retirement Income Security Act of 1974, as
amended, or subject to the minimum funding standards under Section 412 of the
Internal Revenue Code of 1986, as amended from time to time, or any successor
statute.
"Subsidiary" means, with respect to any Person, a corporation,
partnership or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the Borrower.
-2-
<PAGE> 3
SECTION 2: TERMS OF THE TERM LOAN
2.1 The Term Loan is evidenced by the promissory note shown in Exhibit
"A" (hereinafter called the "Term Note"). The Term Note is payable in quarterly
installments which commenced on March 31, 1996 with a final installment of the
outstanding principal balance due on June 30, 1998.
2.2 The Term Note bears interest from date on the from-time-to-time
unpaid principal balance at a rate per annum equal to one-half of one percent
greater than the from-time-to-time publicly announced corporate base rate of
interest of the Bank, and after maturity, whether by acceleration or otherwise,
at a rate per annum equal to two percent (2%) in excess of said corporate base
rate. Said interest rate so determined shall change simultaneously with each
change in said prime interest rate. Interest shall accrue daily at a per diem
rate computed on the basis of a 360-day year for the actual number of days
elapsed and is payable monthly, on the last day of each calendar month, at
maturity, and after maturity, on demand.
2.3 The Term Note is hereby amended to reflect that is arises out of
this Agreement.
2.4 All payments shall be made in currently available funds and shall
be applied first to accrued interest and the balance, if any, to principal.
SECTION 3: TERMS OF THE REVOLVING LOAN AND ADVANCEABLE LOAN
3.1 The proceeds of the Revolving Loan shall be available to the
Borrower at such times as the Borrower may request, so long as no Event of
Default as hereinafter defined shall have occurred and Borrower has complied
with all terms and conditions of this Agreement. Any unused portion of the
Revolving Loan shall remain subject to withdrawal until June 30, 1997. Borrower
authorizes Bank to accept telephone instructions from any individual who
represents themselves as an authorized representative of Borrower as noted per
Borrower's written instructions.
3.2 The Revolving Loan shall be evidenced by a note in substantially
the form attached hereto and marked Exhibit "B" (hereinafter the "Revolving
Note"). The Revolving Note shall be payable on June 30, 1997, and shall be on
the terms and conditions set forth therein.
3.3 The Borrower has the right at any time to prepay the outstanding
principal balance of the Revolving Note. Any such prepayment shall increase the
unused portion of the Revolving Loan available for borrowing until maturity of
the Revolving Note, whether by acceleration or otherwise.
3.4 The proceeds of the Advanceable Loan shall be available to the
Borrower at such times as the Borrower may request, so long as no Event of
Default as hereinafter defined shall have occurred and Borrower has complied
with all terms and conditions of this Agreement. Any unused portion of the
Advanceable Loan shall remain subject to withdrawal until December 31, 1998.
Borrower authorizes Bank to accept telephone instructions from any individual
who represents themselves as an authorized representative of Borrower as noted
per Borrower's written instructions.
3.5 The Advanceable Loan shall be evidenced by a note in substantially
the form attached hereto and marked Exhibit "C" (hereinafter the "Advanceable
Note"). The Advanceable Note shall be payable on December 31, 1998, and shall be
on the terms and conditions set forth therein.
3.6 The Borrower has the right at any time to prepay the outstanding
principal balance of the Advanceable Note. Any such prepayment shall NOT
increase the unused portion of the Advanceable Loan available for borrowing.
-3-
<PAGE> 4
SECTION 4
CONDITIONS OF LENDING
As conditions precedent to the availability of the proceeds of the Credit, the
Borrower shall deliver or cause to be delivered to the Bank in form satisfactory
to the Bank:
4.1 True and complete certified copies of resolutions of the Borrower's
Board of Directors authorizing the borrowing hereunder as well as authorizing a
specific individual or officer to execute and deliver this Agreement, the Notes
and any supplemental documentation which may, by the terms hereof, be required
at closing or in the future; and
The obligation of the Bank to make available the proceeds of the Credit is
subject to the further condition that all legal matters incident to this
transaction shall be satisfactory to counsel for the Bank.
SECTION 5
REPRESENTATIONS AND WARRANTIES
The Borrower expressly represents and warrants that:
5.1 It is a corporation duly organized and validly existing and in good
standing under the laws of the State of Georgia.
5.2 It has corporate power and authority to own its property and to
carry on its business as now being conducted, and it is duly qualified to do
business and is in good standing in every jurisdiction in which its business is
conducted or its ownership of property is such as to require such qualification.
