<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-1/A
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)(1)
AND
SCHEDULE 13D/A
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
VALLEY FORGE CORPORATION
---------------
(Name of Subject Company [Issuer])
KCI ACQUISITION CORP.
KEY COMPONENTS, LLC
---------------
(Bidders)
COMMON STOCK, $.50 PAR VALUE
------------------------
(Title of Class of Securities)
919640102
------------------------
(CUSIP Number of Class of Securities)
COPY TO:
<TABLE>
<S> <C>
Alan L. Rivera
Key Components, LLC Michael J. Emont
c/o Millbrook Capital Management, Inc. Rubin Baum Levin Constant & Friedman
Carnegie Hall Tower 30 Rockefeller Plaza
152 West 57th Street 29(th) Floor
New York, New York 10019 New York, New York 10112
</TABLE>
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications on Behalf of Bidder)
<PAGE>
14D-1
CUSIP No. 919640102 Page 2 of 8
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
Key Components, LLC
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /X/
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
BK, AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) OR 2(e) / /
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,186,161 shares (1)
- --------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
CERTAIN SHARES* / /
- --------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
52.8%
- --------------------------------------------------------------------------------
10 TYPE OF REPORTING PERSON*
OO
- --------------------------------------------------------------------------------
(1) The Reporting Person disclaims beneficial ownership of such shares and this
statement shall not be construed as an admission that the Reporting Person
is the beneficial owner of any securities covered by this statement.
*SEE INSTRUCTIONS BEFORE FILLING OUT!
2
<PAGE>
14D-1
CUSIP No. 919640102 Page 3 of 8
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
Key Components, Inc.
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /X/
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
BK, AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) OR 2(e) / /
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
- --------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,186,161 shares (1)
- --------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
CERTAIN SHARES* / /
- --------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
52.8%
- --------------------------------------------------------------------------------
10 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
(1) The Reporting Person disclaims beneficial ownership of such shares and this
statement shall not be construed as an admission that the Reporting Person
is the beneficial owner of any securities covered by this statement.
*SEE INSTRUCTIONS BEFORE FILLING OUT!
3
<PAGE>
14D-1
CUSIP NO. 919640102 Page 4 of 8 Pages
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
KCI Acquisition Corp.
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /X/
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
BK, AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) OR 2(e) / /
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,186,161 shares (1)
- --------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
CERTAIN SHARES* / /
- --------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
52.8%
- --------------------------------------------------------------------------------
10 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
(1) The Reporting Person disclaims beneficial ownership of such shares and this
statement shall not be construed as an admission that the Reporting Person
is the beneficial owner of any securities covered by this statement.
*SEE INSTRUCTIONS BEFORE FILLING OUT!
4
<PAGE>
This Amendment No. 1 to the Tender Offer Statement on Schedule 14D-1 and
Amendment No. 1 to the Schedule 13D (the "Schedule 14D-1") relates to the offer
(the "Offer") by KCI Acquisition Corp., a Delaware corporation (the "Offeror")
and a direct wholly-owned subsidiary of Key Components, LLC, a Delaware limited
liability company (the "Parent"), which is a direct wholly-owned subsidiary of
Key Components, Inc., a New York corporation ("KCI"), to purchase all
outstanding shares of common stock, par value $.50 per share (the "Shares"), of
Valley Forge Corporation, a Delaware corporation (the "Company"), at a price of
$19.00 per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Purchaser's Offer to Purchase, dated December 9,
1998, as supplemented by the Supplement to Offer to Purchase, dated December 31,
1998 (collectively, the "Offer to Purchase") and in the related Letter of
Transmittal, copies of which have been attached to the Schedule 14D-1 as
Exhibits (a)(1), (a)(9) and (a)(2), respectively.
Capitalized terms used but not defined herein have the meanings specified
for such terms in the Offer to Purchase and the Schedule 14D-1.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY
(b) The information set forth in the Introduction, Section 8 ("Certain
Information Concerning the Company"), and Section 11 ("Background of the Offer;
Past Contacts, Transactions or Negotiations with the Company") of the Offer to
Purchase, as supplemented is incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
(a)-(c) The information set forth in Section 13 ("The Merger Agreement, the
Stockholder Agreements and the SG Cowen Commitment Letter") of the Offer to
Purchase, as supplemented is incorporated herein by reference.
ITEM 10. ADDITIONAL INFORMATION.
(f) The information set forth in the Supplement to the Offer to Purchase,
dated December 31, 1998, a copy of which is attached hereto as exhibit (a)(9),
is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
Item 11 of the Schedule 14D-1 is hereby amended by adding the following
exhibits:
<TABLE>
<S> <C>
(a)(9) Form of Supplement to Offer to Purchase dated December 31, 1998.
(b)(3) Commitment Letter from SG Cowen Securities Corporation and Societe Generale to the
Parent dated December 24, 1998
(c)(9) Amendment No. 1 to Agreement and Plan of Merger, dated as of December 28, 1998,
among the Parent, the Offeror and the Company.
</TABLE>
5
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
<TABLE>
<S> <C> <C>
Dated: December 31, 1998 KCI ACQUISITION CORP.
By: /s/ ALAN L. RIVERA
-----------------------------------------
Name: Alan L. Rivera
Title: Vice President
</TABLE>
6
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
<TABLE>
<S> <C> <C>
Dated: December 31, 1998 KEY COMPONENTS, LLC
By: /s/ ALAN L. RIVERA
-----------------------------------------
Name: Alan L. Rivera
Title: Vice President
</TABLE>
7
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
<TABLE>
<S> <C> <C>
Dated: December 31, 1998 KEY COMPONENTS, INC.
By: /s/ ALAN L. RIVERA
-----------------------------------------
Name: Alan L. Rivera
Title: Vice President
</TABLE>
8
<PAGE>
SUPPLEMENT
TO
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
VALLEY FORGE CORPORATION
AT
$19.00 NET PER SHARE
BY
KCI ACQUISITION CORP.
A DIRECT WHOLLY-OWNED SUBSIDIARY OF
KEY COMPONENTS, LLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON FRIDAY, JANUARY 15, 1999, UNLESS THE OFFER IS EXTENDED.