5.3 It has full corporate power and authority to execute this Agreement
and the Notes and any other agreements and documents referred to herein (the
"Documents"), and that the execution and delivery of the Documents by the
officers of the Borrower who are executing and delivering the same have been
duly and lawfully authorized and that all corporate acts and proceedings
necessary or proper in the premises have been duly done, performed and taken,
and the Documents constitute the legal, valid and binding obligations of the
Borrower enforceable in accordance with their respective terms, except as the
enforceability thereof may be limited by applicable bankruptcy, insolvency or
other similar laws affecting creditors' rights generally.
5.4 The execution and delivery of the Documents and the compliance by
the Borrower with their terms and conditions, will not violate the Articles of
Incorporation or By-Laws of the Borrower.
5.5 The execution and delivery of the Documents and the compliance by
the Borrower with their terms and conditions will not violate any contract to
which the Borrower is a party, and will not violate any law, regulation, rule or
order of any governmental body or agency.
5.6 It has filed all tax returns required to be filed with the United
States or any state or political subdivision thereof or other taxing authority
to which it is known to be subject, and has paid all taxes, interest and
penalties which have or may become due pursuant to said returns or provided
adequate reserves for the payment thereof.
5.7 There are no suits or administrative proceedings pending or, to the
knowledge of the Borrower threatened against or affecting the Borrower which
might have a material adverse effect upon the financial condition or business of
the Borrower.
SECTION 6
AFFIRMATIVE COVENANTS
So long as the Bank is obligated to lend hereunder or any part of the Credit
remains outstanding, the Borrower covenants and agrees that it will:
-4-
<PAGE> 5
6.1 Furnish to Bank within 90 days after the close of each fiscal year,
audited balance sheets and income statements for each fiscal year; certified to
by a certified public account satisfactory to bank.
6.2 Furnish to Bank quarterly balance sheets and income statements of
Borrower prepared by Borrower and certified by a responsible officer of the
Borrower.
6.3 Furnish to Bank other financial and operating information, and
permit representatives of Bank to examine its books and records, all as may be
reasonably requested by Bank from time to time.
6.4 Maintain a ratio of Consolidated Debt (excluding Consolidated
Subordinated Debt) to Consolidated Tangible Capital Funds of less than
1.50:1.00.
6.5 Maintain Consolidated Capital Funds in amounts greater than the
amount set forth below with respect to the corresponding periods set forth
below:
<TABLE>
<CAPTION>
Period Minimum Consolidated
------ Tangible Capital Funds
----------------------
<S> <C>
August 1, 1996-December 31, 1996 $18,000,000.00
January 1, 1997-June 30, 1997 $19,000,000.00
July 1, 1997-December 31, 1997 $20,000,000.00
January 1, 1998-June 30, 1998 $21,000,000.00
July 1, 1998-December 31, 1998 $22,000,000.00
</TABLE>
6.7 Maintain a ratio of Consolidated Current Assets to Consolidated
Current Liabilities of at least 2.75:1.00.
6.8 Maintain liability and casualty insurance coverage with responsible
companies in such amounts and against such risks as is usually carried by owners
of similar businesses and property in the same general area in which Borrower
operates, including fire and casualty insurance.
6.9 Pay and discharge when due all taxes and claims which might result
in a lien, unless the same is being contested in good faith by the Borrower in
proper proceedings and for which a sufficient reserve has been established.
6.10 Cause to be done all things necessary to preserve and keep in full
force and effect the corporate existence of Borrower, and comply with and cause
to be complied with all laws, ordinances and regulations applicable to Borrower,
including the Employee Retirement Income Security Act ("ERISA"), if Borrower has
a pension and/or profit sharing plan.
SECTION 7
NEGATIVE COVENANTS
So long as the Bank is obligated to lend hereunder or any part of the Credit
remains outstanding, the Borrower covenants and agrees that it will not:
7.1 Create or incur any indebtedness in excess of $1,000,000.00 except
(i) to the Bank, (ii) to trade creditors in the ordinary courses of business, or
(iii) indebtedness outstanding as the date here of and disclosed in writing to
the Bank.
7.2 Make capital expenditures during any fiscal year in an aggregate
amount (determined on a non-cumulative basis) in excess of $5,000,000.00.
7.3 Make any investment other than investments in (i) obligations
issued or guaranteed, directly or indirectly, by the United States Government;
or (ii) commercial paper or certificates of deposit issued by any commercial
bank located in the United States of America having a combined capital and
surplus of not less than Fifty Million Dollars ($50,000,000); or (iii) short
term investments sold by the Bank.
-5-
<PAGE> 6
SECTION 8
EVENTS OF DEFAULT
Each of the following shall severally be considered an "Event of Default" for
purposes of this Agreement:
8.1 Failure to pay any installment of principal or interest on any of
the Notes issued hereunder when due, whether by acceleration or otherwise.