THIS SUPPLEMENT, DATED DECEMBER 31, 1998, SUPPLEMENTS AND AMENDS THE OFFER
TO PURCHASE, DATED DECEMBER 9, 1998, RELATING TO THE PROPOSED OFFER TO PURCHASE
FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF VALLEY FORGE CORPORATION (THE
"OFFER TO PURCHASE"). THIS SUPPLEMENT, WHICH SHOULD BE READ IN CONJUNCTION WITH
THE OFFER TO PURCHASE, IS BEING PROVIDED TO GIVE YOU CERTAIN ADDITIONAL
INFORMATION. THE TERMS OF THE OFFER HAVE NOT BEEN CHANGED AND YOU MAY CONTINUE
TO USE THE LETTER OF TRANSMITTAL AND PROCEDURES FOR TENDERING PREVIOUSLY
DELIVERED TO YOU. CAPITALIZED TERMS USED HEREIN AND NOT OTHERWISE DEFINED HAVE
THE MEANINGS ASCRIBED TO THEM IN THE OFFER TO PURCHASE.
THE OFFER IS BEING MADE PURSUANT TO THE MERGER AGREEMENT, AS AMENDED BY
AMENDMENT NO. 1, DATED AS OF DECEMBER 28, 1998 (THE "AMENDMENT;" THE AMENDMENT
AND THE MERGER AGREEMENT ARE HEREINAFTER COLLECTIVELY REFERRED TO AS THE "MERGER
AGREEMENT" AND ALL REFERENCES THERETO IN THE OFFER TO PURCHASE SHALL REFER TO
THE MERGER AGREEMENT, AS AMENDED).
The Dealer Manager for the Offer is:
[LOGO]
December 31, 1998
<PAGE>
INTRODUCTION
THE EIGHTH PARAGRAPH IN THE SECTION ENTITLED "INTRODUCTION," WHICH APPEARS
ON PAGE 4 OF THE OFFER TO PURCHASE, IS HEREBY AMENDED AND RESTATED IN ITS
ENTIRETY TO READ AS FOLLOWS:
The Company has advised the Offeror that as of December 2, 1998, there were
4,138,889 Shares issued and outstanding. The Company has further advised the
Offeror that as of December 2, 1998, the Company had (i) 353,750 shares of
capital stock reserved for future issuance pursuant to outstanding options to
purchase shares of capital stock, (ii) 319,500 shares of capital stock reserved
for future issuance in respect of future grants of stock options, and (iii)
7,519 shares of capital stock held in treasury. Pursuant to the Merger
Agreement, the Company will use reasonable efforts to cancel all outstanding
options in exchange for payment, prior to the Effective Time, of the excess of
the Offer Price over the exercise price of such options, provided, that the
Offeror and the Parent may offer to one or more holders of options the right to
have substituted for such options stock appreciation rights ("Substitute SARs")
of Key Components, Inc., a New York corporation and the sole member of the
Parent ("KCI"), on such terms and conditions, including limitations of the
aggregate amount of Substitute SARs to be offered and over-allotment procedures,
as KCI may in its sole discretion determine. Holders of the Company's options
who receive Substitute SARs shall not be entitled to receive any amount in
settlement and cancellation thereof. As of the date hereof, neither the Offeror
nor the Parent beneficially owns any Shares. If the Offeror acquires at least
3,725,001 Shares in the Offer (including the 2,186,161 Shares subject to the
Stockholder Agreements), the Minimum Condition will be satisfied. In the event
that the Offer is successful and the Offeror acquires 90% or more of the Shares
(as provided above), the Parent would be able to effectuate the Merger by
appropriate resolutions of the Board of Directors of the Offeror without any
meeting or action by the stockholders of the Company, which resolutions have
already been approved.
8. CERTAIN INFORMATION CONCERNING THE COMPANY.
THE COMPANY PROVIDED TO THE PARENT AND THE OFFEROR CERTAIN PROJECTIONS
RELATING TO THE OPERATIONS OF THE COMPANY. THE FOLLOWING PARAGRAPH SHALL BE
INSERTED AFTER THE LAST LINE ON PAGE 15 OF THE OFFER TO PURCHASE:
Set forth below are certain consolidated financial projections relating to
the operations of the Company prepared by the Company and made available to the
Parent and Offeror in a Confidential Memorandum, prepared in August 1998. The
following information was prepared by the Company solely for internal use and
not for publication or with a view to complying with the published guidelines of
the Commission regarding projections or with the guidelines established by the
American Institute of Certified Public Accountants and are included in this
Offer to Purchase only because they were furnished to the Parent. The following
information is "forward-looking" and inherently subject to significant
uncertainties and contingencies, many of which are beyond the control of the
Company, including industry performance, general business and economic
conditions, changing competition, adverse changes in applicable laws,
regulations or rules governing environmental, tax or accounting matters and
other matters. One cannot predict whether the assumptions made in preparing the
information will be accurate, and actual results may be materially higher or
lower than those described below. The inclusion of this information should not
be regarded as an indication that the Parent, Offeror, Company, their respective
financial advisors or anyone who received this information considered it a
reliable predictor of future events and this information should not be relied on
as such. None of the Parent, Offeror, Company or their respective financial
advisors assumes any responsibility for the validity, reasonableness, accuracy
or completeness of the projections and the Company has made no representation to
the Parent or Offeror regarding the financial information described below.
2
<PAGE>
CONSOLIDATED PROJECTIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ESTIMATED PROJECTED PROJECTED
DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 2000
----------------- ----------------- -----------------
<S> <C> <C> <C>
Sales................................................... $ 107,362 $ 125,723 $ 144,762
Cost of Goods Sold...................................... 64,449 74,481 84,621
-------- -------- --------
Gross Profit............................................ 42,912 51,242 60,141
SG&A Expenses........................................... 32,088 37,151 43,154
-------- -------- --------
Operating Earnings...................................... 10,824 14,091 16,987
</TABLE>
11. BACKGROUND OF THE OFFER; PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH
THE COMPANY.
THE SECOND PARAGRAPH ON PAGE 19 OF THE OFFER TO PURCHASE IS AMENDED TO ADD
THE FOLLOWING TO THE END OF THE PARAGRAPH:
"See Section 8-'Certain Information Concerning the Company."'
13. THE MERGER AGREEMENT, THE STOCKHOLDER AGREEMENTS, AND THE SG COWEN
COMMITMENT LETTER.
THE SG COWEN COMMITMENT LETTER HAS BEEN SUPERSEDED BY A NEW COMMITMENT
LETTER, DATED DECEMBER 24, 1998, AND ALL REFERENCES TO THE SG COWEN COMMITMENT
LETTER SHALL REFER TO THE SG COWEN COMMITMENT LETTER DATED DECEMBER 24, 1998.
THE PARAGRAPH ENTITLED "GENERAL" UNDER THE SUBHEADING "SG COWEN COMMITMENT
LETTER" IN SECTION 13- "THE MERGER AGREEMENT, THE STOCKHOLDER AGREEMENTS, AND
THE SG COWEN COMMITMENT LETTER" APPEARING ON PAGE 31 OF THE OFFER TO PURCHASE IS
HEREBY AMENDED AND RESTATED IN ITS ENTIRELY AS FOLLOWS:
GENERAL. The SG Credit Facility will provide for borrowings in an aggregate
principal amount of up to $95 million at any one time outstanding (and SG Cowen
has agreed, subject to certain conditions, to use its best efforts to obtain
commitments for an additional $5 million from other banks and financial
institutions), comprised of up to (i) $35.0 million under the Revolving Credit
Facility, subject to increase to $40 million at the Parent's option, provided
and to the extent that the aggregate commitments with respect to the SG Cowen
Credit Facility made by the Lenders (other than SG) shall exceed $65.0 million
and (ii) $60.0 million under the Term Loans. Borrowings under the SG Credit
Facility may only be used to acquire all of the capital stock of the Company and
for general corporate and working capital purposes of the Parent, provided that
an amount not to exceed $5.0 million will be available to finance the
acquisition of G&H Technologies, Inc., if such acquisition has not been
consummated prior to the closing date of the SG Cowen Credit Facility, on terms
and conditions satisfactory to the Agent. In addition, if the amount of the
Revolving Credit Facility is increased to up to $40.0 million as described
above, such increase will be available to finance (i) Permitted Acquisitions (as
defined in the SG Cowen Commitment Letter) or (ii) any other acquisitions as
shall be consented to by Lenders holding 50.1% or more of the commitments.
THE EFFECTIVENESS OF THE SG CREDIT FACILITY AND THE INITIAL BORROWINGS
THEREUNDER REMAIN SUBJECT TO THE CONDITIONS PRECEDENT SET FORTH IN THE OFFER TO
PURCHASE, EXCEPT THAT PARAGRAPHS (1) AND (4) THEREOF, APPEARING ON PAGE 32 OF
THE OFFER TO PURCHASE, ARE AMENDED AND RESTATED IN THEIR ENTIRETY TO READ AS
FOLLOWS:
(1) The Parent or the Offeror shall have acquired no less than 90% of the
capital stock of the Company (the "Acquisition") for an aggregate
consideration, which, when taken together with any merger consideration
payable to any stockholders of the Company, does not exceed the sum of
(x) $88,500,000 plus (y) the aggregate amount of cash proceeds received
from the Parent from the issuance of additional common equity to finance
the Acquisition; and the Merger Agreement shall have been duly approved
by the boards of directors of the Offeror and the Company. In addition,
the Agent shall be satisfied that the funds available to the Parent will
be sufficient to consummate the Acquisition.
(4) The Agent shall be satisfied that the Acquisition and the Merger shall
be made in compliance with all applicable laws, statutes, rules and
regulations.
3
<PAGE>
Questions or requests for assistance may be directed to the Information
Agent or to the Dealer Manager at their respective addresses and telephone
numbers set forth below. Additional copies of this Supplement, the Offer to
Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be
obtained from the Information Agent or the Dealer Manager and will be furnished
promptly at the Offeror's expense. A stockholder may also contact its broker,
dealer, commercial bank or trust company for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
D.F. KING & CO., INC.
77 WATER STREET
NEW YORK, NEW YORK 10005
BANKS AND BROKERS CALL COLLECT (212) 269-5500
ALL OTHERS CALL TOLL FREE (800) 848-3094
THE DEALER MANAGER FOR THE OFFER IS:
[LOGO]
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(212) 278-5741
CALL TOLL FREE (877) 227-9431
<PAGE>
Exhibit 99(b)(3)
December 24, 1998
Key Components LLC
Wing Road
Rural Route 1
Post Office Box 167D
Millbrook, New York 12545
Attention: Mr. Alan L. Rivera
Vice President and Secretary
Re: PROPOSED $100,000,000 SENIOR SECURED CREDIT FACILITIES
Ladies and Gentlemen:
You have advised SG Cowen Securities Corporation ("SG COWEN") and
Societe Generale ("SG") that (a) Key Components LLC ("KC LLC") wishes to
purchase all of the capital stock of Valley Forge Corporation ("VALLEY FORGE"),
either directly or through a wholly-owned subsidiary of KC LLC (the
"ACQUISITION"), and (b) KC LLC will require senior financing in an aggregate
principal amount up to $100,000,000 to finance the Acquisition and to refinance
outstanding indebtedness under KC LLC's existing senior secured credit facility.
We are pleased to advise you that (a) SG hereby offers to commit to
provide $95,000,000 of the required senior financing and (b) SG Cowen hereby
offers to commit to use its best efforts to arrange for other banks or financial
institutions to provide the $5,000,000 balance of the Senior Secured Facilities
(provided that, if the aggregate amount of commitments under the Senior Secured
Facilities held by SG (or any of its affiliates) on the Closing Date (as defined
below) is greater than $30,000,000, the aggregate amount of the Senior Secured
Facilities shall not exceed $95,000,000), all on the terms and conditions
described in the Summary of Terms and Conditions for Senior Secured Facilities
attached hereto as Exhibit A (the "TERM SHEET"), including the conditions
precedent set forth therein, and on the terms and conditions set forth herein
and in the letter of even date herewith (the "FEE LETTER") addressed by SG Cowen
to you providing, among other things, for certain fees relating to the senior
financing (such required senior financing is hereinafter referred to as the
"SENIOR SECURED FACILITIES"). SG Cowen reserves the right to syndicate the
Senior Secured Facilities among a group of banks and/or other financial
institutions (including SG, the "LENDERS") selected by SG Cowen in consultation
with you and Millbrook Capital Management, Inc. ("MILLBROOK").