8.2 If any fact or warranty made in this Agreement or in the Documents
should prove to be untrue in any material respect, as of the date made.
8.3 Default by the Borrower in the performance or observance of any
other covenant, term or agreement contained in this Agreement or in the
Documents.
8.4 Borrower hereby warrants that it is not in default with the note
purchase agreement dated May 15, 1994 between the Borrower and Northwestern
National Life Insurance Company, The North Atlantic Life Insurance Company of
America and Northern Life Insurance Company. Furthermore, should the Borrower be
in default under that agreement this agreement will also be in default.
8.5 Occurrence of any of the following:
(i) Adjudication by a court of competent jurisdiction that the
Borrower is bankrupt or insolvent or the appointment of a receiver for the
Borrower or for all or any part of its respective property;
(ii) Filing by the Borrower or by any of its creditors of a
petition under the provisions of the Revised Bankruptcy Act as now enacted or
hereafter amended;
(iii) Making by the Borrower of a general assignment for the
benefit of creditors or an admission in writing by the Borrower of inability to
pay indebtedness.
8.6 Any reportable event that the Bank determines in good faith would
constitute grounds for the termination of any Plan or for the appointment by the
appropriate United States District Court of a trustee to administer any Plan
shall have occurred and shall continue for 30 days after written notice to such
effect shall have been given to the Borrower by the Bank, or any Plan shall be
terminated, or a trustee shall be appointed by an appropriate United States
District Court to administer any Plan, or the Pension Benefit Guaranty
Corporation shall institute proceedings to terminate any plan or to appoint a
trustee to administer any Plan.
8.7 If the Bank for reasonable cause of any nature deems itself to be
insecure.
SECTION 9
RIGHTS AND REMEDIES IN THE EVENT OF DEFAULT
9.1 Upon the occurrence of an Event of Default and at any time
thereafter, the Bank may: (i) cease making any additional advances under the
Credit; and (ii) upon the expiration of 15 calendar days after the occurrence of
any Event of Default, declare all of the indebtedness outstanding hereunder
immediately due and payable, and such indebtedness shall thereupon be and become
immediately due and payable; each without demand or notice of any kind, the
same being hereby expressly waived.
9.2 No failure on the part of the Bank to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise by the Bank of any right hereunder preclude any other
or further exercise thereof, or the exercise of any other right. Each and every
right granted to the Bank hereunder or under any document delivered hereunder or
in connection therewith or allowed to it at law or in equity shall be deemed
cumulative and may be exercised from time to time.
9.3 It is agreed by the Borrower that any Event of Default will
constitute an event of default under
-6-
<PAGE> 7
all other agreements and evidences of indebtedness between the Borrower and the
Bank whether now existing or hereafter executed and whether or not such is an
event of default specified therein.
SECTION 10
MISCELLANEOUS
10.1 No modification or waiver of any provision of this Agreement, nor
consent to any departure by the Borrower herefrom, shall be effective unless the
same shall be in writing signed by an authorized officer of the Bank, and then
only in the specific instance and for the purpose for which given. No notice to
or demand on the Borrower in any case shall entitle the Borrower to any other or
further notice or demand in similar or other circumstances.
10.2 In case any one or more of the provisions contained in this
Agreement, the Notes, or any other instrument or document delivered hereunder,
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein and
therein shall not in any way be affected or impaired thereby.
10.3 This Agreement, the Notes, and any other instruments and documents
delivered hereunder shall be deemed contracts under the laws of Missouri and for
all purposes shall be construed in accordance with the laws of Missouri.
Exercise of any right or remedy in the event of default shall likewise be
governed by the laws of Missouri.
10.4 Until written notice to the contrary actually received by either
party, any notice required to be sent hereunder shall be sent by certified mail,
return receipt requested as follows:
To Borrower: Valley Forge Corporation
Attention: David R. Brining
-------------------------------------
-------------------------------------
To Bank: THE BOATMEN'S NATIONAL BANK OF ST. LOUIS
Attention: Dave Scobee
7800 Forsyth Blvd.
Clayton, MO 63105
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
THE BOATMEN'S NATIONAL BANK OF
ATTEST: ST. LOUIS
- ------------------------------ By: /s/ David W. Scobee
Secretary ------------------------------
David W. Scobee
Title: Vice President
ATTEST: VALLEY FORGE CORPORATION
/s/ Monica J. Burke By: /s/ David R. Brining
- ------------------------------ -----------------------------
Monica J. Burke David R. Brining
Secretary Title: President
-7-