SG Cowen has submitted this letter after reviewing certain historical
financial statements and other information provided to SG Cowen by you, by
Millbrook (your advisors), by Valley Forge and by CIBC Oppenheimer Corp. (Valley
Forge's advisors). SG Cowen shall be entitled to terminate its obligations under
the preceding paragraph to provide the Senior Secured Facilities: (i) if the
terms of the Acquisition are changed in any material respect (including any
material change in the sources and uses of funds for the Acquisition from that
described in Exhibit B hereto), or if any information submitted to SG Cowen
proves to have been inaccurate or incomplete or if any adverse change occurs, or
any additional information is disclosed to or discovered by SG Cowen, that SG
Cowen deems materially adverse in respect of the condition (financial or
otherwise), business, operations, assets, nature of assets or liabilities of KC
LLC, Valley Forge and their respective subsidiaries (taken as a whole); (ii) if
any of the fees provided for by the Fee Letter are not paid when due; (iii) if
SG Cowen is not satisfied that, prior to and during the syndication of the
Senior Secured Facilities, there is no competing offering, placement or
arrangement of any debt securities (other than the Senior Secured Facilities) or
bank financing by or on behalf of KC LLC or any of its subsidiaries; (iv) if a
banking moratorium is declared by federal or New York banking officials; or (v)
if the other conditions set forth or referred to in the Term Sheet are not
fulfilled.
<PAGE>
SG Cowen shall be entitled, after consultation with you, to change
pricing, terms and structure of the Senior Secured Credit Facilities, if SG
Cowen determines that such changes are reasonably necessary to ensure successful
syndication of the Senior Secured Credit Facilities, provided the total amount
of the Senior Secured Credit Facilities remains unchanged.
You hereby indemnify and hold harmless each of SG Cowen, SG and the
other Lenders and each director, officer, employee and affiliate thereof (each,
an "INDEMNIFIED PERSON") from and against any and all losses, claims, damages,
liabilities (or actions or other proceedings commenced or threatened in respect
thereof) and expenses that arise out of, result from or in any way relate to
this letter, the Term Sheet or the Fee Letter, the other transactions
contemplated hereby or the provision or syndication of the Senior Secured
Facilities, and to reimburse each indemnified person, upon its demand, for any
legal or other expenses incurred in connection with investigating, defending or
participating in any such loss, claim, damage, liability or action or other
proceeding (whether or not such indemnified person is a party to any action or
proceeding out of which any such expenses arise), other than any of the
foregoing claimed by any indemnified person to the extent finally judicially
determined to have arisen out of the gross negligence or willful misconduct of
such person. Neither SG Cowen, SG nor any other Lender shall be responsible or
liable to the Company, any of its shareholders or any other person for any
consequential damages that may be alleged as a result of this letter. In
addition, you hereby agree to reimburse SG Cowen and SG from time to time upon
their demand for their reasonable out-of-pocket costs and expenses (including,
without limitation, legal fees and expenses, provided that, in the event that
you are not selected by Valley Forge to proceed to consummate the Acquisition on
the basis outlined in this letter and the Term Sheet, such legal fees (exclusive
of disbursements) shall be reimbursable in an amount not to exceed $18,000)
incurred in connection with the syndication of the Senior Secured Facilities and
the preparation, review, negotiation, execution and delivery of this letter, the
Term Sheet, the Fee Letter, the definitive financing agreements and the other
documents relating to the Senior Secured Facilities. Your obligations under this
paragraph shall survive any termination of this letter and shall be effective
regardless of whether the definitive financing agreements are executed.
You acknowledge that SG Cowen and its affiliates may be providing
financing or other services to other companies in respect of which you or your
affiliates may have conflicting interests. SG Cowen and its affiliates will not
use confidential information obtained from you by virtue of the transactions
contemplated by this letter or their other relationships with you in connection
with the engagements of SG Cowen and its affiliates with other companies, and SG
Cowen and its affiliates will not furnish any such information to such other
companies. You also acknowledge that SG Cowen and its affiliates have no
obligation to use in connection with the transactions contemplated by this
letter, or to furnish to you or any of your affiliates, confidential information
obtained from other companies.
This letter is delivered to you upon the condition that, prior to your
acceptance of this offer, neither the existence of this letter, the Term Sheet
or the Fee Letter nor any of their contents shall be disclosed by you except (i)
as may be compelled to be disclosed in a judicial or administrative proceeding
or as otherwise required by law or (ii) on a confidential and "need to know"
basis, to your directors, officers, employees, advisors and agents.
SG Cowen's offer set forth in this letter will terminate at 5:00 p.m.
(New York City time) on December 26, 1998 unless you accept this letter and the
Fee Letter at or prior to that time by signing and returning to SG Cowen
counterparts of this letter and the Fee Letter. SG Cowen's commitment under this
letter, if accepted by you, will in any event terminate at 5:00 p.m. (New York
City time) on April 15, 1999 (subject to extension by SG Cowen if, in SG Cowen's
reasonable judgment, each of the parties to the Merger Agreement referred to in
the Term Sheet is making a good faith effort to consummate the Merger referred
to in the Term Sheet as soon as practicable) if the Acquisition and the initial
borrowings under the Senior Secured Facilities (the date on which the
Acquisition and such borrowings occur, the "CLOSING DATE") shall not have
occurred on or prior to such date.
This letter and the Fee Letter may be executed in any number of
counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one agreement, and this letter, the Term Sheet and
the Fee Letter may not be assigned by you without the prior written consent of
SG Cowen and may not be amended or any provision hereof or thereof waived or
modified except by an instrument in writing signed by each of the
<PAGE>
parties hereto. No person or entity other than the parties hereto shall have any
rights under or be entitled to rely upon this letter, the Term Sheet or the Fee
Letter. This letter, the Term Sheet and the Fee Letter shall supersede and
replace in their entirety (i) the commitment letter, dated December 2, 1998,
from SG Cowen and SG to KC LLC, (ii) the term sheet attached as "Exhibit A"
thereto and (iii) the fee letter, dated November 10, 1998, from SG Cowen and SG
to KC LLC, respectively. This letter, the Term Sheet and the Fee Letter shall be
governed by and construed in accordance with the law of the State of New York.
We look forward to working with you to complete this transaction.
SG COWEN SECURITIES CORPORATION
By /s/ Brad Yates
----------------------------
Title: Managing Director
SOCIETE GENERALE
By Illegible
----------------------------
Title:
ACCEPTED AND AGREED:
KEY COMPONENTS LLC
By /s/ Clay B. Lifflander
----------------------------
Title: President
Date: December 24, 1998
<PAGE>
EXHIBIT A
KEY COMPONENTS, LLC
PROPOSED SENIOR SECURED FACILITIES
SUMMARY OF TERMS AND CONDITIONS
BORROWER: Key Components, LLC.
ARRANGER: SG Cowen Securities Corporation.
AGENT: Societe Generale.
LENDERS: Societe Generale, acting individually or with or
through one or more of its subsidiaries or
affiliates, including branches or agencies thereof
("SG"), together with a group of financial
institutions (collectively with SG, the "Lenders") to
be selected by the Arranger in consultation with
Millbrook Capital Management, Inc. and the Borrower.
PURPOSE: To finance the acquisition by the Borrower of all of
the capital stock of Valley Forge Corporation ("Valley Forge"), and
for general corporate and working capital purposes, provided that an
amount not to exceed $5,000,000 will be available to finance the
acquisition of G&H Technologies, Inc. (the "G&H Acquisition"), if the
G&H Acquisition has not been consummated prior to the Closing Date, on
terms and conditions satisfactory to the Agent. If the amount of the
Revolver described below is increased to up to $40,000,000 as
described below, such increase will be available to finance (i)
Permitted Acquisitions or (ii) any other acquisition as shall be
consented to by Lenders holding 50.1% or more of the commitments.
FACILITIES: REVOLVER: $35,000,000 senior secured revolving
credit facility (subject to increase to up to
$40,000,000 at the Borrower's option, provided and
to the extent that the aggregate amount of the
commitments with respect to the Facilities made by
the Lenders (other than SG) shall exceed
$65,000,000).
TERM LOAN: $60,000,000 senior secured term loan.
AVAILABILITY: REVOLVER: Draws may be made and standby letters
of credit may be issued under the Revolver at any
time after closing until the Revolving Credit Final
Maturity Date (as defined below). Availability will
be subject to borrowing base equal to the sum of
the following:
(x) 85% of Eligible Accounts Receivable, plus
(y) 60% of Eligible Inventory, plus
(z) 100% of cash on hand and in bank
accounts, and commercial paper rated "AA"
or better in which the Agent has a
perfected first priority security
interest.
Amounts repaid under the Revolver may be reborrowed.
TERM LOAN: The Term Loan will be made in a single drawing at
closing. Amounts
<PAGE>
outstanding under the Term Loan that are repaid may
not be reborrowed.
FINAL MATURITY AND
AMORTIZATION: REVOLVER: The Revolver will have a final maturity
(the "Revolving Credit Final Maturity Date")
of the earlier of six years following
closing and the date on which the Term Loan
is repaid in full. If the amount of the
Revolver is increased to greater than
$35,000,000 as described above, such
increase, if drawn, shall amortize in a
manner to be determined.
TERM LOAN: The Term Loan will have a final maturity of six years
after the closing, and will amortize in equal quarterly
installments with aggregate annual amortization
requirements as follows:
<TABLE>
<CAPTION>
YEAR FOLLOWING CLOSING ANNUAL AGGREGATE AMORTIZATION
---------------------- -----------------------------
<S> <C>
First ....................... $ 5,000,000
Second ...................... $ 6,000,000
Third ....................... $ 10,000,000
Fourth ...................... $ 11,000,000
Fifth ....................... $ 14,000,000
Sixth ....................... $ 14,000,000
</TABLE>
INTEREST RATES: Revolver and
TERM LOAN: LIBOR + 3-1/4%, or ABR, as defined by SG, + 2-1/4%.
Interest margins on loans drawn under the Revolver
and the Term Loan will step-down based on a grid of
leverage ratios to be determined.
COMMITMENT FEES: 0.50% per annum on the undrawn and unutilized amount of the
Revolver.
LETTER OF CREDIT FEES: Equal to the Applicable LIBOR Margin then in effect
for loans outstanding under the Revolver. Additionally, a
Letter of Credit Issuance Fee, equal to the greater of
$500 or 0.25% will be paid to the Letter of Credit Issuer.
DEFAULT RATE: Upon the occurrence of any Default or Event of
Default, the Applicable Margin for each facility will
increase by 2% over the Applicable Margin in effect just
prior to the occurrence of the Default or Event of
Default. If such loan is a LIBOR loan, it shall convert to
a base rate loan at the end of the interest period then in
effect for such loan.
GUARANTEES: The Facilities and drawings thereunder shall be
unconditionally guaranteed (the "Guarantees") by each
existing and hereinafter acquired direct and indirect
subsidiary of the Borrower (including, after the
consummation of the Merger referred to below, Valley Forge
and each of the direct and indirect subsidiaries of Valley
Forge), other than Key Components Finance Corp.
(collectively, the "Guarantors").
SECURITY: The Facilities and drawings thereunder and the
related Guarantees shall be secured by a perfected first
priority security interest in all current and hereinafter
acquired tangible and intangible assets of the Borrower
and the Guarantors and a first priority pledge of all
capital stock of the Guarantors owned directly or
indirectly by the Borrower.
VOLUNTARY REDUCTION OR
<PAGE>
CANCELLATION OF UNUSED
REVOLVER COMMITMENTS: The Borrower may permanently reduce without premium
or penalty all or a portion of the Revolver unused for advances, subject to
one business day's prior notice, provided that any partial reduction shall
be in a minimum amount of $1,000,000 and in multiples of $500,000 in excess
thereof.
OPTIONAL PREPAYMENTS: Voluntary prepayments shall be permitted in whole
or in part without premium or penalty, in a minimum amount of $500,000 and
in multiples of $100,000 in excess thereof (except in the case of Revolving
Loans for which optional prepayments in a minimum amount of $100,000 and in
integral multiples of $50,000 shall be permitted), subject to at least one
but no more than five business days' prior notice and reimbursement of
"break funding" costs and related expenses, if any. The amount of any
optional prepayment shall be applied to prepay the amounts outstanding
under the Term Loan in the inverse order of maturity of the remaining
installments thereof.
MANDATORY PREPAYMENTS: Mandatory Prepayment Events will be customary for
leveraged transactions of this nature, but in any event will include 75% of
Excess Cashflow and 100% of the Net Proceeds from certain assets sales
(unless the proceeds thereof are reinvested in a Permitted Acquisition or
in other assets within 180 days after receipt), certain issuances of
capital stock (unless the proceeds thereof are reinvested in a Permitted
Acquisition or in other assets within 180 days after receipt) and certain
incurrences of additional indebtedness (unless the proceeds thereof are
reinvested in a Permitted Acquisition or in other assets within 180 days
after receipt). Proceeds received in respect of any Mandatory Prepayment
Event shall be applied first to prepay amounts outstanding in respect of
the Term Loan, in the inverse order of the maturity of the installments
thereof, and then to Revolving Loans.
"Permitted Acquisition" means an acquisition of a business so long
as the following conditions are satisfied:
(a) if, after giving effect thereto, the ratio of the
Borrower's consolidated senior indebtedness (other than the
Borrower's 10 1/2% Senior Notes Due 2008 (the "Senior
Notes")) to consolidated EBITDA (calculated on a rolling
four-quarter basis) does not exceed 2.50 to 1, the
aggregate consideration payable in connection therewith
(including indebtedness assumed) does not exceed
$15,000,000.
(b) the Permitted Acquisition is in a permitted line of
business;
(c) no more than three Permitted Acquisitions are made during
any rolling six-month period;
(d) the aggregate consideration payable in connection with
Permitted Acquisitions (including indebtedness assumed)
does not exceed $15,000,000 during any rolling six-month
period;
(e) at least 10 business days prior to the making of any
proposed acquisition, the Borrower shall furnish a
reasonably detailed description of the proposed Permitted
Acquisition, a certified compliance certificate and a
reasonably detailed financial model demonstrating proforma
compliance with all of the conditions precedent to
Permitted Acquisitions and projected compliance with all
covenants for the term of the Facilities, audited
financials of the target (or, if not reasonably available,
certified financials by the target's senior financial
officer), an executed stock or asset purchase agreement (or
such an agreement in execution form) and a "due diligence"
report from a nationally recognized accounting firm (if
such a report is obtained by the Borrower), all of the
above in reasonably acceptable form to the Agent and the
Lenders;
<PAGE>
(f) after giving effect thereto, the Borrower will be in
compliance with the covenants set forth in the Credit
Agreement;
(g) the Agent shall have a perfected first priority security
interest in the capital stock of any entities acquired, all
of the assets of any entities acquired and any assets
acquired; and
(h) the Borrower's borrowing base availability shall be at
least $5,000,000.
CONDITIONS TO EFFECTIVENESS
AND TO INITIAL BORROWING: The effectiveness of the Facilities and the
initial borrowings thereunder shall be subject to conditions precedent that
are usual for facilities and transactions of this type, and to such
additional conditions precedent as may be required by the Lenders,
including but not limited to:
(1) The Borrower (or a wholly-owned subsidiary of the Borrower
("Acquisition Co")) shall have acquired no less than 90% of
the capital stock of Valley Forge (the "Acquisition") for
an aggregate consideration, which, when taken together with
any merger consideration payable to any shareholders of
Valley Forge, does not exceed the sum of (x) $88,500,000
PLUS (y) the aggregate amount of ---- cash proceeds
received by the Borrower from the issuance of additional
common equity to finance the Acquisition; and the agreement
for the merger (the "Merger") of Valley Forge and
Acquisition Co (the "Merger Agreement") shall have been
duly approved by the boards of directors of Acquisition Co
and Valley Forge. In addition, the Agent shall be satisfied
that the funds available to the Borrower will be sufficient
to consummate the Acquisition.
(2) All indebtedness of Valley Forge and its subsidiaries shall
have been paid in full and any liens securing any such
indebtedness shall have been terminated of record.
(3) The form and substance of the Merger Agreement shall be
reasonably satisfactory to the Agent (it being understood
that, except as expressly provided herein, the draft
thereof prepared by Valley Forge and heretofore furnished
to the Arranger is reasonably satisfactory). All conditions
to the Merger set forth in the Merger Agreement shall have
been satisfied. The representations regarding environmental
matters set forth in the Borrower's comments to the Merger
Agreement draft referred to above shall be true and
correct.
(4) The Agent shall be satisfied that the Acquisition and the
Merger shall be made in compliance with all applicable
laws, statutes, rules and regulations.
(5) There shall be no governmental or judicial action, actual
or threatened, that is reasonably likely to restrain,
prevent or impose burdensome conditions on the Acquisition
or the Merger, or that would cause a material adverse
change on the Borrower, any of the Guarantors, Valley Forge
or any of Valley Forge's subsidiaries.
(6) The lease arrangement relating to the facilities of Valley
Forge located at 2655 Corporate Drive, Napa, California,
shall have been modified to provide for the payment of rent
thereunder on terms comparable to those existing prior to
the Merger.
(7) The Agent shall have received a certificate from the Chief
Financial Officers of the Borrower and all Guarantors,
satisfactory in all respects to the Lenders, to the effect
<PAGE>
that, after giving effect to the Acquisition, the Merger
and the making of the Term Loan, the Borrower and the
Guarantors (taken as a whole) will not be insolvent, will
not be rendered insolvent and will not have insufficient
capital with which to engage in their businesses or will
have incurred debts within its ability to pay such debts as
they mature.
(8) There shall not have occurred or become known any material
adverse condition affecting, or any material adverse change
with respect to, the condition (financial or otherwise),
operations, business, assets or liabilities of the
Borrower, Valley Forge and their respective subsidiaries
(taken as a whole), since December 31, 1997.
(9) The Representations and Warranties shall be true and
correct.
(10) No event has occurred which would constitute an Event of
Default.
(11) The Senior Credit Agreement and all documentation with
respect to the Facilities shall be satisfactory to the
Agent, the Lenders and their counsel.
CONDITIONS PRECEDENT
TO SUBSEQUENT
BORROWINGS: Customary in credit agreements of this type including,
without limitation:
(1) Absence of Default or Events of Default;
(2) Accuracy of representations and warranties in all material
respects, including no material adverse change
representation to be made upon each drawing.
REPRESENTATION AND
WARRANTIES: Customary for facilities and transactions of this type.
Representations and warranties that may be required include, but are not
limited to, no Default or Event of Default; maintenance of business
prospects, including absence of material adverse change; accuracy of
financial statements (including proforma financial statements); absence of
undisclosed liabilities; compliance with Federal Reserve Board regulations
(including margin regulations); compliance with laws (including
environmental laws and ERISA); solvency; no conflicts with laws, charter
documents, or agreements; organization, power and good standing; payment of
taxes; ownership of properties; and absence of liens and security
interests; in each case with such materiality and other qualifications as
shall be negotiated.
NON-FINANCIAL
COVENANTS: Customary for facilities and transactions of this type,
including but not limited to: providing financial and other business
information; material compliance with laws; insurance; inspection and
maintenance of books and records and properties; material
compliance with environmental and ERISA laws; conduct of and line of
business; maintenance of existence; limitations on liens, debts, mergers,
investments (including capital expenditures and acquisitions), prepayment
of other debt, purchase and sale of assets, operating lease expenses,
transactions with affiliates, management or advisory fees and modifications
of core documents, in each case with such carve-outs and other exceptions
as shall be negotiated. The Borrower will agree to cause Valley Forge and
Acquisition Co to be duly merged promptly after the Closing Date. The
covenant restricting the payment of management or advisory fees will permit
the Borrower to pay an advisory fee to Millbrook Capital Management Inc. in
connection with the Merger in an amount not to exceed $900,000, provided
that, at the time such fee is paid and after giving effect thereto, (i) no
default shall have occurred and be continuing and (ii) the ratio of
<PAGE>
Funded Debt to EBITDA (for the preceding four-quarter period, and based on
the Borrower's financial statements for such period after giving pro forma
effect to (a) such payment, (b) any indebtedness incurred to finance such
payment, and (c) a $2,200,000 net add-back to EBITDA to reflect net
anticipated cost savings from the elimination of overhead, and anticipated
synergies, in connection with the Acquisition (such add-back to be credited
as follows: for the period ending on December 31, 1998, 100% thereof; for
the period ending on March 31, 1999, 75% thereof; for the period ending on
June 30, 1999, 50% thereof; for the period ending on September 30, 1999,
25% thereof; and thereafter, no such add-back)) shall not exceed 4.9 to 1.
DIVIDENDS AND
OTHER DISTRIBUTIONS: Dividends and other distributions will not be
permitted except as follows:
(a) To the extent necessary to enable the
Borrower's members to pay income taxes
arising out of their membership interests in
the Borrower.
(b) If (after giving effect to such dividend or
other distribution) the ratio of the
Borrower's consolidated senior indebtedness
(other than the Senior Notes) to
consolidated EBITDA (calculated on a rolling
four-quarter basis) is equal to or less than
2.00 to 1, additional distributions in an
aggregate amount not to exceed 25% of Excess
Cash Flow for the prior year (in each case,
including any amounts paid in such year
pursuant to the foregoing clause (b)), so
long as at the time of such distribution and
after giving effect thereto, no default
shall be continuing.
FINANCIAL COVENANTS: Minimum Interest Coverage, minimum Fixed Charge
Coverage and maximum Funded Debt/EBITDA ratios, in each case as shall be
negotiated.
EVENTS OF DEFAULT: Customary for transactions of this type, including (but
not limited to) non-payment, misrepresentation, financial and non-financial
covenant defaults, bankruptcy, ERISA, judgments, change of ownership or
control, cross-default, cross-acceleration and impairment of security; with
respect to certain Events of Default, with notice and cure periods as shall
be mutually agreed and customary.
YIELD PROTECTION AND
INCREASED COSTS: The usual for facilities of this type, including but
not limited to, compensation in respect of redeployment costs, reserve
requirements, taxes (including gross-up provisions for withholding taxes)
and decreased profitability resulting from U.S. or foreign capital adequacy
requirements, guidelines or policies or their interpretation or
application, whether or not having the force of law, and any other
customary yield and increased costs protection deemed appropriate by the
Lenders to provide customary protection for U.S. and non-U.S. banks.
Compensation will be payable by the Borrower upon presentation
by the affected Lender of a notice as to the amounts involved, which will
be conclusive absent manifest error.
ASSIGNMENTS AND
PARTICIPATIONS: Neither the Borrower nor any Guarantor may assign its
rights or obligations in connection with the Senior Secured Facilities
without the prior written consent of all the Lenders. Lenders are permitted
to participate and assign loans, notes and commitments.
Assignments are subject to an administrative fee to
the Agent of $3,500 per occurrence and subject to the
consent of the Borrower and the Agent (such consent
not to be unreasonably withheld). Each assignment
will be in a minimum amount of $5,000,000. Assignees
would assume all the rights and obligations of the
assigning Lender.
<PAGE>
Participations will be without restriction (except
participants shall have no voting rights other than,
to the extent agreed to between such participant and
the applicable Lender, as to matters which require
the vote of 100% of the Lenders) and participants
will have the same benefits as the original syndicate
Lenders with regard to yield protection and increased
costs (subject to limitation of amounts claimed to
the amounts that could have been claimed by the
selling Lender), rights in the collateral and
provision of information on the Borrower.
VOTING: Banks holding 50.1% or more of commitments
for amendments and waivers; 100% for i) reductions in principal
due, the interest rate or fees payable thereon or extensions in
the payments thereof, ii) increases or extensions of term of
commitments, iii) releases of any substantial part of collateral,
or iv) changes in percentage needed to amend or waive.
MISCELLANEOUS: Governing Law and Forum (New York); waiver
of jury trial; customary acquisition finance and environmental
indemnity; payment by the Borrower of all out-pocket expenses of
the Agent, including legal, consultant, due diligence,
syndication and enforcement, filing and other collateral
expenses, and post-closing publicity.
AGENT'S COUNSEL : Mayer, Brown & Platt
This Summary of Terms and Conditions is intended as an outline only and does not
purport to summarize or contain all of the conditions, covenants,
representations, warranties and other provisions that would be contained in the
definitive credit documentation. The Borrower and Millbrook Capital Management
agree that this Summary of Terms and Conditions is for the confidential use of
the Borrower and Millbrook Capital Management and may not be distributed,
disclosed or summarized in any way, in whole or in part, without the prior
written consent of the Arranger. The financing described herein is subject to
definitive documentation satisfactory to the Arranger, the Agent, the Lenders
and their counsel.
<PAGE>
AMENDMENT NO. 1, dated as of December 28, 1998, to the Agreement and
Plan of Merger, dated as of December 2, 1998 (the "Agreement"), by and among Key
Components, LLC, a Delaware limited liability company ("Parent"), KCI
Acquisition Corp., a Delaware corporation ("Purchaser"), and Valley Forge
Corporation, a Delaware corporation (the "Company").
RECITALS
WHEREAS, pursuant to Section 2.10 of the Agreement (terms defined in
the Agreement being used herein as therein defined), all outstanding Stock
Options, whether or not then exercisable or vested, will, subject to the
Company's receipt of any required Option Consents, be canceled, and the holders
thereof shall be entitled to receive from the Company, for each Share subject to
such Stock Option, in settlement and cancellation thereof, an amount in cash
equal to the excess, if any, of the Per Share Merger Consideration over the
exercise price per share of such Stock Option;
WHEREAS, the Company's Amended and Restated 1987 Stock Option Plan (the
"Plan") provides that upon the effective date of a Triggering Event (as defined
in the Plan), any Stock Option or portion thereof not exercised shall terminate,
unless provision is made in connection with the Triggering Event for the
assumption of options theretofore granted, or substitution for such Stock
Options of new options covering stock a successor employer corporation or a
parent or subsidiary corporation thereof, solely at the option of such successor
corporation or parent or subsidiary corporation with appropriate adjustments as
to number and kind of shares and prices; and
WHEREAS, the Parent and the Purchaser wish to make available to certain
holders of Stock Options the right to elect to have substituted for such Stock
Options stock appreciation rights in Key Components, Inc., a New York
corporation ("KCI") and the sole member of Parent granted under the 1998
Long Term Incentive Plan of KCI, as amended, and the Company wishes to
enable such holders to accept such offers;
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
hereby agree as follows:
1. Section 2.10 of the Agreement is hereby amended to read in its
entirety as follows:
2.10 OPTIONS AND OTHER PURCHASE RIGHTS. (a) EXCEPT AS OTHERWISE
PROVIDED IN SECTION 2.10(B), ALL OUTSTANDING OPTIONS AND OTHER RIGHTS
TO ACQUIRE SHARES GRANTED TO EMPLOYEES UNDER ANY STOCK OPTION OR
PURCHASE PLAN, COMMITMENT, PROGRAM OR SIMILAR ARRANGEMENT OF THE
COMPANY (EACH, AS AMENDED, AN "OPTION PLAN" AND, SUCH OPTIONS AND OTHER
RIGHTS, "STOCK OPTIONS"), WHETHER OR NOT THEN EXERCISABLE OR VESTED,
WILL, SUBJECT TO THE COMPANY'S RECEIPT OF ANY REQUIRED CONSENTS
("OPTION CONSENT") OF HOLDERS OF STOCK OPTIONS, BE CANCELED, AND THE
HOLDERS THEREOF SHALL BE ENTITLED TO RECEIVE FROM THE COMPANY, FOR EACH
SHARE SUBJECT TO SUCH STOCK OPTION, IN SETTLEMENT AND CANCELLATION
THEREOF, AN AMOUNT IN CASH EQUAL TO THE EXCESS, IF ANY, OF THE PER
SHARE MERGER
<PAGE>
CONSIDERATION OVER THE EXERCISE PRICE PER SHARE OF SUCH STOCK OPTION,
WHICH AMOUNT SHALL BE PAID BY THE COMPANY AT THE EFFECTIVE TIME;
PROVIDED, THAT WITH RESPECT TO ANY PERSON SUBJECT TO SECTION 16 OF THE
EXCHANGE ACT, ANY SUCH AMOUNT SHALL BE PAID AS SOON AS PRACTICABLE
AFTER THE FIRST DATE PAYMENT CAN BE MADE WITHOUT LIABILITY TO SUCH
PERSON UNDER SECTION 16(b) OF THE EXCHANGE ACT. THE FOREGOING PAYMENTS
SHALL BE SUBJECT TO ALL WITHHOLDING TAX REQUIREMENTS.
(b) NOTWITHSTANDING THE PROVISIONS OF SECTION 2.10(a) HEREOF, PARENT
AND PURCHASER MAY OFFER TO ONE OR MORE HOLDERS OF STOCK OPTIONS THE
RIGHT TO HAVE SUBSTITUTED FOR THE STOCK OPTIONS OF SUCH HOLDERS STOCK
APPRECIATION RIGHTS ("SUBSTITUTE SARs") GRANTED BY KEY COMPONENTS,
INC., A NEW YORK CORPORATION("KCI") AND THE SOLE MEMBER OF PARENT,
GRANTED UNDER THE 1998 LONG TERM INCENTIVE PLAN OF KCI, ON SUCH TERMS
AND CONDITIONS, INCLUDING LIMITATIONS ON THE AGGREGATE AMOUNT OF
SUBSTITUTE SARs TO BE OFFERED AND OVER-ALLOTMENT PROCEDURES, AS KCI
MAY IN ITS SOLE DISCRETION DETERMINE. HOLDERS OF ANY STOCK OPTIONS FOR
WHICH SUBSTITUTE SARs SHALL HAVE BEEN SUBSTITUTED ON OR BEFORE THE
EFFECTIVE TIME SHALL NOT BE ENTITLED TO RECEIVE ANY AMOUNT IN
SETTLEMENT AND CANCELLATION THEREOF PURSUANT TO SECTION 2.10(a), AND
UPON SUCH SUBSTITUTION SUCH STOCK OPTIONS SHALL CEASE TO BE
OUTSTANDING.
(c) THE COMPANY WILL USE REASONABLE EFFORTS TO OBTAIN OPTION CONSENTS
TO THE CANCELLATION OF STOCK OPTIONS IN ACCORDANCE WITH THIS SECTION
2.10. THE COMPANY WILL GIVE ALL HOLDERS OF STOCK OPTIONS THE NOTICE
REQUIRED FOR ALL STOCK OPTIONS THAT ARE NOT SO CANCELED TO TERMINATE
AND CEASE TO BE EXERCISABLE AT THE EFFECTIVE TIME.
2. Except as amended hereby, the Agreement shall remain in full force
and effect.
3. This Amendment No. 1 may be executed in counterparts, each of which
shall be deemed to be an original but all of which together shall be deemed to
constitute one and same instrument.
4. This Amendment No. 1 shall be governed by and construed in
accordance with the internal laws of the State of Delaware, without regard to
applicable principles of conflicts of laws.
<PAGE>
[signature page to Amendment No. 1]
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as
of the date first above written.
VALLEY FORGE CORPORATION
By: /s/ DAVID R. BRINING
------------------------------------------
Name: David R. Brining
Title: President and Chief
Executive Officer
KEY COMPONENTS, LLC
By: /s/ CLAY B. LIFFLANDER
------------------------------------------
Name: Clay B. Lifflander
Title: President
KCI ACQUISITION CORP.
By: /s/ CLAY B. LIFFLANDER
------------------------------------------
Name: Clay B. Lifflander
Title: President
